Pay off mortgage because it FEELS good?
Pay off mortgage because it FEELS good?
There is another thread started by a Boglehead who had paid off his (or her) mortgage. I don't want to hijack the thread, so I'm posting this on its own thread.
First of all, congratulations to the OP, for achieving their goal.
What I'm kind of confused about is the comments of many posters. There are many reasons why paying off a mortgage might be a very good move: better risk-free return than can be achieved any other way, freeing up cash flow, preparing for a possible reduction in income in the future, moving to a more conservative portfolio (since a mortgage can be considered, more or less, a negative bond).
But many of the posts on the thread spoke of how it feels, rather than whether it's financially prudent. Which isn't a big issue--few people would claim that paying off a mortgage is a financially irresponsible move. But many people of a non-Boglehead disposition tend to make impulse purchases (something that many bogleheads would claim is financially irresponsible) for exactly the same reason: it feels great (at least temporarily).
Isn't it better to just look at things objectively from a purely mathematical viewpoint, and let your right brain enjoy a cute video of some puppies?
First of all, congratulations to the OP, for achieving their goal.
What I'm kind of confused about is the comments of many posters. There are many reasons why paying off a mortgage might be a very good move: better risk-free return than can be achieved any other way, freeing up cash flow, preparing for a possible reduction in income in the future, moving to a more conservative portfolio (since a mortgage can be considered, more or less, a negative bond).
But many of the posts on the thread spoke of how it feels, rather than whether it's financially prudent. Which isn't a big issue--few people would claim that paying off a mortgage is a financially irresponsible move. But many people of a non-Boglehead disposition tend to make impulse purchases (something that many bogleheads would claim is financially irresponsible) for exactly the same reason: it feels great (at least temporarily).
Isn't it better to just look at things objectively from a purely mathematical viewpoint, and let your right brain enjoy a cute video of some puppies?
Most of my posts assume no behavioral errors.
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Re: Pay off mortgage because it FEELS good?
Well from an economist's view, one may have more overall utility having less debt even if you end up net not quite as well off as you could be. Most people tend to be risk averse and feel the pain of loss more than the euphoria of gains. So, this is not necessarily irrational.
Re: Pay off mortgage because it FEELS good?
Not everyone has to ability to control their thoughts with such discipline.
Not everyone wants to make every decision in life based on financial considerations.
There are many ways to live life. There are many different goals in life.
I liked it when I paid off my mortgage. I did it because I believe debt enslaves you to the lender to a certain extent. I want my freedom.
Fortunately for me, I paid off my mortgage in 2007 instead of putting it into the market.
I think a lot of people do not have the knowledge and/or ability to make wise financial decisions, and many people who you think should help are really just trying to take your money.
Not everyone wants to make every decision in life based on financial considerations.
There are many ways to live life. There are many different goals in life.
I liked it when I paid off my mortgage. I did it because I believe debt enslaves you to the lender to a certain extent. I want my freedom.
Fortunately for me, I paid off my mortgage in 2007 instead of putting it into the market.
I think a lot of people do not have the knowledge and/or ability to make wise financial decisions, and many people who you think should help are really just trying to take your money.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
Re: Pay off mortgage because it FEELS good?
I paid off my mortgage because I thought it was a good and wise thing to do. Reaching that major goal sure felt good. That's not why I did it though.
High risk does not equal high reward. It equals high risk of no reward.
Re: Pay off mortgage because it FEELS good?
I paid off about half my mortgage last year, but it was purely a mathematical decision. I was far underwater, and to refi from 6.125% down to 3.5%, I needed equity in the home so I paid it down. There was certainly some emotion going on, but the decision was based on numbers.
Re: Pay off mortgage because it FEELS good?
I know that I don't know about the future, so being conservative about debt is my path. As mentioned above, debt is more than just a math calculation. I agree that what suits others may well be different than what suits me.
My parents were young adults during the Great Depression, so I was raised being told to avoid too much debt.
The problem is market returns are not consistently average every year.
Funding a mortgage in retirement drives up your required spending, leaving less flexibility to reduce expenses when portfolio returns are low for several consecutive years. The sequence of returns matter in portfolio survival. I believe that I've reduced my first retirement decade risk (the most important decade for portfolio survival) by having less debt at the start of retirement.
If you leave enough in individual bonds to fund the duration of your mortgage, isn't that nearly equal to paying it off and having the same dollars tied up in your residence? As a retiree, I'm not at risk of needing to move to a better job.
Having less debt while working helped me tolerate my job on some days. I wanted the money for future retirement spending, but could have just retired on less. Wanting the money is an easier life than needing the money.
My parents were young adults during the Great Depression, so I was raised being told to avoid too much debt.
The problem is market returns are not consistently average every year.
Funding a mortgage in retirement drives up your required spending, leaving less flexibility to reduce expenses when portfolio returns are low for several consecutive years. The sequence of returns matter in portfolio survival. I believe that I've reduced my first retirement decade risk (the most important decade for portfolio survival) by having less debt at the start of retirement.
If you leave enough in individual bonds to fund the duration of your mortgage, isn't that nearly equal to paying it off and having the same dollars tied up in your residence? As a retiree, I'm not at risk of needing to move to a better job.
Having less debt while working helped me tolerate my job on some days. I wanted the money for future retirement spending, but could have just retired on less. Wanting the money is an easier life than needing the money.
Re: Pay off mortgage because it FEELS good?
If finances were purely mathematical and logical, we would not have so many discussions about risk tolerances when determining asset allocation or so many disagreements on just how many months one should have in an emergency fund. Emotions and finance are intricately linked.
Re: Pay off mortgage because it FEELS good?
Psychologically, paying off my mortgage was a huge deal. It made me feel very good to be able to do it at a fairly young age, like a reaffirmation that I am on the right fiscal path.
Debt is a useful tool in business, but IMO not so useful in personal finance. It always bothered me that I could make all my payments and even prepayments for yrs and still lose my house if I stopped for some reason.
Now I enjoy walking around my house with a glass of wine saying "I own this badboy."
Debt is a useful tool in business, but IMO not so useful in personal finance. It always bothered me that I could make all my payments and even prepayments for yrs and still lose my house if I stopped for some reason.
Now I enjoy walking around my house with a glass of wine saying "I own this badboy."
Re: Pay off mortgage because it FEELS good?
Refinanced last year at 3.8 I have more than enough to pay it off now but there is no way I would. Paying off the mortgage might feel good to some but leaving the money in the market and getting anywhere near the historical average over the next 20 years will more than pay for up keep and taxes which will feel much better to me. This doesn't even take into account that the mortgage interest is a nice tax deduction(which basically makes the interest rate on the loan lower than 3.8) or inflation. I have found that many people on this board are full of contradictions that often don't make sense. You are willing to bet your retirement on the market but you are afraid you won't get a greater return than the current rate of 3.8(give or take a little) on your mortgage? It is really not that much different than selling at a market low because it "feels good".
Re: Pay off mortgage because it FEELS good?
No. Not unless your overriding goal is to maximize your net worth. For most of us, the money is a means to our goals, not a goal itself. And reaching those goals feels great. Owning a home mortgage free is a major goal for many people.baw703916 wrote:Isn't it better to just look at things objectively from a purely mathematical viewpoint, and let your right brain enjoy a cute video of some puppies?
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Re: Pay off mortgage because it FEELS good?
As others have noted, I think that someone paying off a mortgage because "it feels good" might actually be a more rational decision than it at first appears. If someone has a low risk tolerance, paying off the mortgage may both make that person feel better as well as be a mathematically prudent choice. Even if someone does not run the numbers, just feeling good about paying off debt may mean that someone is making a rational decision for his or her risk tolerance level--but then again it may not.
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Re: Pay off mortgage because it FEELS good?
Oh I don't know... I've actually had several people tell me that they wished they would have paid off their mortgage a few years back when they felt more prosperous, because since then they or their spouse has lost their job, or their salary has been cut, or they've been forced to pay more for health insurance and pension benefits, or their job is generally in jeopardy, and now they can't afford the mortgage they could easily afford just a few years back. And now they can't refinance to a lower rate or longer term because their house is underwater. Problem is when you sign a mortgage contract you tend to think that both you and the economy will continue to prosper as in years past, but that isn't always the case. When you sign for a mortgage you don't anticipate disaster, but in reality it's always lurking.
Maybe people say they pay off their mortgage because it "feels good." What they're really saying is that it sure feels good to wipe out a large amount of risk and uncertainty in their financial and personal lives.
Maybe people say they pay off their mortgage because it "feels good." What they're really saying is that it sure feels good to wipe out a large amount of risk and uncertainty in their financial and personal lives.
Re: Pay off mortgage because it FEELS good?
I agree with the OP that there is widespread emphasis placed on paying off debt.
Nobody would argue that the emotions can be or should be eliminated from our financial decisions.
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To me, the long term goals of saving for retirement and college are just as important as having no debt. Because of a relatively low interest rate on my mortgage and less emotional attachment with the debt free status, I am willing to take the risk of emphasizing saving / investing for the long term.
Nobody would argue that the emotions can be or should be eliminated from our financial decisions.
---
To me, the long term goals of saving for retirement and college are just as important as having no debt. Because of a relatively low interest rate on my mortgage and less emotional attachment with the debt free status, I am willing to take the risk of emphasizing saving / investing for the long term.
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Re: Pay off mortgage because it FEELS good?
No. Ultimately, your goal is what the Declaration of Independence calls "the pursuit of happiness," or what Maslow called "self-actualization," or what Csikszentmihalyi called a "state of flow," or something like that. It doesn't make sense to look at things objectively unless you are certain that for you, personally, your self-actualization is well measured by your net worth.baw703916 wrote:Isn't it better to just look at things objectively from a purely mathematical viewpoint, and let your right brain enjoy a cute video of some puppies?
But there's more to it than that, because I believe that the reason why paying of a mortgage feels good is that, often, your right brain is making an accurate assessment of the risk and fragility of one's personal situation. Denying a role to the right brain in decision-making is just as bad as denying a role to the left brain.
And, finally, you need to be careful because much of the investment industry is based the marketing of somewhat risky things, and therefore there is an institutionalized bias toward the selling of risk, the understatement of risk, and the promotion of techniques for numbing the right brain to risk. Thus, if an advisory firm both sells mortgages and sells investments, there is an obvious reason why they would not want people to use money that could be used to buy investments to pay down a mortgage instead, and an obvious reason why they would bring forth every possible "mathematical" argument against doing it.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Pay off mortgage because it FEELS good?
I guess the answer might be for the same reasons you said "congratulations" in your post. It's a milestone. It's freedom from the threat of foreclosure or from arguing with your apouse about how to pay the mortgage if you lose your job. Or if disability strikes. It means that everything you save from now on is "gravy" - completely yours without anyone able to lay claim to it. It means if you die, at least your spouse and children are free from the debt.
Is it always the best financial decision as far as numbers? Maybe not, but most of the time it is because of the risks involved if your financial situation takes a bad turn. You can tell yourself all you want that you're smarter (and less contradictory) to keep paying a 3.8% mortgage (as one other poster mentioned) until a financial disaster strikes and you can't make the payment. You're taking a risk, even if you don't realize it.
Finally, paying it off gives you options and freedom. How many people chose not to pay off their mortgages and are now underwater and can't even move to a smaller home at this point?
JT
Is it always the best financial decision as far as numbers? Maybe not, but most of the time it is because of the risks involved if your financial situation takes a bad turn. You can tell yourself all you want that you're smarter (and less contradictory) to keep paying a 3.8% mortgage (as one other poster mentioned) until a financial disaster strikes and you can't make the payment. You're taking a risk, even if you don't realize it.
Finally, paying it off gives you options and freedom. How many people chose not to pay off their mortgages and are now underwater and can't even move to a smaller home at this point?
JT
Re: Pay off mortgage because it FEELS good?
In terms of risk, certainly saving and investing money for long term goals has risk.
Let us not ignore the risks of aggressively paying down debt as well (not saving sufficiently for retirement, college, etc or perhaps even emergency fund).
The freedom of having no mortgage debt does not eliminate other necessary costs of living or guarantee a soft landing in the event of financial disaster. Granted, freeing up money from a mortgage payment increases flexibility and freedom AFTER the debt is paid off, but some would favor trying to take advantage of a long time horizon to do this up front.
Let us not ignore the risks of aggressively paying down debt as well (not saving sufficiently for retirement, college, etc or perhaps even emergency fund).
The freedom of having no mortgage debt does not eliminate other necessary costs of living or guarantee a soft landing in the event of financial disaster. Granted, freeing up money from a mortgage payment increases flexibility and freedom AFTER the debt is paid off, but some would favor trying to take advantage of a long time horizon to do this up front.
Re: Pay off mortgage because it FEELS good?
5 years ago I was a debt-free renter who was very happy with my finances. Friends, family and peers were all commenting things such as "I can't believe your wasting your money on rent". I had enough money in the bank to put 20% down, furnish a new place and still have some liquid emergency funds left over so I went ahead and purchased a nice new townhome. Ironically I bought about a year before the biggest housing collapse in history!
From the minute I got my first mortgage statement I no longer felt good about my finances. While I still had a net worth of $300K or so, I now had a $185K in debt! It has felt like a burden around my neck ever since. It bothers me so much emotionally that I am putting every spare penny toward the mortgage balance each month despite a relatively low interest rate. I am currently on track to pay off my original 15 year mortgage in August of this year (5.5 years after buying). My mood about my finances increases each month as I see the light at the end of the tunnel and my "debt" trending toward zero. Once this is paid off, I will never borrow money for anything the rest of my life (even at zero percent). It is much more valuable for me to be able to state that I am "debt free" than to argue about whether my money is making more invested in the market than what I am paying in interest. I alreayd have most of my 401k funds "at risk" in the market so why put more eggs in that basket? The peace of mind that I had prior to the mortgage was priceless. I look forward to having that feeling back in August!!!
From the minute I got my first mortgage statement I no longer felt good about my finances. While I still had a net worth of $300K or so, I now had a $185K in debt! It has felt like a burden around my neck ever since. It bothers me so much emotionally that I am putting every spare penny toward the mortgage balance each month despite a relatively low interest rate. I am currently on track to pay off my original 15 year mortgage in August of this year (5.5 years after buying). My mood about my finances increases each month as I see the light at the end of the tunnel and my "debt" trending toward zero. Once this is paid off, I will never borrow money for anything the rest of my life (even at zero percent). It is much more valuable for me to be able to state that I am "debt free" than to argue about whether my money is making more invested in the market than what I am paying in interest. I alreayd have most of my 401k funds "at risk" in the market so why put more eggs in that basket? The peace of mind that I had prior to the mortgage was priceless. I look forward to having that feeling back in August!!!
Re: Pay off mortgage because it FEELS good?
I like the concept of the imputed rental income that one accrues from owning a home. You have to live somewhere, so owning a home allows you to live there nearly rent free (less property taxes, upkeep, etc.).
If you have a mortgage your imputed "income" is offset by the mortgage interest, and presumably you had to pay income taxes on the source of those mortgage payments. Paying off the mortgage allows one to require less taxable income and therefore pay lower taxes (or work less!)
If you have a mortgage your imputed "income" is offset by the mortgage interest, and presumably you had to pay income taxes on the source of those mortgage payments. Paying off the mortgage allows one to require less taxable income and therefore pay lower taxes (or work less!)
Re: Pay off mortgage because it FEELS good?
Do you have a mathmatical model you'd like to propose? I'd be curious as to how you've accounted for optionality, liquidity, earnings risk and borrower's utility.baw703916 wrote:. . .
Isn't it better to just look at things objectively from a purely mathematical viewpoint, and let your right brain enjoy a cute video of some puppies?
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Re: Pay off mortgage because it FEELS good?
We are about to have our first child. We max out our tax advantaged retirement savings, etc, but I would personally rather save the money left over each month for child stuff than for paying extra on our 4% 30 yr mortgage. We can always make a big lump sum mortgage payment later if we happen to be in that position, but it might be harder to re-borrow the already paid down principle.
Re: Pay off mortgage because it FEELS good?
I understand the concept but I have a problem with the "nearly rent free" comment. When my current townhome is paid off I will still have the following montly expenses: $500/month in property taxes, $150/month condo fees, $200/month in upkeep (estimated). So I will still be paying $850/month for a place that is paid off that would look like "rent" or wasted money to others.Dinero wrote:I like the concept of the imputed rental income that one accrues from owning a home. You have to live somewhere, so owning a home allows you to live there nearly rent free (less property taxes, upkeep, etc.).
If you have a mortgage your imputed "income" is offset by the mortgage interest, and presumably you had to pay income taxes on the source of those mortgage payments. Paying off the mortgage allows one to require less taxable income and therefore pay lower taxes (or work less!)
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Re: Pay off mortgage because it FEELS good?
I personally don't "feel" it. A mortgage is just another financial area in my life. I think there are two major reasons:
1. I rented for many years before buying, so a monthly payment is normal. I no more worry about paying the mortgage than I do the electric bill.
2. I live in a part of the country with moderate real-estate prices. I paid $98k for my house in 1999. The burden of mortgage service is so small compared to salary and portfolio that whether it is there or not isn't a big deal. The "check" each month is generally smaller than that to pay the credit card monthly statement.
One disadvantage of a small mortgage is that it gets to be difficult to refinance. I have mentioned elsewhere that I am looking to pay off the remainder and take out a Penfed 5-year HEL at 1.99%. that would reduce the rate by over half, although also shave a couple years off the duration.
Brian
1. I rented for many years before buying, so a monthly payment is normal. I no more worry about paying the mortgage than I do the electric bill.
2. I live in a part of the country with moderate real-estate prices. I paid $98k for my house in 1999. The burden of mortgage service is so small compared to salary and portfolio that whether it is there or not isn't a big deal. The "check" each month is generally smaller than that to pay the credit card monthly statement.
One disadvantage of a small mortgage is that it gets to be difficult to refinance. I have mentioned elsewhere that I am looking to pay off the remainder and take out a Penfed 5-year HEL at 1.99%. that would reduce the rate by over half, although also shave a couple years off the duration.
Brian
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Re: Pay off mortgage because it FEELS good?
I have absolutely no regrets about paying off the mortgage as early as we could. It was a great feeling to be shed of the debt. I've never carried credit card debt, always paying in full each month. I've never bought a car on time. I don't like to owe anything to anybody, at least not if I can avoid it.
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Re: Pay off mortgage because it FEELS good?
Yes. A resounding yes!
Re: Pay off mortgage because it FEELS good?
On the face of it (and if there were a pure mathematical viewpoint) you are right -- but the reality is that very few people look it at from a truly mathematical perspective.baw703916 wrote:Isn't it better to just look at things objectively from a purely mathematical viewpoint, and let your right brain enjoy a cute video of some puppies?
Even in this forum, you will regularly see people dangerously framing the decision in a specious mathematical manner. For example, it is commonly matter-of-factly stated as a sound mathematical conclusion that someone should keep his mortgage because he can earn more in stocks, without regard to the essential considerations of how much risk the individual desired to take prior to the mortgage, and whether the presence of the mortgage changed that. Seemingly the thought (or better put non-thought) is that you take on more risk because the mortgage allows you to, without even questioning why you weren't taking on more risk all along if that was appropriate for you. Nothing purely mathematical about that -- in a way it's worse than "feeling" because it has a ring of truth, and many people never see the falsity.
Re: Pay off mortgage because it FEELS good?
I paid off my mortgage as a step towards becoming debt free so that I could invest more money so that I could retire early so that I could do with my available time what I choose to do
Life is good getting better
Life is good getting better
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: Pay off mortgage because it FEELS good?
Why can't they move if that is what they want to do? What did they do with the funds they might have used to pay off their mortgages? Aren't those funds still available to them?bottlecap wrote: Finally, paying it off gives you options and freedom. How many people chose not to pay off their mortgages and are now underwater and can't even move to a smaller home at this point?
JT
Re: Pay off mortgage because it FEELS good?
Paying off mortgage also simplify our life a little.
One less thing to track every month.
And one less entry on schedule A to worry about during tax time.
One less thing to track every month.
And one less entry on schedule A to worry about during tax time.
Re: Pay off mortgage because it FEELS good?
I followed the same path with the same goal in mind. I'm very pleased with the results.Toons wrote:I paid off my mortgage as a step towards becoming debt free so that I could invest more money so that I could retire early so that I could do with my available time what I choose to do
Life is good getting better
Jerry
"I was born with nothing and I have most of it left."
Re: Pay off mortgage because it FEELS good?
Their funds were at risk in the market and perhaps have gone down. If their funds were in cash, granted, they can pay off and move, but they've lost to inflation, so that's not a mathematical win, either.Petunia wrote:Why can't they move if that is what they want to do? What did they do with the funds they might have used to pay off their mortgages? Aren't those funds still available to them?bottlecap wrote: Finally, paying it off gives you options and freedom. How many people chose not to pay off their mortgages and are now underwater and can't even move to a smaller home at this point?
JT
JT
Re: Pay off mortgage because it FEELS good?
Wow, this thread has attracted a lot more response than I'd anticipated!
To clarify a few points:
-My congratulations to the OP of the other thread was an acknowledgement that, when one has set a goal, achieving that goal is always an accomplishment. The time to ask the question of what should be an appropriate goal should be beforehand, not after the fact. I categorically salute anyone who achieves a goal which they set for themselves.
-Bogleheads having a certain temperamental makeup, their feelings are likely to lead them to save a substantial proportion of their earnings, avoid excessive debt, and not take excessive financial risks. But this temperament is probably in the minority. There are many out there whose emotions cause them to do things which are obviously counterproductive, from a financial perspective. If your emotions will never mislead you, then why is an IPS necessary?
Brad
To clarify a few points:
-My congratulations to the OP of the other thread was an acknowledgement that, when one has set a goal, achieving that goal is always an accomplishment. The time to ask the question of what should be an appropriate goal should be beforehand, not after the fact. I categorically salute anyone who achieves a goal which they set for themselves.
-Bogleheads having a certain temperamental makeup, their feelings are likely to lead them to save a substantial proportion of their earnings, avoid excessive debt, and not take excessive financial risks. But this temperament is probably in the minority. There are many out there whose emotions cause them to do things which are obviously counterproductive, from a financial perspective. If your emotions will never mislead you, then why is an IPS necessary?
epilnk wrote:No. Not unless your overriding goal is to maximize your net worth. For most of us, the money is a means to our goals, not a goal itself. And reaching those goals feels great. Owning a home mortgage free is a major goal for many people.baw703916 wrote:Isn't it better to just look at things objectively from a purely mathematical viewpoint, and let your right brain enjoy a cute video of some puppies?
My financial goal is to never run out of money, come what may. Assuming one's net worth is a few orders of magnitude smaller than Mark Zuckerberg's (assuming he diversifies some of his net worth out of Facebook stock), then within the range of net worth achievable in the short run, that is equivalent to maximizing net worth. (I face some limitations as to what types of financially bad things I am able to insure myself against).nisiprius wrote: Ultimately, your goal is what the Declaration of Independence calls "the pursuit of happiness," or what Maslow called "self-actualization," or what Csikszentmihalyi called a "state of flow," or something like that. It doesn't make sense to look at things objectively unless you are certain that for you, personally, your self-actualization is well measured by your net worth.
No, I don't have such a model, and the reason is the decision has been very straightforward in my case. A couple years ago, I paid off my mortgage and put the balance on my HELOC (a reduction from 4.75% to 3.25%, at the cost of taking on interest rate risk--which hasn't shown up yet). Currently the risk free return I'm able to achieve is the return of the TSP G fund (about 1.6%), so even after factoring in the tax benefit of the HELOC, it makes sense to pay off the remaining balance I have on the HELOC. The risk and variability of returns of equities will tend to push things more to the side of paying off the mortgage on a risk-adjusted basis--but it's already a no-brainer for me to pay off the mortgage.Lumpr wrote:Do you have a mathmatical model you'd like to propose? I'd be curious as to how you've accounted for optionality, liquidity, earnings risk and borrower's utility.
Brad
Most of my posts assume no behavioral errors.
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Re: Pay off mortgage because it FEELS good?
I think that you mentioned a point that makes this very difficult for apples to apples discussion and that's the tax benefit issue. We were never able to itemize and declare the mortgage interest. So to us, there was no subsidy to having it. It's a different set of circumstances for each person, so the formula and outcome change case to case - not to mention that I just didn't want to owe any bank money for my home.
Re: Pay off mortgage because it FEELS good?
I suppose folks who worked long and hard to pay off a mortgage should be proud and FEEL good about it. But some others where the mortgage wasn't a big deal and the mortgage payment was made with auto-billpay so they never even paid attention to it, I suppose they might think, "What's the big deal?"
Let me propose an example. Suppose you are 30 years old, no debts, you rent, having essentially nothing saved in your retirement accounts, and just received an inheritance of $300,000. Do you buy a home for about $250,000, furnish it, and stay debt-free and FEEL good about no mortgage. Or do you get a mortgage?
Let me propose an example. Suppose you are 30 years old, no debts, you rent, having essentially nothing saved in your retirement accounts, and just received an inheritance of $300,000. Do you buy a home for about $250,000, furnish it, and stay debt-free and FEEL good about no mortgage. Or do you get a mortgage?
Re: Pay off mortgage because it FEELS good?
livesoft wrote:I suppose folks who worked long and hard to pay off a mortgage should be proud and FEEL good about it. But some others where the mortgage wasn't a big deal and the mortgage payment was made with auto-billpay so they never even paid attention to it, I suppose they might think, "What's the big deal?"
Let me propose an example. Suppose you are 30 years old, no debts, you rent, having essentially nothing saved in your retirement accounts, and just received an inheritance of $300,000. Do you buy a home for about $250,000, furnish it, and stay debt-free and FEEL good about no mortgage. Or do you get a mortgage?
Here is what I would do,,buy something for half that price...probably less since I was single.Furnish it sparingly over time with money I was earning at my current job.
And feel Ecstatic about having a paid off mortgage and approx.175k in the bank,and the rest of it invested in stocks and bonds working for me.
.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: Pay off mortgage because it FEELS good?
The way Dave Ramsey answers this question when a caller asks it is "Would you borrow money at 4% , to put it in the stock market?". Most people of course answer "No", to which he then replies that is what your doing if you not paying off your mortgage when your capable of doing so. The arguement is even more clear when those funds are invested in CD's, Money Markets or some other low interest bearing account that is sure to pay less than the mortgage interest rate.
Re: Pay off mortgage because it FEELS good?
The example was meant to convey that one had to use up all the windfall if they wanted to not have a mortgage when they bought the house. I suppose I could add an explicit condition such as "No home, condo, or other abode was available for purchase within a 500 mile radius of your job for less than $250,000" or something like that to the example.
I do know that folks in Manhattan could buy a home in Shirley, NY for under $40,000 and commute to Manhattan if they wanted to. But why would they want to?
I do know that folks in Manhattan could buy a home in Shirley, NY for under $40,000 and commute to Manhattan if they wanted to. But why would they want to?
Re: Pay off mortgage because it FEELS good?
At these interest rates it is a pretty easy question. Take the mortgage invest the money over the next 30 years till you are 60 and enjoy the spread. Historical market return of 10% - 4% mortgage interest equals a 6% profit over 30 years! Do the math, it quite a bit of money. If the market returns less than 4% over the next 30 years most people would never be able to retire. People are saying that it is good in case they lose their job? If you lose your job and it takes you longer than your emergency fund to find a job you are going to be taking a chance on losing the house by not paying the taxes plus not having a mortgage won't put food on the table. If you had the money invested plus your emergency fund you would have a lot more liquid assets at your disposal. It's your money, I am not trying to judge anybody else, I have just have yet to see a rational reason why paying off the mortgage at these interest rates makes any sense. Almost everybody on this board is or should be trusting a lot more money than their mortgage value to the market in order to fund retirement.livesoft wrote:I suppose folks who worked long and hard to pay off a mortgage should be proud and FEEL good about it. But some others where the mortgage wasn't a big deal and the mortgage payment was made with auto-billpay so they never even paid attention to it, I suppose they might think, "What's the big deal?"
Let me propose an example. Suppose you are 30 years old, no debts, you rent, having essentially nothing saved in your retirement accounts, and just received an inheritance of $300,000. Do you buy a home for about $250,000, furnish it, and stay debt-free and FEEL good about no mortgage. Or do you get a mortgage?
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Re: Pay off mortgage because it FEELS good?
Lots of good replies here but the one above and this one by ResNullius....Toons wrote:I paid off my mortgage as a step towards becoming debt free so that I could invest more money so that I could retire early so that I could do with my available time what I choose to do
Life is good getting better
are my favorites.ResNullius wrote: I have absolutely no regrets about paying off the mortgage as early as we could. It was a great feeling to be shed of the debt. I've never carried credit card debt, always paying in full each month. I've never bought a car on time. I don't like to owe anything to anybody, at least not if I can avoid it.
Having a 1-year ARM on my co-op back in the 1990s, each year presented me with a new set of variables in my decision to pay down (or pay off) my mortgage. The interest rate crept up every year after a refi in 1992 took it down 6 points. I did not want to drain my other investments too much although they were rising, both from my rising salary and the beginning of the stock market boom. But as I paid down parts of the mortgage (my best financial move, based on my calculations), I soon realized that it was my approaching the state's standard deduction (making the deductible interest less valuable overall) that paying the mortgage off altogether would not cost me as much in forgone deductible interest. That was tipping point in my deciding to pay off what was left, making me totally debt-free .
With the mortgage fully paid off, I was able to quickly replenish the funds because one biweekly paycheck now covered all of my monthly expenses. This made it easy for me to switch to working part-time 3 years after that, and 7 years after that I was able to retire early and have been that way for the last 3.5 years. :)
Re: Pay off mortgage because it FEELS good?
+1 Bravo!scrabbler1 wrote:Lots of good replies here but the one above and this one by ResNullius....Toons wrote:I paid off my mortgage as a step towards becoming debt free so that I could invest more money so that I could retire early so that I could do with my available time what I choose to do
Life is good getting better
are my favorites.ResNullius wrote: I have absolutely no regrets about paying off the mortgage as early as we could. It was a great feeling to be shed of the debt. I've never carried credit card debt, always paying in full each month. I've never bought a car on time. I don't like to owe anything to anybody, at least not if I can avoid it.
Having a 1-year ARM on my co-op back in the 1990s, each year presented me with a new set of variables in my decision to pay down (or pay off) my mortgage. The interest rate crept up every year after a refi in 1992 took it down 6 points. I did not want to drain my other investments too much although they were rising, both from my rising salary and the beginning of the stock market boom. But as I paid down parts of the mortgage (my best financial move, based on my calculations), I soon realized that it was my approaching the state's standard deduction (making the deductible interest less valuable overall) that paying the mortgage off altogether would not cost me as much in forgone deductible interest. That was tipping point in my deciding to pay off what was left, making me totally debt-free .
With the mortgage fully paid off, I was able to quickly replenish the funds because one biweekly paycheck now covered all of my monthly expenses. This made it easy for me to switch to working part-time 3 years after that, and 7 years after that I was able to retire early and have been that way for the last 3.5 years. :)
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: Pay off mortgage because it FEELS good?
I'll be interested in where you're going with this. But I sure hope you don't say the mortgage frees up $250K in cash for the homebuyer (rather than a home, $250K in cash, a $250K mortgage, and a series of initial and ongoing costs associated with the mortgage). This notion of feeling you have "free" cash is the ultimate in making mortgage-related decisions based on how you "FEEL".livesoft wrote:Let me propose an example. Suppose you are 30 years old, no debts, you rent, having essentially nothing saved in your retirement accounts, and just received an inheritance of $300,000. Do you buy a home for about $250,000, furnish it, and stay debt-free and FEEL good about no mortgage. Or do you get a mortgage?
Re: Pay off mortgage because it FEELS good?
I don't think anyone would suggest paying off their mortgage early ahead of funding all their tax advantaged retirement investment accounts first. Money used by most to pay mortgage off early is after emergency fund savings, monthly bills, etc. Decisions for my wife and myself were more typical of should we buy a new car this year, or drive our old ones which are working fine a couple more years and put the extra money toward mortgage principal. The decision was basically there is no comparable guaranteed risk free 4% investment today, even for Bogleheads. When the market dumped a few years ago, however, we stopped our extra principal payments and put money into our taxable investment accounts. We sold those index funds when the Dow hit 13,500 and used the cap gains to put the final nail in the mortgage. When I had a mortgage, my basic thinking was Dow <12,000, invest all extra funds. Dow >13,000, all extra funds go to mortgage principal. Between 12,000 to 13,000 every month was a decision and with the volatility the last few years, most extra funds went to mortgage.
Now that we have no mortgage and no debt, I am not sure what to do when the Dow hits 13,500 again. Maybe buy a new car? It really does feel good to finally be in this position, a lot of my discipline came from reading posts on this site. Thanks all you Bogleheads, I appreciate it.
Now that we have no mortgage and no debt, I am not sure what to do when the Dow hits 13,500 again. Maybe buy a new car? It really does feel good to finally be in this position, a lot of my discipline came from reading posts on this site. Thanks all you Bogleheads, I appreciate it.
Re: Pay off mortgage because it FEELS good?
Regarding the oft discussed topic of paying off your mortgage - there is no right or wrong answer. Its your choice.
In my case, I am recently retired and could pay off my mortgage, but I choose not too. I woud rather take advantage of the tax deduction and the ability to earn more than the 3.25% I pay on the loan and invest. If I want to FEEL GOOD, I go to Graeter's and get two dips of Chocalate Chip Cookie Dough and that seems to do the trick.
Have a good holiday!
In my case, I am recently retired and could pay off my mortgage, but I choose not too. I woud rather take advantage of the tax deduction and the ability to earn more than the 3.25% I pay on the loan and invest. If I want to FEEL GOOD, I go to Graeter's and get two dips of Chocalate Chip Cookie Dough and that seems to do the trick.
Have a good holiday!
"Earn All You Can; Give All You Can; Save All You Can." .... John Wesley
- Mrs.Feeley
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Re: Pay off mortgage because it FEELS good?
Exactly. Vanguard's Total Stock Market Index Fund, admiral shares, has delivered an average 3.11 annual return since inception in 2000.skyvue wrote:The way Dave Ramsey answers this question when a caller asks it is "Would you borrow money at 4% , to put it in the stock market?". Most people of course answer "No", to which he then replies that is what your doing if you not paying off your mortgage when your capable of doing so. The arguement is even more clear when those funds are invested in CD's, Money Markets or some other low interest bearing account that is sure to pay less than the mortgage interest rate.
If you're lucky enough to have a 3.25 percent mortgage--and remember most people do not have one that low, and you also figure in fed capital gains (15 percent this year, probably 20 percent next year and beyond) and state capital gains (nearly 7 percent for our state, higher in many states) that means you're going to have to get a better return than 4 percent in the market every year. Are you willing to bet your house that the market will provide that? Because that's what you're doing. You're making a gamble on the market based on the value of one of your major assets, your house, the roof over the heads of you and your family.
Why not pay off the mortgage then invest the equivalent of your old mortgage payment every month?
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Re: Pay off mortgage because it FEELS good?
The numbers look a bit better if you take into consideration the mortgage interest deduction.Mrs.Feeley wrote:Exactly. Vanguard's Total Stock Market Index Fund, admiral shares, has delivered an average 3.11 annual return since inception in 2000.skyvue wrote:The way Dave Ramsey answers this question when a caller asks it is "Would you borrow money at 4% , to put it in the stock market?". Most people of course answer "No", to which he then replies that is what your doing if you not paying off your mortgage when your capable of doing so. The arguement is even more clear when those funds are invested in CD's, Money Markets or some other low interest bearing account that is sure to pay less than the mortgage interest rate.
If you're lucky enough to have a 3.25 percent mortgage--and remember most people do not have one that low, and you also figure in fed capital gains (15 percent this year, probably 20 percent next year and beyond) and state capital gains (nearly 7 percent for our state, higher in many states) that means you're going to have to get a better return than 4 percent in the market every year. Are you willing to bet your house that the market will provide that? Because that's what you're doing. You're making a gamble on the market based on the value of one of your major assets, your house, the roof over the heads of you and your family.
Why not pay off the mortgage then invest the equivalent of your old mortgage payment every month?
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Re: Pay off mortgage because it FEELS good?
Not true for everyone. We always had small mortgages and the interest payments never got us above the standard deduction.ProfessorX wrote:The numbers look a bit better if you take into consideration the mortgage interest deduction.Mrs.Feeley wrote:Exactly. Vanguard's Total Stock Market Index Fund, admiral shares, has delivered an average 3.11 annual return since inception in 2000.skyvue wrote:The way Dave Ramsey answers this question when a caller asks it is "Would you borrow money at 4% , to put it in the stock market?". Most people of course answer "No", to which he then replies that is what your doing if you not paying off your mortgage when your capable of doing so. The arguement is even more clear when those funds are invested in CD's, Money Markets or some other low interest bearing account that is sure to pay less than the mortgage interest rate.
If you're lucky enough to have a 3.25 percent mortgage--and remember most people do not have one that low, and you also figure in fed capital gains (15 percent this year, probably 20 percent next year and beyond) and state capital gains (nearly 7 percent for our state, higher in many states) that means you're going to have to get a better return than 4 percent in the market every year. Are you willing to bet your house that the market will provide that? Because that's what you're doing. You're making a gamble on the market based on the value of one of your major assets, your house, the roof over the heads of you and your family.
Why not pay off the mortgage then invest the equivalent of your old mortgage payment every month?
Re: Pay off mortgage because it FEELS good?
The last ten years is a pretty small sample to go by. You're gambling your retirement in the market right? You're gambling your livelihood in the market after you retire and are depending on the market to provide your income to live right? If the market returns anywhere near 4% over the next 30 years most people can forget about retirement. If the market returns anywhere near 4% over the next 30 years then anybody who has recently retired is in big trouble, unless your last name is Buffett. You are not willing to risk getting a greater than 4% return on your mortgage over the next 30 years but you are going to retire someday and take a chance on being 10 to 15 years into retirement and have a depression crush your savings? Retirement is a much larger risk than investing a 4% loan from the bank but most people cant wait to take that risk. Most people here worry about a .4 % cost difference to invest their money but scoff at a potential 6% return difference on their mortgage and the market? Irrational to say the least.Mrs.Feeley wrote:Exactly. Vanguard's Total Stock Market Index Fund, admiral shares, has delivered an average 3.11 annual return since inception in 2000.skyvue wrote:The way Dave Ramsey answers this question when a caller asks it is "Would you borrow money at 4% , to put it in the stock market?". Most people of course answer "No", to which he then replies that is what your doing if you not paying off your mortgage when your capable of doing so. The arguement is even more clear when those funds are invested in CD's, Money Markets or some other low interest bearing account that is sure to pay less than the mortgage interest rate.
If you're lucky enough to have a 3.25 percent mortgage--and remember most people do not have one that low, and you also figure in fed capital gains (15 percent this year, probably 20 percent next year and beyond) and state capital gains (nearly 7 percent for our state, higher in many states) that means you're going to have to get a better return than 4 percent in the market every year. Are you willing to bet your house that the market will provide that? Because that's what you're doing. You're making a gamble on the market based on the value of one of your major assets, your house, the roof over the heads of you and your family.
Why not pay off the mortgage then invest the equivalent of your old mortgage payment every month?
Re: Pay off mortgage because it FEELS good?
I was trying to propose a scenario where if the person bought a home outright, they would not feel the supposed euphoria that folks are expressing in this and similar threads. But if they chose to get a mortgage instead, they would also not feel any differently, unless they felt some lessening of anxiety because they could now fund some retirement accounts and have a bigger emergency fund.Harold wrote:I'll be interested in where you're going with this. But I sure hope you don't say the mortgage frees up $250K in cash for the homebuyer (rather than a home, $250K in cash, a $250K mortgage, and a series of initial and ongoing costs associated with the mortgage). This notion of feeling you have "free" cash is the ultimate in making mortgage-related decisions based on how you "FEEL".livesoft wrote:Let me propose an example. Suppose you are 30 years old, no debts, you rent, having essentially nothing saved in your retirement accounts, and just received an inheritance of $300,000. Do you buy a home for about $250,000, furnish it, and stay debt-free and FEEL good about no mortgage. Or do you get a mortgage?
I hypothesize that folks who feel euphoria are those folks who worked hard to pay off their mortgage or the mortgage payment was a big chunk of their monthly expenses. Folks who don't have feelings of euphoria did not or do not work hard to pay off their mortgage --- it just happens or will happen in the normal course of events.
As I reported before, I paid off our mortgage. I felt sick to my stomach about it for a while, but I am over that now. This thread does make me want to investigate how I can get a mortgage again so that I can invest the money.
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Re: Pay off mortgage because it FEELS good?
Everyone has different risk tolerances so I wouldn't quite call it irrational. Some crucial concepts to remember are that the stock market is volatile and that returns are only expected and not guaranteed. Placing one's own money within the market is one thing; using leverage to put money in the market is another. Everyone has different risk tolerances and to call someone irrational who has a different risk tolerance comes across as a bit condescending.John2525 wrote: The last ten years is a pretty small sample to go by. You're gambling your retirement in the market right? You're gambling your livelihood in the market after you retire and are depending on the market to provide your income to live right? If the market returns anywhere near 4% over the next 30 years most people can forget about retirement. If the market returns anywhere near 4% over the next 30 years then anybody who has recently retired is in big trouble, unless your last name is Buffett. You are not willing to risk getting a greater than 4% return on your mortgage over the next 30 years but you are going to retire someday and take a chance on being 10 to 15 years into retirement and have a depression crush your savings? Retirement is a much larger risk than investing a 4% loan from the bank but most people cant wait to take that risk. Most people here worry about a .4 % cost difference to invest their money but scoff at a potential 6% return difference on their mortgage and the market? Irrational to say the least.
Sounds like you would be a prime candidate for a home equity loan. PenFed has one for 1.99% and I'm sure there are other low rates to be found as well.livesoft wrote: As I reported before, I paid off our mortgage. I felt sick to my stomach about it for a while, but I am over that now. This thread does make me want to investigate how I can get a mortgage again so that I can invest the money.
Re: Pay off mortgage because it FEELS good?
There is overhead, hassle and complexity of a mortgage that is a true cost to having one. It is very difficult to quantify some of these "costs" but they are real and very much a cost that should be factored in to the keep vs pay off decision on a mortgage.
1. unethical mortgage servicers. I dealt enough with my final mortgage servicer to realize they were not by any stretch of the imagination operating in my best interest. A company I was very, very glad to be rid of.
2. Verifying payments are applied properly.
3. Verifying payments are being applied per the amortization schedule of the loan.
4. Ensuring interest paid is being reported correctly during the year and at year end, for tax calculations.
5. Why not Refi? Extremely unethical mortgage originators and escrow companies. Worse than the mortgage servicer. I now believe it is not possible for the average home owner to get a fair deal on a mortgage. The deck is too stacked in favor of the corporate entities involved. There are "less bad" options, but no good ones.
Bottomline - paying off the mortgage reduces complexity - eliminating all those issues above. I don't know exactly what the value of simplicity is - but it was definitely worth eliminating the headaches outlined above by paying off the mortgage.
1. unethical mortgage servicers. I dealt enough with my final mortgage servicer to realize they were not by any stretch of the imagination operating in my best interest. A company I was very, very glad to be rid of.
2. Verifying payments are applied properly.
3. Verifying payments are being applied per the amortization schedule of the loan.
4. Ensuring interest paid is being reported correctly during the year and at year end, for tax calculations.
5. Why not Refi? Extremely unethical mortgage originators and escrow companies. Worse than the mortgage servicer. I now believe it is not possible for the average home owner to get a fair deal on a mortgage. The deck is too stacked in favor of the corporate entities involved. There are "less bad" options, but no good ones.
Bottomline - paying off the mortgage reduces complexity - eliminating all those issues above. I don't know exactly what the value of simplicity is - but it was definitely worth eliminating the headaches outlined above by paying off the mortgage.
Leonard |
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Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? |
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If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
Re: Pay off mortgage because it FEELS good?
Maximizing net worth is YOUR goal. Not mine, not the OPs. Of course most of us have many competing goals, and none of us actually have running out of money as a goal. At least I assume none of us do. I prefer to try for the highest net worth that is consistent with meeting my other goals, which is not the same thing as trying for the maximum net worth. I'm not arguing against the mortgage - after all, I'm holding onto mine and have made the case for keeping it myself. I'm simply saying that I do not agree that it would be better to choose a different goal and look for emotional satisfaction elsewhere.baw703916 wrote:My financial goal is to never run out of money, come what may. Assuming one's net worth is a few orders of magnitude smaller than Mark Zuckerberg's (assuming he diversifies some of his net worth out of Facebook stock), then within the range of net worth achievable in the short run, that is equivalent to maximizing net worth. (I face some limitations as to what types of financially bad things I am able to insure myself against).
Brad