Mortgage - Keep balance as High as Possible

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ddurrett896
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Mortgage - Keep balance as High as Possible

Post by ddurrett896 » Sat Mar 28, 2020 6:12 pm

Thru all this craziness got me thinking about my mortgage. The thought it to always keep the mortgage owed as close to the value of the home as long as interest rates are low.

My rational is that if you have a ton of equity and heaven forbid something happens where you can't make payments, the bank is more incentivized to foreclose and sell with a lower LTV.

For example:
Person A owes $125,000 on a $350,000 house. (35% LTV)
Person B owes $300,000 on a $350 house. (85% LTV)

Person A house could be foreclosed and sold way easier than Person B. So Person A refinances to $300,000 and sticks $175,000 in the bank for a rainy day. What do you think?

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Brianmcg321
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Re: Mortgage - Keep balance as High as Possible

Post by Brianmcg321 » Sat Mar 28, 2020 6:21 pm

Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
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Toons
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Re: Mortgage - Keep balance as High as Possible

Post by Toons » Sat Mar 28, 2020 6:22 pm

Pay Off The Mortgage
:mrgreen:
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HEDGEFUNDIE
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Re: Mortgage - Keep balance as High as Possible

Post by HEDGEFUNDIE » Sat Mar 28, 2020 6:27 pm

Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
I have an interest only mortgage that does exactly what the OP is looking for.

I feel great.

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9-5 Suited
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Re: Mortgage - Keep balance as High as Possible

Post by 9-5 Suited » Sat Mar 28, 2020 6:28 pm

Yes because the sole consideration involved in this decision is trying to slightly reduce the likelihood of foreclosure.

There are valid, well thought out reasons for maintaining a high mortgage balance. This is not one of them.

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Nate79
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Re: Mortgage - Keep balance as High as Possible

Post by Nate79 » Sat Mar 28, 2020 6:35 pm

No, this doesn't change the chance of a foreclosure.

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whodidntante
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Re: Mortgage - Keep balance as High as Possible

Post by whodidntante » Sat Mar 28, 2020 6:36 pm

In Canada they would call this the Smith Maneuver, especially according to Mr. Smith.
https://www.investopedia.com/terms/s/smith-maneuver.asp

TravelforFun
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Re: Mortgage - Keep balance as High as Possible

Post by TravelforFun » Sat Mar 28, 2020 6:47 pm

HEDGEFUNDIE wrote:
Sat Mar 28, 2020 6:27 pm
Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
I have an interest only mortgage that does exactly what the OP is looking for.

I feel great.
You feel greater if you didn't have to pay interest on that mortgage.

TravelforFun

Topic Author
ddurrett896
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Re: Mortgage - Keep balance as High as Possible

Post by ddurrett896 » Sat Mar 28, 2020 6:49 pm

Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
You would never pay off the house, but have the cash to pay it off.

HEDGEFUNDIE
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Re: Mortgage - Keep balance as High as Possible

Post by HEDGEFUNDIE » Sat Mar 28, 2020 6:59 pm

TravelforFun wrote:
Sat Mar 28, 2020 6:47 pm
HEDGEFUNDIE wrote:
Sat Mar 28, 2020 6:27 pm
Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
I have an interest only mortgage that does exactly what the OP is looking for.

I feel great.
You feel greater if you didn't have to pay interest on that mortgage.

TravelforFun
My interest + property taxes is less than the rent I would pay to live in this house.

In the meantime I’m not forced to pump principal into an undiversified illiquid hard asset with questionable growth prospects and can use that money to invest in the beaten down stock market instead, or in OP’s case, to save it for a true emergency
Last edited by HEDGEFUNDIE on Sat Mar 28, 2020 7:54 pm, edited 1 time in total.

MindBogler
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Re: Mortgage - Keep balance as High as Possible

Post by MindBogler » Sat Mar 28, 2020 7:26 pm

ddurrett896 wrote:
Sat Mar 28, 2020 6:12 pm
Thru all this craziness got me thinking about my mortgage. The thought it to always keep the mortgage owed as close to the value of the home as long as interest rates are low.

My rational is that if you have a ton of equity and heaven forbid something happens where you can't make payments, the bank is more incentivized to foreclose and sell with a lower LTV.

For example:
Person A owes $125,000 on a $350,000 house. (35% LTV)
Person B owes $300,000 on a $350 house. (85% LTV)

Person A house could be foreclosed and sold way easier than Person B. So Person A refinances to $300,000 and sticks $175,000 in the bank for a rainy day. What do you think?
I agree. Of course you should pay it off eventually but it is safer to park your capital elsewhere and pay off using a lump sum.

spectec
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Re: Mortgage - Keep balance as High as Possible

Post by spectec » Sat Mar 28, 2020 7:50 pm

I think having a 50% LTV mortgage, coupled with the cash to pay it off at any time, is probably a neutral position. The difference between the tax deductible mortgage interest and the taxable income on the invested cash is simply the cost of the extra liquidity. (or, as some on this forum prefer to call it, a negative bond)
Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. - Will Rogers

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sergeant
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Re: Mortgage - Keep balance as High as Possible

Post by sergeant » Sat Mar 28, 2020 8:27 pm

My dad was a trust fund baby and worked a lucrative job. He always said it is best to have as much debt as possible cause then everyone you owe is pulling for you to succeed. This reminds me of him. He died destitute.
AA- 20+ Years of Expenses Fixed Income/The remainder in Equities.

Gooch1226
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Re: Mortgage - Keep balance as High as Possible

Post by Gooch1226 » Sat Mar 28, 2020 8:38 pm

I owe 67k on my mortgage and can’t wait to pay it off . I am an essential employee for the state but my wife is out of work until this pandemic is over . Having that mortgage paid off would be a piece of mind to me and save me over a thousand dollars a month that I could use right now . Hopefully have it paid off in a couple years (wish me luck lol).

Unladen_Swallow
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Re: Mortgage - Keep balance as High as Possible

Post by Unladen_Swallow » Sat Mar 28, 2020 9:00 pm

Ridiculous.
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UpperNwGuy
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Re: Mortgage - Keep balance as High as Possible

Post by UpperNwGuy » Sat Mar 28, 2020 9:05 pm

I think HEDGEFUNDIE has the best approach. Most of the other comments sound like they were written by Dave Ramsey.

ARoseByAnyOtherName
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Re: Mortgage - Keep balance as High as Possible

Post by ARoseByAnyOtherName » Sat Mar 28, 2020 9:28 pm

UpperNwGuy wrote:
Sat Mar 28, 2020 9:05 pm
I think HEDGEFUNDIE has the best approach. Most of the other comments sound like they were written by Dave Ramsey.
HEDGEFUNDIE has the best approach in what context? This is the best approach for everyone? Only in certain situations?

HEDGEFUNDIE does not own a $250k house. I am guessing that HEDGEFUNDIE‘s house is much more expensive than that. If everything else was equal except for the fact that HEDGEFUNDIE owned a $250k house then he may well have a different approach.

Context matters.

JakeyLee
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Re: Mortgage - Keep balance as High as Possible

Post by JakeyLee » Sat Mar 28, 2020 9:37 pm

I always thought is was fascinating that the same people that don't want to pay off their mortgage, are typically the same people that own bonds that pay less than 2%.

iljets10
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Re: Mortgage - Keep balance as High as Possible

Post by iljets10 » Sat Mar 28, 2020 9:40 pm

ddurrett896 wrote:
Sat Mar 28, 2020 6:12 pm
Thru all this craziness got me thinking about my mortgage. The thought it to always keep the mortgage owed as close to the value of the home as long as interest rates are low.

My rational is that if you have a ton of equity and heaven forbid something happens where you can't make payments, the bank is more incentivized to foreclose and sell with a lower LTV.

For example:
Person A owes $125,000 on a $350,000 house. (35% LTV)
Person B owes $300,000 on a $350 house. (85% LTV)

Person A house could be foreclosed and sold way easier than Person B. So Person A refinances to $300,000 and sticks $175,000 in the bank for a rainy day. What do you think?
If I’m the bank and I’m trying to get the biggest bang for my foreclosure buck, I’m going to foreclose on the $300k loan first, especially in a down market so I can recover value before prices drop further. There are a lot of fixed costs with foreclosure and it may not be worth it for smaller loans.

Normchad
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Re: Mortgage - Keep balance as High as Possible

Post by Normchad » Sat Mar 28, 2020 9:45 pm

Ric Edelman is a fan of getting the biggest mortgage you can, and never paying it off.

Personally, I disagree and paid off my house. I know there are a lot of people on each side of that issue. And I understand the math behind the “don’t pay off your mortgage camp.” But sometimes you don’t get 12% return in your money, sometimes you lose 35% in 30 days, and lose your job at the same time, and are in an environment where it’s almost impossible to get a new job.

I paid mine off early. And the biggest reason was I wanted peace of mind. I wanted to know that I didn’t owe anybody any money. And I wanted to be sure that if I did lose my job, I wouldn’t also lose my house.

But other people do it differently, and it works out well for a lot of them.

TropikThunder
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Re: Mortgage - Keep balance as High as Possible

Post by TropikThunder » Sat Mar 28, 2020 10:01 pm

HEDGEFUNDIE wrote:
Sat Mar 28, 2020 6:27 pm
Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
I have an interest only mortgage that does exactly what the OP is looking for.

I feel great.
What do you do when the interest-only period ends?

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Spinola
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Re: Mortgage - Keep balance as High as Possible

Post by Spinola » Sat Mar 28, 2020 10:02 pm

So if you ever do manage to pay off that $350,00 mortgage, it will be closer to a 2 million dollar mortgage.. :oops:

HEDGEFUNDIE
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Re: Mortgage - Keep balance as High as Possible

Post by HEDGEFUNDIE » Sat Mar 28, 2020 10:05 pm

TropikThunder wrote:
Sat Mar 28, 2020 10:01 pm
HEDGEFUNDIE wrote:
Sat Mar 28, 2020 6:27 pm
Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
I have an interest only mortgage that does exactly what the OP is looking for.

I feel great.
What do you do when the interest-only period ends?
It doesn’t. The rate may change but there are 30 year fixed rate Interest only mortgages as well.

chevca
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Re: Mortgage - Keep balance as High as Possible

Post by chevca » Sat Mar 28, 2020 10:43 pm

I'm pretty sure the banks just foreclose when someone stops paying the mortgage. OP, you're giving them way too much credit that they might consider mortgage balance and home value. If it's time to foreclose, it's time...

I agree, pretty silly idea.

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watchnerd
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Re: Mortgage - Keep balance as High as Possible

Post by watchnerd » Sat Mar 28, 2020 10:53 pm

Brianmcg321 wrote:
Sat Mar 28, 2020 6:21 pm
Lol. This is ridiculous.

So you'll never pay off your house?

You should ask people that paid off their house how great that is.
Time like these are when I love having a paid for house, despite that people say it's a drag in good times.

Instead of mortgage payments, we can direct our free cash flow into stocks, including ESPP with 10% discount, while their prices are lower.
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Ocean77
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Re: Mortgage - Keep balance as High as Possible

Post by Ocean77 » Sat Mar 28, 2020 11:17 pm

ddurrett896 wrote:
Sat Mar 28, 2020 6:12 pm
Thru all this craziness got me thinking about my mortgage. The thought it to always keep the mortgage owed as close to the value of the home as long as interest rates are low.

My rational is that if you have a ton of equity and heaven forbid something happens where you can't make payments, the bank is more incentivized to foreclose and sell with a lower LTV.

For example:
Person A owes $125,000 on a $350,000 house. (35% LTV)
Person B owes $300,000 on a $350 house. (85% LTV)

Person A house could be foreclosed and sold way easier than Person B. So Person A refinances to $300,000 and sticks $175,000 in the bank for a rainy day. What do you think?
If I was the bank, and had two mortgages like that outstanding (one for $125k, the other for $300k), and both borrowers were in default (not paying), then I would surely foreclose on the home with the $300k loan first. For one thing, I'd recoup the large loan. Secondly, I'd figure the borrower with the smaller loan will make every effort to pay up on the mortgage to avoid foreclosure, just because he has a lot more skin in the game. While the other one will more likely be a dead beat total loss, so no point to wait.

thx1138
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Re: Mortgage - Keep balance as High as Possible

Post by thx1138 » Sat Mar 28, 2020 11:29 pm

For everyone giving the OP grief this in fact did happen in 2008-9 where low LTV mortgages were foreclosed on first while high LTV mortgages were left in arrears while still occupied for more than a year. The bank hates empty houses so happier to let those behind stay in the house maintaining it even if not paying the mortgage. So those with high LTV go more months living “rent free” while those with low LTV were foreclosed first.

2008-9 was a really extreme case and I don’t think I’d this concern would rank very high compared to all the other trade offs. But it isn’t “ridiculous” as some have said. It is exactly what went down in the massive foreclosure mess of 2008-9.

madbrain
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Re: Mortgage - Keep balance as High as Possible

Post by madbrain » Sat Mar 28, 2020 11:36 pm

ddurrett896 wrote:
Sat Mar 28, 2020 6:12 pm
Person A house could be foreclosed and sold way easier than Person B. So Person A refinances to $300,000 and sticks $175,000 in the bank for a rainy day. What do you think?
I don't think this idea has merit.

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watchnerd
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Re: Mortgage - Keep balance as High as Possible

Post by watchnerd » Sat Mar 28, 2020 11:37 pm

thx1138 wrote:
Sat Mar 28, 2020 11:29 pm
For everyone giving the OP grief this in fact did happen in 2008-9 where low LTV mortgages were foreclosed on first while high LTV mortgages were left in arrears while still occupied for more than a year. The bank hates empty houses so happier to let those behind stay in the house maintaining it even if not paying the mortgage. So those with high LTV go more months living “rent free” while those with low LTV were foreclosed first.

2008-9 was a really extreme case and I don’t think I’d this concern would rank very high compared to all the other trade offs. But it isn’t “ridiculous” as some have said. It is exactly what went down in the massive foreclosure mess of 2008-9.
Okay, but....

At what point, even if unemployed, are you intentionally defaulting on your mortgage payments while you still have money in the stock market, savings, etc?

I would assume someone posting on Bogleheads has a portfolio, 401k, IRA, Roth, savings, etc to tap into to avoid foreclosure in the first place.
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spectec
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Re: Mortgage - Keep balance as High as Possible

Post by spectec » Sun Mar 29, 2020 9:14 am

I agree with watchnerd. I see some very extreme, unrealistic scenarios being played out on this thread. Nothing exists in a vacuum - not even a home mortgage. But I get the fact that some people like to separate financial matters into "buckets" in order to better organize their thinking. For me, my buckets are always Total Assets - Total Liabilities = Net Worth.
Last edited by spectec on Sun Mar 29, 2020 9:41 am, edited 1 time in total.
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stoptothink
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Re: Mortgage - Keep balance as High as Possible

Post by stoptothink » Sun Mar 29, 2020 9:32 am

thx1138 wrote:
Sat Mar 28, 2020 11:29 pm
For everyone giving the OP grief this in fact did happen in 2008-9 where low LTV mortgages were foreclosed on first while high LTV mortgages were left in arrears while still occupied for more than a year. The bank hates empty houses so happier to let those behind stay in the house maintaining it even if not paying the mortgage. So those with high LTV go more months living “rent free” while those with low LTV were foreclosed first.

2008-9 was a really extreme case and I don’t think I’d this concern would rank very high compared to all the other trade offs. But it isn’t “ridiculous” as some have said. It is exactly what went down in the massive foreclosure mess of 2008-9.
I actually benefited from this. A friend/former business partner "owned" an 8500+ sq. ft McMansion but he was completely destroyed by the crash. He was just waiting for them to foreclose. He owed me a lot of money but had no way of paying me back. He moved across the country for work and allowed my wife and I to stay in the home rent-free until it was foreclosed on. We were there for about a year and I think in total it took almost 2yrs without a payment before foreclosure occurred.

That being said, I am very uncomfortable with debt. We bought our first home 4yrs ago and are a few months from paying it off. I prioritized maxing out all tax-advantaged accounts before paying off mortgage principal, but I've put all extra cash towards it instead of starting taxable.

rascott
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Re: Mortgage - Keep balance as High as Possible

Post by rascott » Sun Mar 29, 2020 9:50 am

JakeyLee wrote:
Sat Mar 28, 2020 9:37 pm
I always thought is was fascinating that the same people that don't want to pay off their mortgage, are typically the same people that own bonds that pay less than 2%.
Agree to some extent..... but you are ignoring the liquidity advantage.

chevca
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Re: Mortgage - Keep balance as High as Possible

Post by chevca » Sun Mar 29, 2020 10:01 am

thx1138 wrote:
Sat Mar 28, 2020 11:29 pm
For everyone giving the OP grief this in fact did happen in 2008-9 where low LTV mortgages were foreclosed on first while high LTV mortgages were left in arrears while still occupied for more than a year. The bank hates empty houses so happier to let those behind stay in the house maintaining it even if not paying the mortgage. So those with high LTV go more months living “rent free” while those with low LTV were foreclosed first.

2008-9 was a really extreme case and I don’t think I’d this concern would rank very high compared to all the other trade offs. But it isn’t “ridiculous” as some have said. It is exactly what went down in the massive foreclosure mess of 2008-9.
That wasn't so much the banks letting folks do that because they pick and choose whom to foreclose on. It was those staying put and doing all they could to delay and stay as long as they could.

Maintaining it.... haha... that's funny. Because those that know they're being foreclosed on or just delaying it as long as they can take such good care of a house?? No they don't. I bought a house in 2011. The ones that I looked at and had been foreclosed on were obvious... holes in the walls... pipes ripped out... sinks missing... dirty... etc. Folks that don't care about a house they're going to lose certainly don't maintain it out of the goodness of their heart.

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Re: Mortgage - Keep balance as High as Possible

Post by afan » Sun Mar 29, 2020 12:24 pm

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ray.james
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Re: Mortgage - Keep balance as High as Possible

Post by ray.james » Sun Mar 29, 2020 12:40 pm

The same thought did cross my mind. Remember Ideally you do not want mortgage and plenty of investments. The thought to keep mortgage as is until it becomes a smaller part of your wealth is fine in my view. I personally wrote down what is the optimal and sub-optimal situation I want to be in.

1) Plenty of liquidity and paid off mortgage. House to net worth is under 30%- Best
2) Plenty of liquidity and paid off mortgage. House to net worth is under 50% - Better
3) Plenty of liquidity with mortgage.(or mortgage balance is > 50% of net worth)- Good - Use sinking fund.
4) Moderate liquidity with mortgage. (or mortgage balance is > 50% of net worth)- Fine - Raise liquidity.
Liquidity = Emergency fund, bonds, cash equivalents.

The idea is downturns happens and during them I want to be in one of the above conditions. I don't want to be the one that is caught with out liquidity/house rich cash poor/ all wealth tied to one asset situation.
Last edited by ray.james on Sun Mar 29, 2020 12:53 pm, edited 2 times in total.
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ARoseByAnyOtherName
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Re: Mortgage - Keep balance as High as Possible

Post by ARoseByAnyOtherName » Sun Mar 29, 2020 12:45 pm

Normchad wrote:
Sat Mar 28, 2020 9:45 pm
Ric Edelman is a fan of getting the biggest mortgage you can, and never paying it off.

Personally, I disagree and paid off my house. I know there are a lot of people on each side of that issue. And I understand the math behind the “don’t pay off your mortgage camp.” But sometimes you don’t get 12% return in your money, sometimes you lose 35% in 30 days, and lose your job at the same time, and are in an environment where it’s almost impossible to get a new job.

I paid mine off early. And the biggest reason was I wanted peace of mind. I wanted to know that I didn’t owe anybody any money. And I wanted to be sure that if I did lose my job, I wouldn’t also lose my house.

But other people do it differently, and it works out well for a lot of them.
This seems to be Ric Edelman’s reasoning:
https://www.edelmanfinancialengines.com ... g-mortgage

That path is not for me, but it’s not the craziest thing in the world. It seems like a reasonable thing to do in a high-inflation environment for example.

Hyperchicken
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Re: Mortgage - Keep balance as High as Possible

Post by Hyperchicken » Sun Mar 29, 2020 12:46 pm

ray.james wrote:
Sun Mar 29, 2020 12:40 pm
The same thought did cross my mind. So I wrote down what is the optimal and sub-optimal situation I want to be in.

1) Plenty of liquidity and paid off mortgage. Mortgage to net worth is under 30%- Best
2) Plenty of liquidity and paid off mortgage. Mortgage to net worth is under 50% - Better
3) Plenty of liquidity with mortgage. Best
2) Plenty of liquidity and paid off mortgage. Mortgage to net worth is under 50% - Better
How is there both "paid off mortgage" and "Mortgage to net worth is under 30%" - can you clarify please?

And #2 is twice in the list.

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ray.james
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Re: Mortgage - Keep balance as High as Possible

Post by ray.james » Sun Mar 29, 2020 12:54 pm

Hyperchicken wrote:
Sun Mar 29, 2020 12:46 pm
ray.james wrote:
Sun Mar 29, 2020 12:40 pm
The same thought did cross my mind. So I wrote down what is the optimal and sub-optimal situation I want to be in.

1) Plenty of liquidity and paid off mortgage. Mortgage to net worth is under 30%- Best
2) Plenty of liquidity and paid off mortgage. Mortgage to net worth is under 50% - Better
3) Plenty of liquidity with mortgage. Best
2) Plenty of liquidity and paid off mortgage. Mortgage to net worth is under 50% - Better
How is there both "paid off mortgage" and "Mortgage to net worth is under 30%" - can you clarify please?

And #2 is twice in the list.
Thanks, fixed it.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

madbrain
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Re: Mortgage - Keep balance as High as Possible

Post by madbrain » Sun Mar 29, 2020 7:25 pm

ray.james wrote:
Sun Mar 29, 2020 12:40 pm
1) Plenty of liquidity and paid off mortgage. House to net worth is under 30%- Best
2) Plenty of liquidity and paid off mortgage. House to net worth is under 50% - Better
3) Plenty of liquidity with mortgage.(or mortgage balance is > 50% of net worth)- Good - Use sinking fund.
4) Moderate liquidity with mortgage. (or mortgage balance is > 50% of net worth)- Fine - Raise liquidity.
Liquidity = Emergency fund, bonds, cash equivalents.
I just want to point out that I don't fit in any of your categories. I have plenty of liquidity, a paid off mortgage, but house to net worth is over 50% with the latest market downturn.

doss
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Re: Mortgage - Keep balance as High as Possible

Post by doss » Sun Mar 29, 2020 7:33 pm

How about just get a mortgage that is cheap? Something around 800-1000? Then it’s not an issue if one loses a job or whatever as unemployment will cover it .

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Re: Mortgage - Keep balance as High as Possible

Post by ThePrince » Sun Mar 29, 2020 7:45 pm

ddurrett896 wrote:
Sat Mar 28, 2020 6:12 pm
Thru all this craziness got me thinking about my mortgage. The thought it to always keep the mortgage owed as close to the value of the home as long as interest rates are low.

My rational is that if you have a ton of equity and heaven forbid something happens where you can't make payments, the bank is more incentivized to foreclose and sell with a lower LTV.

For example:
Person A owes $125,000 on a $350,000 house. (35% LTV)
Person B owes $300,000 on a $350 house. (85% LTV)

Person A house could be foreclosed and sold way easier than Person B. So Person A refinances to $300,000 and sticks $175,000 in the bank for a rainy day. What do you think?
Your rationale stinks. Debt isn’t a pet or a child living in your basement, get rid of it.

ThePrince
Posts: 426
Joined: Sun Aug 20, 2017 9:15 pm
Location: U.S.A.

Re: Mortgage - Keep balance as High as Possible

Post by ThePrince » Sun Mar 29, 2020 7:55 pm

sergeant wrote:
Sat Mar 28, 2020 8:27 pm
My dad was a trust fund baby and worked a lucrative job. He always said it is best to have as much debt as possible cause then everyone you owe is pulling for you to succeed. This reminds me of him. He died destitute.
Wow. Very poignant story. Thank you for sharing.

Normchad
Posts: 680
Joined: Thu Mar 03, 2011 7:20 am

Re: Mortgage - Keep balance as High as Possible

Post by Normchad » Sun Mar 29, 2020 9:05 pm

ThePrince wrote:
Sun Mar 29, 2020 7:55 pm
sergeant wrote:
Sat Mar 28, 2020 8:27 pm
My dad was a trust fund baby and worked a lucrative job. He always said it is best to have as much debt as possible cause then everyone you owe is pulling for you to succeed. This reminds me of him. He died destitute.
Wow. Very poignant story. Thank you for sharing.
+1 I love this one. Powerful.

dknightd
Posts: 2164
Joined: Wed Mar 07, 2018 11:57 am

Re: Mortgage - Keep balance as High as Possible

Post by dknightd » Sun Mar 29, 2020 9:17 pm

I figure there are two reasonable choices. Pay the mortgage off as soon as possible, or, have a mortgage that you will never be able to pay off (i.e. have the mortgage pay off date likely be longer than you will live - refinance for another 30 years as needed). Or, I suppose you could rent.
While I was working I was happy to use a mortgage to "leverage" my retirement savings. Now that I'm retired I want to get rid of that debt. I can see another person deciding that they want to keep the debt and keep the payment as low as possible for as long as possible. The assumption being that they would die before the debt was due.
Like many things, there is no right answer.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.

HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: Mortgage - Keep balance as High as Possible

Post by HEDGEFUNDIE » Sun Mar 29, 2020 9:26 pm

dknightd wrote:
Sun Mar 29, 2020 9:17 pm
I figure there are two reasonable choices. Pay the mortgage off as soon as possible, or, have a mortgage that you will never be able to pay off (i.e. have the mortgage pay off date likely be longer than you will live - refinance for another 30 years as needed).
Bingo.

Interest only mortgage is like renting with none of the downsides (e.g. raised rent, unable to customize, landlord ending your lease, etc...)

dknightd
Posts: 2164
Joined: Wed Mar 07, 2018 11:57 am

Re: Mortgage - Keep balance as High as Possible

Post by dknightd » Sun Mar 29, 2020 9:29 pm

sergeant wrote:
Sat Mar 28, 2020 8:27 pm
My dad was a trust fund baby and worked a lucrative job. He always said it is best to have as much debt as possible cause then everyone you owe is pulling for you to succeed. This reminds me of him. He died destitute.
So, I'm guessing you are not a trust fund baby.
There is a difference between
1) carrying a single debt, at low interest rate, that you could pay off if you had to, and
2) living your whole life in debt because you were spending more than you earned
I hope you learned from your dad.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.

dknightd
Posts: 2164
Joined: Wed Mar 07, 2018 11:57 am

Re: Mortgage - Keep balance as High as Possible

Post by dknightd » Sun Mar 29, 2020 9:42 pm

HEDGEFUNDIE wrote:
Sun Mar 29, 2020 9:26 pm
dknightd wrote:
Sun Mar 29, 2020 9:17 pm
I figure there are two reasonable choices. Pay the mortgage off as soon as possible, or, have a mortgage that you will never be able to pay off (i.e. have the mortgage pay off date likely be longer than you will live - refinance for another 30 years as needed).
Bingo.

Interest only mortgage is like renting with none of the downsides (e.g. raised rent, unable to customize, landlord ending your lease, etc...)
There are risks to an interest only mortgage. But I'm sure you know that.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.

HEDGEFUNDIE
Posts: 4801
Joined: Sun Oct 22, 2017 2:06 pm

Re: Mortgage - Keep balance as High as Possible

Post by HEDGEFUNDIE » Sun Mar 29, 2020 10:40 pm

dknightd wrote:
Sun Mar 29, 2020 9:42 pm
HEDGEFUNDIE wrote:
Sun Mar 29, 2020 9:26 pm
dknightd wrote:
Sun Mar 29, 2020 9:17 pm
I figure there are two reasonable choices. Pay the mortgage off as soon as possible, or, have a mortgage that you will never be able to pay off (i.e. have the mortgage pay off date likely be longer than you will live - refinance for another 30 years as needed).
Bingo.

Interest only mortgage is like renting with none of the downsides (e.g. raised rent, unable to customize, landlord ending your lease, etc...)
There are risks to an interest only mortgage. But I'm sure you know that.
Honestly I can’t think of any.

I don’t have a 30 year fixed rate interest-only mortgage but I was quoted one recently at 3.5%, only slightly above the amortizing mortgage rate.

Yes you pay more interest over time than an amortizing mortgage, but that is an incomplete comparison without also taking into account the ROI on home equity vs stocks (where the principal would otherwise go). I’d bet on stock market returns over 30 years any day over the returns on a single house.

Yes if you can’t make payments you lose your house. But how is that different from an amortizing mortgage? With the interest-only your monthly payments are lower so you are safer if you lose your income, quite apropos for these times we are living in now.

LFKB
Posts: 706
Joined: Mon Dec 24, 2012 7:06 pm

Re: Mortgage - Keep balance as High as Possible

Post by LFKB » Sun Mar 29, 2020 10:54 pm

JakeyLee wrote:
Sat Mar 28, 2020 9:37 pm
I always thought is was fascinating that the same people that don't want to pay off their mortgage, are typically the same people that own bonds that pay less than 2%.
It may seem odd but one is liquid and one is illiquid, so if you’re looking to have some flexibility to use your bond allocation to rebalance into equities it can make sense. Now if you have a high bond allocation and they’re of a similar duration to your mortgage but yield a lower rate, that doesn’t make a lot of sense.

Personally I only have about 5% of my portfolio in bonds and they yield 3.1% vs a mortgage that I pay 2.375% on.

LFKB
Posts: 706
Joined: Mon Dec 24, 2012 7:06 pm

Re: Mortgage - Keep balance as High as Possible

Post by LFKB » Sun Mar 29, 2020 10:57 pm

sergeant wrote:
Sat Mar 28, 2020 8:27 pm
My dad was a trust fund baby and worked a lucrative job. He always said it is best to have as much debt as possible cause then everyone you owe is pulling for you to succeed. This reminds me of him. He died destitute.
Give us the details here. Leverage can work very well if you used properly. Did he take on a bunch of leverage to buy boats, cars and vacation homes?

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