[poll] mortgage vs bonds: what's your tipping point rate?

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mortgage rate you'd pay down instead of holding bonds?

mortgage < 5% fixed, i would pay it down/off
1
13%
mortgage < 5% fixed, i would pay it down/off
1
13%
5%, would pay it down/off
0
No votes
5.5%
0
No votes
6%
3
38%
6.5%
0
No votes
6.5%
0
No votes
7%
2
25%
7.5%
1
13%
have to be >7.5%, i would pay it down/off
0
No votes
i would keep mortgage no matter what
0
No votes
 
Total votes: 8

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jeff mc
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[poll] mortgage vs bonds: what's your tipping point rate?

Post by jeff mc »

we have a 30 yr fixed mortgage at 5.25% and have 20% bonds in AA (TBM and TIPS). at what fixed mortgage rate would you pay it down (or off) instead of having bonds? in our case specifically, we don’t pay PMI, will be in house for long time, and never pay extra. we plan to keep bonds at 20% and our mortgage at 5.25% (unless this thread convinces us otherwise)

conversely, like the thread today on borrowing money via HELOCs to invest, that’s just a different way to arrive at the same state: owing on a house while investing in fixed income. for those 100% in stocks, having a mortgage seems like a simpler decision. but why keep a mortgage (negative bond) at 5.25% when fixed income returns are ~5.25% with more risk? taxes, inertia, diversification, liquidity, etc.

so, hypothetically, what fixed mortgage rate would it be before you'd start paying it down with your fixed income portion of AA? ('hypothetically', because lots of bogleheads have no mortgage or do not own a home)

i realize that if you have a fixed loan >7.5% today, you could refinance. but assume you couldn't for whatever reason.
livesoft
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Joined: Thu Mar 01, 2007 7:00 pm

Post by livesoft »

When I refinanced to a 4.875% fixed rate the prevailing rates on money market funds were about 1% and places like ING were paying 3%. Folks would say, "Why have a 5% mortgage when you can only earn 3% risk-free?"

Then 18 months later, MM funds are paying 5% to 5.25% (they have dropped now).

And then there was that nice capital gain in TIPS this year. I wouldn't have gotten that if I had paid off my mortgage.

So I think one cannot only compare rates now. One has to guess the future as well.
Last edited by livesoft on Wed Dec 12, 2007 9:31 pm, edited 1 time in total.
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White Coat Investor
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Post by White Coat Investor »

We did a very similar poll a while back:

http://www.diehards.org/forum/viewtopic ... =poll+rate
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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jeff mc
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Joined: Mon Feb 19, 2007 8:42 pm
Location: minnesota
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Post by jeff mc »

EmergDoc wrote:We did a very similar poll a while back:

http://www.diehards.org/forum/viewtopic ... =poll+rate
hmmm... thanks for the good recall. i totally missed that one last july... mid-summer, we were up north.

i wish someone would update that uber-poll thread at some point, so we could keep these all straight! kind of like the net worth poll from today, too.

this poll is similar, but not identical. this is specifically choosing between a fixed rate long term home mortgage vs. bonds in AA. not just any debt, like credit cards, or car loans.
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