Should we pay off $90K mortgage with idle cash or not?

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Factor1
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Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Sun Sep 23, 2018 3:25 am

Please see the attached Dropbox link. https://www.dropbox.com/s/2wqu4untrsq74 ... e.pdf?dl=0

I have now copied the information from the attached into a post below.
Last edited by Factor1 on Sun Sep 23, 2018 3:53 pm, edited 1 time in total.

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camillus
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by camillus » Sun Sep 23, 2018 3:37 am

I am not brave enough to click on a link without any surrounding information.

I'll answer the question without clicking: No, invest that money per your AA.

UpperNwGuy
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by UpperNwGuy » Sun Sep 23, 2018 3:54 am

Keep the mortgage. Invest the idle cash in mutual funds.

Momus
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Momus » Sun Sep 23, 2018 4:14 am

Factor1 wrote:
Sun Sep 23, 2018 3:25 am
Please see the attached Dropbox link.

https://www.dropbox.com/s/2wqu4untrsq74 ... e.pdf?dl=0
Hard to read on dropbox link, copy paste it to forum, it'll be better.

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randomizer
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by randomizer » Sun Sep 23, 2018 5:40 am

What is this "idle cash" thing of which you speak?
87.5:12.5, EM tilt — HODL the course!

bpersm
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by bpersm » Sun Sep 23, 2018 5:42 am

It depends on the spread between the interest rate you are paying on the loan and the interest rate you are receiving on the money you are loaning out. If you are borrowing at a much higher rate than you are lending it makes little sense to keep the mortgage.

3funder
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by 3funder » Sun Sep 23, 2018 7:24 am

bpersm wrote:
Sun Sep 23, 2018 5:42 am
It depends on the spread between the interest rate you are paying on the loan and the interest rate you are receiving on the money you are loaning out. If you are borrowing at a much higher rate than you are lending it makes little sense to keep the mortgage.
+1

Factor1
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Re: Should we pay off $90K mortgage with available cash or not?

Post by Factor1 » Sun Sep 23, 2018 1:29 pm

Sorry, but at first I thought a Dropbox spreadsheet would be better.

Date: 09-22-18


Proposition:
1 Should we completely pay off our mortgage with available cash and then invest what would have been the monthly mortgage payment?


Facts:
1 H is 57, W is 55.
2 H is on disability, W will work for another 5 years.
3 H's LTD and SSDI is $53,000 per year until age 67. W's W-2 is $18,000 per year. W has health insurance from employer.
4 Annual expenses are less than annual income.
5 Total net worth is $1.9M, FMV of house is $410,000, liquid cash is $114,000 (earning current interest rate of 1.8%).
6 Traditional IRA's equal $1M, Roth IRA's equal $15,000, taxable investment account equals $415,000. Total is $1.43M.
7 The $1.43M is invested 60%/40% (stocks/bonds). Investments are ITOT, IXUS, AGG.
8 There are no plans to access this $1.43M for many years.
9 Kids (age 24 and 21) college education has already been funded.
10 H has CSV of whole life insurance equal to $37,000. Face amount is $75,000. H also has $140,000 paid up term life insurance policy.
11 H has potential inheritance from parents of $400-600,000 in 5-15 years from now. Both parents are now in their early 80's.
12 Plan is for H and W both to delay SS until age 70.
13 H is a boglehead and DIY'er.


Mortgage:
1 Mortgage on house equals $90,387. 15 year fixed mortgage with 106 months remaining. Rate is 3.25%. Total monthly mortgage payment is
$1,018 (P&I).
2 Remaining payments are 106 times $1,018 = $107,908.
3 If remaining payments are made as scheduled, then cumulative interest remaining to be paid is $13,127. The rest would be principal.
4 I have a $150,000 HELOC on the house with another lender. Nothing has been drawn. Took it out is case we need money for emergency.
5 HELOC rate is prime minus .26 for less than $50,000; prime less .51 for greater than $50,000.


Calculations: At 1.8% At 3%
1 Invest $1,018 that would have been the mortgage payment for 106 months at 1.8%.
Would have $117,041 at the end of 106 months. 117,041 123,690
Support = https://www.nerdwallet.com/blog/banking ... alculator/
Inputs are 0, 1018, 106, 1.8
2 Cash used to pay off mortgage of $90,387 would otherwise have grown to this
amount over 106 months and would be lost if we used it now to pay off mortgage. (121,587) (145,234)
Support = https://www.nerdwallet.com/blog/banking ... alculator/
Inputs are 90387, 136, 106, 1.8
3 $13,127 of mortgage interest would not need to be paid and would grow to this
amount after 106 months. 17,686 20,993
Support = https://www.nerdwallet.com/blog/banking ... alculator/
Inputs are 13127, 20, 106, 1.8
4 Savings we would have after 106 months if we pay off mortgage now
13,140
5 Savings/(loss) would be this amount if I use 3% instead of 1.8%.
(551)


Cash Position:
1 Cash on hand now. 114,000
2 Pay off mortgage now. (90,387)
3 Net 23,613
4 Invest 3 remaining mortgage payments for 2018 3,054 [1,018 * 3]
5 Cash at 12-31-18 26,667
6 Invest 12 remaining mortgage payments for 2019 12,216 [1,018 * 12]
7 Cash at 12-31-19 38,883
8 We easily live within our means. We would be able to save $5-10,000 per year to add to the amounts above.


Observations:
1 Historical CD rates for 1984 - 2016. https://www.bankrate.com/banking/cds/hi ... 1984-2016/
2 Historical CD rates for 2007 - 2017. https://www.gobankingrates.com/banking/ ... trategies/
3 The $114,000 of cash has been invested in short term CD's currently paying 1.8%.
4 Current rates for newly issued CD's at Fidelity.com for 3mo, 6mo, 9mo, 1yr, 2yr, 3yr, 5yr, 10yr 20yr are 2.1, 2.2, 2.35, 2.6, 2.9, 3.1, 3.4, 3.55, 3.65.
5 Our cash position is arguably too large. We want to invest it conservatively and likely would not invest it in anything other than short term risk free instruments.
6 We want to consider paying off some or all of our mortgage. We think we like the idea of saving the $13,140 shown above.


Questions:
1 Should we pay off some or all of the mortgage? If you recommend something less than 100%, what amount would you recommend?
2 Do my calculations above make sense? If not, where am I going wrong?
3 If you have any other observations other than the mortgage payoff issue, he would like to hear those too.

mortfree
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by mortfree » Sun Sep 23, 2018 3:01 pm

You’re worried about 13k in mortgage interest?

You have 400k+ in taxable investments. Another 1 million in retirement accounts. 100k+ in cash.

I’d be laughing at that 13k interest (over 9 years) right now. Plus how much interest have you paid so far in the mortgage? I Imagine you’ve paid the majority of interest already.

How much interest can your present cash value earn at 1.85% (online MM)? 2.4% (12m CD)?
************
Flip side:
Are you disciplined enough to invest that monthly mortgage amount EACH month if you do payoff the mortgage? Something always comes up.

If you choose to put the cash to the mortgage, I’d say all or none as far as payoff. If it were me I might get creative and pay it down to where I only have a year or two of payments remaining but there would be some risk since you’ve depleted cash and still are required to make payments.

Do you foresee needing to borrow money for home improvements like roof, HVAC, flooring, etc? Yes you have the HELOC and 1 million plus hanging out.

Good luck

deikel
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by deikel » Sun Sep 23, 2018 3:26 pm

randomizer wrote:
Sun Sep 23, 2018 5:40 am
What is this "idle cash" thing of which you speak?
+1 - my first thought also

Cash in a savings account current looses about 1 % value a year thanks to inflation picking up. Whatever your mortgage rate is, you will gain that vs savings account.

Paying off the mortgage robs you of leveraging this money into the stock market - however, it improves your cash flow and makes you more robust against the next recession (you can always take a HELOC if needed). Only you know if you think the stock market is still a raging bull or if some downshifting might be in order...I would certainly pay it off.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immidiatly and destroy any copy or remembrance of it.

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Watty
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Watty » Sun Sep 23, 2018 3:29 pm

Paying it off looks like an easy choice to me. Investing the money and earning a higher return is harder than it sounds because you have a sequence of returns risk. Here is an very rough example that I have posted before.

If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To break even the next year you would need to gain back the $16K and another $6,000 for the next years mortgage payments which is $22K. That would take a 25.6% return on the remaining $84K just to break even.

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Sun Sep 23, 2018 4:45 pm

Yes, I am earning interest at 1.8%, being taxed on it, losing some of it to inflation, paying mortgage interest at 3.25%, and no longer getting a tax deduction for the mortgage interest. I would like to pay it off but W is balking. We had two major life events in the last year. I went on disability 9 months ago. W received $445,000 inheritance 3 months ago. That is what makes up the $415,000 in the taxable account. The remaining $30,000 is in the $114,000 of cash. If we do not pay off the mortgage, we do not plan to invest the cash into the market. It will stay in a safe investment.
Last edited by Factor1 on Sun Sep 23, 2018 4:51 pm, edited 1 time in total.

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Sun Sep 23, 2018 4:49 pm

mortfree wrote:
Sun Sep 23, 2018 3:01 pm

Do you foresee needing to borrow money for home improvements like roof, HVAC, flooring, etc? Yes you have the HELOC and 1 million plus hanging out.
No, we had new shingles put on this summer and painted the outside last month.

mortfree
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by mortfree » Sun Sep 23, 2018 5:10 pm

Factor1 wrote:
Sun Sep 23, 2018 4:45 pm
Yes, I am earning interest at 1.8%, being taxed on it, losing some of it to inflation, paying mortgage interest at 3.25%, and no longer getting a tax deduction for the mortgage interest. I would like to pay it off but W is balking. We had two major life events in the last year. I went on disability 9 months ago. W received $445,000 inheritance 3 months ago. That is what makes up the $415,000 in the taxable account. The remaining $30,000 is in the $114,000 of cash. If we do not pay off the mortgage, we do not plan to invest the cash into the market. It will stay in a safe investment.
So it is a windfall.

Read this section if you haven’t already https://www.bogleheads.org/wiki/Managing_a_windfall

I can imagine those two life events would cause hesitation.

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Sun Sep 23, 2018 6:23 pm

mortfree wrote:
Sun Sep 23, 2018 5:10 pm
Factor1 wrote:
Sun Sep 23, 2018 4:45 pm
Yes, I am earning interest at 1.8%, being taxed on it, losing some of it to inflation, paying mortgage interest at 3.25%, and no longer getting a tax deduction for the mortgage interest. I would like to pay it off but W is balking. We had two major life events in the last year. I went on disability 9 months ago. W received $445,000 inheritance 3 months ago. That is what makes up the $415,000 in the taxable account. The remaining $30,000 is in the $114,000 of cash. If we do not pay off the mortgage, we do not plan to invest the cash into the market. It will stay in a safe investment.
So it is a windfall.

Read this section if you haven’t already https://www.bogleheads.org/wiki/Managing_a_windfall

I can imagine those two life events would cause hesitation.
Thanks for that link.

inbox788
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by inbox788 » Sun Sep 23, 2018 8:09 pm

deikel wrote:
Sun Sep 23, 2018 3:26 pm
randomizer wrote:
Sun Sep 23, 2018 5:40 am
What is this "idle cash" thing of which you speak?
+1 - my first thought also

Cash in a savings account current looses about 1 % value a year thanks to inflation picking up. Whatever your mortgage rate is, you will gain that vs savings account.

Paying off the mortgage robs you of leveraging this money into the stock market - however, it improves your cash flow and makes you more robust against the next recession (you can always take a HELOC if needed). Only you know if you think the stock market is still a raging bull or if some downshifting might be in order...I would certainly pay it off.
Yes, idle cash isn't working hard enough for you.

Simple math says you'll save about $1000/year more by paying off than not for at least the next 5-10 years.

You will save $3000 interest the first year alone, and even if you made $1800 in return, after tax, it will be reduced. As the mortgage goes down, the benefit reduces, more gradually at first, but I'm guesstimating it's more than $10k by the time you're done.

You have 415k in taxable earning 1.8% and 90k mortgage costing 3.25%, so your net is $325k. You have to beat 3.25% after taxes to make keeping the liquidity from costing you, but that would entail taking some risk. Otherwise, you have a somewhat smaller, but simpler net taxable account that you're adding $1000+/month plus reducing liabilities. How much of that taxable do you anticipate spending down, if any? And you should be tapping cash and emergency fund before you reach that point anyway.

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grabiner
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Re: Should we pay off $90K mortgage with available cash or not?

Post by grabiner » Sun Sep 23, 2018 8:27 pm

Factor1 wrote:
Sun Sep 23, 2018 1:29 pm

1 Mortgage on house equals $90,387. 15 year fixed mortgage with 106 months remaining. Rate is 3.25%.
Wiki article link: Paying down loans versus investing

Paying off this mortgage would give you a risk-free 3.25% return, with money coming to you every month as if you bought 106 CDs or bonds maturing in 1-106 months; the effective duration is about four years. Unless you donate a lot to charity (so that you could deduct the mortgage interest), the 3.25% return is tax-free.

So, would you invest in a risk-free, tax-free bond fund with a four-year duration and a 3.25% return? The market rate for a low-risk tax-free bond fund with a four-year duration is only 2.3% (average of Vanguard Limited-Term and Intermediate-Term Tax-Exempt), so that's a good deal.
Wiki David Grabiner

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Sun Sep 23, 2018 10:13 pm

inbox788 wrote:
Sun Sep 23, 2018 8:09 pm
deikel wrote:
Sun Sep 23, 2018 3:26 pm
randomizer wrote:
Sun Sep 23, 2018 5:40 am
What is this "idle cash" thing of which you speak?
+1 - my first thought also

Cash in a savings account current looses about 1 % value a year thanks to inflation picking up. Whatever your mortgage rate is, you will gain that vs savings account.

Paying off the mortgage robs you of leveraging this money into the stock market - however, it improves your cash flow and makes you more robust against the next recession (you can always take a HELOC if needed). Only you know if you think the stock market is still a raging bull or if some downshifting might be in order...I would certainly pay it off.
Yes, idle cash isn't working hard enough for you.

Simple math says you'll save about $1000/year more by paying off than not for at least the next 5-10 years.

You will save $3000 interest the first year alone, and even if you made $1800 in return, after tax, it will be reduced. As the mortgage goes down, the benefit reduces, more gradually at first, but I'm guesstimating it's more than $10k by the time you're done.

You have 415k in taxable earning 1.8% and 90k mortgage costing 3.25%, so your net is $325k. You have to beat 3.25% after taxes to make keeping the liquidity from costing you, but that would entail taking some risk. Otherwise, you have a somewhat smaller, but simpler net taxable account that you're adding $1000+/month plus reducing liabilities. How much of that taxable do you anticipate spending down, if any? And you should be tapping cash and emergency fund before you reach that point anyway.
Your $415k above should be $114k. That $415k is already invested in the market and is for retirement. The $114k is cash now earning 1.8%. We do not plan to draw on that $415 for many years. Although I am retired now due to disability, W plans to work another 5 years plus my LTD and SSDI will pay out another 10 years until I turn 67. Yes, we would tap cash and emergency funds before drawing on that $415k.

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Watty
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Watty » Sun Sep 23, 2018 10:47 pm

mortfree wrote:
Sun Sep 23, 2018 5:10 pm
Factor1 wrote:
Sun Sep 23, 2018 4:45 pm
Yes, I am earning interest at 1.8%, being taxed on it, losing some of it to inflation, paying mortgage interest at 3.25%, and no longer getting a tax deduction for the mortgage interest. I would like to pay it off but W is balking. We had two major life events in the last year. I went on disability 9 months ago. W received $445,000 inheritance 3 months ago. That is what makes up the $415,000 in the taxable account. The remaining $30,000 is in the $114,000 of cash. If we do not pay off the mortgage, we do not plan to invest the cash into the market. It will stay in a safe investment.
So it is a windfall.

Read this section if you haven’t already https://www.bogleheads.org/wiki/Managing_a_windfall

I can imagine those two life events would cause hesitation.
+1

Waiting six months to decide will not cost you a lot and with a windfall like that waiting may let you and your wife sleep better at night.

It has already been three months so you could put it on the back burner until January to get a full six months.

Factor1
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Re: Should we pay off $90K mortgage with available cash or not?

Post by Factor1 » Sun Sep 23, 2018 10:57 pm

grabiner wrote:
Sun Sep 23, 2018 8:27 pm
Factor1 wrote:
Sun Sep 23, 2018 1:29 pm

1 Mortgage on house equals $90,387. 15 year fixed mortgage with 106 months remaining. Rate is 3.25%.
Wiki article link: Paying down loans versus investing

Paying off this mortgage would give you a risk-free 3.25% return, with money coming to you every month as if you bought 106 CDs or bonds maturing in 1-106 months; the effective duration is about four years. Unless you donate a lot to charity (so that you could deduct the mortgage interest), the 3.25% return is tax-free.

So, would you invest in a risk-free, tax-free bond fund with a four-year duration and a 3.25% return? The market rate for a low-risk tax-free bond fund with a four-year duration is only 2.3% (average of Vanguard Limited-Term and Intermediate-Term Tax-Exempt), so that's a good deal.
Thanks. I just read the link you provided. We will be taking the standard deduction starting in 2018. You are right. It is a good deal. Based upon the cash position numbers in my post, we will have $38k of cash at 12-31-19. It is not $114k, but still nothing to sneeze at. I have that $37k of CSV that I can take as a loan in an emergency and any loan interest due will be paid back to myself. Of course I have the $415k in the taxable account that will only cost me the taxes on any capital gains that exist. As a last resort I have the HELOC.

I also read that windfall link from another poster. Our financial house has always been in order but even more so lately. I finally have an AA (60s/40b) that we feel comfortable with. Also, I recently prepared a written IPS that we both signed.

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Sun Sep 23, 2018 11:06 pm

Watty wrote:
Sun Sep 23, 2018 10:47 pm
mortfree wrote:
Sun Sep 23, 2018 5:10 pm
Factor1 wrote:
Sun Sep 23, 2018 4:45 pm
Yes, I am earning interest at 1.8%, being taxed on it, losing some of it to inflation, paying mortgage interest at 3.25%, and no longer getting a tax deduction for the mortgage interest. I would like to pay it off but W is balking. We had two major life events in the last year. I went on disability 9 months ago. W received $445,000 inheritance 3 months ago. That is what makes up the $415,000 in the taxable account. The remaining $30,000 is in the $114,000 of cash. If we do not pay off the mortgage, we do not plan to invest the cash into the market. It will stay in a safe investment.
So it is a windfall.

Read this section if you haven’t already https://www.bogleheads.org/wiki/Managing_a_windfall

I can imagine those two life events would cause hesitation.
+1

Waiting six months to decide will not cost you a lot and with a windfall like that waiting may let you and your wife sleep better at night.

It has already been three months so you could put it on the back burner until January to get a full six months.
W actually got the inheritance a few months ago but we have known about the amount for 9 months. That 9 months has given us lots of time to think about things. Basically, $415k is going to retirement and $30k is in the $114k cash pot of which $90k will go to pay off the mortgage. After discussing today's posts with W, she is now more comfortable with the idea of paying off the mortgage.

JoeRetire
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by JoeRetire » Mon Sep 24, 2018 7:18 am

Factor1 wrote:
Sun Sep 23, 2018 4:45 pm
If we do not pay off the mortgage, we do not plan to invest the cash into the market. It will stay in a safe investment.
Why?

JBTX
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by JBTX » Mon Sep 24, 2018 10:46 am

Personally, I wouldn't pay of 3.25 mortgage (we actually have a 3.25 mortgage and could pay some of it off). I'd keep it for liquidity and reinvest in cd's, ibonds, etc. But at your age, it is probably a push whether you do or don't. If you want to, pay it down over time vs all at once.

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Mon Sep 24, 2018 5:30 pm

JoeRetire wrote:
Mon Sep 24, 2018 7:18 am
Factor1 wrote:
Sun Sep 23, 2018 4:45 pm
If we do not pay off the mortgage, we do not plan to invest the cash into the market. It will stay in a safe investment.
Why?
Will invest in CD's.

JoeRetire
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by JoeRetire » Mon Sep 24, 2018 6:39 pm

Factor1 wrote:
Mon Sep 24, 2018 5:30 pm
JoeRetire wrote:
Mon Sep 24, 2018 7:18 am
Factor1 wrote:
Sun Sep 23, 2018 4:45 pm
If we do not pay off the mortgage, we do not plan to invest the cash into the market. It will stay in a safe investment.
Why?
Will invest in CD's.
That's not an answer to "Why?"

TomCat96
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by TomCat96 » Mon Sep 24, 2018 6:50 pm

You have 1.4M in stocks and bonds? Pay it off. No brainer.

>5 Our cash position is arguably too large. We want to invest it conservatively and likely would not invest it in anything other than short term risk free instruments.

I reiterate, your best bang for the buck is going to be a riskless mortgage rate ROI, improved cash flow, and not insignificant mental relief from paying off the mortgage.

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Thu Sep 27, 2018 4:02 pm

JoeRetire wrote:
Mon Sep 24, 2018 6:39 pm
Factor1 wrote:
Mon Sep 24, 2018 5:30 pm
JoeRetire wrote:
Mon Sep 24, 2018 7:18 am
Factor1 wrote:
Sun Sep 23, 2018 4:45 pm
If we do not pay off the mortgage, we do not plan to invest the cash into the market. It will stay in a safe investment.
Why?
Will invest in CD's.
That's not an answer to "Why?"
I want a safe investment with no risk of losing principal. This is my emergency fund. The issue is now moot as we are planning to pay off the mortgage. However, as I rebuild my cash emergency fund for the future, do you propose an investment other than CD's? Thanks.

deltaneutral83
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by deltaneutral83 » Thu Sep 27, 2018 4:20 pm

I guess at this point $90k comes out to well less than 10% of your net worth, so...it probably doesn't matter whether you take the 3.25% guaranteed return or go for more or go for CD's. No one can tell you with certainty that you're making a poor decision either way.

Thegame14
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Thegame14 » Thu Sep 27, 2018 4:25 pm

If you have an extra about $5K per month, why not just use the extra each month and pay additional principal payment from that, and you will have it paid off in about 2 years. Plus with that rate less tax deduction, it isn't much more interest than you are earning, plus interest rates are supposed to go up 5 more times in the next 18 months or so. At that point, your cash would be earning about the same as your mortgage rate.

dkb140
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by dkb140 » Thu Sep 27, 2018 5:28 pm

1. I'd be trying to stuff as much of your $114k into W's retirement accounts as possible while she is still working.

2. As your CD's come due, I'd move your cash to an online high yield savings account. There are at least three currently offering 2.25% FDIC insured.

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Thu Sep 27, 2018 7:40 pm

dkb140 wrote:
Thu Sep 27, 2018 5:28 pm
1. I'd be trying to stuff as much of your $114k into W's retirement accounts as possible while she is still working.

2. As your CD's come due, I'd move your cash to an online high yield savings account. There are at least three currently offering 2.25% FDIC insured.
Yes, for 2018 I intend to contribute the maximum to both of our Roth IRA's which is what I did in 2017.

I have accounts at Discover Bank and their current savings account rate is 1.8%. I just did some research and I found some other online banks paying 1.85% and 1.9% but nothing at 2.35%. Would you mind sharing names?

AllMostThere
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by AllMostThere » Fri Sep 28, 2018 7:11 am

While your mortgage interest rate is low, I am in the boat of "Yes" pay off your mortgage! The financial data is compelling to not payoff and invest instead. What is missing is the psychological component of the equation. DW & my first hand experience is that being mortgage debt-free is freeing to the soul. We know that the house is ours and the cash extra cash flow has provided a level of freedom that has enable us to invest max towards our retirements. Our peace of mind is exponential! :moneybag :sharebeer

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Fri Sep 28, 2018 3:59 pm

AllMostThere wrote:
Fri Sep 28, 2018 7:11 am
While your mortgage interest rate is low, I am in the boat of "Yes" pay off your mortgage! The financial data is compelling to not payoff and invest instead. What is missing is the psychological component of the equation. DW & my first hand experience is that being mortgage debt-free is freeing to the soul. We know that the house is ours and the cash extra cash flow has provided a level of freedom that has enable us to invest max towards our retirements. Our peace of mind is exponential! :moneybag :sharebeer
Great point regarding the psychological component. I experienced something like this when I realized that I could not work any longer and then went on disability. I came to an inner-piece with myself. It was an awesome feeling despite the opposite types of feelings I had as a result of the actual disability itself. It felt like the world had been lifted from my shoulders. Thanks for mentioning this.

JoeRetire
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by JoeRetire » Sat Sep 29, 2018 12:48 pm

Factor1 wrote:
Thu Sep 27, 2018 4:02 pm
I want a safe investment with no risk of losing principal. This is my emergency fund. The issue is now moot as we are planning to pay off the mortgage. However, as I rebuild my cash emergency fund for the future, do you propose an investment other than CD's? Thanks.
For my emergency fund I use an online savings account like Ally.

But it sounds like you are liquidating your emergency fund for now. Good luck.

dkb140
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by dkb140 » Mon Oct 01, 2018 1:36 pm

Factor1 wrote:
Thu Sep 27, 2018 7:40 pm
I have accounts at Discover Bank and their current savings account rate is 1.8%. I just did some research and I found some other online banks paying 1.85% and 1.9% but nothing at 2.35%. Would you mind sharing names?
I see three at 2.25% currently:
MySavingsDirect - https://www.mysavingsdirect.com
Nofthfield Bank - https://www.enorthfield.com/rates/deposit
Customers Bank - https://www.customersbank.com/ascent/

It looks like MySavingsDirect has the least restrictions of those three. And there are several other banks over 2%
https://www.bankrate.com/banking/saving ... unt-rates/

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Mon Oct 01, 2018 4:01 pm

dkb140 wrote:
Mon Oct 01, 2018 1:36 pm
Factor1 wrote:
Thu Sep 27, 2018 7:40 pm
I have accounts at Discover Bank and their current savings account rate is 1.8%. I just did some research and I found some other online banks paying 1.85% and 1.9% but nothing at 2.35%. Would you mind sharing names?
I see three at 2.25% currently:
MySavingsDirect - https://www.mysavingsdirect.com
Nofthfield Bank - https://www.enorthfield.com/rates/deposit
Customers Bank - https://www.customersbank.com/ascent/

It looks like MySavingsDirect has the least restrictions of those three. And there are several other banks over 2%
https://www.bankrate.com/banking/saving ... unt-rates/
I was at that website. I must have been moving too fast. The page I was on did not list them in order of interest rate. Stupid me. Thanks for sharing.

Dave55
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Location: Colorado

Re: Should we pay off $90K mortgage with idle cash or not?

Post by Dave55 » Mon Oct 01, 2018 6:37 pm

Pay off the mortgage.

Dave

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Re: Should we pay off $90K mortgage with idle cash or not?

Post by abuss368 » Mon Oct 01, 2018 7:15 pm

I agree, pay off the mortgage.
John C. Bogle: "You simply do not need to put your money into 8 different mutual funds!" | | Disclosure: Three Fund Portfolio + U.S. & International REITs

Factor1
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Fri Oct 05, 2018 8:09 pm

Mortgage paid off in full today. I am now debt free. It feels good. I appreciate everyone's input, it was very helpful. Thanks again.

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Watty
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Watty » Fri Oct 05, 2018 10:14 pm

Factor1 wrote:
Fri Oct 05, 2018 8:09 pm
Mortgage paid off in full today. I am now debt free. It feels good. I appreciate everyone's input, it was very helpful. Thanks again.
Congratulations!

A couple of things to do after paying off your mortgage;

1) Make sure that the property taxes and insurance get paid if you had an escrow account, you might not get the statement on time so don't wait to be billed for that.

2) Have your homeowners insurance company take the mortgage lender off the policy.

3) A few months after there has been time for the paperwork to clear be sure to check with your county to make sure that the mortgage lien has been taken off the title. Even if you get paperwork saying that lien was removed still double check on that. Once in a blue moon there will be an error and it is easier to get it fixed now instead of 20 years from now. In some areas you can do this online.

teddytimtam
Posts: 77
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by teddytimtam » Sat Oct 06, 2018 7:53 am

Factor1 wrote:
Fri Oct 05, 2018 8:09 pm
Mortgage paid off in full today. I am now debt free. It feels good. I appreciate everyone's input, it was very helpful. Thanks again.
Congrats!

To back track and address your initial question, the easiest way to look at it is in this opposite scenario.

If your house was paid for 100%, would you go borrow $90k from the bank to invest in mutual funds? :confused

Dandy
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by Dandy » Sat Oct 06, 2018 8:00 am

I have accounts at Discover Bank and their current savings account rate is 1.8%. I just did some research and I found some other online banks paying 1.85% and 1.9% but nothing at 2.35%. Would you mind sharing names?
I would be careful about chasing rates with banks and credit unions. Many have teaser rates and other gotchas that can make that frustrating. Read the reviews on depositaccounts.com before you choose another bank. If they don't have reviews or a lot of them I'd skip them. Discover, Ally and Alliant Credit Union have been pretty good choices I have not experienced or heard of many issues with them. They also have good service if you have a question or problem.

If you just can't resist the rates on a new bank then I suggest putting a modest amount in the bank until you gain confidence in them.

Vanguard Federal Money Market and Prime Money Market are paying very good rates e.g. 2.03% and 2.15% and while they are not FDIC protected they are very safe and reflect rate changes rather quickly and automatically. That is generally good in a rising rate environment. Also, they are liquid.

VG short term brokerage CDs are attractive e.g. 6mos 2.25%, 1 yr 2.55%, 2 yr 2.95%. They are FDIC protected, pay dividends to your Fed Money market, at maturity pay the proceeds to you Fed money market, there are no early withdrawal penalties but if you want to redeem before maturity you have to sell and may get a gain or loss. So you want to hold to maturity. Having some of your "idle" cash in short term CDs might earn a bit more than all in a high yield savings account.

As far a paying off the mortgage I lean toward doing that. I agree if you have experienced a few major life events recently, you should not rush into any critical decisions. I like being debt free but also like having some cash on hand to cover unexpected expenses so I don't have to mess with selling other investments.

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wander
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by wander » Sat Oct 06, 2018 9:23 am

I made that decision before based on emotion and never looked back. I just wanted to get rid of it so I don't have to see it on monthly bank statement. When we buy new house, this house will be put for rent with no mortgage.

manzanor
Posts: 3
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Re: Should we pay off $90K mortgage with idle cash or not?

Post by manzanor » Sat Oct 06, 2018 10:24 am

I had similar decision back in 2008 - a bad time for stock market. I decided to invest my taxable account 40% VTI and 60% VWITX, and my goal was to beat my mortgage rate at 3.5%.

Factor1
Posts: 69
Joined: Wed Apr 04, 2018 10:18 pm

Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Sat Oct 06, 2018 9:28 pm

Watty wrote:
Fri Oct 05, 2018 10:14 pm
Factor1 wrote:
Fri Oct 05, 2018 8:09 pm
Mortgage paid off in full today. I am now debt free. It feels good. I appreciate everyone's input, it was very helpful. Thanks again.
Congratulations!

A couple of things to do after paying off your mortgage;

1) Make sure that the property taxes and insurance get paid if you had an escrow account, you might not get the statement on time so don't wait to be billed for that.

2) Have your homeowners insurance company take the mortgage lender off the policy.

3) A few months after there has been time for the paperwork to clear be sure to check with your county to make sure that the mortgage lien has been taken off the title. Even if you get paperwork saying that lien was removed still double check on that. Once in a blue moon there will be an error and it is easier to get it fixed now instead of 20 years from now. In some areas you can do this online.
1. I was already paying these myself as I had no escrow. I am getting the statements, these are on my calendar, they are on my radar.
2. I forgot about this. I will email my agent now.
3. The lender told me they would do this and that I would get paperwork in maybe a month. I have read about the horror stories you mention. I will call the county to confirm after the paperwork comes just to be sure.

Factor1
Posts: 69
Joined: Wed Apr 04, 2018 10:18 pm

Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Sat Oct 06, 2018 9:48 pm

Dandy wrote:
Sat Oct 06, 2018 8:00 am
I have accounts at Discover Bank and their current savings account rate is 1.8%. I just did some research and I found some other online banks paying 1.85% and 1.9% but nothing at 2.35%. Would you mind sharing names?
I would be careful about chasing rates with banks and credit unions. Many have teaser rates and other gotchas that can make that frustrating. Read the reviews on depositaccounts.com before you choose another bank. If they don't have reviews or a lot of them I'd skip them. Discover, Ally and Alliant Credit Union have been pretty good choices I have not experienced or heard of many issues with them. They also have good service if you have a question or problem.

If you just can't resist the rates on a new bank then I suggest putting a modest amount in the bank until you gain confidence in them.

Vanguard Federal Money Market and Prime Money Market are paying very good rates e.g. 2.03% and 2.15% and while they are not FDIC protected they are very safe and reflect rate changes rather quickly and automatically. That is generally good in a rising rate environment. Also, they are liquid.

VG short term brokerage CDs are attractive e.g. 6mos 2.25%, 1 yr 2.55%, 2 yr 2.95%. They are FDIC protected, pay dividends to your Fed Money market, at maturity pay the proceeds to you Fed money market, there are no early withdrawal penalties but if you want to redeem before maturity you have to sell and may get a gain or loss. So you want to hold to maturity. Having some of your "idle" cash in short term CDs might earn a bit more than all in a high yield savings account.

As far a paying off the mortgage I lean toward doing that. I agree if you have experienced a few major life events recently, you should not rush into any critical decisions. I like being debt free but also like having some cash on hand to cover unexpected expenses so I don't have to mess with selling other investments.
I do not intend to chase rates and I appreciate your comments. I have been with Discover Bank for years and never had a problem and their customer service is great. Their rates are good too in my opinion. True, we did have some major life events recently, but we did not rush into anything. If I need cash fast for an emergency tomorrow, we have options that we have already thought through.

Factor1
Posts: 69
Joined: Wed Apr 04, 2018 10:18 pm

Re: Should we pay off $90K mortgage with idle cash or not?

Post by Factor1 » Sat Oct 06, 2018 9:51 pm

teddytimtam wrote:
Sat Oct 06, 2018 7:53 am
Factor1 wrote:
Fri Oct 05, 2018 8:09 pm
Mortgage paid off in full today. I am now debt free. It feels good. I appreciate everyone's input, it was very helpful. Thanks again.
Congrats!

To back track and address your initial question, the easiest way to look at it is in this opposite scenario.

If your house was paid for 100%, would you go borrow $90k from the bank to invest in mutual funds? :confused
Nope.

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