Pay off mortgage early??

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poobah
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Pay off mortgage early??

Post by poobah » Tue Jan 04, 2011 7:39 pm

Hi,

I was curious what others opinions would be here about the idea of paying off my mortgage early.

I have 58,000 left on my mortgage at 6.09%.

I have about that much money sitting in bonds earning anywhere from .06% to 5%. Would it be crazy to just sell off all my fixed income at this point and pay off the mortgage?

If I stopped contributing to investments for two years I could save enough to pay off the mortgage as well.

Any opinions which would make more sense? I figure that bond yields will stay low for a couple more years so maybe it would make sense to sell off the fixed income now....

Thanks for any help or wisdom you might be able to provide.

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White Coat Investor
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Post by White Coat Investor » Tue Jan 04, 2011 7:47 pm

Why not do a no-cost refinance at ~4% and pay half of it off, essentially splitting the difference?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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thriftynick
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Post by thriftynick » Tue Jan 04, 2011 7:54 pm

I think I'd need to know more about your financial situation to give the best advice. For example, if selling the bonds would throw your AA out of whack, if that $58k is in a retirement account, if that $58k is all you save saved, or if the mortgage interest tax deduction you receive is a lot, paying off the house might not be the best idea. However, if you answered no to the above -- do you expect to earn more than 6.09% with your bonds? You'll be effectively earning that (minus the tax deduction, of course).

We paid off our house in October 2010, and I think it was a great decision. I feel a lot less stress and I'm not paying the 6% interest I previously was.

SteveL
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Post by SteveL » Tue Jan 04, 2011 7:55 pm

With a loan balance on the low side, you probably cannot itemize your taxes. A re-fi would just extend your payments out for years for a small interest reduction.

If you have the bonds for a while, you should check your basis before you sell. Most people with bonds have substantial unrealized appreciation which will convert into capital gains if sold.

You didn't mention what other investments you have. If you have a substantial portfolio, paying off the loan might make sense. If the bonds are all you have, then maybe not.

A long time ago, I faced a similar choice with 8 years left and $42k owing. I had the cash, and other funds, so I paid it off. I then set up a auto investment with the money I wasn't paying to the bank each month.

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IlikeJackB
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Post by IlikeJackB » Tue Jan 04, 2011 8:17 pm

Some things cannot be measured soley on a financial basis. Paying off your mortgage early is one of those things. The feeling of satisfaction and security that comes from having your house paid for is immeasurable! We owed 50k and had 6 years left on our mortgage, and paid it off about 10 years ago. We have not regretted that decision at all.
"Do what you will, the capital is at hazard." Justice Samuel Putnam, Harvard College vs Amory, 1830. The "Prudent Man Rule."

bttn_2010
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Post by bttn_2010 » Tue Jan 04, 2011 8:31 pm

We liquidated one of my taxable investments, paid off the house with 1/3 of that (we had $16,000 remaining at 6% fixed) on November 2010 and started my son's 529 with the rest. Best decision we've made, but again, it is personal. We like not having any debt including mortgage.

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mlebuf
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Post by mlebuf » Tue Jan 04, 2011 9:05 pm

We don't have enough information about you to make intelligent recommendations. How old are you and your wife? How long do you plan to stay in the house? How many more years are left on the mortgage? Do you have any financial goals other than retirement, such as college savings? Do you have any debts other than the mortgage? Factors such as those play a large part in deciding what may be the better decision.
Best wishes, | Michael | | Invest your time actively and your money passively.

livesoft
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Post by livesoft » Tue Jan 04, 2011 9:08 pm

I paid off my mortgage last month. It was one of the worst financial decisions I have ever made. It was emotional because my bank called me to suggest I refinance. The bank guy offered an interest rate 0.125% lower than what I had, but I had to extend the time period. The calculator at www.mtgprofessor.com showed I would end up paying more overall. He pissed me off, so I told him I was going to just pay off my mortgage and so I did.

Every night since when I come home, I have a sinking feeling in my stomach because it was insane to get rid of mortgage at such historically low rates. To add insult to injury the stock fund I sold to pay it off went up 4% since I sold, so I lost thousands of dollars on that, too. I am missing the satisfaction and security of having money invested.

I suggest you should refinance if you can.

golfnut
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Post by golfnut » Tue Jan 04, 2011 9:16 pm

livesoft wrote:I paid off my mortgage last month. It was one of the worst financial decisions I have ever made. It was emotional because my bank called me to suggest I refinance. The bank guy offered an interest rate 0.125% lower than what I had, but I had to extend the time period. The calculator at www.mtgprofessor.com showed I would end up paying more overall. He pissed me off, so I told him I was going to just pay off my mortgage and so I did.

Every night since when I come home, I have a sinking feeling in my stomach because it was insane to get rid of mortgage at such historically low rates. To add insult to injury the stock fund I sold to pay it off went up 4% since I sold, so I lost thousands of dollars on that, too. I am missing the satisfaction and security of having money invested.

I suggest you should refinance if you can.
This might be the only negative comment I have seen on this forum from a person who actually payed off the mortgage. For the record, we still can't make up our minds ($76,000 balance).

JimInIllinois
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Post by JimInIllinois » Tue Jan 04, 2011 9:46 pm

I've tried both; maybe this is helpful...

I had paid off my bachelor pad around 2006, but only because the rate was going up and by that time I owed under $50K so the bank wasn't willing to refinance. When I sold it I got a big check that's just sitting in the bank now, waiting for some worthy purpose like a down payment on the next house.

We just refinanced a 30-year at 6% down to a 15 year at 3.5% with basically the same payment. Those rates are mostly gone now, but if you can refinance without paying too much in fees (shop around) that's the way to go. The mortgage is an inflation hedge and having liquid assets makes your finances more resilient.

I'd say refinance if you can, otherwise sell only the bonds earning less than 3% and use the joy of screwing your bank as an incentive to put more towards the mortgage each month without reducing your regular investments.

bdpb
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Post by bdpb » Tue Jan 04, 2011 10:01 pm

livesoft wrote: Every night since when I come home, I have a sinking feeling in my stomach because it was insane to get rid of mortgage at such historically low rates. To add insult to injury the stock fund I sold to pay it off went up 4% since I sold, so I lost thousands of dollars on that, too. I am missing the satisfaction and security of having money invested.
I'm assuming you're being facetious here. Remember, money is fungible.
When you sold your stock, didn't you sell some bonds to buy replacement
stocks? If you want to hold more stocks, just sell some bonds and buy
more stock.

livesoft
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Post by livesoft » Tue Jan 04, 2011 10:11 pm

I am not being facetious. When I login online to my bank it says PD IN FULL for my mortgage which just reminds me how much money I lost.

I sold emerging markets (VWO specifically) because I needed to rebalance since I was way overweighted in EM and also wanted to avoid the VWO dividend which might've made me ineligible for 2010 Roth IRA contributions.

I could not bring myself to buy bonds, so when I got the phone call from the bank guy ("You don't want to save $50 a month???? I don't understand why you don't refinance!") I just paid off the mortgage while thinking, "Let me get this done in December, so I won't have a 1098 to worry about with my 2011 taxes." Thus I have the same bonds I had before. My AA was back in balance simply from selling the equity shares.
Last edited by livesoft on Tue Jan 04, 2011 10:17 pm, edited 2 times in total.

bdpb
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Post by bdpb » Tue Jan 04, 2011 10:11 pm

livesoft wrote:The bank guy offered an interest rate 0.125% lower than what I had, but I had to extend the time period. The calculator at www.mtgprofessor.com showed I would end up paying more overall.
If the loan was a no cost loan and if you would have paid off the new
mortgage over the same term that remained on the old mortgage,
you would have paid less overall.

bdpb
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Post by bdpb » Tue Jan 04, 2011 10:18 pm

If you need to rebalance by selling stocks and you won't buy bonds,
there is no solution to your problem.

You should not be upset about paying off your mortgage. You should be
upset about rebalancing.

sport
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Post by sport » Tue Jan 04, 2011 10:42 pm

IlikeJackB wrote:Some things cannot be measured soley on a financial basis. Paying off your mortgage early is one of those things. The feeling of satisfaction and security that comes from having your house paid for is immeasurable! We owed 50k and had 6 years left on our mortgage, and paid it off about 10 years ago. We have not regretted that decision at all.
Some people need to actually pay off the mortgage to have that feeling of satisfaction and security. For me, having enough money to do so gave those same feelings whether or not I actually paid it off. Just being able to pay it off was sufficient. That made the decision to pay (or not pay) off the mortgage to be purely financial.

Jeff

supersharpie
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nm

Post by supersharpie » Tue Jan 04, 2011 11:01 pm

aaa
Last edited by supersharpie on Tue Jan 04, 2011 11:07 pm, edited 1 time in total.

JimInIllinois
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Post by JimInIllinois » Tue Jan 04, 2011 11:05 pm

livesoft wrote:I am not being facetious. When I login online to my bank it says PD IN FULL for my mortgage which just reminds me how much money I lost.
I know what you mean. It's not the potential gains that you missed out on that burns (did you expect to time the market without even trying?), but the fact that you made a hasty irreversible decision because you were annoyed by a salesman.

It's not an objectively bad decision based on the information available at the time. Cheer up! If EM tanks tomorrow you'll feel like a genius. 8)

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Watty
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Post by Watty » Tue Jan 04, 2011 11:07 pm

You mentioned that are investing enough to be able to pay off $58k in two years so I would assume that you are doing ok financially otherwise.

I would go ahead and pay it off.

If you had a paid off house you would not go out and get a new mortgage to put the money into bonds. This is really the same thing except for some transaction costs.

Greg

wovenhearts
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Post by wovenhearts » Tue Jan 04, 2011 11:14 pm

In my experience, you can't refinance a mortgage with that small of a balance. I tried. We owe $50,000 at 5.25% and I tried to refinance to a smaller interest rate. Didn't want to pay points and many closing costs. Found a company that would do it if our balance was over $70 or $80,000 (can't remember which one). Wouldn't do it on our balance.

So, we're paying an additional $500 per month and will have the house paid off in 4 years instead of 7 years.

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Toons
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Post by Toons » Tue Jan 04, 2011 11:23 pm

Keep it Simple,
Pay it off ,don't look back. :D :D
Been there done that.If there was anything
I would have done different it would have
been to pay it off sooner,which I could have :D :D
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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Imperabo
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Post by Imperabo » Tue Jan 04, 2011 11:43 pm

I think you need to have a pretty compelling reason when you borrow money at rate X and then loan it back out a rate Y, where X > Y.

JimInIllinois
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Re: Saving for downpayment...invest or pay off student loan?

Post by JimInIllinois » Tue Jan 04, 2011 11:44 pm

supersharpie wrote:Prior to reading this board my wife and I planned to save $10,000 a year in taxable index funds in preparation for a move to our second home in 2021. However, many on here advised that we just keep the money in an ultra-safe investment, like our money market account which is currently yielding 1.13%. With that in mind should we just pay off my wife's student loans ASAP in lieu of investing the money?
Is that really 2021 or did you mean 2012? If it's 2012, when you buy a house next year do you think you'll be able to get a mortgage at less than 4.5%? If so, and you have a 20% down payment plus an emergency fund set aside already, then pay off the 4.5% loan. You're not going to get a 3% mortgage, so it's better to put that money towards the mortgage later.

If you really meant 2021 and you have a 10 year time horizon then paying off the loans would be fine, but they also serve as an inflation hedge so you might consider paying the loans on schedule and putting your $10K/year into a portfolio that starts at 100/0 and drops steadily to 0/100 by 2021.

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Imperabo
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Post by Imperabo » Tue Jan 04, 2011 11:52 pm

livesoft wrote: To add insult to injury the stock fund I sold to pay it off went up 4% since I sold, so I lost thousands of dollars on that, too.

This regret is as irrational as your reason for paying off the mortgage (albeit a natural one). We must make decisions based on what is known and knowable at the time time they are made. Did you have good reason to expect a 4% one month return in that fund? Would you consider your decision a good one if that fund had gone down?

mikep
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Post by mikep » Wed Jan 05, 2011 12:01 am

wovenhearts wrote:In my experience, you can't refinance a mortgage with that small of a balance. I tried. We owe $50,000 at 5.25% and I tried to refinance to a smaller interest rate. Didn't want to pay points and many closing costs. Found a company that would do it if our balance was over $70 or $80,000 (can't remember which one). Wouldn't do it on our balance.

So, we're paying an additional $500 per month and will have the house paid off in 4 years instead of 7 years.
You should do a cash out no cost refi of around 150K, then pay the 100K difference back with your first payment to get a lower rate. Or maybe try the PenFed 10 year 3.99% home equity loan discussed here.

imagetruth
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Post by imagetruth » Wed Jan 05, 2011 12:20 am

If your savings are not in a retirement account then you should pay off the mortgage right away.

All these cute little equations and formulations about interest rates are all leaving out one important variable. That variable is life. What would happen if you lost your job and your child developed leukemia? It happens all the time to people. It would be a lot easier financially to handle such crises without having to fork so much over to the bank every year.

Debt represents substantial risk, even when it's a mortgage. Remember no paid-for homes have been in foreclosure.

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Post by NightOwl » Wed Jan 05, 2011 12:35 am

imagetruth wrote:What would happen if you lost your job and your child developed leukemia? It happens all the time to people. It would be a lot easier financially to handle such crises without having to fork so much over to the bank every year.
God forbid these things happen to the OP or anyone else, but if they did, wouldn't that person rather have the cash in the bank than no cash and a paid-off mortgage? No one lends you money because you're unemployed or because your child is sick. I think your grim scenarios actually argue for preserving liquidity.

NightOwl
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DiscoBunny1979
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Post by DiscoBunny1979 » Wed Jan 05, 2011 1:08 am

imagetruth wrote:Remember no paid-for homes have been in foreclosure.
---------------------

This is a truthful statement, but misleading. Paid-for homes can be auctioned to satisfy a wide variety of liens, judgments, unpaid property taxes, state/federal income taxes, and the list goes on. A home is never really owned 100% . . there will always be something attached to it, including bond issues to pay for things like upgraded sewer systems. Some cities even require home owners to pay for garbage service, or have it billed to their property taxes as a lien if they don't. Property taxes are "secured" by the property and therefore this in itself is a recurring debt that never goes away.

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mlebuf
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Post by mlebuf » Wed Jan 05, 2011 2:06 am

An interesting and true story: A couple that Elke and I are friends with have a Christmas party every year during the Holiday season. A few years ago before the RE bubble burst, I listened to a financial planner (salesman) at the party tell people how they should take all of the equity out their home and let him invest it for them. He said the equity in their home was doing them no good and he had investments that could guarantee them 8 percent per year. As a Boglehead, it was all I could do to remain civil. The foolproof investments he was hawking were principle protected variable annuities.

Weeks later I was having lunch with my friend who hosted the party. He told me that the financial guy was indeed very successful and owned a very large, beautiful home overlooking a lake. Fortunately, my friend didn't follow Mr. planner's advice. He owns two homes and both are paid in full.

Fast-forward to a few weeks ago. We are at the Christmas party and I see Mr. financial planner across the room. I didn't engage him in conversation but asked another person at the party what had happened to him since the RE bubble burst. It turns out that the planner ate his own cooking. He took all the equity and more out of his big house on the lake and invested it. He is now renting but tells people that he is very comfortable with it. Perhaps he is comfortable. As for me, I would rather move when I choose to rather than when the bank tells me to move.

There are cases when keeping a mortgage makes sense and cases when it doesn't. I've done both. Nevertheless, there are far worse fates than being debt free.
Best wishes, | Michael | | Invest your time actively and your money passively.

imagetruth
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Post by imagetruth » Wed Jan 05, 2011 4:06 pm

NightOwl wrote:
imagetruth wrote:What would happen if you lost your job and your child developed leukemia? It happens all the time to people. It would be a lot easier financially to handle such crises without having to fork so much over to the bank every year.
God forbid these things happen to the OP or anyone else, but if they did, wouldn't that person rather have the cash in the bank than no cash and a paid-off mortgage? No one lends you money because you're unemployed or because your child is sick. I think your grim scenarios actually argue for preserving liquidity.

NightOwl
I should have clarified, that's why he should have six months of personal expenses in an emergency fund BEFORE he pays off the house. If these scenarios did happen he could have the cushion to look for a job take care of his kid by using a COBRA stop-gap or something to take care of his child to bridge the gap between jobs.

Agreed, it's a nightmare scenario and we can't plan for all brand of nightmares but a liquid emergency fund is a necessity before a paid off house.
Last edited by imagetruth on Wed Jan 05, 2011 4:19 pm, edited 1 time in total.

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Post by imagetruth » Wed Jan 05, 2011 4:15 pm

livesoft wrote:I am not being facetious. When I login online to my bank it says PD IN FULL for my mortgage which just reminds me how much money I lost.

I sold emerging markets (VWO specifically) because I needed to rebalance since I was way overweighted in EM and also wanted to avoid the VWO dividend which might've made me ineligible for 2010 Roth IRA contributions.

I could not bring myself to buy bonds, so when I got the phone call from the bank guy ("You don't want to save $50 a month???? I don't understand why you don't refinance!") I just paid off the mortgage while thinking, "Let me get this done in December, so I won't have a 1098 to worry about with my 2011 taxes." Thus I have the same bonds I had before. My AA was back in balance simply from selling the equity shares.
Good grief. I don't know what to say to this. If it really upsets you begin take out a HELOC on it and put it back in and continue timing the market with speculative moves.

BTW, the risks of a mortgaged primary residence are much greater than the risks of living in a paid-for home.

The intelligent move would be to invest the monthly payment into your passive etfs and continue with any retirement savings. If you do that you're a multi-millionaire quicker than you'll ever know.

imagetruth
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Post by imagetruth » Wed Jan 05, 2011 4:22 pm

DiscoBunny1979 wrote:
imagetruth wrote:Remember no paid-for homes have been in foreclosure.
---------------------

This is a truthful statement, but misleading. Paid-for homes can be auctioned to satisfy a wide variety of liens, judgments, unpaid property taxes, state/federal income taxes, and the list goes on. A home is never really owned 100% . . there will always be something attached to it, including bond issues to pay for things like upgraded sewer systems. Some cities even require home owners to pay for garbage service, or have it billed to their property taxes as a lien if they don't. Property taxes are "secured" by the property and therefore this in itself is a recurring debt that never goes away.
That doesn't change my point. The risks are much greater living in a mortgaged residence than living in a paid-for residence.

YDNAL
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Re: Pay off mortgage early??

Post by YDNAL » Wed Jan 05, 2011 4:25 pm

livesoft wrote:I am not being facetious. When I login online to my bank it says PD IN FULL for my mortgage which just reminds me how much money I lost.

I sold emerging markets (VWO specifically) because I needed to rebalance since I was way overweighted in EM and also wanted to avoid the VWO dividend which might've made me ineligible for 2010 Roth IRA contributions.
Congratulations!

You took 'fake' money off the table - made it 'real' money - and eliminated 'real' debt. If EM tanks BIG TIME over the next few months, the end of your story will be different than today. :)
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

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TrustNoOne
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Post by TrustNoOne » Wed Jan 05, 2011 4:34 pm

I paid off my last mortgage in 1988 or so and have never regretted it for one second. I've never had the urge to go out and borrow again. Everytime I look mortgage rates are higher than any debt instrument I might care to invest in.

livesoft
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Post by livesoft » Wed Jan 05, 2011 5:15 pm

imagetruth wrote:If you do that you're a multi-millionaire quicker than you'll ever know.
I think I've been insulted.

aik
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Post by aik » Wed Jan 05, 2011 10:26 pm

hah, livesoft they are really giving you a hard time.

Thanks for sharing the example. Hope you don't mind if I chuckle a little about the cranky impulse payoff, not at you but because I can easily see myself pulling the same move. I can't tell you the number of credit cards I've paid off and canceled, gaining a fleeting moment of satisfaction, only to suffer a month of finding a new card and fiddling all the automatic payments...

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Post by CoderDude » Thu Jan 06, 2011 4:42 am

imagetruth wrote:That doesn't change my point. The risks are much greater living in a mortgaged residence than living in a paid-for residence.
How so? Compare the following two asset allocations:

300k house, 0 mortgage, 100k stocks+bonds
300k house, 200k mortgage, 300k stocks+bonds

The second allocation should be lower risk since it's more diversified. The first allocation is overweight in real estate.

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Post by porcupine » Thu Jan 06, 2011 8:00 am

livesoft:

Hindsight is always 20/20!

That said, I agree with the other poster who said that you ought to have refinanced and then continued following your previous payment schedule (i.e., making the same payment as before) - all this assumes that either there were no closing costs or the closing costs were very low.

OP:

Like someone else pointed out, the data you have provided is insufficient to decide what your best option is. What is the magnitude of your savings other than the money sitting in low interest MM equivalents? How about retirement savings, etc?

One thing is for sure though - if you are not itemizing and your interest rate is high enough that you cannot get similar returns in risk-free investments, time to aggressively pay more towards your mortgage.

- Porcupine

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Post by cjking » Thu Jan 06, 2011 8:04 am

CoderDude wrote:
imagetruth wrote:That doesn't change my point. The risks are much greater living in a mortgaged residence than living in a paid-for residence.
How so? Compare the following two asset allocations:

300k house, 0 mortgage, 100k stocks+bonds
300k house, 200k mortgage, 300k stocks+bonds

The second allocation should be lower risk since it's more diversified. The first allocation is overweight in real estate.
The total value of both portfolios is the same, and the house value in each is the same, therefore they both have the same percentage allocation to the house.

The second portfolio is more volatile (assuming it has more dollars allocated to stocks) and contains more blow-up risk. It will get some extra return in exchange for the extra volatility, but not in direct proportion, the risk-reward ratio will be worse. It will not get any extra return to compensate for the blow-up risk being assumed.

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BigFoot48
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Post by BigFoot48 » Thu Jan 06, 2011 8:56 am

livesoft wrote:Every night since when I come home, I have a sinking feeling in my stomach because it was insane to get rid of mortgage at such historically low rates. To add insult to injury the stock fund I sold to pay it off went up 4% since I sold, so I lost thousands of dollars on that, too. I am missing the satisfaction and security of having money invested.
So why don't you get a new mortgage and invest the borrowed money in that stock fund? Would that cure your sinking feeling?
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 12-time loser

livesoft
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Post by livesoft » Thu Jan 06, 2011 9:21 am

Rates have gone up and there would be closing costs. Maybe in the future.

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Pay off mortgage early??

Post by YDNAL » Thu Jan 06, 2011 9:26 am

CoderDude wrote:
imagetruth wrote:That doesn't change my point. The risks are much greater living in a mortgaged residence than living in a paid-for residence.
How so? Compare the following two asset allocations:

300k house, 0 mortgage, 100k stocks+bonds
300k house, 200k mortgage, 300k stocks+bonds

The second allocation should be lower risk since it's more diversified. The first allocation is overweight in real estate.
Lower risk?..... not quite!

1) Your real estate investment is $300K either way.
2) You have - in the second illustration - mortgaged real estate to buy volatile stocks+bonds.
3) Historically, $300K stocks+bonds may have outperformed $300K in real estate, but the leverage amount offsets (minimally) the upside.
4) Forget history - since tomorrow may look nothing like yesterday - and $300K in stocks+bonds may blow-up for 20+ years like in Japan.
Landy | Be yourself, everyone else is already taken -- Oscar Wilde

mikep
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Post by mikep » Thu Jan 06, 2011 9:58 am

livesoft wrote:Rates have gone up and there would be closing costs. Maybe in the future.
HELOCs / Home equity loans should have minimal closing costs, maybe an appraisal is about all. Also, there are many threads on no cost refinancing which are possible as well. The more you borrow, the lower the rate, and just send back what you don't want to borrow with the first payment.

bdpb
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Post by bdpb » Thu Jan 06, 2011 11:27 am

If you already own bonds, you don't need to borrow money to invest
in stocks. Just sell some of your bonds and invest in stocks. It would be
cheaper to borrow from your short term investment grade bond fund
yielding 2% and invest in stocks than it would be to get a mortgage at 5%.

livesoft
Posts: 62281
Joined: Thu Mar 01, 2007 8:00 pm

Post by livesoft » Thu Jan 06, 2011 11:38 am

bdpb wrote:If you already own bonds, you don't need to borrow money to invest
in stocks. Just sell some of your bonds and invest in stocks. It would be
cheaper to borrow from your short term investment grade bond fund
yielding 2% and invest in stocks than it would be to get a mortgage at 5%.
It wasn't cheaper in 2010 nor in 2009 nor over the last 5 years.

bdpb
Posts: 1525
Joined: Wed Jun 06, 2007 3:14 pm

Post by bdpb » Thu Jan 06, 2011 11:51 am

livesoft wrote:
bdpb wrote:If you already own bonds, you don't need to borrow money to invest
in stocks. Just sell some of your bonds and invest in stocks. It would be
cheaper to borrow from your short term investment grade bond fund
yielding 2% and invest in stocks than it would be to get a mortgage at 5%.
It wasn't cheaper in 2010 nor in 2009 nor over the last 5 years.
What do you know about the future that we don't know?

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Post by livesoft » Thu Jan 06, 2011 11:54 am

As much as you do.

bdpb
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Joined: Wed Jun 06, 2007 3:14 pm

Post by bdpb » Thu Jan 06, 2011 12:53 pm

livesoft wrote:As much as you do.
You might not want to admit to that (unless you really mean "more than"),
since what I know is very little. :)
I'm taking my advice on interest rates from Larry Swedroe.
I think he says something like "the best predictor of future interest rates
are today's interest rates". Sounds good enough for me.

swaption
Posts: 1187
Joined: Tue Jul 29, 2008 11:48 am

Re: Pay off mortgage early??

Post by swaption » Thu Jan 06, 2011 1:13 pm

poobah wrote: I have about that much money sitting in bonds earning anywhere from .06% to 5%.
Amazing that some stuff never gets addressed. What do you mean by earning? Is that the coupon or the yield at the current price? The appropriate reference point would be yield. Only then can you determine what the differnetial is.

livesoft
Posts: 62281
Joined: Thu Mar 01, 2007 8:00 pm

Post by livesoft » Thu Jan 06, 2011 1:16 pm

bdpb wrote:
livesoft wrote:As much as you do.
You might not want to admit to that (unless you really mean "more than"),
since what I know is very little. :)
OK, I know less than you do then.

spencer99
Posts: 307
Joined: Thu Apr 01, 2010 5:17 pm

Recasting your mortgage

Post by spencer99 » Thu Jan 06, 2011 2:15 pm

OP,

I don't know if this approach would be helpful (as others have said, you've provided way too little info), but an interesting article in today's NYT talks about the option of recasting a mortage. Briefly, rather than refinancing and extending the term of your mortgage, you pay some amount against the principle and then ask your lender to reamortize the mortgage based on the new principal amount and existing terms (interest rate and term). Effectively, this lowers your monthly debt payment, but does not extend the mortgage. The article says that this can often be accomplished for a small fee.

Interesting idea, but I pass. I am in almost exactly your position but prefer to continue to pay my mortgage (4.5% with about seven years left on a 15 year note) and direct $ to an, at this point, insufficient retirement fund.

Link to the article: http://www.nytimes.com/2011/01/02/reale ... f=homepage

Best,

Spencer

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