Anyone regret paying off mortgage early?

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VictoriaF
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Re: Anyone regret paying off mortgage early?

Post by VictoriaF »

twinsdad wrote:
Harold wrote:
twinsdad wrote:the beer in my backyard does taste just a little bit better since I own it not the bank.
You mean all the rest room graffiti I've read is wrong? You really do own beer instead of renting it?
The beer I rent, the backyard I own.
If you rent beer you can't share it. :sharebeer

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555
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Re: Anyone regret paying off mortgage early?

Post by 555 »

twinsdad wrote:"Finished paying off mortgage this year, age 48. Here is one negative I have found, although I am not sure it is a "regret," in fact I consider it a "relative" negative. I no longer have the desire to work harder, extra hours, and keep trying to make more money and increase my income like I did when I had debt and a goal. Having a large debt is good motivation to work hard and increase your income. "
Uh, you could save for retirement, maybe even early retirement.
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c00kie
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Re: Anyone regret paying off mortgage early?

Post by c00kie »

No regrets at all.

My husband and I paid off our mortgage 12 years ago. Once we paid off the mortgage, we had the ability to live on one income if necessary. I loved the feeling of security. Now that we are retired, I feel even more secure owning our home outright.
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Re: Anyone regret paying off mortgage early?

Post by teacher »

We bought our current home in 1979 when mortgage interest was 13.5%. When rates dropped to 9.5%, we jumped at the chance to refinance to a 15 year loan. That cut our payments a great deal, so we put all money saved by refinancing in our investments every month. And when the home was paid off in full, we put all mortgage money in our investments for retirement. It was a great financial decision because we did not fritter away money saved by refinancing, and we have more financial security years later.

We thought about moving into a larger, newer, fancier house before the crash because we had saved enough to do so, but we thank our lucky stars we decided to stay put. Since we decided to stay where we are, we have been tarting up our digs; upgrading and refurbishing, and we are enjoying what we own outright.
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grabiner
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Re: Anyone regret paying off mortgage early?

Post by grabiner »

jojay wrote:If the interest on the mortgage qualifies other items that make you eligblie for Iteming Deductions on your 1040, you may want to keep the mortgage. It seems counter intuitive but do the math and see if it makes sense.
This doesn't work out; the tax benefit from paying off the mortgage is greater if you can still itemize deductions even after paying it off.

Suppose you are in a 25% bracket, and you have a $100,000 mortgage at 4% interest, so you have $4000 in mortgage interest.

If your other itemized deductions are at least $11,900 (married filing jointly), then you will continue to itemize deductions even after paying off the mortgage, so you owe an extra $1000 in taxes if you pay off the mortgage.

If your other itemized deductions are $7900 or less, then you take the standard deduction even with the mortgage, so there is no tax cost to paying off the mortgage.

If your other itemized deductions are $9900, then you will take the standard deduction of $11,900 instead of the itemized deduction of $13,900 after paying off the mortgage, so you owe an extra $500 in taxes. Effectively, you only deducted half your mortgage interest, so the tax cost of paying off the mortgage was halved. (However, if you can only pay off half the mortgage, you still lose the $500 tax benefit; once you have paid off the first half, paying off the second half becomes more valuable.)
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scouter
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Re: Anyone regret paying off mortgage early?

Post by scouter »

jojay wrote:I don't believe you'll find anyone who regrets paying off the mortgage early. Who could regret getting rid of a financial obligation. I'd never regret pating off any debt early.

Is it wise is the question. From several financial perspectives, paying off a mortgage early may not be the wisest move. If your interset rate is 3.25% and you are in a 30% tax bracket, paying off your mortgage early is the equivalent of getting a 2.25% return. If you can do better with your money elsewhere ( tough these days ) you should not pay off the loan early as you are giving up opportunity.

What it costs you to pay off the mortgage also has to be accounted for. If you pay it off by wiping out your emergency fund and then an emergency arises, you'll incur some grief - it will be less because the nmortgage is paid off but you get the point.

If the interest on the mortgage qualifies other items that make you eligblie for Iteming Deductions on your 1040, you may want to keep the mortgage. It seems counter intuitive but do the math and see if it makes sense.

Once paid, any principal stays paid. Paying off the mortgage early ensures that your principal is eliminated whereas investment returns can fluctuate.

Psychologically ( if that is the right term ) speaking, paying off your mortgage early frees your income up for lots of other opportunities - just don't waste that money. Think about it:
1. No monthly payments
2. No requirement to commit to earn income to come up with those payments. Having had different mortgages over the years, I've arrived at the sense that the concept of mortgages is really kind of enslaving. Yes, it makes the American home ownership dream come true but it is an albatross. For years, decisions about work and lifestyle are always made with the element of "needing to cover the mortgage" shadowing many decisions.
3. You have complete equity.
4. If you are the financial manager in your life, if you incur injury or death, your family members don''t have to worry about covering a mortgage.

Looking at some of these other posts, clearly people that have paid off their mortgages seem thrilled. I can understand that. What a great feeling. Just make sure that feeling is also smart fiancially.
I'd have to disagree about your tax savings calculation of a mortgage. (3.25% in a 30% bracket = 2.25%) Standard deduction for a couple filing jointly is currently $11,900, so you really only get to deduct mortgage interest above that amount. The first $11,900 you still get to deduct even if your mortgage has been payed off. (or even if you've never had one)
itypefast
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Re: Anyone regret paying off mortgage early?

Post by itypefast »

scouter wrote: I'd have to disagree about your tax savings calculation of a mortgage. (3.25% in a 30% bracket = 2.25%) Standard deduction for a couple filing jointly is currently $11,900, so you really only get to deduct mortgage interest above that amount. The first $11,900 you still get to deduct even if your mortgage has been payed off. (or even if you've never had one)
You are absolutely correct. The fact you even had to say what you said shows the other side is merely conducting thought experiments without actually having researched it.

First, who in the world is in the 30% tax bracket? I made well over $200,000 last year and my effective tax rate after mortgage interest and three kids was about 14% according to Turbo Tax.

Second, you can't deduct taxes from one side of the equation and not the other. You can't say that paying off a 3.25% mortgage only benefits you 2.25% and then say that yielding 8% yields 8%. Either you're investing in a tax-free investment like municipal bonds or you're paying taxes. If the former, you're probably yielding substantially closer to 1% than 8%.

The bottom line is to get more yield than the 3.00% interest I am paying on my PenFed 5/5 ARM, I had to change my asset allocation to take on more risk than I was willing to take. My desired asset allocation had a good amount of money in cash. So instead of keeping that in cash I'm paying off my mortgage. If your asset allocation has you 100% in equities or 40% in long-term bonds, best of luck to you.
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grabiner
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Re: Anyone regret paying off mortgage early?

Post by grabiner »

itypefast wrote:
scouter wrote: I'd have to disagree about your tax savings calculation of a mortgage. (3.25% in a 30% bracket = 2.25%) Standard deduction for a couple filing jointly is currently $11,900, so you really only get to deduct mortgage interest above that amount. The first $11,900 you still get to deduct even if your mortgage has been payed off. (or even if you've never had one)
You are absolutely correct. The fact you even had to say what you said shows the other side is merely conducting thought experiments without actually having researched it.

First, who in the world is in the 30% tax bracket? I made well over $200,000 last year and my effective tax rate after mortgage interest and three kids was about 14% according to Turbo Tax.
What matters for the decision to pay down your mortgage is the marginal tax rate, not the average. You are probably in a 28% tax bracket, so if you pay down your mortgage and lose $1000 in deductions, you will pay $280 more in tax; your effective interest rate on your 3.00% mortgage is 2.16%, or less if you can deduct state taxes as well.
Second, you can't deduct taxes from one side of the equation and not the other. You can't say that paying off a 3.25% mortgage only benefits you 2.25% and then say that yielding 8% yields 8%. Either you're investing in a tax-free investment like municipal bonds or you're paying taxes.
For many investors, the choice is paying down a mortgage or maxing out a 401(k) and IRA, so that you can ignore taxes on the alternative investment. If your alternative investment would be taxable, then municipal bonds are the correct comparison.
The bottom line is to get more yield than the 3.00% interest I am paying on my PenFed 5/5 ARM, I had to change my asset allocation to take on more risk than I was willing to take.
And this is the correct decision (assuming a taxable investment), because your 5/5 ARM has a five-year duration. If you pay down the mortgage, you will get a benefit in five years (from lower payments when the loan resets). Thus the fair comparison is to five-year bonds, and Intermediate-Term Tax-Exempt Admiral shares are yielding only 1.88% with a bit of risk, while paying down the mortgage earns you 2.16% risk-free.
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fidelio
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Re: Anyone regret paying off mortgage early?

Post by fidelio »

well ... i actually had come close to paying off my home mortgage, but re-fied and used the cash to buy a rental property. after a lot of remodelling, the rental is leased and i've been able to retire based partly on that income stream. taxes are the key, as the rental is depreciating and generates none, and virtually all of the current mortgage is a write-off, as i do have "income" in retirement (pension, ira's, s.s. next year, etc.). so, that's a different scenario.
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OAG
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Re: Anyone regret paying off mortgage early?

Post by OAG »

SnapShots wrote:
OAG wrote:We paid off our last mortgage in 1986 when we sold the last home with a mortgage (one we assumed from the previous owner). We have purchased five homes since that time (one at a time never owned more than one at a time with the exception of a second home we owned for a parent who since is deceased). We do currently maintain a "no cost to open and maintain" HELOC that we use from time to time to pay cash for other large ticket items. Usually the balance on the HELOC is at $0 and the interest rate while variable has stayed at a pretty low rate (FFR -.5%) and has provided an "all cash position" on negotiating to purchase large ticket items. We never regretted paying off the final mortgage in 1986 (which was at 9%).
Could you explain the HELOC and how your obtained this? And the FFR? I'm new on this site and don't understand this acronym. Thanks!
HELOC was taken out in 2007 with Pentagon Federal Credit Union. It is a 15 year HELOC with a current 2.75% Interest Rate and requires only payment of interest monthly until maturity in 2022). FFR=Federal Funds Rate (Actually I should have said the PRIME RATE (which is 3.5% currently) but I could not think of the term and identify it correctly (Senior Moment)).
OAG=Old Army Guy. Retired CW4 USA (US Army) in 1979 21 years of service @ 38.
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LH
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Re: Anyone regret paying off mortgage early?

Post by LH »

Paying off mortgage now, would feel great. It's buy high sell low behavior. Debt is about as cheap as it will get now, so the human wiring says to avoid it now especially, as it does not feel right.


The chance of feeling regret later, is quite low because humans do not operate that way emotionally.

Market drops capitulate = feel good/better. Debt becomes cheap, avoid debt.

I feel the same, I have regret I have not paid it off, emotionally might be worth it so I can stop fighting the urge :)

Financial Feelings are a funny thing.
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Re: Anyone regret paying off mortgage early?

Post by investorjunkie »

I'll be so bold and raise my hand to state paying your mortgage off right now is a foolish idea.

Primary Reasons:
- Too much NW into one asset (that's illiquid to boot!)
- Your primary residence is not an investment
- In the long haul will get better returns elsewhere

I go into details on my blog why:

[Commercial link removed by admin LadyGeek]

I find it very interesting Bogleheads are all about asset allocation, yet many recommend paying off their mortgage. For many, owning a home outright will make their home more than 1/3 of their total net worth (I could even assume 1/2 in some cases). Would Bogleheads put that much into one asset class that also is very illiquid?

I can understand if you are retired and doing it because of cash flow. My article does make a few assumptions. So getting a 30 year fixed mortgage isn't for everyone as I see quite a few retired folks here.

Though for someone my age (41) emotionally it might be very satisfying, but is foolish. For a 30 year term (even chances in 15 years is very great) you'll come out way ahead at current rates. It's a very easy calculated risk I am willing to take. Owning my house outright, now that's risky.
Last edited by investorjunkie on Mon Jun 04, 2012 9:04 am, edited 3 times in total.
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Re: Anyone regret paying off mortgage early?

Post by investorjunkie »

steve r wrote: What we do know is that the TIPS market and the bond market is signaling deflation, not inflation. The much less liquid gold market is signalling the opposite.
The gold market is expecting another round of QE from the FED, hence the disconnect. Though as a side note if the 10 year is at 1.5% and the purpose of QE is to lower rates for long term bonds, how much lower would rates go if another round of QE occurred?
It stikes me that a hedge strategy may be best. If you pay off the house, be more aggressive with your equity portfolio. I you use mortage money to invest, be conservative and have bonds.
I'm glad someone sees this more intelligently than making the statement "it makes me sleep well at night".
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Re: Anyone regret paying off mortgage early?

Post by investorjunkie »

stan1 wrote: Borrowing money to invest in a business you have a large degree of control over and which produces income is a different situation.
Yes and no. You cannot control the marketplace for your product/service, nor the economy. Taking out a loan for a business is not without risk. In fact if you look at all the different types of loans, small business loans are the riskest (right up there with student loans). We would agree interest rate is somewhat a good measure of risk? There is a reason why you can get a 30 year fixed mortgage on a home for 3.75% now, and why current business loans go for 9%,12%, or higher and tied to LIBOR or some other measure of inflation.
Last edited by investorjunkie on Mon Jun 04, 2012 7:16 am, edited 2 times in total.
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Re: Anyone regret paying off mortgage early?

Post by investorjunkie »

teacher wrote:We bought our current home in 1979 when mortgage interest was 13.5%. When rates dropped to 9.5%, we jumped at the chance to refinance to a 15 year loan.
This is a prefect point in time when individuals should have been paying off their mortgage as fast as possible. Why? because how easy is it to find long term (10 - 15 years) returns higher than 13.5% or 9.5%?

I'm making the point that a mortgage is like a long term bond. By prepaying you get a guaranteed rate of return. Right now 3.75% on a 30 year fixed (2.5%ish with tax deduction). Debt prepayment should be looked at like any other investment, can you get a better return elsewhere in the next 10-15+ years? I would say without question yes!
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Re: Anyone regret paying off mortgage early?

Post by momar »

itypefast wrote:
scouter wrote: I'd have to disagree about your tax savings calculation of a mortgage. (3.25% in a 30% bracket = 2.25%) Standard deduction for a couple filing jointly is currently $11,900, so you really only get to deduct mortgage interest above that amount. The first $11,900 you still get to deduct even if your mortgage has been payed off. (or even if you've never had one)
You are absolutely correct. The fact you even had to say what you said shows the other side is merely conducting thought experiments without actually having researched it.
Except when you have other deductions that you aren't itemizing without the mortgage.
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Re: Anyone regret paying off mortgage early?

Post by cheese_breath »

We took out our 30 year 11.75% mortgage in 1980 just before rates really skyrocketed. After the rates began declining we refinanced twice to reduce our rate (down to 9.00%, then to 6.75%) but kept making the same monthly payment as the original mortgage. This enabled us to pay off the house 8 1/2 years earlier than we would have with the original mortgage. Very happy we did. No regrets. So does this qualify as paying off the mortgage early?
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Re: Anyone regret paying off mortgage early?

Post by zotty »

Yes. Not in a "wow I really screwed up" way. Not in "this was the worst idea in the world" kind of way. We find a way to spend a lot of the new cash flow. Our mortgage was small, so the regret is also small.
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Re: Anyone regret paying off mortgage early?

Post by adave »

Sounds morbid, but one main reason I paid it off was to keep finances simple for my wife if I died suddenly. My wife doesn't really get involved with our finances so keeping this simple is important. This is the same reason I like to keep all our investment money at Vanguard.
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Re: Anyone regret paying off mortgage early?

Post by Info_Hound »

Last week I sold my home in Maryland and used the profits to buy a new home in Colorado. It was a cash sale for the new home.

I don't think I've had time to process the 'no mortgage' feeling yet but do like the feeling that the roof over my head is secure from financial potholes that life sometimes hits us with. Today I am retiring and have no debt.

In looking long and hard whether to become mortgage free or not with the new home, it was hard to find a down side. The only thing that needed some thought was whether or not there were enough assets other than the home value that could be liquidated if a need arose that was beyond my emergency stash. Once I determined this, it was a go for a cash sale.
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Noobvestor
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Re: Anyone regret paying off mortgage early?

Post by Noobvestor »

Anyone out there who DID regret it, or knows someone who does, based on buying a property that was somehow distressed (e.g. a condo in a building that went under)?
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Re: Anyone regret paying off mortgage early?

Post by 3CT_Paddler »

investorjunkie wrote:I'll be so bold and raise my hand to state paying your mortgage off right now is a foolish idea.

Primary Reasons:
- Too much NW into one asset (that's illiquid to boot!)
- Your primary residence is not an investment
- In the long haul will get better returns elsewhere

I go into details on my blog why:

http://investorjunkie.com/13979/fool-prepay-mortgage/

I find it very interesting Bogleheads are all about asset allocation, yet many recommend paying off their mortgage. For many, owning a home outright will make their home more than 1/3 of their total net worth (I could even assume 1/2 in some cases). Would Bogleheads put that much into one asset class that also is very illiquid?

I can understand if you are retired and doing it because of cash flow. My article does make a few assumptions. So getting a 30 year fixed mortgage isn't for everyone as I see quite a few retired folks here.

Though for someone my age (41) emotionally it might be very satisfying, but is foolish. For a 30 year term (even chances in 15 years is very great) you'll come out way ahead at current rates. It's a very easy calculated risk I am willing to take. Owning my house outright, now that's risky.
It is also a story of personal risk. One 40 year old may be okay with a 50:50 stock/bond allocation and for another person it may be closer to 80:20 stocks/bonds. Neither answer is right, its about what the individual investor is willing to risk, not about maximizing return at all costs.

Also consider that for many people who purchased in the last 10 years, the equity is not there for refinancing, so they are stuck at rates north of 6%. Anybody have another place to get a risk free return north of 1 or 2% right now?
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Re: Anyone regret paying off mortgage early?

Post by Dynastar »

Re: taxes, this super-low rate environment makes the mortgage even less of a tax benifit for a lot of people then it otherwise would be. Between the 2.875% rate on my PenFed 5/5 and the modest balance on the loan (I live in fly-over country) I'll pay less then $4,500 in interest this year. With other deductables I'll only make it to $10k or so, making the mortgage intrest deduction worthless. When the G-Fund is yeilding 1.375% I'll happily take the 2.875%.
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Re: Anyone regret paying off mortgage early?

Post by Grasshopper »

In 2003 I found myself with about 200K in REIT's, I forget what they were paying, but it was less than my mortgage interest. So I say hey why not pay the mortgage off with our REIT investment, than autoinvest the $1700 a month into a nice low cost MF. Did it was still able itemize, found FI in 2006 retired at 54, sold the house, paid cash for the new one, and lived happily ever after. :moneybag
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Re: Anyone regret paying off mortgage early?

Post by touchdowntodd »

i havent yet completed the task, but making near double payments and 4 years 1 month left at this current rate ..

i debated a lot over the idea, but the bext investment i can make for myself is peace of mind and being debt free.. the wife and i intend to never move until we are at retirement age and even then not until we can no longer take care of the home, then we will sell for condo living .. but our house will be paid off before my 39th birthday, and just after her 33rd ... not bad for a guy that 5 years ago didnt have any investments and didnt own a house (had owned in the past but had sold to break even) especially not bad considering our monthly income is only roughly 1.5 times what we pay towards our mortgage, and we still manage to put away approx 30% of income to retirement, 10% to Efund, and built up a 12 month E fund prior to going for added principal on the house ..

no one in my family has ever owned outright with the exception of my grandfather, and i always looked up to him.. i have 2 siblings both of which have yet to even look for a home and are still living with my father .. my father is 65 and has 20+ years left on his mortgage..

for me, paying the mortgage off is part of the plan to ensure i CAN retire .. i wont need a bigger house even with a kid or two (planning just 1), and my area is safe.. having come from a rough area, if it gets worse ill still be fine LOL, and the wife comes from an even worse area, so we are here for the long run as our my nieghbors (hopefully).. :sharebeer

congrats to all that have paid them off. .. having never made 6 figures or close as a family, i congratulate you and look forward to my family joining your ranks.. while investments are good, for some of us no debt helps the mind more :mrgreen:
tryin to do this right... thanks guys
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Re: Anyone regret paying off mortgage early?

Post by investorjunkie »

3CT_Paddler wrote: Anybody have another place to get a risk free return north of 1 or 2% right now?
This is recency bias. What matters isn't now, what matters is 5+ years from now if we are doing long term investing.

There are plenty of dividend stocks that generate +3% and dividend aristocrats, just to give one specific example.

There is no such thing as a "risk free" investment at least in terms getting you money back in real dollars. Sure you can put your money into a 10 year treasury, but you really think you'll do better than the rate of inflation?
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Re: Anyone regret paying off mortgage early?

Post by 3CT_Paddler »

investorjunkie wrote:
3CT_Paddler wrote: Anybody have another place to get a risk free return north of 1 or 2% right now?
This is recency bias. What matters isn't now, what matters is 5+ years from now if we are doing long term investing.

There are plenty of dividend stocks that generate +3% and dividend aristocrats, just to give one specific example.

There is no such thing as a "risk free" investment at least in terms getting you money back in real dollars. Sure you can put your money into a 10 year treasury, but you really think you'll do better than the rate of inflation?
It isn't recency bias... it is what the current market rates for similar assets happen to be. Yes you will potentially do better in risky assets... but you could also potentially lose a big chunk of that money.

Paying down a 6% mortgage (lets say 5% if you include mortgage deduction), is risk free or guaranteed. You must look at similar savings vehicles when making the comparison... that would include FDIC insured CD's, shorter term treasuries, FDIC insured savings accounts. Right now you can receive a return of 1.7% on a 5yr FDIC insured CD. I think paying down the mortgage looks more and more tempting...

As far as the "risk free" comment, yes there is no real risk free investment. Call it the "closest thing to risk free offered on the market"... if FDIC accounts do not hold to their promises, you can be sure that we have just experienced financial Armageddon and nothing you hold (outside of guns/ammo/food) is worth much.
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Re: Anyone regret paying off mortgage early?

Post by khh »

No regrets. It makes me sleep well at night!
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Re: Anyone regret paying off mortgage early?

Post by moneywise3 »

YES, I regret paying off my mortgage!! Had to move unexpectedly within months of paying off. When I was making extra payments, I could have locked in 6% on CDs for 5-10 years instead. My interest was 5.125% on the mortgage. When I got the funds after sale of home, the CD rates dropped to 2%.
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Re: Anyone regret paying off mortgage early?

Post by investorjunkie »

3CT_Paddler wrote: Paying down a 6% mortgage (lets say 5% if you include mortgage deduction), is risk free or guaranteed.
We aren't talking about at that rate. We are talking about the current 3-4% rate. At that rate yes it starts making more sense to pre-pay a mortgage. The chances to beat that return gets much harder.
You must look at similar savings vehicles when making the comparison... that would include FDIC insured CD's, shorter term treasuries, FDIC insured savings accounts. Right now you can receive a return of 1.7% on a 5yr FDIC insured CD. I think paying down the mortgage looks more and more tempting...
If you are considering your mortgage as part of your bond portfolio, yes. If you were going to invest that money in stocks, no.
As far as the "risk free" comment, yes there is no real risk free investment. Call it the "closest thing to risk free offered on the market"... if FDIC accounts do not hold to their promises, you can be sure that we have just experienced financial Armageddon and nothing you hold (outside of guns/ammo/food) is worth much.
Inflation isn't a risk? At the current rates, we don't need armageddon for you to lose money in real terms. Sure you are FDIC insured but your money is worth less in real dollars.
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Midwest_Investor
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Re: Anyone regret paying off mortgage early?

Post by Midwest_Investor »

Yes, I regret it. I didn't realize that my banker was sharing the risk with me should the housing market go down. My house has lost value. By paying off my mortgage, I am unable to walk away from this lost value. Had I kept the mortgage, I could walk away, and give it all back to the bank, while living in the house without paying the mortgage for six months to a year before the bank took things over, while I played around with a short sell arrangement or some such thing.

By not being able to walk away, I am out more than $100,000 that I would otherwise have in hand by being able to walk away.

I am so dumb for doing what I thought was the correct thing to do: paying it off. :(
ProfessorX
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Re: Anyone regret paying off mortgage early?

Post by ProfessorX »

Midwest_Investor wrote:Yes, I regret it. I didn't realize that my banker was sharing the risk with me should the housing market go down. My house has lost value. By paying off my mortgage, I am unable to walk away from this lost value. Had I kept the mortgage, I could walk away, and give it all back to the bank, while living in the house without paying the mortgage for six months to a year before the bank took things over, while I played around with a short sell arrangement or some such thing.

By not being able to walk away, I am out more than $100,000 that I would otherwise have in hand by being able to walk away.

I am so dumb for doing what I thought was the correct thing to do: paying it off. :(

Are u sure that you don't live in a recourse state? (in which case you could not just walk away)
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Random Musings
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Re: Anyone regret paying off mortgage early?

Post by Random Musings »

Paid off three years ago. No regrets.

Was it the best way to go? Perhaps, perhaps not - but as a function of NW it's not going to be too material.

RM
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Ketawa
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Re: Anyone regret paying off mortgage early?

Post by Ketawa »

investorjunkie wrote:I'll be so bold and raise my hand to state paying your mortgage off right now is a foolish idea.

Primary Reasons:
- Too much NW into one asset (that's illiquid to boot!)
- Your primary residence is not an investment

...

I find it very interesting Bogleheads are all about asset allocation, yet many recommend paying off their mortgage. For many, owning a home outright will make their home more than 1/3 of their total net worth (I could even assume 1/2 in some cases). Would Bogleheads put that much into one asset class that also is very illiquid?
IMO this is an argument against home ownership, not prepaying a mortgage. If you desire home ownership, then choosing against prepayment for these reasons is a serious error to make. By prepaying your mortgage, you are not increasing your exposure to an illiquid asset. Regardless of how quickly you pay off your mortgage, you are already exposed to that risk. Just consider which is more risky - a mortgage with 0% down or 20% down? Your home acts as collateral to secure your mortgage, and nobody owns it but you.

My only caveat would be that it decreases the "advantage" of a strategic default.
Last edited by Ketawa on Mon Jun 04, 2012 3:33 pm, edited 1 time in total.
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Re: Anyone regret paying off mortgage early?

Post by 3CT_Paddler »

investorjunkie wrote:
3CT_Paddler wrote: Paying down a 6% mortgage (lets say 5% if you include mortgage deduction), is risk free or guaranteed.
We aren't talking about at that rate. We are talking about the current 3-4% rate. At that rate yes it starts making more sense to pre-pay a mortgage. The chances to beat that return gets much harder.
So your stance is if you are at a higher rate due to lack of ability to refinance (say the spread is 2% or more over current market rates), then paying down the mortgage is not such a bad idea? It would also allow you to get back the 20% equity you need to refinance, and have a lower payment going forward.
investorjunkie wrote:
3CT_Paddler wrote: You must look at similar savings vehicles when making the comparison... that would include FDIC insured CD's, shorter term treasuries, FDIC insured savings accounts. Right now you can receive a return of 1.7% on a 5yr FDIC insured CD. I think paying down the mortgage looks more and more tempting...
If you are considering your mortgage as part of your bond portfolio, yes. If you were going to invest that money in stocks, no.
Its not about what you might invest in... its about what are comparable rates of returns for an investment vehicle with a similar amount of risk. If I prepay a mortgage, I get a guaranteed return equal to my mortgage interest rate (minus deduction credits). Similar risk free assets for US investors would be some sort of short term Treasury, Ibonds or an FDIC insured CD. And because those are either very short term (Treasury), inflation indexed (Ibonds) or one you can withdraw early with little if any penalty (CD), the risk of unexpected inflation hurting those investments is minimal.
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steve r
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Re: Anyone regret paying off mortgage early?

Post by steve r »

investorjunkie wrote:
3CT_Paddler wrote: Anybody have another place to get a risk free return north of 1 or 2% right now?
This is recency bias. What matters isn't now, what matters is 5+ years from now if we are doing long term investing.

There are plenty of dividend stocks that generate +3% and dividend aristocrats, just to give one specific example.

There is no such thing as a "risk free" investment at least in terms getting you money back in real dollars. Sure you can put your money into a 10 year treasury, but you really think you'll do better than the rate of inflation?
I am not sure who has the recency bias. Your website compares paying a mortgage off to getting 8 percent returns .... no brainer. the initial post, comparing paying off mortgage quickly to 6 percent returns. Again, a no-brainer.

Sure, stocks have given such returns over the past several decades ... but the recency argument suggest you believe they will continue to do so. The recency argument suggests bond yield will go back up. They never did in Japan ... which had its stock market just hit a 28 year low. (was once the worlds second largest economy). 28 year low!

Big money investors are suggesting otherwise when they buy 30 year bonds at 2.5% or lend out to homeowners at 3.5% (but this involves additional risk). Higher returns are gotten only by taking additional risk. Even stocks with 3% dividends have more risk.

I keep coming back to this point, the firms that make loans can do lots of things with there money but think making loans at low rates (ridiculously low, in my view). If markets are efficient, then the risk/return of making such loans is viewed favorably.

Plus, any non-aggressive equity / bond split ... say 65 / 35 means 35 percent of your investments are in bonds, with government bonds being the lion share of TBM. On that portion of your money, you will be borrowing at 3.5 percent or so, to get something well south of that on a third of your investments.

Perhaps I or someone should start a separate thread on what are reasonable investment returns for the next 3 decades.

--

To my way of thinking .. the tax argument is the best reason not to pay off the mortgage if you have room in tax deferred accounts. The higher returns elsewhere goes against my belief in efficient markets.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
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Re: Anyone regret paying off mortgage early?

Post by 3CT_Paddler »

ProfessorX wrote:
Midwest_Investor wrote:Yes, I regret it. I didn't realize that my banker was sharing the risk with me should the housing market go down. My house has lost value. By paying off my mortgage, I am unable to walk away from this lost value. Had I kept the mortgage, I could walk away, and give it all back to the bank, while living in the house without paying the mortgage for six months to a year before the bank took things over, while I played around with a short sell arrangement or some such thing.

By not being able to walk away, I am out more than $100,000 that I would otherwise have in hand by being able to walk away.

I am so dumb for doing what I thought was the correct thing to do: paying it off. :(

Are u sure that you don't live in a recourse state? (in which case you could not just walk away)
Good point... I don't see many Midwestern states in the non-recourse list.
2wolves
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Re: Anyone regret paying off mortgage early?

Post by 2wolves »

You'd probably have more people who regret it in an environment where interest rates were rising. They haven't done that in a very long time. With rising rates, people might look back and say, "I wish I hadn't paid off that low interest rate that is 5 percent less than the money I could be earning risk free now."
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Re: Anyone regret paying off mortgage early?

Post by sschullo »

What a relief! Not having a mortgage payment is as freeing as a dairy herd feels that first day of spring, running around the pasture, gorging on virgin grass after being cooped up all winter. You’d feel better too after a winter diet of stale dry hay and corn silage.
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Re: Anyone regret paying off mortgage early?

Post by FelixTheCat »

I love having my house paid off early. I have no worries about what will happen to me IF I ever become unemployed, sick, retired, etc.

I eliminated my largest debt and now that monthly payment goes into investments. :sharebeer Wait...it's so good I'll have another beer! :sharebeer
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Petunia
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Re: Anyone regret paying off mortgage early?

Post by Petunia »

steve r wrote: I keep coming back to this point, the firms that make loans can do lots of things with there money but think making loans at low rates (ridiculously low, in my view). If markets are efficient, then the risk/return of making such loans is viewed favorably.
--
To my way of thinking .. the tax argument is the best reason not to pay off the mortgage if you have room in tax deferred accounts. The higher returns elsewhere goes against my belief in efficient markets.
Government intervention disturbs market efficiencies. Fannie and Freddie buy up the bulk of mortgage debt. They're not doing so to invest, they are doing so prevent lending from becoming stagnant.

Today, I noticed that Wells Fargo is at 3.625% for a 30 year fixed (80% LTV). Do you believe they would lend at those terms if they had to carry the note themselves? I don't, not for a moment.
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steve r
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Re: Anyone regret paying off mortgage early?

Post by steve r »

Petunia wrote:
steve r wrote: I keep coming back to this point, the firms that make loans can do lots of things with there money but think making loans at low rates (ridiculously low, in my view). If markets are efficient, then the risk/return of making such loans is viewed favorably.
--
Government intervention disturbs market efficiencies. Fannie and Freddie buy up the bulk of mortgage debt. They're not doing so to invest, they are doing so prevent lending from becoming stagnant.

Today, I noticed that Wells Fargo is at 3.625% for a 30 year fixed (80% LTV). Do you believe they would lend at those terms if they had to carry the note themselves? I don't, not for a moment.
They do keep some of these loans, albeit not the bulk as you stated.

They decide ... loan money out at 3.625 to homeowners with at least 20% equity or lend to the U.S. government for 30 years at 2.50 or the German government at 1.7 ... or perhaps take on more risk ... not exactly a no brainer.
"Owning the stock market over the long term is a winner's game. Attempting to beat the market is a loser's game. ..Don't look for the needle in the haystack. Just buy the haystack." Jack Bogle
deblacksmith
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Re: Anyone regret paying off mortgage early?

Post by deblacksmith »

Paid off our 3rd home in mid 90's zero regrets. All of our moves were based on being moved by my employer. Build our retirement home with cash in 2000 - 2001. Paying off the mortgage is more about life style then it is about dollars and cents. If you can find your way, adjust your life style to payoff your mortgage early then you are "living below your means" -- that makes all the difference.

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Re: Anyone regret paying off mortgage early?

Post by grabiner »

investorjunkie wrote:I find it very interesting Bogleheads are all about asset allocation, yet many recommend paying off their mortgage. For many, owning a home outright will make their home more than 1/3 of their total net worth (I could even assume 1/2 in some cases). Would Bogleheads put that much into one asset class that also is very illiquid?
You make that decision when you buy your home, whether you take out a mortgage or not. If your net worth is $500K before you buy a home and you buy a $250K home, then you have a home which is half your net worth, because the home is worth $250K whether you have no loan, a $200K mortgage against the house, or no mortgage but a $200K margin loan against your stock portfolio. And if the home loses 20% of its value, then you lose 20% of your net worth whether that is 20% or 100% of your home equity. The mortgage only reduces the risk if your home loses more than 20% and you can walk away (or arrange for a distressed refinance under current programs).

But many of your other points are correct. You shouldn't put half your net worth into an illiquid and risky investment. But if you intend to live in your home for a long time, it isn't an investment because you don't care much whether it rises or falls in value; it will continue to provide you with a place to live.
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twinsdad
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Re: Anyone regret paying off mortgage early?

Post by twinsdad »

555 wrote:
twinsdad wrote:"Finished paying off mortgage this year, age 48. Here is one negative I have found, although I am not sure it is a "regret," in fact I consider it a "relative" negative. I no longer have the desire to work harder, extra hours, and keep trying to make more money and increase my income like I did when I had debt and a goal. Having a large debt is good motivation to work hard and increase your income. "
Uh, you could save for retirement, maybe even early retirement.
Uh, 401K already maxed, plus doing Serial Backdoor Roth IRA. Kids college already funded.
Early retirement has never been a dream. My kids are still young and I want them to see my work ethic. However, early retirement would never even be a consideration until mortgage was gone.
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Re: Anyone regret paying off mortgage early?

Post by Toons »

imgritz wrote:I love having my house paid off early. I have no worries about what will happen to me IF I ever become unemployed, sick, retired, etc.

I eliminated my largest debt and now that monthly payment goes into investments. :sharebeer Wait...it's so good I'll have another beer! :sharebeer

+1,,,good stuff LOL :sharebeer
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
SurfCityBill
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Re: Anyone regret paying off mortgage early?

Post by SurfCityBill »

acegolfer wrote:Interesting.

I was hoping someone would say they regret paying off early because they should have invested in apple stock or gold. :)

Actually, Priceline. :oops:
SurfCityBill
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Re: Anyone regret paying off mortgage early?

Post by SurfCityBill »

nisiprius wrote:
anncatchingup wrote:I've heard/read suggestions from some "financial experts" that one should not be concerned about paying off a mortgage unless one plans to stay in that house in retirement (or forever?).
Do these financial experts sell investments, and make money when you buy investments, but not when you pay down a mortgage?

Do these financial experts sell both mortgages and investments and make money when you buy investments and lose money when you pay off a mortgage early?

Could you share with us the names of these financial experts?

Nisiprius, Ric Edelman is a strong proponent and well respected financial planner that highly recommends maintaining a mortgage throughout life. http://www.ricedelman.com/cs/education/ ... r-mortgage

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prudent
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Re: Anyone regret paying off mortgage early?

Post by prudent »

No regrets. We wanted to be debt-free and paid off the mortgage 8 years early (via making extra principal payments for years plus a lump sum at the end).
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acegolfer
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Re: Anyone regret paying off mortgage early?

Post by acegolfer »

I found a guy who regretted paying off early from another website.
I was once a Dave Ramsey groupie. But no longer. You see, living just outside Detroit in Eastpointe, I was caught in the middle of the housing bust with a $130k house now worth about $40k, which was a price not seen since the 1960s. I had prepaid down $65k of the house's principal balance, putting every extra penny I earned into prepaying the mortgage. I lost it all. I was able to make the house shine and sell it for $47k, but it was still a short sale so it ruined my credit for 2 years. You see, to the credit bureaus, the guy who gets an extra job and prepays tens of thousands of $ down on his mortgage but still can't keep above water is no better than the next door neighbor who maxes out his home equity, uses the extra money to buy new cars and put a down payment on his dream home, then walks from the house owing the full amount. They both do a short sale, and both have the same bad credit. Why didn't I stay in the house? Gangs were starting to roam the streets. I was surrounded by 3 abandoned and decaying houses. Eastpointe was turning into Detroit. No place to raise kids. Dave Ramsey sucks. He cost me at least $100k, when you add the updates I put into that house and the hundreds of hours of my own labor, combined with the $65k of principal I had paid off ahead of time. Dave Ramsey's advice essentially took every cent of my disposable income over 4 years and flushed it down the toilet. I want those years of my life back, thank you very much.
http://www.city-data.com/forum/personal ... st24607719

I'm not agreeing or disagreeing with his decision. Just sharing what I have found in another website.
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