Going “all in” on paying mortgage

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6bquick
Posts: 166
Joined: Sat Mar 26, 2016 8:56 pm

Re: Going “all in” on paying mortgage

Post by 6bquick »

yatesd wrote: Fri Oct 23, 2020 6:09 am 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.
Bravo
Jags4186
Posts: 5347
Joined: Wed Jun 18, 2014 7:12 pm

Re: Going “all in” on paying mortgage

Post by Jags4186 »

Paying more on your mortgage effectively does nothing for you unless you pay off the mortgage. Let’s pretend you just took out a 30 year $300,000 mortgage with a $1,300/mo payment. If you pay an extra $500/mo you might cut off 10-15 years of the loan, but you’re still on the hook for $1,300 for 15+ years.

Now, on the other hand, if you saved in a taxable account and build up a balance equal to your outstanding principal, it makes sense to think about paying off the mortgage as that eliminates a monthly expense. In fact, if you hold a lot of bonds, it may make sense to pay off your mortgage and increase your equity allocation.
wolf359
Posts: 2249
Joined: Sun Mar 15, 2015 8:47 am

Re: Going “all in” on paying mortgage

Post by wolf359 »

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.
Paying DOWN the mortgage is not the same as paying OFF the mortgage.

If you have enough to retire, and you no longer need the funds, then allocating money for a mortgage payoff is a good move. PAYING OFF the mortgage has all these good effects, like reducing your monthly expenses significantly. However, paying DOWN the mortgage just ties up your money without reducing your payments. You also decrease your liquidity, thus increasing your risk.

Instead, you should create a sinking fund. This is a taxable brokerage account specifically earmarked for mortgage payoff. This should be money that you don't need for retirement (you already said that, right?) so it doesn't need to be all cash or all bonds. Pick an appropriate asset allocation, and start plugging away. When the balance is large enough to pay off the mortgage, decide if you want to pay off the mortgage.

I did this, using a 100% equity asset allocation. I was willing to take the risk of all equities for this purpose, because I didn't HAVE to pay off the mortgage -- I was willing to wait out any downturns. If an emergency happened, I had liquid assets available (remember, this is extra money AFTER my regular saving/investing).

Eventually, my balance equaled my mortgage, and I changed my mind. Instead of paying off the mortgage, I started using the sinking fund to make the payments. This gave me the same effect as paying off the mortgage (freeing up my monthly cash flow), but allowed my investments to run. I continued in this way for a few years, and thought I was done. By the time the mortgage would be fully paid off, I'd still have some assets left over.

Then, 2019 happened. It seems like forever ago, but that was the year of a 29% return in the S&P 500. My overall portfolio had a return that exceeded my mortgage principal. It looked like an opportunity to lock in the profits, pay off the mortgage, and yet still have an acceptable level of liquid assets. At first it seemed like a bad move because the market continued to climb, but then COVID happened. I'm really happy that my expenses were really low during the shutdown. My low expenses combined with the fact that I still had ample liquid assets let me stay fully invested throughout 2020 with no real emotional stress.

You might not get lucky like I did, but I'd strongly advise using a sinking fund instead of just paying down your mortgage directly. The tactic gives you liquidity and options.
Bronko
Posts: 179
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Re: Going “all in” on paying mortgage

Post by Bronko »

wolf359 wrote: Fri Oct 23, 2020 10:01 am
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.
Paying DOWN the mortgage is not the same as paying OFF the mortgage.

If you have enough to retire, and you no longer need the funds, then allocating money for a mortgage payoff is a good move. PAYING OFF the mortgage has all these good effects, like reducing your monthly expenses significantly. However, paying DOWN the mortgage just ties up your money without reducing your payments. You also decrease your liquidity, thus increasing your risk.

Instead, you should create a sinking fund. This is a taxable brokerage account specifically earmarked for mortgage payoff. This should be money that you don't need for retirement (you already said that, right?) so it doesn't need to be all cash or all bonds. Pick an appropriate asset allocation, and start plugging away. When the balance is large enough to pay off the mortgage, decide if you want to pay off the mortgage.

I did this, using a 100% equity asset allocation. I was willing to take the risk of all equities for this purpose, because I didn't HAVE to pay off the mortgage -- I was willing to wait out any downturns. If an emergency happened, I had liquid assets available (remember, this is extra money AFTER my regular saving/investing).

Eventually, my balance equaled my mortgage, and I changed my mind. Instead of paying off the mortgage, I started using the sinking fund to make the payments. This gave me the same effect as paying off the mortgage (freeing up my monthly cash flow), but allowed my investments to run. I continued in this way for a few years, and thought I was done. By the time the mortgage would be fully paid off, I'd still have some assets left over.

Then, 2019 happened. It seems like forever ago, but that was the year of a 29% return in the S&P 500. My overall portfolio had a return that exceeded my mortgage principal. It looked like an opportunity to lock in the profits, pay off the mortgage, and yet still have an acceptable level of liquid assets. At first it seemed like a bad move because the market continued to climb, but then COVID happened. I'm really happy that my expenses were really low during the shutdown. My low expenses combined with the fact that I still had ample liquid assets let me stay fully invested throughout 2020 with no real emotional stress.

You might not get lucky like I did, but I'd strongly advise using a sinking fund instead of just paying down your mortgage directly. The tactic gives you liquidity and options.
Good share.
Never let a little bit of money get in the way of a real good time.
Topic Author
pepperz
Posts: 384
Joined: Sun Jan 24, 2016 7:13 pm

Re: Going “all in” on paying mortgage

Post by pepperz »

So did you end up paying it off or keeping it invested?

This really sounds like a great plan. The “payoff fund” remains liquid in case those funds become needed and grows at whatever asset allocation I decide. Any suggestions on how to decide the stocks/bonds allocation that makes sense for this fund? My gut always wants 100% stocks but I’m not sure that’s wise.
wolf359 wrote: Fri Oct 23, 2020 10:01 am Paying DOWN the mortgage is not the same as paying OFF the mortgage.

If you have enough to retire, and you no longer need the funds, then allocating money for a mortgage payoff is a good move. PAYING OFF the mortgage has all these good effects, like reducing your monthly expenses significantly. However, paying DOWN the mortgage just ties up your money without reducing your payments. You also decrease your liquidity, thus increasing your risk.

Instead, you should create a sinking fund. This is a taxable brokerage account specifically earmarked for mortgage payoff. This should be money that you don't need for retirement (you already said that, right?) so it doesn't need to be all cash or all bonds. Pick an appropriate asset allocation, and start plugging away. When the balance is large enough to pay off the mortgage, decide if you want to pay off the mortgage.

I did this, using a 100% equity asset allocation. I was willing to take the risk of all equities for this purpose, because I didn't HAVE to pay off the mortgage -- I was willing to wait out any downturns. If an emergency happened, I had liquid assets available (remember, this is extra money AFTER my regular saving/investing).

Eventually, my balance equaled my mortgage, and I changed my mind. Instead of paying off the mortgage, I started using the sinking fund to make the payments. This gave me the same effect as paying off the mortgage (freeing up my monthly cash flow), but allowed my investments to run. I continued in this way for a few years, and thought I was done. By the time the mortgage would be fully paid off, I'd still have some assets left over.

Then, 2019 happened. It seems like forever ago, but that was the year of a 29% return in the S&P 500. My overall portfolio had a return that exceeded my mortgage principal. It looked like an opportunity to lock in the profits, pay off the mortgage, and yet still have an acceptable level of liquid assets. At first it seemed like a bad move because the market continued to climb, but then COVID happened. I'm really happy that my expenses were really low during the shutdown. My low expenses combined with the fact that I still had ample liquid assets let me stay fully invested throughout 2020 with no real emotional stress.

You might not get lucky like I did, but I'd strongly advise using a sinking fund instead of just paying down your mortgage directly. The tactic gives you liquidity and options.
Topic Author
pepperz
Posts: 384
Joined: Sun Jan 24, 2016 7:13 pm

Re: Going “all in” on paying mortgage

Post by pepperz »

One additional observation: making extra principle payments to mortgage knocks a lot more interest off than whatever the APR rate of the mortgage is. Amortization means interest is front-loaded so aren’t your earlier mortgage payments more valuable than the later ones? Or am I off here?
wolf359 wrote: Fri Oct 23, 2020 10:01 am
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.
Paying DOWN the mortgage is not the same as paying OFF the mortgage.

If you have enough to retire, and you no longer need the funds, then allocating money for a mortgage payoff is a good move. PAYING OFF the mortgage has all these good effects, like reducing your monthly expenses significantly. However, paying DOWN the mortgage just ties up your money without reducing your payments. You also decrease your liquidity, thus increasing your risk.

Instead, you should create a sinking fund. This is a taxable brokerage account specifically earmarked for mortgage payoff. This should be money that you don't need for retirement (you already said that, right?) so it doesn't need to be all cash or all bonds. Pick an appropriate asset allocation, and start plugging away. When the balance is large enough to pay off the mortgage, decide if you want to pay off the mortgage.

I did this, using a 100% equity asset allocation. I was willing to take the risk of all equities for this purpose, because I didn't HAVE to pay off the mortgage -- I was willing to wait out any downturns. If an emergency happened, I had liquid assets available (remember, this is extra money AFTER my regular saving/investing).

Eventually, my balance equaled my mortgage, and I changed my mind. Instead of paying off the mortgage, I started using the sinking fund to make the payments. This gave me the same effect as paying off the mortgage (freeing up my monthly cash flow), but allowed my investments to run. I continued in this way for a few years, and thought I was done. By the time the mortgage would be fully paid off, I'd still have some assets left over.

Then, 2019 happened. It seems like forever ago, but that was the year of a 29% return in the S&P 500. My overall portfolio had a return that exceeded my mortgage principal. It looked like an opportunity to lock in the profits, pay off the mortgage, and yet still have an acceptable level of liquid assets. At first it seemed like a bad move because the market continued to climb, but then COVID happened. I'm really happy that my expenses were really low during the shutdown. My low expenses combined with the fact that I still had ample liquid assets let me stay fully invested throughout 2020 with no real emotional stress.

You might not get lucky like I did, but I'd strongly advise using a sinking fund instead of just paying down your mortgage directly. The tactic gives you liquidity and options.
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corn18
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Re: Going “all in” on paying mortgage

Post by corn18 »

pepperz wrote: Fri Oct 23, 2020 11:16 am One additional observation: making extra principle payments to mortgage knocks a lot more interest off than whatever the APR rate of the mortgage is. Amortization means interest is front-loaded so aren’t your earlier mortgage payments more valuable than the later ones? Or am I off here?
You are off. Mortgages are simple interest. Paying $50 now has the same impact as paying $50 25 years from now. Actually, it's better to pay it 25 years from now because the NPV of $50 in 25 years will only be $30.48 @ 2% inflation. This is why a cheap mortgage is a good inflation hedge.

My mortgage: $510,396 2.75% fixed for 30 years starting Oct 2020

Assume 2% inflation

The NPV of my mortgage is $554,234

So the mortgage costs me $43,389 in real dollars.

If I can manage to eek out 0.75% real interest on the money I could have used to pay off the mortgage, I will break even.

If inflation goes to 3%, I make money.

This is why I have a mortgage.

SORR is another story, but I have a large COLA pension, so I feel safe for now.
Don't do something, just stand there!
WhiteMaxima
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Re: Going “all in” on paying mortgage

Post by WhiteMaxima »

Paying off mortgage doesn't mean you are debt free, Your local government owns the tax right on your property. You are always a "renter" on that piece of property. I would treat house as a leveraged roof on top of your head.
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anon_investor
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Re: Going “all in” on paying mortgage

Post by anon_investor »

KlangFool wrote: Thu Oct 22, 2020 8:32 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?
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.


KlangFool
I absolutely agree that one should not rely on a HELOC. I was just trying to point out that home equity is not completely illiquid.
ksleo
Posts: 28
Joined: Wed Jan 18, 2017 11:47 am

Re: Going “all in” on paying mortgage

Post by ksleo »

EnjoyIt wrote: Thu Oct 22, 2020 4:12 pm
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.
Funny you should ask, I almost added this to my original comment.

No, I haven't actually run any numbers, but if I did then the calculation would almost certainly show that we would have more money if we had invested everything instead of paying cash for a house. (The stock market has appreciated much faster than our house.)

Having said that, I don't regret our decision at all (nor does my wife). The peace of mind we get from having a paid for home could not nearly be matched by looking at a larger number in our taxable account.

We both sleep well at night.
Unless the baby is crying. :wink:
Actions have consequences.
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Ben Mathew
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Re: Going “all in” on paying mortgage

Post by Ben Mathew »

JVT wrote: Fri Oct 23, 2020 8:02 am
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

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?
I agree with this interpretation.

The agreement with the bank is not that you will pay no matter what.

The agreement in non-recourse states is that you will pay the loan or the bank can have the house. If the house is of lower value than the loan, you are free to give them the house. What I consider immoral is vindictively destroying the house before handing it over to the bank. Let's keep it civilized, everyone.

The agreement in recourse states is that you will pay the loan or they can have the house plus other assets if you have any and garnish your wages. If the house is underwater and you don't have any other assets, then just hand over the house and declare bankruptcy so they can't take your future wages.

These are the contracts in society. They weren't always this way. There used to be debtor's prisons. But over time society abandoned those arrangements and settled on these. There is nothing immoral in sticking to these contracts. If you interpret these as immoral, then limited liability companies and bankruptcy laws lose their meaning. Here are some implications:

(1) If you declare bankruptcy, your home equity and retirement assets are protected. Do you feel you have a moral obligation to give those up to your creditor?

(2) Real estate investors like to hold different buildings in different LLCs, because they don't want the problems of one building to affect the other. Is that immoral?

(3) As a stock investor, you are the owner of many corporations. If one of them declares bankruptcy, do you feel that you as a shareholder should personally step in and pay the debts?

The whole purpose of bankruptcy and limited liability is saying that you don't need to. I don't see a moral imperative to go beyond the contract. On the flip side:

(4) if you invest in corporate bonds and a company goes under, do you feel that it is immoral that shareholders don't pay you out of their personal funds?

On a side note, during the real estate preceding the financial crisis, why were banks so eager to lend to people with no income and no assets? Either they were passing off the loan to someone else, or they were betting that prices would rise and the person with no income and no assets would refinance and get enough money to keep paying the loan. They too were betting that prices will keep rising. They were full and eager participants of the real estate gold rush. When it crashes, should these lenders not pay their share of the losses? Of course they should. The onus is not on the homeowner to shoulder payments beyond what the contracts stipulate. Asking a person to keep paying the debt when they are not obligated to strikes me as more immoral than asking everyone to adhere to the terms of the contract. I remember Hank Pauslon saying during the crisis:
any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator – and one who is not honoring his obligations.
I understand that he was trying to prevent things from getting worse. But it struck me as unethical to urge underwater homeowners to keep paying when they're not obligated to do so and it's not in their best interest.
Last edited by Ben Mathew on Fri Oct 23, 2020 12:16 pm, edited 1 time in total.
Money_Badger
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Re: Going “all in” on paying mortgage

Post by Money_Badger »

firedup wrote: Wed Oct 21, 2020 4:44 pm I have always prioritized taxable investing and access to liquidity over paying off my mortgage, especially given my low interest rate (3%).

As I'm approaching retirement and my portfolio has grown, I guess you could say I'm going "all in" to pay off the mortgage. The main reasons are to lower my monthly expenses and reduce my sequence of returns risk in retirement. I could probably keep the mortgage in retirement; it's just my personal preference to pay it off.

Also, my outstanding loan balance represents a small percentage of my taxable assets and I've been able to pay off the mortgage with minimal tax burden as the result of stock/mutual fund sales and some tax loss harvesting.
As you approach retirement, this makes sense to me. Those with retirement in the fairly immediate future are probably more heavily invested in bonds, which are going to have a lower rate of return anyway, so there is less of a difference between that rate and the interest rate on the mortgage.

Those with longer time horizons though, I don't see the wisdom in it. I pay about $100 / extra per month on my mortgage and I'm thinking I might back that down to 0. I have a good rate, we've owned the house for 5 years and it has increased in value substantially (probably 35%) so we have good equity already. Plus, I doubt this is our last house.
LeftCoastIV
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Re: Going “all in” on paying mortgage

Post by LeftCoastIV »

I think about paying off the mortgage as a fixed income investment, but since it's illiquid (hard to get the cash back out, requires HELOC, etc), you need to ensure you have a comfortable buffer of cash/fixed income left over afterwards to survive a period of unemployment, or spending during an equity bear market.

Your stock allocation, in my view, is a separate part of your asset allocation and doesn't really relate to the mortgage vs. fixed income decision.

But, to each their own. Paying off debt has big mental health benefits IMHO.
John Doe 123
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Re: Going “all in” on paying mortgage

Post by John Doe 123 »

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.
This is a forum for financial guidance. It is not a forum for moral guidance. The bottom line, sometimes it is in a person's financial interest to default on a loan. The mortgage is a contract that spells out the ramifications of doing so. The mortgage rate is set knowing that there is a risk of default.

Seeing how this is a forum for financial guidance, and defaulting on a home mortgage where the home is far underwater, I see no problem condoning or even advising folks on this board to do so.
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hornet96
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Re: Going “all in” on paying mortgage

Post by hornet96 »

Ben Mathew wrote: Fri Oct 23, 2020 12:10 pm I agree with this interpretation.

The agreement with the bank is not that you will pay no matter what.

The agreement in non-recourse states is that you will pay the loan or the bank can have the house. If the house is of lower value than the loan, you are free to give them the house. What I consider immoral is vindictively destroying the house before handing it over to the bank. Let's keep it civilized, everyone.

The agreement in recourse states is that you will pay the loan or they can have the house plus other assets if you have any and garnish your wages. If the house is underwater and you don't have any other assets, then just hand over the house and declare bankruptcy so they can't take your future wages.

These are the contracts in society. They weren't always this way. There used to be debtor's prisons. But over time society abandoned those arrangements and settled on these. There is nothing immoral in sticking to these contracts. If you interpret these as immoral, then limited liability companies and bankruptcy laws lose their meaning. Here are some implications:

(1) If you declare bankruptcy, your home equity and retirement assets are protected. Do you feel you have a moral obligation to give those up to your creditor?

(2) Real estate investors like to hold different buildings in different LLCs, because they don't want the problems of one building to affect the other. Is that immoral?

(3) As a stock investor, you are the owner of many corporations. If one of them declares bankruptcy, do you feel that you as a shareholder should personally step in and pay the debts?

The whole purpose of bankruptcy and limited liability is saying that you don't need to. I don't see a moral imperative to go beyond the contract. On the flip side:

(4) if you invest in corporate bonds and a company goes under, do you feel that it is immoral that shareholders don't pay you out of their personal funds?

On a side note, during the real estate preceding the financial crisis, why were banks so eager to lend to people with no income and no assets? Either they were passing off the loan to someone else, or they were betting that prices would rise and the person with no income and no assets would refinance and get enough money to keep paying the loan. They too were betting that prices will keep rising. They were full and eager participants of the real estate gold rush. When it crashes, should these lenders not pay their share of the losses? Of course they should. The onus is not on the homeowner to shoulder payments beyond what the contracts stipulate. Asking a person to keep paying the debt when they are not obligated to strikes me as more immoral than asking everyone to adhere to the terms of the contract. I remember Hank Pauslon saying during the crisis:
any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator – and one who is not honoring his obligations.
I understand that he was trying to prevent things from getting worse. But it struck me as unethical to urge underwater homeowners to keep paying when they're not obligated to do so and it's not in their best interest.
Great post. I just wanted to add to another poster's point earlier, about the banks who were selling foreclosed homes with very low loan-to-value ratios at "fire sale" prices if it would cover their loan exposure more expeditiously - which is almost certainly in the bank's best interest. Would the "moral obligation" proponents agree that the bank's eagerness to sell their foreclosed home at an artificially low price (and thus effectively keep all of the homeowner's principle pre-payments) was also unethical?

Anyway, I know that two wrongs don't make a right, but let's not pretend that the banks won't take full advantage of their rights in a contract - and thus, why shouldn't you, if it came down to it?
kimura king
Posts: 160
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Re: Going “all in” on paying mortgage

Post by kimura king »

wolf359 wrote: Fri Oct 23, 2020 10:01 am
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.
Paying DOWN the mortgage is not the same as paying OFF the mortgage.

If you have enough to retire, and you no longer need the funds, then allocating money for a mortgage payoff is a good move. PAYING OFF the mortgage has all these good effects, like reducing your monthly expenses significantly. However, paying DOWN the mortgage just ties up your money without reducing your payments. You also decrease your liquidity, thus increasing your risk.

Instead, you should create a sinking fund. This is a taxable brokerage account specifically earmarked for mortgage payoff. This should be money that you don't need for retirement (you already said that, right?) so it doesn't need to be all cash or all bonds. Pick an appropriate asset allocation, and start plugging away. When the balance is large enough to pay off the mortgage, decide if you want to pay off the mortgage.

I did this, using a 100% equity asset allocation. I was willing to take the risk of all equities for this purpose, because I didn't HAVE to pay off the mortgage -- I was willing to wait out any downturns. If an emergency happened, I had liquid assets available (remember, this is extra money AFTER my regular saving/investing).

Eventually, my balance equaled my mortgage, and I changed my mind. Instead of paying off the mortgage, I started using the sinking fund to make the payments. This gave me the same effect as paying off the mortgage (freeing up my monthly cash flow), but allowed my investments to run. I continued in this way for a few years, and thought I was done. By the time the mortgage would be fully paid off, I'd still have some assets left over.

Then, 2019 happened. It seems like forever ago, but that was the year of a 29% return in the S&P 500. My overall portfolio had a return that exceeded my mortgage principal. It looked like an opportunity to lock in the profits, pay off the mortgage, and yet still have an acceptable level of liquid assets. At first it seemed like a bad move because the market continued to climb, but then COVID happened. I'm really happy that my expenses were really low during the shutdown. My low expenses combined with the fact that I still had ample liquid assets let me stay fully invested throughout 2020 with no real emotional stress.

You might not get lucky like I did, but I'd strongly advise using a sinking fund instead of just paying down your mortgage directly. The tactic gives you liquidity and options.
great post
AZAttorney11
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Re: Going “all in” on paying mortgage

Post by AZAttorney11 »

To those accusing lenders of cherry-picking homes to foreclose on based on LTV at artificially low prices, that's not how it works, at least in Arizona. A Trustee's Sale, a non-judicial remedy for the lender, takes place in a forum that is open to the public and is subject to a live auction. Back in the day, there were droves and droves of attorneys and investors outside the steps of the Maricopa County Superior Court in downtown Phoenix disposing of hundreds of properties in a couple of hours multiple times a week. In Arizona, a lender cannot simply arrange a private sale to an investor unless the borrower does a deed in lieu of foreclosure, or the bank is the successful bidder (usually via credit bid) at the Trustee's Sale. Just because home values have increased substantially in the last 10-12 years, doesn't mean banks sold them at artificially low prices. And to the extent there is equity remaining based on the price at the Trustee's Sale, borrowers receive 100% of those proceeds after the lender has been satisfied in full.
AZAttorney11
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Re: Going “all in” on paying mortgage

Post by AZAttorney11 »

Ben Mathew wrote: Fri Oct 23, 2020 12:10 pm
JVT wrote: Fri Oct 23, 2020 8:02 am
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

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?
I agree with this interpretation.

The agreement with the bank is not that you will pay no matter what.

The agreement in non-recourse states is that you will pay the loan or the bank can have the house. If the house is of lower value than the loan, you are free to give them the house. What I consider immoral is vindictively destroying the house before handing it over to the bank. Let's keep it civilized, everyone.

The agreement in recourse states is that you will pay the loan or they can have the house plus other assets if you have any and garnish your wages. If the house is underwater and you don't have any other assets, then just hand over the house and declare bankruptcy so they can't take your future wages.

These are the contracts in society. They weren't always this way. There used to be debtor's prisons. But over time society abandoned those arrangements and settled on these. There is nothing immoral in sticking to these contracts. If you interpret these as immoral, then limited liability companies and bankruptcy laws lose their meaning. Here are some implications:

(1) If you declare bankruptcy, your home equity and retirement assets are protected. Do you feel you have a moral obligation to give those up to your creditor?

(2) Real estate investors like to hold different buildings in different LLCs, because they don't want the problems of one building to affect the other. Is that immoral?

(3) As a stock investor, you are the owner of many corporations. If one of them declares bankruptcy, do you feel that you as a shareholder should personally step in and pay the debts?

The whole purpose of bankruptcy and limited liability is saying that you don't need to. I don't see a moral imperative to go beyond the contract. On the flip side:

(4) if you invest in corporate bonds and a company goes under, do you feel that it is immoral that shareholders don't pay you out of their personal funds?

On a side note, during the real estate preceding the financial crisis, why were banks so eager to lend to people with no income and no assets? Either they were passing off the loan to someone else, or they were betting that prices would rise and the person with no income and no assets would refinance and get enough money to keep paying the loan. They too were betting that prices will keep rising. They were full and eager participants of the real estate gold rush. When it crashes, should these lenders not pay their share of the losses? Of course they should. The onus is not on the homeowner to shoulder payments beyond what the contracts stipulate. Asking a person to keep paying the debt when they are not obligated to strikes me as more immoral than asking everyone to adhere to the terms of the contract. I remember Hank Pauslon saying during the crisis:
any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator – and one who is not honoring his obligations.
I understand that he was trying to prevent things from getting worse. But it struck me as unethical to urge underwater homeowners to keep paying when they're not obligated to do so and it's not in their best interest.
Excellent post. :beer
Reamus294
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Re: Going “all in” on paying mortgage

Post by Reamus294 »

I'm in the bucket of paying off early. We have about 15 years left and it should be paid off in the next 2. If there is a large market downturn, I would consider putting the extra in savings and try to time the bottom of the market and invest the extra on the way up. I did consider paying the minimum and using the extra to build up a savings or taxable account for a mortgage payoff to maintain liquidity but the low savings interest or the risk of losing the money in the taxable wasn't appealing to me. Keep in mind that our mortgage is pretty small.

My plan puts me and my SO at ease the most even though I think we would end up with more money in the end by dollar cost averaging the extra into taxable. We want to pay cash for some remodeling and I have a hard time spending a lot of money on the house while still having the mortgage, so the sooner we pay off the house, the sooner we can save for a remodel.
chillwill120
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Re: Going “all in” on paying mortgage

Post by chillwill120 »

When a lender makes a mortgage loan, it is aware that there is a chance it won't get repaid, and it is aware that the remedy in such event is to foreclose upon the property. The bank is a sophisticated entity that knowingly and willingly, with representation from legal counsel, entered into a fair contract. It is not immoral for a borrower to exercise its rights under the terms of a mortgage by ceasing to pay the loan and allowing the bank to foreclose. A mortgage is not some holy covenant with God. It is just a contract and people should do whatever makes sense financially so long as they are acting within the bounds of the law. You cannot expect someone to put themselves and their families in financial ruin by paying an underwater mortgage when they have the legal option of walking away from the loan.
rockstar
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Re: Going “all in” on paying mortgage

Post by rockstar »

KlangFool wrote: Thu Oct 22, 2020 9:09 pm
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?


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
Sounds like your premise is that folks will have inadequate emergency funds, so that they'll have to sell their investments. The obvious solution is to increase ones emergency funds.

Also, home prices by me are going up during this recession, not down. The drop in home prices is specific to a few events. It doesn't happen with every recession. Also, equities are up for this one too.
KlangFool
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Re: Going “all in” on paying mortgage

Post by KlangFool »

rockstar wrote: Fri Oct 23, 2020 6:10 pm
KlangFool wrote: Thu Oct 22, 2020 9:09 pm
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,


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
Sounds like your premise is that folks will have inadequate emergency funds, so that they'll have to sell their investments. The obvious solution is to increase ones emergency funds.

Also, home prices by me are going up during this recession, not down. The drop in home prices is specific to a few events. It doesn't happen with every recession. Also, equities are up for this one too.
rockstar,


1) No, I am not taking an extreme position that someone has to have the largest emergency fund possible. I am saying do not be 100% stock and take an AA of 70/30 to 30/70 and use the bond as the second level emergency fund.

<<Also, home prices by me are going up during this recession, not down. The drop in home prices is specific to a few events. It doesn't happen with every recession. Also, equities are up for this one too.>>


2) The RECESSION is not over yet.


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

Post by Tdubs »

KlangFool wrote: Thu Oct 22, 2020 9:09 pm
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?


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
Klangfool,

Do you think the answer differs for someone near retirement? If you are in the last 10 years of paying off the mortgage and close enough to retirement that your "emergency fund" could, if necessary, include filing earlier than planned for SS or a pension, does the guaranteed return of paying off early become a more important consideration than liquidity?
rockstar
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Re: Going “all in” on paying mortgage

Post by rockstar »

KlangFool wrote: Fri Oct 23, 2020 6:49 pm
rockstar wrote: Fri Oct 23, 2020 6:10 pm
KlangFool wrote: Thu Oct 22, 2020 9:09 pm
rockstar wrote: Thu Oct 22, 2020 9:02 pm
anon_investor wrote: Thu Oct 22, 2020 8:28 pm

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
Sounds like your premise is that folks will have inadequate emergency funds, so that they'll have to sell their investments. The obvious solution is to increase ones emergency funds.

Also, home prices by me are going up during this recession, not down. The drop in home prices is specific to a few events. It doesn't happen with every recession. Also, equities are up for this one too.
rockstar,


1) No, I am not taking an extreme position that someone has to have the largest emergency fund possible. I am saying do not be 100% stock and take an AA of 70/30 to 30/70 and use the bond as the second level emergency fund.

<<Also, home prices by me are going up during this recession, not down. The drop in home prices is specific to a few events. It doesn't happen with every recession. Also, equities are up for this one too.>>


2) The RECESSION is not over yet.


KlangFool
I agree. My investments are not emergency funds. I can see how this can be the case early in the accumulation phase.
KlangFool
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Re: Going “all in” on paying mortgage

Post by KlangFool »

Tdubs wrote: Fri Oct 23, 2020 7:31 pm
Klangfool,

Do you think the answer differs for someone near retirement? If you are in the last 10 years of paying off the mortgage and close enough to retirement that your "emergency fund" could, if necessary, include filing earlier than planned for SS or a pension, does the guaranteed return of paying off early become a more important consideration than liquidity?

Tdubs,

<<Do you think the answer differs for someone near retirement? If you are in the last 10 years of paying off >>

What answer? OP is planning to pay down the mortgage. Not paying off the mortgage. Paying off the mortgage may be a good idea. Paying down is not.


<< include filing earlier than planned for SS>>

This costs you 8% of social security benefits per year forever. Why take any RISK on that just to save 3+% of mortgage interest?

<<does the guaranteed return of paying off early become a more important consideration than liquidity?>>

Paying down the mortgage saves you 3+% interest. If you run into a LIQUIDITY problem, the cost is a lot more significant than that of 3+%. For example, taking the pension and/or social security earlier. Why is this a good deal?


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

Post by rockstar »

Let me throw another wrench into this discussion. What do you think about paying down faster than recasting to get a lower payment?
MDfan
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Re: Going “all in” on paying mortgage

Post by MDfan »

We've had our mortgage since 1993 and have used the equity to do home repair projects, pay for college, and pay off student loans. We still owe more than when we started, but our rate now is 2.6% (15 years). I have no plans to pay it off even a month early and I'll probably be in my early 70s when I do. But it doesn't stress me one bit.
kelvan80
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Re: Going “all in” on paying mortgage

Post by kelvan80 »

We maxed taxed advantaged first, then mortgage before taxable. We saw it as paying down a bond and were more aggressive with our stock allocation at 80% than we are now (70/30) Also mortgage rate at the time was 5.75%.
rr2
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Re: Going “all in” on paying mortgage

Post by rr2 »

^^ Ben Mathew viewtopic.php?p=5562762#p5562762

Great post. Very well written.
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AerialWombat
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Re: Going “all in” on paying mortgage

Post by AerialWombat »

rockstar wrote: Fri Oct 23, 2020 7:58 pm Let me throw another wrench into this discussion. What do you think about paying down faster than recasting to get a lower payment?
This is more or less what I’m doing.

I just refinanced three mortgages, and put cash in to each of them. Combined with the huge drop in rates, two of the payments dropped significantly, and on my primary I went to a 15 year with a lower payment than the 30. On a 4th mortgage, I am going to make a $50k principal payment, then recast ($500 fee). On several other properties, I’ve rounded the payment up to the nearest $500 and will recast them when it makes sense.

And no, this doesn’t sacrifice my other saving/investing. I stick low to mid five figures a month into taxable, and have already maxed out tax advantaged space for the year.
absolute zero
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Re: Going “all in” on paying mortgage

Post by absolute zero »

AerialWombat wrote: Fri Oct 23, 2020 9:34 pm
rockstar wrote: Fri Oct 23, 2020 7:58 pm Let me throw another wrench into this discussion. What do you think about paying down faster than recasting to get a lower payment?
This is more or less what I’m doing.

I just refinanced three mortgages, and put cash in to each of them. Combined with the huge drop in rates, two of the payments dropped significantly, and on my primary I went to a 15 year with a lower payment than the 30. On a 4th mortgage, I am going to make a $50k principal payment, then recast ($500 fee). On several other properties, I’ve rounded the payment up to the nearest $500 and will recast them when it makes sense.

And no, this doesn’t sacrifice my other saving/investing. I stick low to mid five figures a month into taxable, and have already maxed out tax advantaged space for the year.
Have you ever recasted before? Do they do any sort of checks e.g. verify your income/employment? Just wondering if a person could pay extra towards their mortgage and get a bit ahead. But then save the recast fee and “keep that option in their back pocket.” If they lose their job or encounter a different setback, they could immediately recast to gain some extra wiggle room.
exigent
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Re: Going “all in” on paying mortgage

Post by exigent »

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. Then we moved this year and decided a 2.75% 30 year fixed rate mortgage was hard to pass up, so we took it. Sold the other house and decided to invest in our 60/40 portfolio vs paying it off. Plan to retire next year @55 and carry the mortgage to maturity at 84. NPV of a 30 year fixed rate 2.75% mortgage with 2% inflation is almost free money. And a great inflation hedge.
In the midst of a refi to 2.625% and feeling the same way. Hard to beat that rate, and note really tempted to pay it early since (at the very least) it’s a solid inflation hedge.
NorCalDad
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Location: Northern California

Re: Going “all in” on paying mortgage

Post by NorCalDad »

exigent wrote: Fri Oct 23, 2020 10:49 pm
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. Then we moved this year and decided a 2.75% 30 year fixed rate mortgage was hard to pass up, so we took it. Sold the other house and decided to invest in our 60/40 portfolio vs paying it off. Plan to retire next year @55 and carry the mortgage to maturity at 84. NPV of a 30 year fixed rate 2.75% mortgage with 2% inflation is almost free money. And a great inflation hedge.
In the midst of a refi to 2.625% and feeling the same way. Hard to beat that rate, and note really tempted to pay it early since (at the very least) it’s a solid inflation hedge.
Also in the midst of a refi to 2.625%. This conversation is much different at 6% (our rate when we first bought a home) than at these current rates. Our monthly payment for a house in a great neighborhood is going to be lower than what the average 1-bedroom apartment rents for in our region. I've prepaid mortgages before but now feel like liquidity and taxable investing are opportunity costs I can't pass up.
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AerialWombat
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Re: Going “all in” on paying mortgage

Post by AerialWombat »

absolute zero wrote: Fri Oct 23, 2020 10:45 pm
AerialWombat wrote: Fri Oct 23, 2020 9:34 pm
rockstar wrote: Fri Oct 23, 2020 7:58 pm Let me throw another wrench into this discussion. What do you think about paying down faster than recasting to get a lower payment?
This is more or less what I’m doing.

I just refinanced three mortgages, and put cash in to each of them. Combined with the huge drop in rates, two of the payments dropped significantly, and on my primary I went to a 15 year with a lower payment than the 30. On a 4th mortgage, I am going to make a $50k principal payment, then recast ($500 fee). On several other properties, I’ve rounded the payment up to the nearest $500 and will recast them when it makes sense.

And no, this doesn’t sacrifice my other saving/investing. I stick low to mid five figures a month into taxable, and have already maxed out tax advantaged space for the year.
Have you ever recasted before? Do they do any sort of checks e.g. verify your income/employment? Just wondering if a person could pay extra towards their mortgage and get a bit ahead. But then save the recast fee and “keep that option in their back pocket.” If they lose their job or encounter a different setback, they could immediately recast to gain some extra wiggle room.
No, never done a recast. It’s my understanding that most servicers require you to make a *new* principal paydown. There are no income checks and the like.
rockstar
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Re: Going “all in” on paying mortgage

Post by rockstar »

AerialWombat wrote: Fri Oct 23, 2020 11:18 pm
absolute zero wrote: Fri Oct 23, 2020 10:45 pm
AerialWombat wrote: Fri Oct 23, 2020 9:34 pm
rockstar wrote: Fri Oct 23, 2020 7:58 pm Let me throw another wrench into this discussion. What do you think about paying down faster than recasting to get a lower payment?
This is more or less what I’m doing.

I just refinanced three mortgages, and put cash in to each of them. Combined with the huge drop in rates, two of the payments dropped significantly, and on my primary I went to a 15 year with a lower payment than the 30. On a 4th mortgage, I am going to make a $50k principal payment, then recast ($500 fee). On several other properties, I’ve rounded the payment up to the nearest $500 and will recast them when it makes sense.

And no, this doesn’t sacrifice my other saving/investing. I stick low to mid five figures a month into taxable, and have already maxed out tax advantaged space for the year.
Have you ever recasted before? Do they do any sort of checks e.g. verify your income/employment? Just wondering if a person could pay extra towards their mortgage and get a bit ahead. But then save the recast fee and “keep that option in their back pocket.” If they lose their job or encounter a different setback, they could immediately recast to gain some extra wiggle room.
No, never done a recast. It’s my understanding that most servicers require you to make a *new* principal paydown. There are no income checks and the like.
My lender requires a minimum principal payment of $5000 plus a few to recast. This isn't something I would do if I lost my job. However, it makes sense for me going forward if rates go up, and I want to shrink my payment.
chillwill120
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Re: Going “all in” on paying mortgage

Post by chillwill120 »

corn18 wrote: Fri Oct 23, 2020 11:20 am
pepperz wrote: Fri Oct 23, 2020 11:16 am One additional observation: making extra principle payments to mortgage knocks a lot more interest off than whatever the APR rate of the mortgage is. Amortization means interest is front-loaded so aren’t your earlier mortgage payments more valuable than the later ones? Or am I off here?
You are off. Mortgages are simple interest. Paying $50 now has the same impact as paying $50 25 years from now. Actually, it's better to pay it 25 years from now because the NPV of $50 in 25 years will only be $30.48 @ 2% inflation. This is why a cheap mortgage is a good inflation hedge.

My mortgage: $510,396 2.75% fixed for 30 years starting Oct 2020

Assume 2% inflation

The NPV of my mortgage is $554,234

So the mortgage costs me $43,389 in real dollars.

If I can manage to eek out 0.75% real interest on the money I could have used to pay off the mortgage, I will break even.

If inflation goes to 3%, I make money.

This is why I have a mortgage.

SORR is another story, but I have a large COLA pension, so I feel safe for now.
I hear what you're saying about inflation and it makes sense. Setting aside inflation, is it accurate to say that "Paying $50 now has the same impact as paying $50 25 years from now"? You can simply plug this into an mortgage calculator and see how paying an extra $50 in month 1 of the mortgage saves a whole lot more interest than paying $50 25 years later.
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Re: Going “all in” on paying mortgage

Post by grabiner »

chillwill120 wrote: Sat Oct 24, 2020 2:01 pm I hear what you're saying about inflation and it makes sense. Setting aside inflation, is it accurate to say that "Paying $50 now has the same impact as paying $50 25 years from now"? You can simply plug this into an mortgage calculator and see how paying an extra $50 in month 1 of the mortgage saves a whole lot more interest than paying $50 25 years later.
Paying money earns the same rate no matter when you pay it; what changes is the time. If you have a 3% mortgage and you pay $1000, your balance will be $1030 lower in one year. If the mortgage has ten years left, tyou save $344 in interest over ten years, since $1000 compounded for ten years at 3% is $1344. If the mortgage has one year left, you save $30 in interest, but you then have nine more years to invest the $1030; if you happen to earn 3% on your investment, you will have the same $1344.
Wiki David Grabiner
macheta
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Re: Going “all in” on paying mortgage

Post by macheta »

I invested up to the match of my 401k and dumped the remaining into my mortgage. The main reason was to protect myself from risk of a major market downturn. This occurred for about 1.5 years until the house was fully payed off. I'm now able to put my mortgage payment towards both of our roths. My job is at risk due to the covid pandemic. We can now live off my wifes income if I lose my job.

I suffer from anxiety and chronic worrying. This was not the best financial move but made me feel good. I'm also able to coast into retirement.
chillwill120
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Re: Going “all in” on paying mortgage

Post by chillwill120 »

grabiner wrote: Sat Oct 24, 2020 8:56 pm
chillwill120 wrote: Sat Oct 24, 2020 2:01 pm I hear what you're saying about inflation and it makes sense. Setting aside inflation, is it accurate to say that "Paying $50 now has the same impact as paying $50 25 years from now"? You can simply plug this into an mortgage calculator and see how paying an extra $50 in month 1 of the mortgage saves a whole lot more interest than paying $50 25 years later.
Paying money earns the same rate no matter when you pay it; what changes is the time. If you have a 3% mortgage and you pay $1000, your balance will be $1030 lower in one year. If the mortgage has ten years left, tyou save $344 in interest over ten years, since $1000 compounded for ten years at 3% is $1344. If the mortgage has one year left, you save $30 in interest, but you then have nine more years to invest the $1030; if you happen to earn 3% on your investment, you will have the same $1344.
Is it accurate to say "paying $50 now has the same impact as $50 25 years from now" when you've clearly just laid out the math showing that making an extra principal payment earlier in the life saves more interest than a later principal payment? I'm not saying that you earn a better rate by paying early, I'm just saying that the quote is not accurate because the impact is not the same.
Hoosier CPA
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Re: Going “all in” on paying mortgage

Post by Hoosier CPA »

wolf359 wrote: Fri Oct 23, 2020 10:01 am
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.
Paying DOWN the mortgage is not the same as paying OFF the mortgage.

If you have enough to retire, and you no longer need the funds, then allocating money for a mortgage payoff is a good move. PAYING OFF the mortgage has all these good effects, like reducing your monthly expenses significantly. However, paying DOWN the mortgage just ties up your money without reducing your payments. You also decrease your liquidity, thus increasing your risk.

Instead, you should create a sinking fund. This is a taxable brokerage account specifically earmarked for mortgage payoff. This should be money that you don't need for retirement (you already said that, right?) so it doesn't need to be all cash or all bonds. Pick an appropriate asset allocation, and start plugging away. When the balance is large enough to pay off the mortgage, decide if you want to pay off the mortgage.

I did this, using a 100% equity asset allocation. I was willing to take the risk of all equities for this purpose, because I didn't HAVE to pay off the mortgage -- I was willing to wait out any downturns. If an emergency happened, I had liquid assets available (remember, this is extra money AFTER my regular saving/investing).

Eventually, my balance equaled my mortgage, and I changed my mind. Instead of paying off the mortgage, I started using the sinking fund to make the payments. This gave me the same effect as paying off the mortgage (freeing up my monthly cash flow), but allowed my investments to run. I continued in this way for a few years, and thought I was done. By the time the mortgage would be fully paid off, I'd still have some assets left over.

Then, 2019 happened. It seems like forever ago, but that was the year of a 29% return in the S&P 500. My overall portfolio had a return that exceeded my mortgage principal. It looked like an opportunity to lock in the profits, pay off the mortgage, and yet still have an acceptable level of liquid assets. At first it seemed like a bad move because the market continued to climb, but then COVID happened. I'm really happy that my expenses were really low during the shutdown. My low expenses combined with the fact that I still had ample liquid assets let me stay fully invested throughout 2020 with no real emotional stress.

You might not get lucky like I did, but I'd strongly advise using a sinking fund instead of just paying down your mortgage directly. The tactic gives you liquidity and options.
This seems to make a lot of sense to me. We just refi'd a mortgage with 22 years remaining into a new 30 with a lower rate. I'd like to have the mortgage paid off in the 22 year time horizon, as it corresponds with me turning 65, but the idea of paying extra right now isn't sitting well with me as I like the idea of increased liquidity. Klangfool has made this point many times on this forum. So I'm trying to think through where to invest the excess payments. I'm thinking taxable, to maintain liquidity, perhaps in something like 70/30 or 60/40. The idea would be to beat the 2.875% I currently have on the mortgage while keeping liquidity. Even if I didn't beat it by much, I'd still maintain the liquidity. It's hard to think I wouldn't be ahead financially in say 10 years by doing this compared to making additional principal payments. If the stock market tanked and I found myself out of work, whatever investment amount I'd have would still be more useful for survival compared to increased equity in the house. Later, when this account reached the same value as the mortgage, then I could decide whether I'd like to eliminate the mortgage and the required payments. Thanks for the post and for spelling it out like this.

With a mortgage rate of 2.875% that is not deductible to me, with the increased standard deduction, I'd just have to meet or beat 2.875% adjusted upward for taxes - say somewhere in the low 4's, assuming a 30% marginal fed + state rate, correct?
JBTX
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Re: Going “all in” on paying mortgage

Post by JBTX »

Everybody seems to have a different way to frame this particular issue. The correct answer really depends on the individual specifics.

If you are young, and have a low interest mortgage, seems to me paying down or off is probably not optimal.

If you are in 50s or older paying down or off begins to make more sense. But it really depends. I am upper 50s and doing a cash out on a modest mortgage, to shore up liquidity for the next 5 years, and to be able to maximized tax advantaged opportunities, and to avoid tapping into existing tax advantaged accounts. Any excess liquidity I'll park in ibonds, eebonds, etc. I may want to purchase a house for kids vs continuing to pay rent (not likely, but I haven't given up completely on the idea). Having another $90k in liquidity just gives me options at a fairly modest cost.

But if someone is approaching retirement, has plenty of liquidity, can easily maximize tax advantaged accounts, and has bonds in their portfolio, paying down/paying off a mortgage could be an attractive option to low yield bonds.

The distinction between paying down and paying off a mortgage made in this thread makes no sense to me. They are the same thing, just a matter of degree.
Adfmacro
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Re: Going “all in” on paying mortgage

Post by Adfmacro »

Paying down the mortgage does not change the monthly payment, but the interest is calculated on the balance so it the remainder going to principle does increase. In fact the increases by a small amount each month even if you pay just the regular payment. I was planning on getting a 15yr mortgage after I lost my job and moved. In the end I played it safer by going with a 30yr loan. Some years I pay more on principle and some years less. I like the idea of having one of my biggest monthly expenses gone by time I retire even though I could pay it off with one year’s RMD by then. My home will be no more than 25% of my net worth by then. I might be less inclined to pay off the mortgage if the home was a greater % of my net worth.

I could refi one year before retirement pay 20% down On a 30 year mortgage and invest the rest. It could be the smart thing to do, but I still like the idea of having no mortgage in retirement and my wife wants that too.

I am currently paying down the mortgage but not enough to have it paid off by time I retire. I am putting some money into a fund monthly and if home expenses don’t use up that money then it will go to pay off the balance in one lump sum.

I have never had a loan longer than 30 years, but I have had a mortgage for the last 39 years With 18 more years to go if I pay only the amount required. I don’t want to be a mortgage lifer. Do what’s is best for you. I doubt that you will have regrets either way.
TikiMan
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Re: Going “all in” on paying mortgage

Post by TikiMan »

I pay down the mortgage outside of retirement accounts. If I invest in the stock market and it outperforms my mortgage rate my wife will be happy but realistically it won't make much difference to her or her family. If the market crashes and it significantly underperforms my 2.85% mortgage I will be an irresponsible moron to her family. I'd rather take the sure bet, pay off the mortgage, and then go 100% stocks for life. There may be some market timing involved. If stocks were 40% lower than historic value I might change things but they are supposedly overvalued with the fed juicing the market.
SnowBog
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Re: Going “all in” on paying mortgage

Post by SnowBog »

I think others have eloquently talked about both the math and emotions involved. Some tilt more one way than the other...

Personally, I've always hated being in debt, including my mortgage which we took out in 2001 in a LCOL area. And I'd seen where doing something like one extra payment a year (or 1/12 extra a month) could drastically reduce the time - and interest paid on the mortgage. So that's what we did from the start. (One can likely argue that our interest was less than potential gains in the market, fair enough, but I don't think that single extra annual payment is going to make or break a retirement goal).

At one point, rates lowered and we refinanced. We basically kept our original payment, putting the difference in the lower rate into more principal. By this point we had a child, and a goal of freeing up cash flow to pay for college starting in 2026. (At the time, we didn't have a 529 or other college savings.)

In 2018, due to great market returns and much higher than expected income, we had enough cash to payoff the mortgage. On paper, arguably the "smart" decision would have been to invest that money. We didn't do that...

Instead, we paid off the mortgage, and I believe it was absolutely the best decision for us. Maybe we could have figured out how to do it with a mortgage... But around that same time I learned about Backdoor Roths, Mega Backdoor Roth (which I unknowingly had access to), benefits of maxing ESPP, and my spouse got access to a decent qualified plan (which they'd never invested in before). That freed up cash flow from the mortgage (along with some other budget changes) powered a massive increase in our savings in 2019, which continues this year.

Hypothetically, our taxable balance could be much higher had we invested instead of paying off the mortgage. But I'm convinced we wouldn't have been able to max out another qualified plan and max out a Mega Backdoor Roth if we still were making mortgage payments. I'd rather get that money into tax advantaged accounts, so I think it was a good tradeoff.
Afty
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Re: Going “all in” on paying mortgage

Post by Afty »

SnowBog wrote: Sun Oct 25, 2020 2:02 am I think others have eloquently talked about both the math and emotions involved. Some tilt more one way than the other...

Personally, I've always hated being in debt, including my mortgage which we took out in 2001 in a LCOL area. And I'd seen where doing something like one extra payment a year (or 1/12 extra a month) could drastically reduce the time - and interest paid on the mortgage. So that's what we did from the start. (One can likely argue that our interest was less than potential gains in the market, fair enough, but I don't think that single extra annual payment is going to make or break a retirement goal).

At one point, rates lowered and we refinanced. We basically kept our original payment, putting the difference in the lower rate into more principal. By this point we had a child, and a goal of freeing up cash flow to pay for college starting in 2026. (At the time, we didn't have a 529 or other college savings.)

In 2018, due to great market returns and much higher than expected income, we had enough cash to payoff the mortgage. On paper, arguably the "smart" decision would have been to invest that money. We didn't do that...

Instead, we paid off the mortgage, and I believe it was absolutely the best decision for us. Maybe we could have figured out how to do it with a mortgage... But around that same time I learned about Backdoor Roths, Mega Backdoor Roth (which I unknowingly had access to), benefits of maxing ESPP, and my spouse got access to a decent qualified plan (which they'd never invested in before). That freed up cash flow from the mortgage (along with some other budget changes) powered a massive increase in our savings in 2019, which continues this year.

Hypothetically, our taxable balance could be much higher had we invested instead of paying off the mortgage. But I'm convinced we wouldn't have been able to max out another qualified plan and max out a Mega Backdoor Roth if we still were making mortgage payments. I'd rather get that money into tax advantaged accounts, so I think it was a good tradeoff.
You withdrew money from your taxable account to pay off your mortgage, which then increased your cashflow and allowed you to max out tax advantaged accounts. Couldn’t you have done the same thing without paying off your mortgage, by withdrawing from taxable and using it to max out the retirement accounts?
SnowBog
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Re: Going “all in” on paying mortgage

Post by SnowBog »

Afty wrote: Sun Oct 25, 2020 2:25 am
SnowBog wrote: Sun Oct 25, 2020 2:02 am I think others have eloquently talked about both the math and emotions involved. Some tilt more one way than the other...

Personally, I've always hated being in debt, including my mortgage which we took out in 2001 in a LCOL area. And I'd seen where doing something like one extra payment a year (or 1/12 extra a month) could drastically reduce the time - and interest paid on the mortgage. So that's what we did from the start. (One can likely argue that our interest was less than potential gains in the market, fair enough, but I don't think that single extra annual payment is going to make or break a retirement goal).

At one point, rates lowered and we refinanced. We basically kept our original payment, putting the difference in the lower rate into more principal. By this point we had a child, and a goal of freeing up cash flow to pay for college starting in 2026. (At the time, we didn't have a 529 or other college savings.)

In 2018, due to great market returns and much higher than expected income, we had enough cash to payoff the mortgage. On paper, arguably the "smart" decision would have been to invest that money. We didn't do that...

Instead, we paid off the mortgage, and I believe it was absolutely the best decision for us. Maybe we could have figured out how to do it with a mortgage... But around that same time I learned about Backdoor Roths, Mega Backdoor Roth (which I unknowingly had access to), benefits of maxing ESPP, and my spouse got access to a decent qualified plan (which they'd never invested in before). That freed up cash flow from the mortgage (along with some other budget changes) powered a massive increase in our savings in 2019, which continues this year.

Hypothetically, our taxable balance could be much higher had we invested instead of paying off the mortgage. But I'm convinced we wouldn't have been able to max out another qualified plan and max out a Mega Backdoor Roth if we still were making mortgage payments. I'd rather get that money into tax advantaged accounts, so I think it was a good tradeoff.
You withdrew money from your taxable account to pay off your mortgage, which then increased your cashflow and allowed you to max out tax advantaged accounts. Couldn’t you have done the same thing without paying off your mortgage, by withdrawing from taxable and using it to max out the retirement accounts?
Conceptually, sure... Psychology, I'm not sure...

I have a hard time "selling" investments that in my mind are for retirement.

Had I left the excess funds in cash, I could have potentially spent down the cash to pay expenses (at least the portion equivalent to the mortgage payment), allowing me to still max out the additional tax-advantaged accounts.

But that was a lot of cash on hand, which I'd still have - and likely have for years yet. And with current interest rates, that much cash earning basically nothing (arguably losing value if adjusted for inflation) would have driven me nuts.

The "smarter" option would have been to invest it. I forget who posted about it, but conceptually I really liked the idea of the "sinking fund". If I invested the money, it would have likely produced a superior financial result. But it would also have meant an increase in taxes selling off gains to makeup the difference in the cash flow (and forcing me to get over selling "retirement" assets). With NIIT and state taxes, even LTCG is taxed at 30%+ in my tax bracket. So I'd need the gains to exceed my mortgage rate by that or more to come out ahead. Last year, probably would have paid off. This year, we'll see but so far doesn't look like it. Next year, who knows. Over the remaining 8+ years of the mortgage, again it's likely that would have been the better move financially.

But the simplicity of having it paid off, freeing up the cash flow, added confidence that our new accelerated savings rate was sustainable (without concerns that we were simply shifting money between accounts if we needed to draw down taxable to cover expenses), and the "emotional" benefits of having it paid off ultimately won out for us...

(Again, not saying it was "financially" optimal... But "for us", it was the best choice.)
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firedup
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Re: Going “all in” on paying mortgage

Post by firedup »

Money_Badger wrote: Fri Oct 23, 2020 12:14 pm
firedup wrote: Wed Oct 21, 2020 4:44 pm I have always prioritized taxable investing and access to liquidity over paying off my mortgage, especially given my low interest rate (3%).

As I'm approaching retirement and my portfolio has grown, I guess you could say I'm going "all in" to pay off the mortgage. The main reasons are to lower my monthly expenses and reduce my sequence of returns risk in retirement. I could probably keep the mortgage in retirement; it's just my personal preference to pay it off.

Also, my outstanding loan balance represents a small percentage of my taxable assets and I've been able to pay off the mortgage with minimal tax burden as the result of stock/mutual fund sales and some tax loss harvesting.
As you approach retirement, this makes sense to me. Those with retirement in the fairly immediate future are probably more heavily invested in bonds, which are going to have a lower rate of return anyway, so there is less of a difference between that rate and the interest rate on the mortgage.

Those with longer time horizons though, I don't see the wisdom in it. I pay about $100 / extra per month on my mortgage and I'm thinking I might back that down to 0. I have a good rate, we've owned the house for 5 years and it has increased in value substantially (probably 35%) so we have good equity already. Plus, I doubt this is our last house.
I agree. I didn't make extra mortgage payments, either. Instead, I created a sinking fund of equities like another poster described. When the value of those equities exceeded my mortgage balance, I decided to pay off the remaining balance.
"We are more alike, my friends, than we are unalike" --Maya Angelou
6bquick
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Re: Going “all in” on paying mortgage

Post by 6bquick »

JBTX wrote: Sat Oct 24, 2020 10:38 pm The distinction between paying down and paying off a mortgage made in this thread makes no sense to me. They are the same thing, just a matter of degree.
In theory, you're right. it's a matter of degree. In reality, they are not at all the same thing. the difference is cashflow.
hypothetical numbers.
I have a $125k mortgage (PITI is $1k/mo) and $100k in taxable. therefore, I have 100 months worth of mortgage payments in taxable. Eight and one third YEARS of mortgage payments I have in my possession. If I get fired tomorrow, I'll have at least 8.5 years before I risk losing the roof over my head. If I take that entire 100k and pay DOWN my mortgage, I now have a balance owed of 25k (@1k/mo) and if I lose my job tomorrow, even though the mortgage is 20% of its previous value, I have 2 months instead of 102 months until I risk losing the roof over my head.

switch those initial numbers around, 100k mortgage and 125k taxable, I choose to pay OFF the mortgage, the wolves at the door are satiated much longer should I lose my job tomorrow because there is no mortgage anymore.

as with any hypothetical, there are confounding variables ad astra, but I hope you can see that from a monthly cashflow perspective, paying down a debt and paying off a debt are not even remotely the same thing in practice.
JBTX
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Re: Going “all in” on paying mortgage

Post by JBTX »

6bquick wrote: Sun Oct 25, 2020 9:36 pm
JBTX wrote: Sat Oct 24, 2020 10:38 pm The distinction between paying down and paying off a mortgage made in this thread makes no sense to me. They are the same thing, just a matter of degree.
In theory, you're right. it's a matter of degree. In reality, they are not at all the same thing. the difference is cashflow.
hypothetical numbers.
I have a $125k mortgage (PITI is $1k/mo) and $100k in taxable. therefore, I have 100 months worth of mortgage payments in taxable. Eight and one third YEARS of mortgage payments I have in my possession. If I get fired tomorrow, I'll have at least 8.5 years before I risk losing the roof over my head. If I take that entire 100k and pay DOWN my mortgage, I now have a balance owed of 25k (@1k/mo) and if I lose my job tomorrow, even though the mortgage is 20% of its previous value, I have 2 months instead of 102 months until I risk losing the roof over my head.

switch those initial numbers around, 100k mortgage and 125k taxable, I choose to pay OFF the mortgage, the wolves at the door are satiated much longer should I lose my job tomorrow because there is no mortgage anymore.

as with any hypothetical, there are confounding variables ad astra, but I hope you can see that from a monthly cashflow perspective, paying down a debt and paying off a debt are not even remotely the same thing in practice.
The problem with your example is if you are unemployed, you may need some of that $100k to pay other expenses until you are back on your feet. That is the purpose of additional liquidity.

I can't count how many times people have posted variants of this. Somehow if you get rid of a large sum of money that makes you more financially secure, because the comparatively small payment has gone away.

The reason to pay off or down a mortgage is you don't need the liquidity, and pay down/off gives you the best risk adjusted return vs the alternatives.
rockstar
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Re: Going “all in” on paying mortgage

Post by rockstar »

6bquick wrote: Sun Oct 25, 2020 9:36 pm
JBTX wrote: Sat Oct 24, 2020 10:38 pm The distinction between paying down and paying off a mortgage made in this thread makes no sense to me. They are the same thing, just a matter of degree.
In theory, you're right. it's a matter of degree. In reality, they are not at all the same thing. the difference is cashflow.
hypothetical numbers.
I have a $125k mortgage (PITI is $1k/mo) and $100k in taxable. therefore, I have 100 months worth of mortgage payments in taxable. Eight and one third YEARS of mortgage payments I have in my possession. If I get fired tomorrow, I'll have at least 8.5 years before I risk losing the roof over my head. If I take that entire 100k and pay DOWN my mortgage, I now have a balance owed of 25k (@1k/mo) and if I lose my job tomorrow, even though the mortgage is 20% of its previous value, I have 2 months instead of 102 months until I risk losing the roof over my head.

switch those initial numbers around, 100k mortgage and 125k taxable, I choose to pay OFF the mortgage, the wolves at the door are satiated much longer should I lose my job tomorrow because there is no mortgage anymore.

as with any hypothetical, there are confounding variables ad astra, but I hope you can see that from a monthly cashflow perspective, paying down a debt and paying off a debt are not even remotely the same thing in practice.
With rates continuing to go down since I have own homes, what I have found happens in practice that over time I prepay a little each month on my mortgage, then rates drop a point, and I refinance. Now, my refinanced loan is much smaller and at a much lower rate, and my payment is lower. But with my latest refinance at 2.8%, I have to ask myself if I will ever see 1.8%. If I don't, then it would only make sense for me to paydown a large chunk and recast to a smaller mortgage payment, rather than prepaying a little each month. My current plan post my refinance is to invest as long as it seems likely I can get returns greater than 2.8%. It makes no sense for me to invest in bonds yielding less than 1% right now. I can find some preferred stock that will yield higher than 2.8% that might fit the bill as an alternative to equities only.

It doesn't make sense to prepay a mortgage and not have an emergency fund available for your job loss scenario.
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