POLL: Investing vs. pay down mortgage feelings

Have a question about your personal investments? No matter how simple or complex, you can ask it here.

When I had a choice of paying down the mortgage or investing...

I paid down the mortgage. I regret that decision, although I've never tried to do the math.
2
1%
I paid down the mortgage. I regret that decision, and I've done the math.
2
1%
I paid down the mortgage. I'm content with that decision, although I've never tried to do the math.
38
21%
I paid down the mortgage. I'm content with that decision, and I've done the math.
55
30%
I invested. I regret that decision, although I've never tried to do the math.
0
No votes
I invested. I regret that decision, and I've done the math.
0
No votes
I invested. I'm content with that decision, although I've never tried to do the math.
16
9%
I invested. I'm content with that decision, and I've done the math.
34
19%
I've never made such a decision.
18
10%
I made such a decision, but it wasn't long enough ago and I don't know yet how it will work out.
17
9%
 
Total votes: 182

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nisiprius
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POLL: Investing vs. pay down mortgage feelings

Post by nisiprius » Sat Jan 18, 2014 10:35 am

The poll should be self-explanatory, although do notice there are EIGHT primary choices. You can change your choice if you get confused and pick the wrong one. "I've done the math" means that you've tried to make some dollars-and-cents estimate of how your choice worked out versus the alternative.

I will go out on a limb. My expectations are:
a) Very few people will actually have done the math.
b) Very few people will say they regretted their choice.
c) There won't be any identifiable patterns in being regretful or contented vis-a-vis the other choices.
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.

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Sbashore
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Re: POLL: Investing vs. pay down mortgage feelings

Post by Sbashore » Sat Jan 18, 2014 10:42 am

I invested. I'm content with the decision. I've done the math. It may have worked out of dumb luck over the years, but it worked.
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mhc
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Re: POLL: Investing vs. pay down mortgage feelings

Post by mhc » Sat Jan 18, 2014 10:52 am

I paid off my mortgage after having the mortgage only 4 years. I do not regret the decision. I paid it off in 2007.

The math was pretty easy. Even though I had been investing for 20 years, I had not done very well investing. I lost quite a bit in the tech bubble. On one thing I could pay off the mortgage (guaranteed return) or lose money in the market.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by gkaplan » Sat Jan 18, 2014 11:02 am

I've never made the decision, because I have been a lifelong renter. I retired last Friday and am moving up to Portland at the end of this month. My brother and his wife, who have lived in Portland since 1991, are encouraging me to consider buying a condo. This seems to go against the grain, at least in these forums, because the standard advice is to have the mortgage paid off once one is in retirement. My brother and his wife know the housing market, however, so I am going to keep an open mind.
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Re: POLL: Investing vs. pay down mortgage feelings

Post by Ron » Sat Jan 18, 2014 11:03 am

Actually, we did the math, paid off the mortgage note, and put the monthly "payment" into the market at a very good time.

We built our current (retirement) home in early 1994 and paid off the note in late 1999 after 5.5 years of regular payments, in addition to extra payments against the principal.

As we computed it, we "saved" $130k in "foregone interest", that is interest we did not have to pay. You may argue that we could have kept the note and put the extra money into the market at the time, but we were getting a 6.875% "return" (our note rate) and would have been putting money into the market mid-late 1990's (guess what happened in 2001 :oops: )...

When the payments were done, we took an amount equal to the base monthly payment and added it to additional contributions to our respective 401(k)'s. In fact, we wound up overfunding our 401(k)'s and contributed "above the line" to non taxable contributions (e.g. taxable), which was returned to us at the time of our retirement.

The important thing is that we ran into a bit of luck. We continued to contribute at a much higher rate during the market down period of 2001-02 and were able to buy shares on the cheap. This was during our pre-retirement period of having a 90/10 (90% equities) AA/portfolio - a bit more agressive than our current 50/50 in retirement.

Today, with low mortgage/note rates, it may not make sense to do what we did. However - at least for us, in our period of time, it turned out well.

- Ron
Last edited by Ron on Sat Jan 18, 2014 11:37 am, edited 1 time in total.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by livesoft » Sat Jan 18, 2014 11:29 am

Content with decision. Invested in stock market, made a lot of money in the stock market, then paid off the mortgage. Was sick about paying off mortgage, but then since the equities that were sold went into a 3-year slump have recovered from that sick feeling.
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Re: POLL: Investing vs. pay down mortgage feelings

Post by rixer » Sat Jan 18, 2014 11:38 am

I was paying down the mortgage and contributing to my ira/401k at the same time. I paid it off early because I didn't want to enter retirement with a mortgage. Yes, I could have invested that money outside an ira but at the time, paying off the mortgage was a sure thing and I was getting closer to retirement. I don't regret it.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by pennstater2005 » Sat Jan 18, 2014 11:42 am

I've invested. And I suck at math.
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Re: POLL: Investing vs. pay down mortgage feelings

Post by lrak » Sat Jan 18, 2014 11:43 am

I don't regret it. Not having a mortgage lets my wife be a stay at home mom for the kids (7 & 3) . That is extremely rewarding non-financially.

I did the math too. In my case (due to timing) the math worked out great. I cashed out the few stocks I had in the fall of 1999 (win!). I was paying 6.9% APR on the mortgage. Outside of 6% into the 401k and 5% into the ESPP I missed investing anything in the market from the start of 2000 to the end of 2005. From my 401k, I know the return of dollar cost averaging into the stock market over those six years was almost zero. I think it was actually slightly negative stock market returns.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by Ice-9 » Sat Jan 18, 2014 11:48 am

I've only had a mortgage since 2010. For the first three years, I paid it down very aggressively, which allowed me to refinance twice and ultimately reduce the rate from the original 5.0% in 2010 to 3.25% at the end of 2012. My minimum monthly payment went down $300 over the two refinances. So, for that initial paying down the first three years, yes, I am very happy I did it.

Now that I'm at 3.25% and rates have gone up ever since, I am no longer paying down the mortgage aggressively. I'm paying the minimum monthly amount and contributing fully to my Roth.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by Ron » Sat Jan 18, 2014 11:50 am

pennstater2005 wrote:And I suck at math.
Thank you for your candor :mrgreen: ...

- Ron (e.g. "the spreadsheet wizard" :twisted: )...
Last edited by Ron on Sat Jan 18, 2014 11:57 am, edited 1 time in total.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by baw703916 » Sat Jan 18, 2014 11:57 am

I have done all of the following at different points in time:

1) devoted all my spare cash flow to paying down the mortgage at an accelerated rate
2) invested spare cash flow rather than using it to pay down the mortgage
3) borrowed against my home equity to invest
4) took out money on my HELOC to pay off the mortgage
5) cashed in investments to pay off the house

All of these decisions were based on math (amount of cash flow, amount of home equity, interest rate on mortgage, interest rate on HELOC, cost and interest rate on refinancing, age, stock/bond AA, yield on fixed income/CDs, etc...). In no case do I regret any of them; I did what the math told me to and didn't look back.
Last edited by baw703916 on Sat Jan 18, 2014 12:13 pm, edited 1 time in total.
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Re: POLL: Investing vs. pay down mortgage feelings

Post by Leemiller » Sat Jan 18, 2014 12:03 pm

I wonder how it would change based on a tax rate breakdown. Also, depends on how you do the math. For us, when we buy the tax break will be very attractive. We have to itemize anyways as well due to state taxes and high charitable contributions.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by cherijoh » Sat Jan 18, 2014 12:17 pm

I selected Invested (and did the math), since I have been maxing out my tax-advantaged accounts as long as I have been in my house. But I also refinanced my mortgage twice when rates went down, so I had a various times a 30 year, 15 year, and 10 year mortgage and then paid off the balance about 6 months before the last one was due to be paid off. It ended up taking me 22 years to pay off the mortgage.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by Harold » Sat Jan 18, 2014 12:27 pm

Leemiller wrote:depends on how you do the math
I suspect nisiprius carefully worded the poll selections -- because someone doing the math gets to define it however he feels.

If one accounts for risk in his math calculation (and isn't explicitly making a simultaneous decision to increase risk), he'll generally conclude to pay down the mortgage -- if one doesn't account for risk, he'll generally conclude that investing is what the numbers tell him to do.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by midareff » Sat Jan 18, 2014 12:53 pm

The poll might make more sense if the interest rate of the mortgage was tracked as well. What you pay down at 5 or 5.5%, or more vs. what you might want to do with a 3% mortgage might be way different.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by G-Money » Sat Jan 18, 2014 12:53 pm

I voted "I paid down the mortgage. I regret that decision, although I've never tried to do the math." I should be clear that I don't have strong feelings of regret.

Bought the house in 2008. Started with a 30-year (6%). Had a small windfall 1.5 years later, put a big chunk of that into the mortgage, and refi'd to a 15 year (4.5%). Another year or so later, refi'd again to a 7 year loan (3.5%, no closing costs)). Then a 5/5 ARM (3%, no closing costs), then a 5 year HEL (1.99%, no closing costs). I've got about 3 years left. Each refi increased the minimum payment required, so at this point I'm pretty "locked-in" to paying off the mortgage less than 9 years after we first bought the house.

There's no question I saved quite a bit of interest. I haven't bothered to check how the math would have worked out, but I suspect periodic investing, particularly in my equity-heavy portfolio, would have done much better from 2008-2017. I'm not smart enough to calculate how the two would have compared on a risk-adjusted basis.

My main regret boils down to financial aid for college. Home equity is exempt from financial aid calculations under FAFSA, but not for the CSS Profile. But 401(k) and Roth accounts are exempt from both. The main "cost" of my aggressive refi approach has been that we haven't maxed out our tax-advantaged space. So, if I had it to do over again, and knowing what I know now, I likely would have kept a 30-year mortgage, refi'ing to another 30-year loan when rates bottomed (late 2012 or so?). We'd still have a fair amount of equity by the time we applied for financial aid, but it would certainly be less than 100%, and the difference would be in tax-advantaged (and financial aid-advantaged) space.

Had markets not recovered so quickly and so well, I'd be feeling very smug. As it is, I have only a little regret. At this point, we're pretty close to the finish line, and I can't swallow the thought of refi'ing from 1.99% to 4%+ (and closing costs!), so we'll pay off the house, be debt free, and see what happens with financial aid. Not losing much sleep over it.
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Re: POLL: Investing vs. pay down mortgage feelings

Post by sport » Sat Jan 18, 2014 1:02 pm

In my case the math was very easy. I was paying 6.75% on the mortgage and earning 15% in a money market fund and 12% in insured bank CDs. My bank offered a refinance deal with additional cash out at "only" 14% (I laughed and threw out the application). I really liked having that 6.75% loan.
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Re: POLL: Investing vs. pay down mortgage feelings

Post by peppers » Sat Jan 18, 2014 2:08 pm

Long story. Short(er) version. The plan was to have the house paid off and the last child out of college in 2007. Scholarships and grants freed up some additional funds set aside for college expenses. This was applied to the mortgage which was paid off in early 2006.

The youngest graduated in the spring of 2007 and entered the workforce. All four children out of the nest, working and two got married. The summer of 2007 marked 35 years with globalmegacorp and the dream of retiring in 2008 looked real.

As the events of 2008 unfolded, my daughter, youngest son, and one of my daughters in law lost their jobs. The oldest son was hit by a car and could not work for months. For a long time the Bank of Dad was in 24/7 mode.

Throughout all of this, I kept up the 401(k) and IRA contributions. It seemed like a good idea at the time.
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Re: POLL: Investing vs. pay down mortgage feelings

Post by physicsgal » Sat Jan 18, 2014 2:53 pm

I like this poll because I've been trying to decide what to do about this right now. For now I decided to split the difference and add 10% to my mortgage payment every month, which will cut off 5 years from my mortgage, and put the rest into my HSA to try to max it out so I can start investing there in addition to my Roth IRA, which I am already maxing out. And with the advice from another post I can now max out my HSA for 2013 and 2014!

Maybe in 5-10 years when my mortgage seems small due to inflation I will start paying 20% extra and make it go away even sooner. Or, if there's another big drop in the market maybe I'll decide to invest more in a 403B at work instead of paying off the mortgage. For now a guaranteed 4% (my mortgage rate) seems attractive, but tax free HSA space is also pretty awesome. So many options!

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Re: POLL: Investing vs. pay down mortgage feelings

Post by zebrafish » Sat Jan 18, 2014 5:12 pm

What if I've taken my extra money and split it among taxable investments and paying down mortgage.
It doesn't really fit into the poll answers....

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Re: POLL: Investing vs. pay down mortgage feelings

Post by Steelersfan » Sat Jan 18, 2014 5:51 pm

I regularly made additional payment amounts on two different mortgages and ended up paying both them off completely when there was about $10,000 - $20,000 left on the balance.

I did the math and it made sense both times. In neither case was the mortgage rate super low. That may have resulted in a different course of action.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by Steelersfan » Sat Jan 18, 2014 6:02 pm

pennstater2005 wrote:I've invested. And I suck at math.


Whether or not that was the right decision, I :sharebeer your candor.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by Kevin M » Sat Jan 18, 2014 6:10 pm

I paid off four mortgages--one home and three rental houses. I don't regret it because everything has worked out fine for me financially. After maxing out 401k and IRA contributions, I would direct excess income to paying down the mortgages if my mortgage rates were higher than what I could earn in something like a money market fund.

In the current environment I would compare to direct CDs rather than money market funds (obviously), but I don't think I'd rush to pay down a fixed-rate mortgage at 3% or less if the remaining term was maybe 15 years or more.

I've never done the math to determine if I would've been better off investing more in a stock/bond portfolio and less in paying down the mortgages, but at the time I was more comfortable investing in real estate and getting the guaranteed return of paying down the mortgages, and as I said, it worked out quite well for me. We can't go back in time, and the future may not be like the past, so I don't see much point in doing the math.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by NightOwl » Sat Jan 18, 2014 6:14 pm

Nobody here split the difference and invested half of available money while putting half toward the mortgage? I didn't vote in the poll because I'm a lifelong renter, but I did pay down a large student loan that way. I'm sure that if I did the math, I would discover that investing would have been the better option at the time, but hey, the growth of the half of available money I invested minimizes my regret, and that was the point.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by PetaHertz » Sat Jan 18, 2014 7:08 pm

I don't see this as a question of math. I have two mortgages, one for my primary residence and one for a rental. Both rates are around 3.75%. I don't intend to pay either off soon or even accelerate my payments. It is a question of risk and comfort. I don't feel secure in my job, and don't know how fast I'll find another one. I want a large reserve of cash in case I am unemployed for a year, as well as unforeseen emergencies. I can't pay grocery bills with home equity, and I doubt I will be able to borrow for any reasonable rate if I have no income. So I have some funds invested, but most in online savings. If all goes well in life, I will mathematically waste a lot of money, but if things don't go as planned, I suppose I will be satisfied. If I could model all that mathematically, I will, but I have no idea how.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by WhiskeyJ » Sat Jan 18, 2014 7:09 pm

I did not pay down. Doing the math I averaged a 25% return on my taxible investments last year. So for the $150k mortgage balance my investment return was about $37,500 minus $6000 in mortgage interest plus $2000 interest deduction. Or about $33k better off than if I paid it off...now I'm thinking of paying an extra 30k this year with excess savings amd dividends rather than add to taxible investments. I know, that's market timing...

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Re: POLL: Investing vs. pay down mortgage feelings

Post by fourwedge » Sat Jan 18, 2014 7:26 pm

My wife and I are paying off our 10Year mortgage early in 2 years. We are maxing out our retirement accts at the same time as the 2 year mortgage payoff. This time next year all that extra cash will go in to taxable investing anyway. So I don't think I will have time to regret anything. We'll see
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Re: POLL: Investing vs. pay down mortgage feelings

Post by telemark » Sat Jan 18, 2014 8:23 pm

I've never tried to do the math, but for me paying down the mortgage was a no-brainer because:
  • My adjustable rate had risen to 14%
  • I was clueless about investing, so didn't see it as an opportunity cost
What I regret is not following up after I finished paying it off, by adjusting my 401K contribution or opening a Roth.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by letsgobobby » Sat Jan 18, 2014 8:24 pm

In 10 years of home ownership, 2 homes and 5 different loans between 1.99 and 5.25%, I have always paid the minimum. During that time our net worth has increased fifty fold so that math makes me not regret the decision. I got a 15 year 2.875% mortgage in Nov 2011 instead of paying cash, and my 60/40 portfolio is up maybe 30% since then. I refinanced to a 30 year 3.25% in May 2013 and my 60/40 portfolio is up another 8-10% or so since then. Of course there is still plenty of time for future returns to be bad enough to make me regret these decisions, but not yet.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by grabiner » Sat Jan 18, 2014 8:47 pm

My mortgage is at a very low rate (about 3% when I made the decision of how large a mortgage to take out, 2.625% for paydown because I paid a lot of points). I made the decision twice: to take out as large a mortgage as allowed rather than making a larger down payment, and then not to pay down the mortgage when I had spare cash after closing.

The decision to take out the maximum mortgage was the easier one. I have capital gains in all my taxable investments, so I didn't want to take any more gains than needed. (This was particularly relevant because I lived in NJ when I took out the mortgage, and NJ doesn't allow capital loss carryovers; any extra capital gains would have been taxed.)

But now that I could pay it down, paying down a 15-year mortgage at 2.625% (1.74% after federal and MD tax) doesn't make sense. I treat it as a negative bond in my asset allocation, and I can earn a better return on positive bonds without taking on any more risk. I actually hold the positive bonds in my retirement account, so my extra cash went to replenish the taxable stock holdings that I sold in order to make the down payment, but I rebalanced in January to get the overall bond allocation right.
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Re: POLL: Investing vs. pay down mortgage feelings

Post by basspond » Sat Jan 18, 2014 8:59 pm

Refinanced to a 15 year note from a 30 year note. Interest payments went from twice the value of the house to less then half the value. No brainer, money in the bank and no note for the last 5+ years.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by Billyboy » Sat Jan 18, 2014 9:27 pm

Have had three houses over a period of 42 years, all with 30 yr. fixed loans. Re-fied at least 4 or 5 times, both with cash out, (pay for living expenses, college for my two daughters, their first cars, weddings, remodeling) and no cash out, lowering interest rate, (currently 3.625%). Always maxed out my 401k. Never thought of paying off my house loan/loans and have never done the math.
If I were to pay off my current loan of $322,000 it would have to come out of my traditional IRA's. To me, this would make no sense.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by Winthorpe » Sun Jan 19, 2014 2:54 am

Harold wrote:If one accounts for risk in his math calculation (and isn't explicitly making a simultaneous decision to increase risk), he'll generally conclude to pay down the mortgage -- if one doesn't account for risk, he'll generally conclude that investing is what the numbers tell him to do.
This is not always true because it very much depends on "the math". For those of us with mortgages (negative bonds) less than 3% like me and Grabiner, it's easy to earn a better return allocating potential mortgage payoff money to positive bonds in our asset allocation, especially if you figure it's less than 2% after taxes. I use Vanguard long-term tax-exempt municipal bond fund which has a duration similar to the time left on my mortgage. Although this is not a riskless investment, the risk is sufficiently low that I feel quite certain that I will come out ahead over the remaining 9 years of my mortgage. For somebody with a mortgage around 7% investing in stock funds? Sure, that's a different story.
grabiner wrote:But now that I could pay it down, paying down a 15-year mortgage at 2.625% (1.74% after federal and MD tax) doesn't make sense. I treat it as a negative bond in my asset allocation, and I can earn a better return on positive bonds without taking on any more risk. I actually hold the positive bonds in my retirement account, so my extra cash went to replenish the taxable stock holdings that I sold in order to make the down payment, but I rebalanced in January to get the overall bond allocation right.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by The Wizard » Sun Jan 19, 2014 6:57 am

Paying off my 3.25% HELOC (my only remaining mortgage) isn't something that I'm in a rush to do.
I maxed out my retirement contributions over the past few years first and am happy with that.
Nonetheless, I have rounded up my monthly HELOC payment to a few hundred bucks over the minimum required and will continue with that for now. It's all good...
Attempted new signature...

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Re: POLL: Investing vs. pay down mortgage feelings

Post by grabiner » Sun Jan 19, 2014 10:52 am

Winthorpe wrote:
Harold wrote:If one accounts for risk in his math calculation (and isn't explicitly making a simultaneous decision to increase risk), he'll generally conclude to pay down the mortgage -- if one doesn't account for risk, he'll generally conclude that investing is what the numbers tell him to do.
This is not always true because it very much depends on "the math". For those of us with mortgages (negative bonds) less than 3% like me and Grabiner, it's easy to earn a better return allocating potential mortgage payoff money to positive bonds in our asset allocation, especially if you figure it's less than 2% after taxes.
And if you are not maxing out your retirement accounts, the math is even more likely to favor investing. If you have a 4% mortgage and bonds yield 3.5%, you can still come out ahead by investing if you can tax-deduct the mortgage interest and use the potential pay-down money to hold more bonds in your IRA or 401(k).
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Re: POLL: Investing vs. pay down mortgage feelings

Post by pennstater2005 » Sun Jan 19, 2014 11:00 am

Ron wrote:
pennstater2005 wrote:And I suck at math.
Thank you for your candor :mrgreen: ...

- Ron (e.g. "the spreadsheet wizard" :twisted: )...
Somehow I manage to get by :happy
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siamond
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Re: POLL: Investing vs. pay down mortgage feelings

Post by siamond » Sun Jan 19, 2014 11:13 am

House all paid for as of May 2013! :sharebeer

I did some kind of coarse math about it when we decided for (and stuck to) an aggressive 15-years mortgage, and concluded at that time that the benefit of investing seemed too slim and uncertain, and (emotional thinking) we really didn't like having a long-term debt, so we prioritized the mortgage. I now realize the math was nowhere near accurate (so I voted 'no math' to be honest), but I have absolutely no regret. I vaguely wonder if I should do the math now, just for fun, but to heck with it, water under the bridge, we own our house, this feels good. :beer

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Re: POLL: Investing vs. pay down mortgage feelings

Post by DidItMyWay » Sun Jan 19, 2014 11:33 am

Never did the math per se, just estimated it, since rate of return on investments is not an exact number that I can guarantee. I can only estimate.
I chose the "pay off your house" route and have no regrets. I don't like to owe anyone anything. It is a personal feeling and a personal decision. This topic always comes up here from time to time and, IMHO, there is no one right answer. It's what makes YOU feel best and the most financially secure.

TRC
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Re: POLL: Investing vs. pay down mortgage feelings

Post by TRC » Sun Jan 19, 2014 12:06 pm

I paid our house off to have 1 less payment to worry about. I did it for a sense of financial freedom and to minimize our expenses in the event my income drops substantially.

zotty
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Re: POLL: Investing vs. pay down mortgage feelings

Post by zotty » Sun Jan 19, 2014 12:08 pm

We paid off the house in 2010 with cash flow from my side business. It would have been new savings, so i lost some opportunity cost. It was always a small mortage. 135K when we got it in 1998.

It didn't work out money wise because we aren't saving the difference... It's not worth fighting about. Life is too short and we are still saving anyway.

So for us, it was basically a lifestyle boost, not a good investment idea.
Nadie Sabe Nada

haban01
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Re: POLL: Investing vs. pay down mortgage feelings

Post by haban01 » Sun Jan 19, 2014 12:41 pm

Great Poll!! I think this question is very period dependent. When I purchased my first home 10 years ago the standard 30 year rates were 6-7%. Not as of the past year or so people were able to lock in money in a 2.5-3.5% range. I think at that point you are far better off covering your basis of keeping an emergency account up, saving for replacement autos, home repairs/etc along with additional retirement contributions. I think that rates will go back up to a normal 5-6% in the next five years and if people were not adequately prepared for other financial requirements and had to borrow money at a much higher rate this gives one more flexibility.
Eric Haban | | "Stay the Course" | "Press on Regardless" | | Wisconsin Bogleheads Chapter Coordinator

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Re: POLL: Investing vs. pay down mortgage feelings

Post by haban01 » Sun Jan 19, 2014 12:43 pm

Billyboy wrote:Have had three houses over a period of 42 years, all with 30 yr. fixed loans. Re-fied at least 4 or 5 times, both with cash out, (pay for living expenses, college for my two daughters, their first cars, weddings, remodeling) and no cash out, lowering interest rate, (currently 3.625%). Always maxed out my 401k. Never thought of paying off my house loan/loans and have never done the math.
If I were to pay off my current loan of $322,000 it would have to come out of my traditional IRA's. To me, this would make no sense.

What approx age does that make you Billy? Do you plan to have it paid off by retirement?
Eric Haban | | "Stay the Course" | "Press on Regardless" | | Wisconsin Bogleheads Chapter Coordinator

livesoft
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Re: POLL: Investing vs. pay down mortgage feelings

Post by livesoft » Sun Jan 19, 2014 12:48 pm

TRC wrote:I did it for a sense of financial freedom and to minimize our expenses in the event my income drops substantially.
I apologize because I have never understood this statement. One had to take some money out of some account to pay off mortgage. If one did not pay off the mortgage that huge stash of money would serve as an emergency fund and a source of financial freedom and to pay expenses (including mortgage payments) in the event that one's income drops substantially. Basically, it is a a zero sum transaction moving money from a bank account to a house EXCEPT that now one is house rich and cash poor which is not something that one should want to be in the event one's income drops substantially. In other words, after paying off a mortage, one's net worth didn't change at all. Am I making sense?
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ResearchMed
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Re: POLL: Investing vs. pay down mortgage feelings

Post by ResearchMed » Sun Jan 19, 2014 1:06 pm

livesoft wrote:
TRC wrote:I did it for a sense of financial freedom and to minimize our expenses in the event my income drops substantially.
I apologize because I have never understood this statement. One had to take some money out of some account to pay off mortgage. If one did not pay off the mortgage that huge stash of money would serve as an emergency fund and a source of financial freedom and to pay expenses (including mortgage payments) in the event that one's income drops substantially. Basically, it is a a zero sum transaction moving money from a bank account to a house EXCEPT that now one is house rich and cash poor which is not something that one should want to be in the event one's income drops substantially. In other words, after paying off a mortage, one's net worth didn't change at all. Am I making sense?
++1

In the event of some very unfortunate occurrence, we'd much rather have the little (or big) pot of money, so WE could decide if it would be used for extra mortgage payments (which the comparison strategy already did) or for regular mortgage payments and other expenses (nursing care? replacement costs beyond insurance? other living expenses beyond just the mortgage payment? or "whatever is needed").

It certainly helps that during the past several years, our investments have done far better than we had dreamed (no, we didn't get hit too hard in 2008/2009, so it's more than "just a recovery"). But we figured there was a reasonable chance of "doing better than the mortgage interest rate" PLUS having the flexibility to use the money as we saw fit if necessary.

RM

Harold
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Re: POLL: Investing vs. pay down mortgage feelings

Post by Harold » Sun Jan 19, 2014 1:20 pm

grabiner wrote:
Winthorpe wrote:
Harold wrote:If one accounts for risk in his math calculation (and isn't explicitly making a simultaneous decision to increase risk), he'll generally conclude to pay down the mortgage -- if one doesn't account for risk, he'll generally conclude that investing is what the numbers tell him to do.
This is not always true because it very much depends on "the math". For those of us with mortgages (negative bonds) less than 3% like me and Grabiner, it's easy to earn a better return allocating potential mortgage payoff money to positive bonds in our asset allocation, especially if you figure it's less than 2% after taxes.
And if you are not maxing out your retirement accounts, the math is even more likely to favor investing. If you have a 4% mortgage and bonds yield 3.5%, you can still come out ahead by investing if you can tax-deduct the mortgage interest and use the potential pay-down money to hold more bonds in your IRA or 401(k).
I intentionally wrote generally, rather than always. In the case where it's lower cost at the same risk, the math favors maintaining the loan and making investments at higher return of the same risk.

You'll notice, however, that generally maintaining a mortgage is higher cost at the same risk, and that generally those who say the math favors investing don't consider risk at all.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by swimirvine » Sun Jan 19, 2014 1:21 pm

Early on in the process with a fixed 3.75% mortgage and in the highest tax bracket so after the tax deduction my rate is around 2.5%. My student loans are all fixed at 2.68%.

I can't see paying off debt at that rate over investing. I don't get any "warm fuzzy feelings" when paying off debt.
The way I invest my money is not the right way to invest, it's the right way for ME to invest.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by Harold » Sun Jan 19, 2014 1:26 pm

livesoft wrote:I apologize because I have never understood this statement.
Although I doubt you're sincerely expressing that you misunderstand, in case you are I'll point out two areas where paying off the mortgage can lead to a greater sense of financial freedom.

First and most obvious, without the mortgage you're not at risk of losing your home due to not being able to pay the mortgage.

Second, most people are putting the assets they're not paying the mortgage with into risky assets (which of course they might lose). If they're not putting that cash into risky assets, they should just pay the mortgage (unless they're in a less common situation of being able to make more valuable equivalent-risk investments with that cash). If they just like paying the cost of a mortgage to have extra cash around, then more power to them -- but they're losing financial ground that way.

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Re: POLL: Investing vs. pay down mortgage feelings

Post by letsgobobby » Sun Jan 19, 2014 1:36 pm

Harold wrote:
livesoft wrote:I apologize because I have never understood this statement.
Although I doubt you're sincerely expressing that you misunderstand, in case you are I'll point out two areas where paying off the mortgage can lead to a greater sense of financial freedom.

First and most obvious, without the mortgage you're not at risk of losing your home due to not being able to pay the mortgage.

Second, most people are putting the assets they're not paying the mortgage with into risky assets (which of course they might lose). If they're not putting that cash into risky assets, they should just pay the mortgage (unless they're in a less common situation of being able to make more valuable equivalent-risk investments with that cash). If they just like paying the cost of a mortgage to have extra cash around, then more power to them -- but they're losing financial ground that way.
Can't house prices also go down? Even paid off houses? And can't people lose paid off houses if they don't pay their taxes, or fail to pay their insurance and suffer a loss?

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Re: POLL: Investing vs. pay down mortgage feelings

Post by Harold » Sun Jan 19, 2014 1:44 pm

letsgobobby wrote:
Harold wrote:
livesoft wrote:I apologize because I have never understood this statement.
Although I doubt you're sincerely expressing that you misunderstand, in case you are I'll point out two areas where paying off the mortgage can lead to a greater sense of financial freedom.

First and most obvious, without the mortgage you're not at risk of losing your home due to not being able to pay the mortgage.

Second, most people are putting the assets they're not paying the mortgage with into risky assets (which of course they might lose). If they're not putting that cash into risky assets, they should just pay the mortgage (unless they're in a less common situation of being able to make more valuable equivalent-risk investments with that cash). If they just like paying the cost of a mortgage to have extra cash around, then more power to them -- but they're losing financial ground that way.
Can't house prices also go down? Even paid off houses? And can't people lose paid off houses if they don't pay their taxes, or fail to pay their insurance and suffer a loss?
Again, I am choosing my words carefully. I included the phrase due to not being able to pay the mortgage.

Of course house prices can go down (which presented a problem for people with mortgages worth more than their homes a few years back), and of course people can lose their homes if they don't pay their taxes or if they don't properly insure. I never said they couldn't.

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