Question : Paying off Mortgage

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FB01
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Question : Paying off Mortgage

Post by FB01 » Mon Oct 23, 2017 9:43 am

Hi all,

I have got 3.25% mortgage rate and still need to pay $750,000 (Bay area). I try to pay additional couple of bucks here and there every month towards principal and do not put money in saving. I already have my emergeny/saving fund which i do not touch. Only thing is that after buying the house I do not put money in saving and whatever I save, I put in as extra payment

Question : Whatever I pay extra is kind of saving me some interest payment but I have long way to go. However, I might move to different city in 2 years..still not sure (may be/may be not). Considering, that I might move, is it good idea to start saving money for the down payment of the house in the new city and put those money in savings account or still keep paying the mortgage with the extra money and save on interest. Again, there is no guarantee that I will be moving, it is just an option I am keeping in mind.

Any suggestion from the boggle heads?

-JR

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dm200
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Re: Question : Paying off Mortgage

Post by dm200 » Mon Oct 23, 2017 9:48 am

FB01 wrote:
Mon Oct 23, 2017 9:43 am
Hi all,
I have got 3.25% mortgage rate and still need to pay $750,000 (Bay area). I try to pay additional couple of bucks here and there every month towards principal and do not put money in saving. I already have my emergeny/saving fund which i do not touch. Only thing is that after buying the house I do not put money in saving and whatever I save, I put in as extra payment
Question : Whatever I pay extra is kind of saving me some interest payment but I have long way to go. However, I might move to different city in 2 years..still not sure (may be/may be not). Considering, that I might move, is it good idea to start saving money for the down payment of the house in the new city and put those money in savings account or still keep paying the mortgage with the extra money and save on interest. Again, there is no guarantee that I will be moving, it is just an option I am keeping in mind.
Any suggestion from the boggle heads?
-JR
If you can use the proceeds from the sale of the current house for the new purchase, then saving for the down payment would not be necessary or beneficial.'

However, I suspect that is not a sure thing and if you have funds available for a down payment, you are in a better position for such a purchase. This current mortgage is a very low and favorable rate - so I lean towards not prepaying.

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ruralavalon
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Re: Question : Paying off Mortgage

Post by ruralavalon » Mon Oct 23, 2017 9:55 am

FB01 wrote:
Mon Oct 23, 2017 9:43 am
Hi all,

I have got 3.25% mortgage rate and still need to pay $750,000 (Bay area). I try to pay additional couple of bucks here and there every month towards principal and do not put money in saving. I already have my emergeny/saving fund which i do not touch. Only thing is that after buying the house I do not put money in saving and whatever I save, I put in as extra payment

Question : Whatever I pay extra is kind of saving me some interest payment but I have long way to go. However, I might move to different city in 2 years..still not sure (may be/may be not). Considering, that I might move, is it good idea to start saving money for the down payment of the house in the new city and put those money in savings account or still keep paying the mortgage with the extra money and save on interest. Again, there is no guarantee that I will be moving, it is just an option I am keeping in mind.

Any suggestion from the boggle heads?

-JR
What is your tax bracket, both federal and state? If in the 25% bracket, for example, your effective interest rate is 2.44% That would not be high enough to make me want to accelerate payments on the mortgage note.

Do you have any long-term/retirement accounts, like a 401k or IRAs? It seems to me that contributions to tax-advantaged accounts would probably be preferable to either accelerated mortgage payments or a savings account. Please see the wiki article "prioritizing investments".

If you do move, can you not sell your current home to finance purchase of the home in your new area?

You can simply add any additional information to your original post using the edit button, it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

JBTX
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Re: Question : Paying off Mortgage

Post by JBTX » Mon Oct 23, 2017 10:18 am

ruralavalon wrote:
Mon Oct 23, 2017 9:55 am
FB01 wrote:
Mon Oct 23, 2017 9:43 am
Hi all,

I have got 3.25% mortgage rate and still need to pay $750,000 (Bay area). I try to pay additional couple of bucks here and there every month towards principal and do not put money in saving. I already have my emergeny/saving fund which i do not touch. Only thing is that after buying the house I do not put money in saving and whatever I save, I put in as extra payment

Question : Whatever I pay extra is kind of saving me some interest payment but I have long way to go. However, I might move to different city in 2 years..still not sure (may be/may be not). Considering, that I might move, is it good idea to start saving money for the down payment of the house in the new city and put those money in savings account or still keep paying the mortgage with the extra money and save on interest. Again, there is no guarantee that I will be moving, it is just an option I am keeping in mind.

Any suggestion from the boggle heads?

-JR
What is your tax bracket, both federal and state? If in the 25% bracket, for example, your effective interest rate is 2.44% That would not be high enough to make me want to accelerate payments on the mortgage note.

Do you have any long-term/retirement accounts, like a 401k or IRAs? It seems to me that contributions to tax-advantaged accounts would probably be preferable to either accelerated mortgage payments or a savings account. Please see the wiki article "prioritizing investments".

If you do move, can you not sell your current home to finance purchase of the home in your new area?

You can simply add any additional information to your original post using the edit button, it helps a lot if all of your information is in one place.
This. I would fully fund all retirement account and HSA opportunities before thinking about paying down a 2.5 % after tax rate mortgage.

Also depends on posters age and how much the house is worth. If older you can make a case for paying down some. If low equity in Home or upside down then maybe pay down some. If younger keep the mortgage and fund retirement accounts or even taxable accounts.

overthought
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Re: Question : Paying off Mortgage

Post by overthought » Mon Oct 23, 2017 10:40 am

ruralavalon wrote:
Mon Oct 23, 2017 9:55 am
What is your tax bracket, both federal and state? If in the 25% bracket, for example, your effective interest rate is 2.44% That would not be high enough to make me want to accelerate payments on the mortgage note.
Coming out of lurk because confused: I always thought that paying down a 3.25% mortgage (using after-tax dollars) would have an effective investment return of 3.25/(1-.25) = 4.33%, not 3.25*(1-.25) = 2.44%, because interest not paid to the bank is money I can put into a tax-advantaged account or (at worst) pay long term capital gains on years down the road? Even if I'm able to deduct 100% of mortgage interest paid (e.g. primary home), the rate would still be 3.25%, not 2.44%? Apparently I've missed a detail here...

David Scubadiver
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Re: Question : Paying off Mortgage

Post by David Scubadiver » Mon Oct 23, 2017 11:14 am

It sounds to me that you may not be terribly liquid. If that is the case, I would not prepay that mortgage any and would instead opt to raise cash or invest that cash rather than paying down the mortgage.

I always have looked at it thus:

If I lost my job, would I rather have a smaller mortgage and lose my house because I can't make the mortgage payment or would I rather have hundreds of thousands of dollars available to me to pay my mortgage payment for years on end, while I am looking for new work?

The answer always is the same. I prefer the flexibility that having the cash/investments on hand provides to me over having a smaller mortgage balance.

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BolderBoy
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Re: Question : Paying off Mortgage

Post by BolderBoy » Mon Oct 23, 2017 11:20 am

JBTX wrote:
Mon Oct 23, 2017 10:18 am
I would fully fund all retirement account and HSA opportunities before thinking about paying down a 2.5 % after tax rate mortgage.
+1. Cover these first.
“Where you stand, depends on where you sit” - Rufus Miles | "Never underestimate one's capacity to overestimate one's abilities"

DrGoogle2017
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Re: Question : Paying off Mortgage

Post by DrGoogle2017 » Mon Oct 23, 2017 11:30 am

It’s a huge mortgage,you won’t be able to chip away that much. I would save the extra money elsewhere.

randomguy
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Re: Question : Paying off Mortgage

Post by randomguy » Mon Oct 23, 2017 11:38 am

David Scubadiver wrote:
Mon Oct 23, 2017 11:14 am
It sounds to me that you may not be terribly liquid. If that is the case, I would not prepay that mortgage any and would instead opt to raise cash or invest that cash rather than paying down the mortgage.

I always have looked at it thus:

If I lost my job, would I rather have a smaller mortgage and lose my house because I can't make the mortgage payment or would I rather have hundreds of thousands of dollars available to me to pay my mortgage payment for years on end, while I am looking for new work?

The answer always is the same. I prefer the flexibility that having the cash/investments on hand provides to me over having a smaller mortgage balance.
+1. The only issue is if you spend the money (i.e. you need the forced savings and the difficulty of accessing the money).

randomguy
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Re: Question : Paying off Mortgage

Post by randomguy » Mon Oct 23, 2017 12:03 pm

overthought wrote:
Mon Oct 23, 2017 10:40 am
ruralavalon wrote:
Mon Oct 23, 2017 9:55 am
What is your tax bracket, both federal and state? If in the 25% bracket, for example, your effective interest rate is 2.44% That would not be high enough to make me want to accelerate payments on the mortgage note.
Coming out of lurk because confused: I always thought that paying down a 3.25% mortgage (using after-tax dollars) would have an effective investment return of 3.25/(1-.25) = 4.33%, not 3.25*(1-.25) = 2.44%, because interest not paid to the bank is money I can put into a tax-advantaged account or (at worst) pay long term capital gains on years down the road? Even if I'm able to deduct 100% of mortgage interest paid (e.g. primary home), the rate would still be 3.25%, not 2.44%? Apparently I've missed a detail here...
It really depends on where you draw your boundaries and assumptions. For rent versus buy, the 2.44% number is pretty accurate as you are comparing 2 after tax numbers (mortgage and upkeep to rent). When you start mixing in alternative investments you have to factor in the taxes and all the side effects along the way. For example what is the cost to pay off the mortgage versus investing that money pretax? In most cases you would end up with something like a 125k in a 401(k) and a100k mortgage or a paid off house. Those are pretty much the same.

At a high level if you are investing heavily in stocks you come out ahead as your expected return in is a lot higher. You can replace some of your bonds with paying off the mortgage but house equity isn't liquid enough to replace all your bonds.

Paying off the house ASAP when interest rates were 12%+ was pretty solid advice. These days it is pretty much the reverse mathematically. But that ignores the emotional issue a lot of people have. Not paying off the house early is a variation of the scheme where you leverage up a lot early in your investing life and derisk as you get older. Mathematically it works but there is always a certain level of risk (25% stocks or 250%) that people get uncomfortable with.

overthought
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Re: Question : Paying off Mortgage

Post by overthought » Mon Oct 23, 2017 2:51 pm

I see, thanks

aristotelian
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Re: Question : Paying off Mortgage

Post by aristotelian » Mon Oct 23, 2017 3:08 pm

You can always do both/and if you are unsure. However, saving large amounts of cash along with mortgage doesn't make sense to me. You are just reverse-arbitraging yourself and losing money. Long term, the choice is between investing and paying down mortgage.

ThrustVectoring
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Re: Question : Paying off Mortgage

Post by ThrustVectoring » Mon Oct 23, 2017 3:19 pm

David Scubadiver wrote:
Mon Oct 23, 2017 11:14 am
It sounds to me that you may not be terribly liquid. If that is the case, I would not prepay that mortgage any and would instead opt to raise cash or invest that cash rather than paying down the mortgage.

I always have looked at it thus:

If I lost my job, would I rather have a smaller mortgage and lose my house because I can't make the mortgage payment or would I rather have hundreds of thousands of dollars available to me to pay my mortgage payment for years on end, while I am looking for new work?

The answer always is the same. I prefer the flexibility that having the cash/investments on hand provides to me over having a smaller mortgage balance.
Huge +1 here. Liquidity and flexibility are incredibly important - it's why being house poor sucks so much. It's also why I don't plan on ever pre-paying a mortgage or auto loan. Losing 1% on $20k is only $200 a year, which sucks but is survivable. Having an extra 7 months of expenses is kind of a big deal.

The only debts worth paying off early are revolving lines of credit and ones with really painful interest rates. HELOCs and checking-account linked lines of credits can be drawn against if you need the money again, so paying them down early hardly loses you any optionality.

overthought
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Re: Question : Paying off Mortgage

Post by overthought » Mon Oct 23, 2017 3:28 pm

ThrustVectoring wrote:
Mon Oct 23, 2017 3:19 pm

The only debts worth paying off early are revolving lines of credit and ones with really painful interest rates. HELOCs and checking-account linked lines of credits can be drawn against if you need the money again, so paying them down early hardly loses you any optionality.
Actually, I'd be extremely hesitant to rely on a HELOC, they invariably have a call option that could really hurt. Murphy says the call would come when you're out of a job and the house is underwater, with all three events caused by the same economic downturn.

At least with the mortgage the bank can't demand that you pay more than the agreed-on amount.

renue74
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Re: Question : Paying off Mortgage

Post by renue74 » Mon Oct 23, 2017 3:39 pm

overthought wrote:
Mon Oct 23, 2017 3:28 pm
ThrustVectoring wrote:
Mon Oct 23, 2017 3:19 pm

The only debts worth paying off early are revolving lines of credit and ones with really painful interest rates. HELOCs and checking-account linked lines of credits can be drawn against if you need the money again, so paying them down early hardly loses you any optionality.
Actually, I'd be extremely hesitant to rely on a HELOC, they invariably have a call option that could really hurt. Murphy says the call would come when you're out of a job and the house is underwater, with all three events caused by the same economic downturn.

At least with the mortgage the bank can't demand that you pay more than the agreed-on amount.
Back in '09 or '10, our HELOC was called in. Apparently, "a number of homes in your neighborhood are under foreclosure and the risk is too great to offer a HELOC at this time."

Yeah...they should had thought about the "risk" in '06.

ThrustVectoring
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Re: Question : Paying off Mortgage

Post by ThrustVectoring » Mon Oct 23, 2017 4:10 pm

overthought wrote:
Mon Oct 23, 2017 3:28 pm
ThrustVectoring wrote:
Mon Oct 23, 2017 3:19 pm

The only debts worth paying off early are revolving lines of credit and ones with really painful interest rates. HELOCs and checking-account linked lines of credits can be drawn against if you need the money again, so paying them down early hardly loses you any optionality.
Actually, I'd be extremely hesitant to rely on a HELOC, they invariably have a call option that could really hurt. Murphy says the call would come when you're out of a job and the house is underwater, with all three events caused by the same economic downturn.

At least with the mortgage the bank can't demand that you pay more than the agreed-on amount.
HELOCs generally can't be called in unless you violate the terms of the loan. Usually what happens is that they get suspended so that you cannot take on additional debt through the HELOC.

Anyhow, this is more of a "high loan-to-value" problem than a HELOC specific problem. If you've got a LTV of like 20% and the HELOC gets suspended and housing prices drop by half, your LTV is now at about 40%. Still need a job in order to do a refinance, though, but your general situation isn't dire.

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grabiner
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Re: Question : Paying off Mortgage

Post by grabiner » Mon Oct 23, 2017 5:05 pm

FB01 wrote:
Mon Oct 23, 2017 9:43 am
I have got 3.25% mortgage rate and still need to pay $750,000 (Bay area). I try to pay additional couple of bucks here and there every month towards principal and do not put money in saving. I already have my emergeny/saving fund which i do not touch. Only thing is that after buying the house I do not put money in saving and whatever I save, I put in as extra payment

Question : Whatever I pay extra is kind of saving me some interest payment but I have long way to go. However, I might move to different city in 2 years..still not sure (may be/may be not).
If you don't move, it's not attractive to make extra mortgage payments. You would get a long-term taxable return of 3.25%, but given the high federal and CA taxes you must be paying in order to afford that large a mortgage, the after-tax return is much lower. You can probably get a better return without much risk by buying CA municipal bonds; Admiral shares of Vanguard CA Long-Term Tax-Exempt have a 2.23% yield, which is better after tax.

If you move in two years, then the return is equivalent to 3.25% on a two-year CD, which is a good deal. However, if you need liquidity, keeping the down payment in a savings account or bond fund may be a better deal anyway. The reason for liquidity is that you may not be able to borrow against your house when you need to sell; if housing prices decline, you won't have the equity to get a home-equity loan.
David Grabiner

TravelforFun
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Re: Question : Paying off Mortgage

Post by TravelforFun » Mon Oct 23, 2017 6:11 pm

overthought wrote:
Mon Oct 23, 2017 10:40 am
ruralavalon wrote:
Mon Oct 23, 2017 9:55 am
What is your tax bracket, both federal and state? If in the 25% bracket, for example, your effective interest rate is 2.44% That would not be high enough to make me want to accelerate payments on the mortgage note.
Coming out of lurk because confused: I always thought that paying down a 3.25% mortgage (using after-tax dollars) would have an effective investment return of 3.25/(1-.25) = 4.33%, not 3.25*(1-.25) = 2.44%, because interest not paid to the bank is money I can put into a tax-advantaged account or (at worst) pay long term capital gains on years down the road? Even if I'm able to deduct 100% of mortgage interest paid (e.g. primary home), the rate would still be 3.25%, not 2.44%? Apparently I've missed a detail here...
People pay down the mortgage so they can save on the interest so let's look at this calculation: If you're in the 25% tax bracket, for every $100 of interest you don't pay the mortgage company, you would lose $25 tax to Uncle Sam, but since $100 after tax is equivalent to $133 pre tax income ($133 × 75% = $100), you would gain $8 ($33- $25) more on top of the 3.25 rate that you would not have to pay, so the effective rate is more than 3.25% for sure.

JBTX
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Re: Question : Paying off Mortgage

Post by JBTX » Mon Oct 23, 2017 7:11 pm

David Scubadiver wrote:
Mon Oct 23, 2017 11:14 am
It sounds to me that you may not be terribly liquid. If that is the case, I would not prepay that mortgage any and would instead opt to raise cash or invest that cash rather than paying down the mortgage.

I always have looked at it thus:

If I lost my job, would I rather have a smaller mortgage and lose my house because I can't make the mortgage payment or would I rather have hundreds of thousands of dollars available to me to pay my mortgage payment for years on end, while I am looking for new work?

The answer always is the same. I prefer the flexibility that having the cash/investments on hand provides to me over having a smaller mortgage balance.
Totally agree. Our mortgage is comparatively small compared to OP, but in the past we could have paid it off, but instead opted for the liquidity. Those amounts have mostly been invested in ibonds or online savings account, so I actually may lose 1-2% after tax on the liquidity, but for us it is worth it. It has come in handy for me not working the last few months and doing a major home remodel - we even did a cash out refi to maintain most of the liquidity.

I've never quite understood the urge for some to rush to pay off a low tax deductible mortgage.

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ruralavalon
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Re: Question : Paying off Mortgage

Post by ruralavalon » Tue Oct 24, 2017 9:46 am

JBTX wrote:
Mon Oct 23, 2017 7:11 pm
David Scubadiver wrote:
Mon Oct 23, 2017 11:14 am
It sounds to me that you may not be terribly liquid. If that is the case, I would not prepay that mortgage any and would instead opt to raise cash or invest that cash rather than paying down the mortgage.

I always have looked at it thus:

If I lost my job, would I rather have a smaller mortgage and lose my house because I can't make the mortgage payment or would I rather have hundreds of thousands of dollars available to me to pay my mortgage payment for years on end, while I am looking for new work?

The answer always is the same. I prefer the flexibility that having the cash/investments on hand provides to me over having a smaller mortgage balance.
Totally agree. Our mortgage is comparatively small compared to OP, but in the past we could have paid it off, but instead opted for the liquidity. Those amounts have mostly been invested in ibonds or online savings account, so I actually may lose 1-2% after tax on the liquidity, but for us it is worth it. It has come in handy for me not working the last few months and doing a major home remodel - we even did a cash out refi to maintain most of the liquidity.

I've never quite understood the urge for some to rush to pay off a low tax deductible mortgage.
Why the urge?

Because here is joy in being debt free :) .

But the arithmetic doesn't make sense in the case of a low interest rate deductible debt.

So for a comparatively low rate deductible mortgage note I don't often suggest an accelerated payoff.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

FB01
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Re: Question : Paying off Mortgage

Post by FB01 » Thu Oct 26, 2017 11:20 am

Thank you all for giving the suggestion. Couple of people on the forum had said that my effective interest rate is 2.44%.

However, when I do the Amortization and pay extra $500 dollars towards the principal, it says "Interest Saved" is $727 which is like saving more than $500 I paid.

Am I missing something? Because of this high interest amount which I will have to pay, I try to pay extra whatever I can instead of putting in the savings account.


-JR

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Re: Question : Paying off Mortgage

Post by chevca » Thu Oct 26, 2017 11:27 am

The effective rate they mention takes the tax deduction into account. The amortization table you're using likely leaves that out of it.

The more you can throw at it and the sooner you can do it, the better as far as total interest saved. It is still only the interest rate though, no matter how the numbers look. Whatever amount you prepay, you never pay the interest rate on that amount again. The sooner you can do that, the longer you go without paying interest on that amount, and the more interest saved overall.

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ruralavalon
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Re: Question : Paying off Mortgage

Post by ruralavalon » Thu Oct 26, 2017 11:46 am

FB01 wrote: . . . Because of this high interest amount which I will have to pay, I try to pay extra whenever I can, instead of putting in the savings account.
chevca wrote:
Thu Oct 26, 2017 11:27 am
The effective rate they mention takes the tax deduction into account. The amortization table you're using likely leaves that out of it.
. . . . .
Also the alternative to accelerated payment on the low interest rate mortgage note is not a savings account. Adding to a low interest savings account doesn't help your overall return.

The alternative to accelerated payment of the mortgage note with a very low effective rate is to fully funding tax-advantaged accounts like a 401k and IRA.

Those tax advantages are on a use-it-or-lose-it basis. If you miss a year on contributions you cannot in a future go back and make it up. Don't miss the tax advantage of the deduction for the contributions, and the annual compounding inside the tax sheltered accounts.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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grabiner
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Re: Question : Paying off Mortgage

Post by grabiner » Thu Oct 26, 2017 9:51 pm

ruralavalon wrote:
Thu Oct 26, 2017 11:46 am
FB01 wrote: . . . Because of this high interest amount which I will have to pay, I try to pay extra whenever I can, instead of putting in the savings account.
chevca wrote:
Thu Oct 26, 2017 11:27 am
The effective rate they mention takes the tax deduction into account. The amortization table you're using likely leaves that out of it.
. . . . .
Also the alternative to accelerated payment on the low interest rate mortgage note is not a savings account. Adding to a low interest savings account doesn't help your overall return.

The alternative to accelerated payment of the mortgage note with a very low effective rate is to fully funding tax-advantaged accounts like a 401k and IRA.
Or even a taxable account. The OP can earn a higher after-tax interest rate on CA municipal bonds than the mortgage rate, because the mortgage allows a deduction for the high CA and federal taxes.

(This is also why I don't pay down my own mortgage, and make taxable investments instead. I don't actually hold municipal bonds, but I could earn more on municipal bonds than on mortgage prepayments, and have chosen instead to hold more bonds in my retirement account and keep my taxable account all stock.)
David Grabiner

FB01
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Re: Question : Paying off Mortgage

Post by FB01 » Thu Oct 26, 2017 10:39 pm

Or even a taxable account. The OP can earn a higher after-tax interest rate on CA municipal bonds than the mortgage rate, because the mortgage allows a deduction for the high CA and federal taxes.

(This is also why I don't pay down my own mortgage, and make taxable investments instead. I don't actually hold municipal bonds, but I could earn more on municipal bonds than on mortgage prepayments, and have chosen instead to hold more bonds in my retirement account and keep my taxable account all stock.)
[/quote]


I am doing my IRA...401K and back door Roth IRA

Grabiner - can you give me some example of CA municipal bonds you are talking about..is there a ticker symbol in Vanguard for the bonds you are talking about?

JBTX
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Re: Question : Paying off Mortgage

Post by JBTX » Thu Oct 26, 2017 10:58 pm

FB01 wrote:
Thu Oct 26, 2017 11:20 am
Thank you all for giving the suggestion. Couple of people on the forum had said that my effective interest rate is 2.44%.

However, when I do the Amortization and pay extra $500 dollars towards the principal, it says "Interest Saved" is $727 which is like saving more than $500 I paid.

Am I missing something? Because of this high interest amount which I will have to pay, I try to pay extra whatever I can instead of putting in the savings account.


-JR

Because that $500 is the last $500 you would pay otherwise. It would be sitting there for close to 30 years and racking up additional interest for you to pay. If you do the math, accumulated and compounded interest on $500 over 30 years probably equals $727.

However, the relevant question is not how much money you saved by paying it off early. The question is what would you do with the money if you didn't pay it off?

If you just spend it on crap, or put in a bank at practically zero percent interest, then yes, comparatively you will save that money by paying of the mortgage.

However, what if you take the money and put it in near risk free investments, like ibonds (which are around 2%), EE bonds (which over 20 years are like 3%), long term treasuries held to maturity (2.5-3.0) and maybe some high quality tax free municipals? Chances are the amount of interest earned over the duration by those investments will at least equal, and possibly exceed the amount of money that you would have saved paying off the mortgage. Plus you would have had the advantage of having that liquidity in case something came up.

Better yet, take the money, put as much as possible in tax deferred index funds of stocks and bonds, and chances are very good you'll end up with even more.

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Re: Question : Paying off Mortgage

Post by grabiner » Thu Oct 26, 2017 11:19 pm

FB01 wrote:
Thu Oct 26, 2017 10:39 pm
grabiner wrote: Or even a taxable account. The OP can earn a higher after-tax interest rate on CA municipal bonds than the mortgage rate, because the mortgage allows a deduction for the high CA and federal taxes.

(This is also why I don't pay down my own mortgage, and make taxable investments instead. I don't actually hold municipal bonds, but I could earn more on municipal bonds than on mortgage prepayments, and have chosen instead to hold more bonds in my retirement account and keep my taxable account all stock.)

I am doing my IRA...401K and back door Roth IRA

Grabiner - can you give me some example of CA municipal bonds you are talking about..is there a ticker symbol in Vanguard for the bonds you are talking about?
Vanguard CA Long-Term Tax-Exempt: VCLAX has a 2.23% yield; with less than $50K, the Investor class VCITX has a 2.13% yield.

For less risk, Vanguard CA Intermediate-Term Tax-Exempt: VCADX has a 1.75% yield with a duration of 5.4 rather than 7.3 years; the Investor class VCAIX has a 1.65% yield.

(My own comparison is based on the national muni funds, as Vanguard doesn't have a fund for MD, and the non-Vanguard MD funds cost more in extra expenses than they save in taxes.)
David Grabiner

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