Going “all in” on paying mortgage

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5280Tim
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Re: Going “all in” on paying mortgage

Post by 5280Tim »

Bogle_Bro wrote: Wed Oct 21, 2020 8:11 pm
yatesd wrote: Wed Oct 21, 2020 7:58 pm
260chrisb wrote: Wed Oct 21, 2020 7:08 pm
7eight9 wrote: Wed Oct 21, 2020 3:49 pm In 2004 we put 50% down. Paid off the mortgage within 12 months by eschewing all other investing/saving and making the mortgage payoff the sole priority. The only regret is that if we knew the housing market would collapse a few years later we would have put down the least possible and defaulted once it was obvious we were deeply underwater (non-recourse loan).
Okay, I'm sorry; I simply don't understand this! In other words you would have preferred to let the loan that you signed up for go into default since it was non-recourse? Wow! Seems to me that logic created a LOT of problems in the economy didn't it? On a separate note; if you or any of us had the ability to foresee things like a housing market crash we wouldn't need to be taking out mortgages! :confused
I agree, this behavior is not ethical and should not be condoned on this forum. A "mortgage" is a contract/agreement to pay someone back.
Breaking a contract is not in and of itself unethical

Nor is defaulting on a loan inherently immoral
I would say doing it intentionally certainly is.
EnjoyIt
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Re: Going “all in” on paying mortgage

Post by EnjoyIt »

pepperz wrote: Wed Oct 21, 2020 3:43 pm Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up, etc etc.... but at what cost?

I’d love to hear from folks that have done it or regretted not doing it.
We paid off our 2.75% mortgage only after our wealth was 25x expenses with a paid off mortgage. I would not even consider doing it much sooner.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
rockstar
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Re: Going “all in” on paying mortgage

Post by rockstar »

Tdubs wrote: Wed Oct 21, 2020 9:26 pm
rockstar wrote: Wed Oct 21, 2020 8:22 pm
pepperz wrote: Wed Oct 21, 2020 3:43 pm Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up, etc etc.... but at what cost?

I’d love to hear from folks that have done it or regretted not doing it.
Since I couldn't go on as many trips as I had planned this year, I put that cash against my mortgage. I feel like it's my illiquid bond allocation now.
That is how I view it, too. I know many advise against viewing the mortgage as part of your asset allocation, but I do now that i am within several years of paying off anyway. I can get a guaranteed 3.375% after-tax return on an illiquid investment by paying off or I can buy into a liquid bond fund of uncertain near-term returns. I'm going with the former and compensating by reducing my bond allocation a bit. I have enough in emergency funds.
I feel like it's less risky than buying bonds right now on the long end. Short term bonds are practically at zero. This is money I would have spent on vacation anyway, so I wouldn't have expected to have it. To me it makes practical sense to spend vacation money on paying down my home faster. I figure I'm shorting the length of my loan by at least two years this year.
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Quirkz
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Re: Going “all in” on paying mortgage

Post by Quirkz »

anon_investor wrote: Wed Oct 21, 2020 7:08 pm I am doing the exact opposite after completing a refi to 2.75% 30yr fixed this year, I am putting my new found savings from a lower mortgage payment into VTSAX in my taxable.
I'm in this boat, too.

For a long time I was strongly in the camp of paying it off early. Reduce interest, get it off the monthly budget, free up cashflow and be debt free.

But a number of factors have changed my thinking. One is the interest rate. At 6%, on a 30-year loan you're paying multiple times in interest what you borrowed. But below 3%, you're not even paying a third that much, maybe only a quarter. Also, being here on Bogleheads for a while, I've been swayed toward emphasis on investment, and particularly I've become convinced that my investments are likely to outdo a 2.75% mortgage. I think I'd feel different if we were still at 4% or more, but we're not.

So at this point I've reversed my old plans. I'm going to pay absolute minimums on the house, and accept the cheap loan, interest an all, in order to focus on investing. If I eventually have enough to totally pay off the house, I might consider that in 15 or 20 years, particularly as I get close to retirement, but otherwise I'm content with accepting these particular costs and the ongoing payment.
nick evets
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Re: Going “all in” on paying mortgage

Post by nick evets »

KlangFool wrote: Wed Oct 21, 2020 5:21 pm
nick evets,

How does putting an additional 12K per year into your house make you safer? It does not. You just put more money into an illiquid asset,

<<401k/TSP for me and my wife respectively. I feel 'invested enough' in the market between these accounts, >>

Are you FI now? If not, why do you mean by invested enough?

Either pay off the WHOLE mortgage or don't. Pre-paying a portion of the mortgage reduces your LIQUIDITY. It does not make you safer in a RECESSION.

I had been through too many recessions and economic crises. We are in a RECESSION now.

KlangFool
My point is, we don't have the desire to assume more risk in the market. We're on the cusp of retirement. The two options for extra money from the paycheck:
1) apply towards mortgage
2) deposit into a savings account
3) invest in some taxable fund/stock

Since I'm not doing "3" for reasons of risk, and I'm not particularly worried about being illiquid (why?), the calculus is savings (.5% maybe) vs mortgage (3%).

The thought of freeing up $20k in expenses each year by paying off our mortgage early is incredibly attractive. That's a significant amount that remains invested by staying in the retirement portfolio.

In my 40's, I agree -- we saw no reason to pre-pay when we first bought our primary residence, and probably didn't have the free cash to do so anyway.
KlangFool
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Re: Going “all in” on paying mortgage

Post by KlangFool »

nick evets wrote: Thu Oct 22, 2020 7:33 am
KlangFool wrote: Wed Oct 21, 2020 5:21 pm
nick evets,

How does putting an additional 12K per year into your house make you safer? It does not. You just put more money into an illiquid asset,

<<401k/TSP for me and my wife respectively. I feel 'invested enough' in the market between these accounts, >>

Are you FI now? If not, why do you mean by invested enough?

Either pay off the WHOLE mortgage or don't. Pre-paying a portion of the mortgage reduces your LIQUIDITY. It does not make you safer in a RECESSION.

I had been through too many recessions and economic crises. We are in a RECESSION now.

KlangFool
My point is, we don't have the desire to assume more risk in the market. We're on the cusp of retirement. The two options for extra money from the paycheck:
1) apply towards mortgage
2) deposit into a savings account
3) invest in some taxable fund/stock

Since I'm not doing "3" for reasons of risk, and I'm not particularly worried about being illiquid (why?), the calculus is savings (.5% maybe) vs mortgage (3%).

The thought of freeing up $20k in expenses each year by paying off our mortgage early is incredibly attractive. That's a significant amount that remains invested by staying in the retirement portfolio.

In my 40's, I agree -- we saw no reason to pre-pay when we first bought our primary residence, and probably didn't have the free cash to do so anyway.
nick evets,

<<The thought of freeing up $20k in expenses each year by paying off our mortgage early is incredibly attractive. >>


You are paying down the mortgage. Until the whole mortgage is paid off, you are not freeing up the 20K in expense. Meanwhile, you lose 12K in LIQUIDITY. What happened if you are unemployed between now and when your mortgage is paid off? What happened if your unemployment last longer than your emergency fund?

We are in a RECESSION. We have close to 1 million newly unemployed every week. We have no idea when the RECESSION would be over. So, the only thing that makes you safer is (2).


You have to survive in order to succeed. Do not be penny wise and pound foolish. Saving 2.5% on 12K will not make you rich. But, the money could come in handy if you are unemployed.


KlangFool
EnjoyIt
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Re: Going “all in” on paying mortgage

Post by EnjoyIt »

nick evets wrote: Thu Oct 22, 2020 7:33 am
KlangFool wrote: Wed Oct 21, 2020 5:21 pm
nick evets,

How does putting an additional 12K per year into your house make you safer? It does not. You just put more money into an illiquid asset,

<<401k/TSP for me and my wife respectively. I feel 'invested enough' in the market between these accounts, >>

Are you FI now? If not, why do you mean by invested enough?

Either pay off the WHOLE mortgage or don't. Pre-paying a portion of the mortgage reduces your LIQUIDITY. It does not make you safer in a RECESSION.

I had been through too many recessions and economic crises. We are in a RECESSION now.

KlangFool
My point is, we don't have the desire to assume more risk in the market. We're on the cusp of retirement. The two options for extra money from the paycheck:
1) apply towards mortgage
2) deposit into a savings account
3) invest in some taxable fund/stock

Since I'm not doing "3" for reasons of risk, and I'm not particularly worried about being illiquid (why?), the calculus is savings (.5% maybe) vs mortgage (3%).

The thought of freeing up $20k in expenses each year by paying off our mortgage early is incredibly attractive. That's a significant amount that remains invested by staying in the retirement portfolio.

In my 40's, I agree -- we saw no reason to pre-pay when we first bought our primary residence, and probably didn't have the free cash to do so anyway.
Being close to retirement is a great reason to pay off the mortgage. Market timing is a poor reason to pay down your mortgage. Being close to retirement supersedes market timing in my unsolicited opinion.

Now, regarding your risk tolerance. I think your comment above makes me believe it may be time to re-evaluate your risk tolerance and therefor your desired AA. Eventually your mortgage will be paid off and you will be right back where you are. I could be very very wrong but I figured I share anyways.

Lastly, if paying off your mortgage will a year or less then sure, but if this is a multi year endeavor, I would strongly recommend holding unto the cash, consider reevaluating your asset allocation and storing it in bonds/ CDs / bank bonuses / whatever. Cash is much safer than a partially paid off house. Maybe re-eval after covid is taken care of.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
arsenalfan
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Re: Going “all in” on paying mortgage

Post by arsenalfan »

I've toyed with it. Would do it if I was >75% confident I was going to retire in this house.

Starting 2013 any surplus I put 33% towards mortgage and 67% towards aftertax investing VTSAX.

Aftertax account now > mortgage (after paying 60k cap gains). Am ambivalent about paying it off, started a BH thread and got some good feedback but no clear winner/consensus.

Like having the liqudity, am refinancing refinanced 15 year 2.875%.
EnjoyIt
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Re: Going “all in” on paying mortgage

Post by EnjoyIt »

arsenalfan wrote: Thu Oct 22, 2020 7:59 am I've toyed with it. Would do it if I was >75% confident I was going to retire in this house.

Starting 2013 any surplus I put 33% towards mortgage and 67% towards aftertax investing VTSAX.

Aftertax account now > mortgage (after paying 60k cap gains). Am ambivalent about paying it off, started a BH thread and got some good feedback but no clear winner/consensus.

Like having the liqudity, am refinancing refinanced 15 year 2.875%.
What does living in the house forever have anything to do with this decision. We just did the exact opposite. Once we hit 25x expenses but still working and therefor still saving we needed to decide where to invest the money. Since the market is up and we rebalanced we are/we’re equity heavy. We chose to put new investments into a 2.75 mortgage instead of 1% bonds. We expect to sell out house pretty soon. Probably within the next 1-2 years. This process guaranteed a 2.75% return on our investments that would have returned less in bonds. We will get that money back when we sell and can decide if another mortgage or paying cash is the best decision.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
nick evets
Posts: 289
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Re: Going “all in” on paying mortgage

Post by nick evets »

EnjoyIt wrote: Thu Oct 22, 2020 7:52 am
Being close to retirement is a great reason to pay off the mortgage. Market timing is a poor reason to pay down your mortgage. Being close to retirement supersedes market timing in my unsolicited opinion.

Now, regarding your risk tolerance. I think your comment above makes me believe it may be time to re-evaluate your risk tolerance and therefor your desired AA. Eventually your mortgage will be paid off and you will be right back where you are. I could be very very wrong but I figured I share anyways.

Lastly, if paying off your mortgage will a year or less then sure, but if this is a multi year endeavor, I would strongly recommend holding unto the cash, consider reevaluating your asset allocation and storing it in bonds/ CDs / bank bonuses / whatever. Cash is much safer than a partially paid off house. Maybe re-eval after covid is taken care of.
A couple points - we could basically retire at any time. I have some personal reasons for wanting to continue a little longer, but it's months (perhaps an additional year for my wife), only. If I were to be unemployed, tbh I'd be delighted -- I'd get an unexpected minor windfall of a 'package' that I'm not otherwise expecting.

After 2 years of paying an additional $1k, in another two years we should be able to pay off our mortgage (with some extra cash on hand); essentially 2 years into our retirement we no longer have an annual expense of $20,000. That's huge, imo.

I don't need the safety of (additional) cash, and since it's not beating the %3 cost of the mortgage (I realize it's less, as an itemized deduction) it makes no sense to hoard it.

A reasonable counter-argument could be made that I'd come out ahead by dumping $1k/mo for two years into equities, the using THAT to apply to the mortgage, but again, it's more risk than I want and need. On Sep 30, the YTD return of a 60/40 fund was only 2.something, no? And I'd have capital gains tax on top of that.

(Apologies to OP - not trying to derail your thread; just add additional data as your situation seems similar)
BrooklynInvest
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Re: Going “all in” on paying mortgage

Post by BrooklynInvest »

I'm doing that now. My sequence of events -

1. Maximized tax-advantage ever since I was able to

2. Added to taxable a bit while eliminating variable rate part of my (super-mega Jumbo Brooklyn-sized) mortgage. I liked reducing the rate risk but with hindsight the opportunity cost was pretty high

3. Once that was eliminated, added to my taxable while making standard payments only on primary mortgage

4. Once total retirement savings (tax-advanced + taxable) was close to where it needed to be, I started aggressively paying down primary mortgage so I can be debt free at early retirement
Outer Marker
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Re: Going “all in” on paying mortgage

Post by Outer Marker »

I'm a big fan of paying off the mortgage, but I think its a mistake to be too myopic about it to the exclusion of other investments. Sure, if you have extra money left over, put more towards the mortgage, but don't fail to max out your tax advantaged accounts first. If you chose a 15 year to begin with, the mortgage solves itself long before retirement. And, when the finish line comes into view you can reasonably dip into your safe money reserves to pay it off in a lump sum. Building wealth requires multiple and simultaneous strategies, not just one.
EnjoyIt
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Re: Going “all in” on paying mortgage

Post by EnjoyIt »

nick evets wrote: Thu Oct 22, 2020 8:45 am
EnjoyIt wrote: Thu Oct 22, 2020 7:52 am
Being close to retirement is a great reason to pay off the mortgage. Market timing is a poor reason to pay down your mortgage. Being close to retirement supersedes market timing in my unsolicited opinion.

Now, regarding your risk tolerance. I think your comment above makes me believe it may be time to re-evaluate your risk tolerance and therefor your desired AA. Eventually your mortgage will be paid off and you will be right back where you are. I could be very very wrong but I figured I share anyways.

Lastly, if paying off your mortgage will a year or less then sure, but if this is a multi year endeavor, I would strongly recommend holding unto the cash, consider reevaluating your asset allocation and storing it in bonds/ CDs / bank bonuses / whatever. Cash is much safer than a partially paid off house. Maybe re-eval after covid is taken care of.
A couple points - we could basically retire at any time. I have some personal reasons for wanting to continue a little longer, but it's months (perhaps an additional year for my wife), only. If I were to be unemployed, tbh I'd be delighted -- I'd get an unexpected minor windfall of a 'package' that I'm not otherwise expecting.

After 2 years of paying an additional $1k, in another two years we should be able to pay off our mortgage (with some extra cash on hand); essentially 2 years into our retirement we no longer have an annual expense of $20,000. That's huge, imo.

I don't need the safety of (additional) cash, and since it's not beating the %3 cost of the mortgage (I realize it's less, as an itemized deduction) it makes no sense to hoard it.

A reasonable counter-argument could be made that I'd come out ahead by dumping $1k/mo for two years into equities, the using THAT to apply to the mortgage, but again, it's more risk than I want and need. On Sep 30, the YTD return of a 60/40 fund was only 2.something, no? And I'd have capital gains tax on top of that.

(Apologies to OP - not trying to derail your thread; just add additional data as your situation seems similar)
Wonderful and congrats on your success. That is similar to what happened to us. One thing we did to speed up the process is take dividends from our taxable account and throw that at our mortgage as well.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
ddurrett896
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Re: Going “all in” on paying mortgage

Post by ddurrett896 »

I go back and forth, but always revert back to paying the minimum due. My rational is always the same....

Do you ever check Zillow home prices and say, "My neighbor paid $xxxxx for their house back in 2000 (or some year >15 years ago)? If I bought at that price, I could pay it off in 2 years today!"

Pretty much enforces the thought that deferring payment to the latest possible date works out best. I met in the middle and pulled a 15 year long and pay the minimum due.
arsenalfan
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Re: Going “all in” on paying mortgage

Post by arsenalfan »

EnjoyIt wrote: Thu Oct 22, 2020 8:08 am
arsenalfan wrote: Thu Oct 22, 2020 7:59 am I've toyed with it. Would do it if I was >75% confident I was going to retire in this house.

Starting 2013 any surplus I put 33% towards mortgage and 67% towards aftertax investing VTSAX.

Aftertax account now > mortgage (after paying 60k cap gains). Am ambivalent about paying it off, started a BH thread and got some good feedback but no clear winner/consensus.

Like having the liqudity, am refinancing refinanced 15 year 2.875%.
What does living in the house forever have anything to do with this decision. We just did the exact opposite. Once we hit 25x expenses but still working and therefor still saving we needed to decide where to invest the money. Since the market is up and we rebalanced we are/we’re equity heavy. We chose to put new investments into a 2.75 mortgage instead of 1% bonds. We expect to sell out house pretty soon. Probably within the next 1-2 years. This process guaranteed a 2.75% return on our investments that would have returned less in bonds. We will get that money back when we sell and can decide if another mortgage or paying cash is the best decision.

Sure, if your AA says to buy bonds/you have liqudity, ascribe to the "House as a Negative Bond" .
OP, are you at a point where your AA says to buy bonds?
For me, my AA doesn't say to buy bonds, but other higher risk/higher reward investments.
"Forever Home" comes into it only because I do think a home is a consumption item and should be paid off before retirement - but think we'll downsize.
We've been living off passive income for the past 3 years, so temptation is real to pay off the home though.
Grogs
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Re: Going “all in” on paying mortgage

Post by Grogs »

I think the danger of going all in paying the mortgage is the loss of liquidity. If you lose your job when it's mostly paid off, say 50-80% equity, you're still on the hook for several years' of mortgage payments but have a smaller cash cushion. My understanding from the great financial crisis is that those were the first ones foreclosed on because the banks could sell them at fire sale prices and still be made whole. The more typical underwater home where $300k was owed on a house now worth $200k was a lot less appealing.

Given that the OP says job loss isn't an issue, I think working to get it paid off makes sense in light of the pitiful yields currently available on CDs and bonds.
houseofnine
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Re: Going “all in” on paying mortgage

Post by houseofnine »

corn18 wrote: Wed Oct 21, 2020 9:01 pm We paid our mortgage off last year. Used our taxable account to do it. Felt good.
I’m curious about the details behind this as I am in a similar situation. Are you saying you sold taxable while you still had income? Did you justify the numbers or just go for the “feel good” effect?
ksleo
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Re: Going “all in” on paying mortgage

Post by ksleo »

Some commenters say that by paying off the mortgage you'll be taking liquidity risk. Others say it's good to pay it off early, but in a more "planned" fashion, i.e. one extra payment per month instead of everything extra. These may or may not be fair points, I don't intend/want to argue them. I'll just give you my experience.

Someone mentioned that minimization of regret is important since personal finance is personal - that's the point I'd like to speak to. I've made lots of dumb investments in my life and thrown what I considered large sums of money at ventures that never went anywhere. The one thing I've never regretted is buying our house with cash.

COVID? Whatever, my house is paid for.
Market crash? Whatever, my house is paid for.
Another baby on the way? Whatever, my house is paid for.
Politicians? Whatever, my house is paid for.
Actions have consequences.
rockstar
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Re: Going “all in” on paying mortgage

Post by rockstar »

:oops:
ksleo wrote: Thu Oct 22, 2020 10:47 am Some commenters say that by paying off the mortgage you'll be taking liquidity risk. Others say it's good to pay it off early, but in a more "planned" fashion, i.e. one extra payment per month instead of everything extra. These may or may not be fair points, I don't intend/want to argue them. I'll just give you my experience.

Someone mentioned that minimization of regret is important since personal finance is personal - that's the point I'd like to speak to. I've made lots of dumb investments in my life and thrown what I considered large sums of money at ventures that never went anywhere. The one thing I've never regretted is buying our house with cash.

COVID? Whatever, my house is paid for.
Market crash? Whatever, my house is paid for.
Another baby on the way? Whatever, my house is paid for.
Politicians? Whatever, my house is paid for.
Definitely. And it's one less expense for your 25x expense calculation.

Someone should start a thread: should I buy a $100k car or pay my mortgage down faster?
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corn18
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Re: Going “all in” on paying mortgage

Post by corn18 »

houseofnine wrote: Thu Oct 22, 2020 10:23 am
corn18 wrote: Wed Oct 21, 2020 9:01 pm We paid our mortgage off last year. Used our taxable account to do it. Felt good.
I’m curious about the details behind this as I am in a similar situation. Are you saying you sold taxable while you still had income? Did you justify the numbers or just go for the “feel good” effect?
We had a large income year that spun off enough excess cash ($425k) to pay off the mortgage. We did have to sell $75k out of the taxable account but I sold lots with little or no cap gains. My IPS said do not pay off the mortgage, but I let emotions get the best of me chasing the feel good aspect of being completely debt free. That created a liquidity issue buying the new house if we didn’t sell the old one first. Fortunately the old one sold fast and we had plenty of cash to pay for the new house. It did feel good to not have a mortgage but my model didn’t like paying cash for the new house vs. taking the 2.75% fixed 30 year mortgage. So we have a mortgage and I don’t mind one bit.
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HomerJ
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Re: Going “all in” on paying mortgage

Post by HomerJ »

We did 50/50... Half of our extra money went to the mortgage, the other half into taxable savings.

At some point, we owed $50,000 on the mortgage, and had $75,000 in taxable, and then just paid off the house.

I don't like the idea of zero in taxable savings for multiple years... Some liquidity is nice.

Like, at one point, we probably still owed $70,000 on the mortgage and probably had $40,000 in taxable...

Owing $30,000 on the mortgage and $0 in taxable didn't appeal to me.

But for 3-5 years we paid extra on the mortgage AND saved money in taxable accounts, but then finally we had enough to pay off the mortgage with a lump sum, and still have some money left over.

And I LOVE, LOVE, LOVE being mortgage free.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
KlangFool
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Re: Going “all in” on paying mortgage

Post by KlangFool »

nick evets wrote: Thu Oct 22, 2020 8:45 am
EnjoyIt wrote: Thu Oct 22, 2020 7:52 am
Being close to retirement is a great reason to pay off the mortgage. Market timing is a poor reason to pay down your mortgage. Being close to retirement supersedes market timing in my unsolicited opinion.

Now, regarding your risk tolerance. I think your comment above makes me believe it may be time to re-evaluate your risk tolerance and therefor your desired AA. Eventually your mortgage will be paid off and you will be right back where you are. I could be very very wrong but I figured I share anyways.

Lastly, if paying off your mortgage will a year or less then sure, but if this is a multi year endeavor, I would strongly recommend holding unto the cash, consider reevaluating your asset allocation and storing it in bonds/ CDs / bank bonuses / whatever. Cash is much safer than a partially paid off house. Maybe re-eval after covid is taken care of.
A couple points - we could basically retire at any time.
nick evets,

Is that true even if the stock market drops 50% and you are laid off without severance?


KlangFool
neverpanic
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Re: Going “all in” on paying mortgage

Post by neverpanic »

pepperz wrote: Wed Oct 21, 2020 3:43 pm Has anyone prioritized their mortgage big time over taxable investing?

I’m talking about sending all investible funds straight to mortgage after maxing out tax advantaged accounts.

I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.

You would need less emergency fund, have less stress, be able to take more risk to catch up, etc etc.... but at what cost?

I’d love to hear from folks that have done it or regretted not doing it.
I had average credit, did not have 20% for down payment, and even though there had been a price decrease as the crisis was beginning, I bought into an overpriced, but declining market and nowhere near the bottom. The interest rate was over 6%. When my credit was finally good and I had solid cash flow, 2 refi attempts failed for one reason or another. So, I went full bore into paying off the note. I gave up a lot of market opportunities, but in my case, the guaranteed 6% return was worth it.

I did not know much about investing 15 years ago and had no retirement plan until very recently, so my entire mindset had "get debt-free ASAP" as the foundation.
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
rockstar
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Re: Going “all in” on paying mortgage

Post by rockstar »

arsenalfan wrote: Thu Oct 22, 2020 7:59 am I've toyed with it. Would do it if I was >75% confident I was going to retire in this house.

Starting 2013 any surplus I put 33% towards mortgage and 67% towards aftertax investing VTSAX.

Aftertax account now > mortgage (after paying 60k cap gains). Am ambivalent about paying it off, started a BH thread and got some good feedback but no clear winner/consensus.

Like having the liqudity, am refinancing refinanced 15 year 2.875%.
Another way to think about it is to pay it off enough to shrink your payment. I'm refinancing into a 30 at 2.8%. This significantly reduces my payment. This affords me the opportunity to minimize my monthly expenses, so if something happens, I'll need less in liquid emergency funds.
EnjoyIt
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Re: Going “all in” on paying mortgage

Post by EnjoyIt »

arsenalfan wrote: Thu Oct 22, 2020 10:01 am
EnjoyIt wrote: Thu Oct 22, 2020 8:08 am
arsenalfan wrote: Thu Oct 22, 2020 7:59 am I've toyed with it. Would do it if I was >75% confident I was going to retire in this house.

Starting 2013 any surplus I put 33% towards mortgage and 67% towards aftertax investing VTSAX.

Aftertax account now > mortgage (after paying 60k cap gains). Am ambivalent about paying it off, started a BH thread and got some good feedback but no clear winner/consensus.

Like having the liqudity, am refinancing refinanced 15 year 2.875%.
What does living in the house forever have anything to do with this decision. We just did the exact opposite. Once we hit 25x expenses but still working and therefor still saving we needed to decide where to invest the money. Since the market is up and we rebalanced we are/we’re equity heavy. We chose to put new investments into a 2.75 mortgage instead of 1% bonds. We expect to sell out house pretty soon. Probably within the next 1-2 years. This process guaranteed a 2.75% return on our investments that would have returned less in bonds. We will get that money back when we sell and can decide if another mortgage or paying cash is the best decision.

Sure, if your AA says to buy bonds/you have liqudity, ascribe to the "House as a Negative Bond" .
OP, are you at a point where your AA says to buy bonds?
For me, my AA doesn't say to buy bonds, but other higher risk/higher reward investments.
"Forever Home" comes into it only because I do think a home is a consumption item and should be paid off before retirement - but think we'll downsize.
We've been living off passive income for the past 3 years, so temptation is real to pay off the home though.
Yes, my AA would dictate buying bonds. I rebalanced in March and the recovery went very well putting me ahead in equities on my AA. Therefor I would have to buy bonds. But instead I bought out my mortgage.
I also agree that a home is a consumption item. Paying it down becomes even more important when staring to look at potential ACA subsidies, Medicare premiums, Social Security taxes. No mortgage equals lower expenses which equals lower taxable income. Obviously everyone's math is different. I just know where we stand.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
arsenalfan
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Re: Going “all in” on paying mortgage

Post by arsenalfan »

Ok.

Was trying to get this thread back to the OP's question.

OP I could see paying down your mortgage instead of buying bonds, if you have enough liquidity in your emergency fund.
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Re: Going “all in” on paying mortgage

Post by jjface »

As long as you have enough liquidity it is perfectly acceptable to do this
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pepperz
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Re: Going “all in” on paying mortgage

Post by pepperz »

Aggressively paying down mortgage as long as it fits (negative) bond asset allocation is an interesting concept a few others mentioned that I hadn’t considered.

I read somewhere a while back that if you’re over 40 years old it’s not advisable for your home equity to be more than 30% of your net worth. I’m wondering if it’s wise to prioritize that much of a down payment down to that at time of refi, and then either contribute at that level (~30% of monthly cash-flow to mortgage) or 50/50 just to make it easy.

Currently we have about 12 months “emergency fund” saved which includes our mortgage payment at 30 years. (As mentioned I am looking at refinancing to 15 so I’d have to save more if I really want to maintain 12 months at the new payment.)


arsenalfan wrote: Thu Oct 22, 2020 3:54 pm Ok.

Was trying to get this thread back to the OP's question.

OP I could see paying down your mortgage instead of buying bonds, if you have enough liquidity in your emergency fund.
EnjoyIt
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Re: Going “all in” on paying mortgage

Post by EnjoyIt »

ksleo wrote: Thu Oct 22, 2020 10:47 am Some commenters say that by paying off the mortgage you'll be taking liquidity risk. Others say it's good to pay it off early, but in a more "planned" fashion, i.e. one extra payment per month instead of everything extra. These may or may not be fair points, I don't intend/want to argue them. I'll just give you my experience.

Someone mentioned that minimization of regret is important since personal finance is personal - that's the point I'd like to speak to. I've made lots of dumb investments in my life and thrown what I considered large sums of money at ventures that never went anywhere. The one thing I've never regretted is buying our house with cash.

COVID? Whatever, my house is paid for.
Market crash? Whatever, my house is paid for.
Another baby on the way? Whatever, my house is paid for.
Politicians? Whatever, my house is paid for.
Have you ever gone back and done a calculation on where you would be today if you instead invested that cash in a 70/30 or whatever portfolio. Not that I expect you to do it, or there is any real value in it for you. But, for those looking to make this decision today, they need to understand what they are getting into and try not to make financial decisions with emotion alone. Having a paid off house is a luxury. It costs money and it costs opportunity. Again, nothing wrong with that, but it should be understood when choosing that decision.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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Re: Going “all in” on paying mortgage

Post by KlangFool »

pepperz wrote: Thu Oct 22, 2020 4:06 pm
Aggressively paying down mortgage as long as it fits (negative) bond asset allocation is an interesting concept a few others mentioned that I hadn’t considered.
pepperz,

That is a fundamentally flawed concept. You could sell $1,000 worth of the bond and get $1,000 back. You cannot sell $1,000 worth of your house/mortgage and get $1,000 back.

A mortgage is not a negative bond.


KlangFool
EnjoyIt
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Re: Going “all in” on paying mortgage

Post by EnjoyIt »

pepperz wrote: Thu Oct 22, 2020 4:06 pm Aggressively paying down mortgage as long as it fits (negative) bond asset allocation is an interesting concept a few others mentioned that I hadn’t considered.

I read somewhere a while back that if you’re over 40 years old it’s not advisable for your home equity to be more than 30% of your net worth. I’m wondering if it’s wise to prioritize that much of a down payment down to that at time of refi, and then either contribute at that level (~30% of monthly cash-flow to mortgage) or 50/50 just to make it easy.

Currently we have about 12 months “emergency fund” saved which includes our mortgage payment at 30 years. (As mentioned I am looking at refinancing to 15 so I’d have to save more if I really want to maintain 12 months at the new payment.)


arsenalfan wrote: Thu Oct 22, 2020 3:54 pm Ok.

Was trying to get this thread back to the OP's question.

OP I could see paying down your mortgage instead of buying bonds, if you have enough liquidity in your emergency fund.
I would not recommend using the mortgage as a negative bond mentality until one has plenty of liquidity. There are some very strong proponents of this thinking and even recommend adjusting one's asset allocation to incorporate the mortgage as a negative bond. Although mathematically it is correct, ignoring that fact and investing in a higher equity position that one's risk tolerance finds acceptable has a much higher expected return which after all is most of our goals. With that in mind I would not consider the mortgage as a negative bond until that mortgage is a small portion of your bond holdings. The last place you want to be is 100% equities with no bonds at all and a paid off house as an extreme example. Far better off still having some bonds and a mortgage where those bonds can always be used for X months or even years of expenses if needed. I hope that rant makes sense.

I did not start considering the mortgage as a negative bond until I was close to having 25x expenses in investments.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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Re: Going “all in” on paying mortgage

Post by inbox788 »

pepperz wrote: Thu Oct 22, 2020 4:06 pm Aggressively paying down mortgage as long as it fits (negative) bond asset allocation is an interesting concept a few others mentioned that I hadn’t considered.

I read somewhere a while back that if you’re over 40 years old it’s not advisable for your home equity to be more than 30% of your net worth. I’m wondering if it’s wise to prioritize that much of a down payment down to that at time of refi, and then either contribute at that level (~30% of monthly cash-flow to mortgage) or 50/50 just to make it easy.

Currently we have about 12 months “emergency fund” saved which includes our mortgage payment at 30 years. (As mentioned I am looking at refinancing to 15 so I’d have to save more if I really want to maintain 12 months at the new payment.)
I didn't get the sense of what you'd do with the funds instead of paying down mortgage.

What is your current 30 year rate? How much can your lower your rate just refinancing? How much more lowering the term?

Seems like the idea of committing to a 15 year payment is a issue for you, so I wouldn't get too aggressive in any way.
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Re: Going “all in” on paying mortgage

Post by Bronko »

OP I have recently refinanced to a 30 year loan at 2.25%. This knocked a lot off the payment. I'm a couple of years from retirement. I will have a pension. I was always of the school to pay more towards principal and get it off the balance sheet early. I've decided at such a low rate I'd rather put that extra money in lifestyle enhancement for the family and extra investments.

One never knows when the reaper comes knocking. If you have your family protected, are well invested for the future, and can weather a storm then you need to do what makes YOU the most comfortable at the end of the day. I always thought a mortgage in retirement would really bother me. I'm realizing now it won't since the rate is low and I'll remain financially fit with pension and investments on track.
Never let a little bit of money get in the way of a real good time.
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pepperz
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Re: Going “all in” on paying mortgage

Post by pepperz »

This conflicts with my understanding. Is this your opinion or a widely accepted fact by Bogleheads?
KlangFool wrote: Thu Oct 22, 2020 4:20 pm pepperz,

That is a fundamentally flawed concept. You could sell $1,000 worth of the bond and get $1,000 back. You cannot sell $1,000 worth of your house/mortgage and get $1,000 back.

A mortgage is not a negative bond.


KlangFool
arsenalfan
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Re: Going “all in” on paying mortgage

Post by arsenalfan »

gestalt is that a house is not liquid like a bond. But current bond yields low, so why not pay off debt...so long as you have enough liquidity. That’s why some are asking obliquely what your situation is/alternatives to paying mortgage down.

Sorry if I missed it, but not sure where you are in the accumulation phase. I get you have 1 yr EF, Max all tax advantages accounts (assume HSA, backdoor Roth, 529 as makes sense/applicable).

If in early/mid accumulation, could beef up that aftertax account. If late/retiring, sure pay off the house.

That’s why the house equity no more than 30% Net Worth rule comes in - roughly dovetails with this timeline.
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Re: Going “all in” on paying mortgage

Post by KlangFool »

pepperz wrote: Thu Oct 22, 2020 7:08 pm This conflicts with my understanding. Is this your opinion or a widely accepted fact by Bogleheads?
KlangFool wrote: Thu Oct 22, 2020 4:20 pm pepperz,

That is a fundamentally flawed concept. You could sell $1,000 worth of the bond and get $1,000 back. You cannot sell $1,000 worth of your house/mortgage and get $1,000 back.

A mortgage is not a negative bond.


KlangFool

pepperz,


Please think for yourself.


Please answer the question.

How do you sell $1,000 worth of your house/mortgage? If you cannot do that, how could you claim that the mortgage is a negative bond?


KlangFool
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Re: Going “all in” on paying mortgage

Post by anon_investor »

KlangFool wrote: Thu Oct 22, 2020 8:25 pm
pepperz wrote: Thu Oct 22, 2020 7:08 pm This conflicts with my understanding. Is this your opinion or a widely accepted fact by Bogleheads?
KlangFool wrote: Thu Oct 22, 2020 4:20 pm pepperz,

That is a fundamentally flawed concept. You could sell $1,000 worth of the bond and get $1,000 back. You cannot sell $1,000 worth of your house/mortgage and get $1,000 back.

A mortgage is not a negative bond.


KlangFool

pepperz,


Please think for yourself.


Please answer the question.

How do you sell $1,000 worth of your house/mortgage? If you cannot do that, how could you claim that the mortgage is a negative bond?


KlangFool
HELOC?
KlangFool
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Re: Going “all in” on paying mortgage

Post by KlangFool »

anon_investor wrote: Thu Oct 22, 2020 8:28 pm
KlangFool wrote: Thu Oct 22, 2020 8:25 pm
pepperz wrote: Thu Oct 22, 2020 7:08 pm This conflicts with my understanding. Is this your opinion or a widely accepted fact by Bogleheads?
KlangFool wrote: Thu Oct 22, 2020 4:20 pm pepperz,

That is a fundamentally flawed concept. You could sell $1,000 worth of the bond and get $1,000 back. You cannot sell $1,000 worth of your house/mortgage and get $1,000 back.

A mortgage is not a negative bond.


KlangFool

pepperz,


Please think for yourself.


Please answer the question.

How do you sell $1,000 worth of your house/mortgage? If you cannot do that, how could you claim that the mortgage is a negative bond?


KlangFool
HELOC?
anon_investor,


A) Which may be canceled by the bank just when you need it.


B) If the house's value crashes at the same time, you may no longer have any home equity for the loan.

We are in a RECESSION now. We do not know when it will be over or it may get worse. It is a BAD TIME to reduce your LIQUIDITY.


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corn18
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Re: Going “all in” on paying mortgage

Post by corn18 »

We are not in a recession right now.
Don't do something, just stand there!
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8foot7
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Re: Going “all in” on paying mortgage

Post by 8foot7 »

corn18 wrote: Thu Oct 22, 2020 8:44 pm We are not in a recession right now.
The people who decide that don’t agree with you.
https://www.google.com/amp/s/www.cnbc.c ... -2008.html

“ The U.S. is officially experiencing an economic recession, according to a Monday statement from private non-profit research organization National Bureau of Economic Research.”

Not to mention it defies logic that we have shut down vast swaths of the economy across the country and yet you allege the economy has not contracted from its immediately previous readings.
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Re: Going “all in” on paying mortgage

Post by rockstar »

anon_investor wrote: Thu Oct 22, 2020 8:28 pm
KlangFool wrote: Thu Oct 22, 2020 8:25 pm
pepperz wrote: Thu Oct 22, 2020 7:08 pm This conflicts with my understanding. Is this your opinion or a widely accepted fact by Bogleheads?
KlangFool wrote: Thu Oct 22, 2020 4:20 pm pepperz,

That is a fundamentally flawed concept. You could sell $1,000 worth of the bond and get $1,000 back. You cannot sell $1,000 worth of your house/mortgage and get $1,000 back.

A mortgage is not a negative bond.


KlangFool

pepperz,


Please think for yourself.


Please answer the question.

How do you sell $1,000 worth of your house/mortgage? If you cannot do that, how could you claim that the mortgage is a negative bond?


KlangFool
HELOC?
You can do a cash out refi too.

If you need liquidity, that's what emergency funds are for.
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corn18
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Re: Going “all in” on paying mortgage

Post by corn18 »

8foot7 wrote: Thu Oct 22, 2020 8:48 pm
corn18 wrote: Thu Oct 22, 2020 8:44 pm We are not in a recession right now.
The people who decide that don’t agree with you.
https://www.google.com/amp/s/www.cnbc.c ... -2008.html

“ The U.S. is officially experiencing an economic recession, according to a Monday statement from private non-profit research organization National Bureau of Economic Research.”

Not to mention it defies logic that we have shut down vast swaths of the economy across the country and yet you allege the economy has not contracted from its immediately previous readings.
That 9 June article is spot on. We were proceeding into a recession. Q320 GDP has risen and that ends a recession (data will be officially released on 29 Oct). Just like the bear market ended when we set new highs after the bear market. Might not feel like it, but that's how it's defined.

Image
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Re: Going “all in” on paying mortgage

Post by KlangFool »

rockstar wrote: Thu Oct 22, 2020 9:02 pm
anon_investor wrote: Thu Oct 22, 2020 8:28 pm
KlangFool wrote: Thu Oct 22, 2020 8:25 pm
pepperz wrote: Thu Oct 22, 2020 7:08 pm This conflicts with my understanding. Is this your opinion or a widely accepted fact by Bogleheads?
KlangFool wrote: Thu Oct 22, 2020 4:20 pm pepperz,

That is a fundamentally flawed concept. You could sell $1,000 worth of the bond and get $1,000 back. You cannot sell $1,000 worth of your house/mortgage and get $1,000 back.

A mortgage is not a negative bond.


KlangFool

pepperz,


Please think for yourself.


Please answer the question.

How do you sell $1,000 worth of your house/mortgage? If you cannot do that, how could you claim that the mortgage is a negative bond?


KlangFool
HELOC?
You can do a cash out refi too.

If you need liquidity, that's what emergency funds are for.
rockstar,

<<You can do a cash out refi too.>>


Only if the house's value did not crash and wipe out your home equity. Those things tend to happen in a RECESSION.


<<If you need liquidity, that's what emergency funds are for.>>

How does someone know that they have enough emergency funds in a RECESSION?

I am prepared for a RECESSION lasting 5 years. Back to my original question to the OP, how long does the OP prepared for?


KlangFool
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Re: Going “all in” on paying mortgage

Post by 260chrisb »

yatesd wrote: Wed Oct 21, 2020 7:58 pm
260chrisb wrote: Wed Oct 21, 2020 7:08 pm
7eight9 wrote: Wed Oct 21, 2020 3:49 pm In 2004 we put 50% down. Paid off the mortgage within 12 months by eschewing all other investing/saving and making the mortgage payoff the sole priority. The only regret is that if we knew the housing market would collapse a few years later we would have put down the least possible and defaulted once it was obvious we were deeply underwater (non-recourse loan).
Okay, I'm sorry; I simply don't understand this! In other words you would have preferred to let the loan that you signed up for go into default since it was non-recourse? Wow! Seems to me that logic created a LOT of problems in the economy didn't it? On a separate note; if you or any of us had the ability to foresee things like a housing market crash we wouldn't need to be taking out mortgages! :confused
I agree, this behavior is not ethical and should not be condoned on this forum. A "mortgage" is a contract/agreement to pay someone back.
That's exactly where I was going.......
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whodidntante
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Re: Going “all in” on paying mortgage

Post by whodidntante »

pepperz wrote: Wed Oct 21, 2020 9:50 pm Great points here. Would you mind expanding on your point about getting leverage cheaper than cash out refi or HELOC?
whodidntante wrote: Wed Oct 21, 2020 4:48 pm
pepperz wrote: Wed Oct 21, 2020 3:43 pm I realize that is *not* historically the path to maximizing long term ROI on those dollars however having zero mortgage sure does seem like an amazing way to protect your downside.
I am mortgage free but don't be impressed. I paid off a 15 year note in basically 15 years. If I want leverage, and I do, I know cheaper ways to accomplish it than a cash out refi or a HELOC. And I will not lose my house if I get hosed.

A wealth destroying error is lifestyle inflation, buying more house than is in your best interests. National average housing prices barely pace inflation, and are a clear loss after expenses. So it sucks as an investment, but at least you can live in your big McMansion, fill it with lots of stuff, and your mom is impressed. It can be very difficult to dial back your spending on the style you become accustomed to. For some people, it's impossible.

But assuming you have a humble abode, a mortgage like any other debt is a short position on fixed income. So the effect on portfolio risk of eliminating a mortgage is similar to buying high quality bonds. It is entirely reasonable in my opinion to prefer prepaying a 3% mortgage to buying TBM. But don't use that as a excuse to wimp out on risk. You should take an appropriate amount of risk for your situation. A 500k paid off house and a 250k equity portfolio for a 35 year old is not great portfolio construction, in my opinion.
Off the top of my head, I can do the following. The regional opportunities may be better or worse where you live.

National opportunities:
Futures for less than 1%
Options for less than 1%
Box spread financing for less than 1%. https://www.optionseducation.org/refere ... -cash.aspx
Margin at IB for 1.6% or less.
0% credit card purchase APRs. Balance transfers usually involve 3% fees so not cheap enough.

Regional opportunities:
Two credit unions offer car loans for less than 2%.
A credit union I am a member of offers signature loans for 1.99% interest
rockstar
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Re: Going “all in” on paying mortgage

Post by rockstar »

What's this 30% rule? I've never heard of it before.
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Re: Going “all in” on paying mortgage

Post by AZAttorney11 »

260chrisb wrote: Thu Oct 22, 2020 9:29 pm
yatesd wrote: Wed Oct 21, 2020 7:58 pm
260chrisb wrote: Wed Oct 21, 2020 7:08 pm
7eight9 wrote: Wed Oct 21, 2020 3:49 pm In 2004 we put 50% down. Paid off the mortgage within 12 months by eschewing all other investing/saving and making the mortgage payoff the sole priority. The only regret is that if we knew the housing market would collapse a few years later we would have put down the least possible and defaulted once it was obvious we were deeply underwater (non-recourse loan).
Okay, I'm sorry; I simply don't understand this! In other words you would have preferred to let the loan that you signed up for go into default since it was non-recourse? Wow! Seems to me that logic created a LOT of problems in the economy didn't it? On a separate note; if you or any of us had the ability to foresee things like a housing market crash we wouldn't need to be taking out mortgages! :confused
I agree, this behavior is not ethical and should not be condoned on this forum. A "mortgage" is a contract/agreement to pay someone back.
That's exactly where I was going.......
Why? The remedies are clearly spelled out in the promissory note. The lender states exactly what they will do if you stop paying and, in Arizona, you even execute a document (deed of trust) that gives the lender the ability to take back your home without judicial involvement. Yes, the borrower is making it easier for the lender to take back the collateral in the event of a default, monetary or otherwise.

If there’s an existence of an “efficient breach” that’s well within the borrower’s right to exercise that put option.
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yatesd
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Re: Going “all in” on paying mortgage

Post by yatesd »

AZAttorney11 wrote: Thu Oct 22, 2020 11:03 pm
260chrisb wrote: Thu Oct 22, 2020 9:29 pm
yatesd wrote: Wed Oct 21, 2020 7:58 pm
260chrisb wrote: Wed Oct 21, 2020 7:08 pm
7eight9 wrote: Wed Oct 21, 2020 3:49 pm In 2004 we put 50% down. Paid off the mortgage within 12 months by eschewing all other investing/saving and making the mortgage payoff the sole priority. The only regret is that if we knew the housing market would collapse a few years later we would have put down the least possible and defaulted once it was obvious we were deeply underwater (non-recourse loan).
Okay, I'm sorry; I simply don't understand this! In other words you would have preferred to let the loan that you signed up for go into default since it was non-recourse? Wow! Seems to me that logic created a LOT of problems in the economy didn't it? On a separate note; if you or any of us had the ability to foresee things like a housing market crash we wouldn't need to be taking out mortgages! :confused
I agree, this behavior is not ethical and should not be condoned on this forum. A "mortgage" is a contract/agreement to pay someone back.
That's exactly where I was going.......
Why? The remedies are clearly spelled out in the promissory note. The lender states exactly what they will do if you stop paying and, in Arizona, you even execute a document (deed of trust) that gives the lender the ability to take back your home without judicial involvement. Yes, the borrower is making it easier for the lender to take back the collateral in the event of a default, monetary or otherwise.

If there’s an existence of an “efficient breach” that’s well within the borrower’s right to exercise that put option.
A "handshake" or someone's word, should mean something. That includes anything I've "agreed to do" even if it was done in a more formal way. It doesn't take a lawyer to understand that when you buy a house on payments, the agreement is to take on an obligation in exchange for money.

Bankruptcy is an option to be used when needed, but should never be considered an honorable way to eliminate the repercussions from poor decisions.

Someone always pays for the lack of ethics: taxpayers, shareholders, employees, or the community

I don't borrow a mower from my neighbor and promise to give it back. Then, the next day, realize nothing is in writing, so decide not to give it back.
mike_in_ny
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Re: Going “all in” on paying mortgage

Post by mike_in_ny »

As others have noted, liquidity is important to consider when you are doing this. I went
"all-in" on paying down the mortgage when the following was true: B>A

A = Total liquid financial assets (taxable, 401k, etc. but not house) / spending rate

B = (Total liquid FAs- mortgage amount) / (spending rate w/o mortgage expense)


I never did it, but looking at it now, I could have probably come up with the crossover point based
on what % of your expenses are mortgage payment and mortgage balance is as % of your
liquid net worth.

I'd also say that I didn't have any bonds while carrying a mortgage.
JVT
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Re: Going “all in” on paying mortgage

Post by JVT »

yatesd wrote: Fri Oct 23, 2020 6:09 am
AZAttorney11 wrote: Thu Oct 22, 2020 11:03 pm
260chrisb wrote: Thu Oct 22, 2020 9:29 pm
yatesd wrote: Wed Oct 21, 2020 7:58 pm
260chrisb wrote: Wed Oct 21, 2020 7:08 pm

Okay, I'm sorry; I simply don't understand this! In other words you would have preferred to let the loan that you signed up for go into default since it was non-recourse? Wow! Seems to me that logic created a LOT of problems in the economy didn't it? On a separate note; if you or any of us had the ability to foresee things like a housing market crash we wouldn't need to be taking out mortgages! :confused
I agree, this behavior is not ethical and should not be condoned on this forum. A "mortgage" is a contract/agreement to pay someone back.
That's exactly where I was going.......
Why? The remedies are clearly spelled out in the promissory note. The lender states exactly what they will do if you stop paying and, in Arizona, you even execute a document (deed of trust) that gives the lender the ability to take back your home without judicial involvement. Yes, the borrower is making it easier for the lender to take back the collateral in the event of a default, monetary or otherwise.

If there’s an existence of an “efficient breach” that’s well within the borrower’s right to exercise that put option.
A "handshake" or someone's word, should mean something. That includes anything I've "agreed to do" even if it was done in a more formal way. It doesn't take a lawyer to understand that when you buy a house on payments, the agreement is to take on an obligation in exchange for money.

Bankruptcy is an option to be used when needed, but should never be considered an honorable way to eliminate the repercussions from poor decisions.

Someone always pays for the lack of ethics: taxpayers, shareholders, employees, or the community

I don't borrow a mower from my neighbor and promise to give it back. Then, the next day, realize nothing is in writing, so decide not to give it back.
In this case, your word is to EITHER repay the loan OR that the bank takes the house back to repay the loan. In a non recourse state the risk of loosing money in a repossession where the loan is underwater is priced in. You have not broken your word if you intentionally default on a property that you are able to pay the mortgage on - both you and the bank when they rightfully repossess the house are acting entirely legally and within your respective words. Some people may find that it offends their personal moral code comparing it to other loans where the recourse was not laid out in the loan and would not exercise this option, but others would. To flip this around, if I buy an options contract allowing me to buy S&P500 shares at some price and then do not exercise the contract because the share price when the contract expires is lower than the contract share value do you feel I am acting immorally?
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