How long to pay off your mortgage?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills

If you made paying off your mortgage a priority...

I do not own a home.
14
6%
I own but have no mortgage (home is paid for).
68
29%
less than a year
9
4%
1-1.99 years
6
3%
2-4.99 years
26
11%
5-9.99 years
42
18%
10+ years
68
29%
other
3
1%
 
Total votes: 236

chaz
Posts: 13601
Joined: Tue Feb 27, 2007 2:44 pm

Re: How long to pay off your mortgage?

Post by chaz » Sun Apr 27, 2014 12:42 pm

I own but have no mortgage.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

newindexer
Posts: 17
Joined: Thu Apr 10, 2014 11:57 am

Re: How long to pay off your mortgage?

Post by newindexer » Sun Apr 27, 2014 1:06 pm

I like the idea of having zero debt, so paying off the mortgage early is a part of our family's financial plan. We have a 30 year interest rate (3.25), so our "return" on directing extra funds towards the mortgage is not great, but not too shabby either after weighing in the peace of mind and my personal position on carrying debt. I'm guilty of market timing here because if I can buy more of my index fund during a big dip, I may divert a portion of my mortgage payoff cash to snag the deal (not smart perhaps, but I get some entertainment and learning value, and I don't do it that often - perhaps once every few months). In addition to buying down the mortgage debt, my 6-7 year plan is to use the taxable investment to help pay off the mortgage even sooner (should it make sense to do so at the time). Next step will be to figure out what to do with the extra cash after the mortgage is gone.

haban01
Posts: 654
Joined: Thu Mar 01, 2007 9:55 pm
Location: Wisconsin

Re: How long to pay off your mortgage?

Post by haban01 » Sun Apr 27, 2014 1:59 pm

Great topic!! I think many people today (bogleheads) have taken 15 year notes that range from 2.75-4% rates and have the unique flexibility to decide when to pay them off!! Most people are better off to just pay down their mortgage because they lack the structural discipline to invest more in a Roth or Traditional IRA or make other investments which is sad to say. The cost of capital is greatly reduced today which gives one greater flexibility. I was listening to a mortgage show this am and congress is looking to revamp Freddie/Fannie and go private with the mortgage market. MBS's make up like 60% of the US housing market. Both stated that rates could be about 2% higher if the government and tax payers exit the markets. To me this is further reason to not make any fast moves as a great low rate mortgage gives you options.
Eric Haban | | "Stay the Course" | "Press on Regardless" | | Wisconsin Bogleheads Chapter Coordinator

jji
Posts: 10
Joined: Fri Apr 11, 2014 6:54 pm

Re: How long to pay off your mortgage?

Post by jji » Sun Apr 27, 2014 2:20 pm

StarbuxInvestor wrote:
letsgobobby wrote:
placeholder wrote:Different strokes and all that because at various times in my life I've had homes that I rented homes that I had a mortgage for and homes that I had no mortgage and I never felt any different about my financial situation so I guess I'm just less emotional than some.
Alistair wrote: Edit: I think it's about 3 years, if all saving were redirected to the mortgage. I'd never thought in those terms actually. Wow.
I wouldn't feel differently about my 'financial situation' broadly but somehow it seems like it would be easier to not have a large bill due each month. Because there is always that risk that investments can fall in value, while as long as you can pay your taxes your house value is pretty irrelevant if you don't plan to move.

like Alistair there's some fantasy about, wow, if I really buckled down I could pay off my mortgage in 6-7 years and that would coincide with wanting to cut back at work, thus reducing income, and wouldn't that be convenient.
Personally I find it easier to engineer my future expenses from a cash flow perspective than a max return perspective. Since much of your retirement success will be determined by the market in the first 5 years of your retirement which is something you can't predict or control, I prefer in work on engineering the outflows I have control over. Of course the fact I made all my extra payments from 1999-2009 may have something to do with how I feel, definitely didn't feel the pressure of losing my home, being underwater or not being able to sell to move like many did during the housing crisis.
This really resonates with me. I feel like I'm deploying other assets in somewhat risky ways - not stupid, just risky - so I love the idea of working toward paying off the mortgage which gives me both peace of mind and a very safe investment - my mortgage is 30/yr at 3.5%

hoops777
Posts: 2304
Joined: Sun Apr 10, 2011 12:23 pm

Re: How long to pay off your mortgage?

Post by hoops777 » Sun Apr 27, 2014 6:46 pm

To help you understand the peace of mind thing.....You have no payment to make no matter what happens and your money is not at risk in the market.Also psychologically/emotionally depending on the individual and their history it can be a big deal.If you grew up wealthy and always had money it means nothing.If you grew up without much and struggled to make it that can be a pretty big thing.
K.I.S.S........so easy to say so difficult to do.

slowmoney
Posts: 167
Joined: Tue Dec 28, 2010 4:41 pm
Location: Louisiana Purchase

Re: How long to pay off your mortgage?

Post by slowmoney » Mon Apr 28, 2014 11:41 pm

Interesting survey on a mortgage, letsgobobby.

The following is strictly anecdotal evidence. We bought our first home in 1997 and moved in 1999 for a job change. We took the small profit and applied it to the purchase of the second home in 1999 and sold that home in 2003 for a profit which allowed us to put down about 40% on our current house. We purchased our current house in 05/2003 and paid off the mortgage in 12/2007. So, about 4.5 years to pay off.

The interesting part is what happened after we paid off the mortgage. Our net worth increased by 230% in the past 6+ years! A few thoughts:

1. No debt load. All the money we spent on the mortgage was not really increasing our net worth that much. After the mortgage was gone, it gave us the opportunity to direct that income to productive assets instead.

2. I use to think that paying off your mortgage was a good thing but now I am not so sure. Seems like a lot of money in an undiversified, illiquid asset which typically has low returns. Maybe most people should both pay a mortgage and invest but of course most people do not have an unlimited budget and of course those life moments. As Mel Lindauer stated in his book "The Bogleheads' Guide to Investing" on page 20, "Moving to a smaller home reduces your property taxes, mortgage payment, utility bills and cost of maintenance". So, that you can invest in diversified, productive assets.

3. Saving. Without a mortgage or debt loads, it is relatively easy to save 15% of your income for retirement. In fact, we are saving well past 15% of our income.

4. Now if our net worth could only increase by 230% in the next 6+ years, well…that would be something. It won't happen, but I am interested to see how the compounding returns will turn out. We have carefully balanced our net worth on the other end of the compounding return lever and hopefully the fulcrum and lever do not bust on us…

Did other Bogleheads experience this same growth in net worth after paying off the mortgage?
Information is more valuable sold than used. - Fischer Black (1938-1995)

IlliniDave
Posts: 2294
Joined: Fri May 17, 2013 7:09 am

Re: How long to pay off your mortgage?

Post by IlliniDave » Tue Apr 29, 2014 7:35 am

When I made it a priority I paid it off in about 3 years. It was indeed a priority and I was "all-in", which meant I reigned in my spending in other areas. Some may sneer that I refrained from buying solid gold caviar spoons during that time, but I can endure such woeful suffering for a few years to achieve a goal if it's important enough. :wink:
Don't do something. Just stand there!

MnD
Posts: 3653
Joined: Mon Jan 14, 2008 12:41 pm

Re: How long to pay off your mortgage?

Post by MnD » Tue Apr 29, 2014 7:41 am

StarbuxInvestor wrote:I view a paid off house as part of my planning on how I will pay for the cost of care at a long term care facility above and beyond my SS and pension.
This.
2.74% with 3 years, 10 months to go.
Will pay off 6 months before before retirement and 1 year after the last college bill.

docnews
Posts: 36
Joined: Tue Apr 22, 2014 5:57 am

Re: How long to pay off your mortgage?

Post by docnews » Tue Apr 29, 2014 9:04 am

Interesting question. Basically the root of the question is really your remaining principal on your mortgage (with accruable interest) / savings outside tax advantaged accounts if you didn't have a mortgage.

(Example: $500k mortgage principal / $40k taxable savings plus housing budget = 12.5 years + extra time dependent on interest rate)

Major factors that screw up the poll...
1) The age of the mortgage (indirectly age of the poster) - if you have already been in the mortgage for years your principal has already been minimized.
2) Size of your tax advantaged account space - if you have >$50k in tax advantaged space and use a backdoor IRA and a stealth IRA (HSA) you minimized your potential taxable savings.
3) Budgeting opinions - for example, if one 'needs a smart phone and another does not their savings ability will differ by about $1000/year and this is only 1 item in the debate of acceptable/necessary level of discretionary spending
4) Income size - because it affects savings ability (also, are most people's incomes truly stable?)
5) When you got the mortgage / your credit score – because your interest rate plays a role.
6) cost of home (changed by needs/wants and market area) - leads to a larger principal hands down.

The real question underlying these discussions is:
What fixed interest rate is worth it to you to pay off in comparison to your estimated taxable variable return on investments?

I'd guess that...
Extreme financial conservatives say >2% or about a percent lower than inflation to account for taxes. (Or >0% if you follow a no debt philosophy and not a mathematical one)
Extreme financial liberals say >9% or average long-term gains for a total stock market index. (Or >12% if believe Dave Ramsey on market returns but not on debt hahaha)
Also as you age (and you believe in gliding), your # should lower as your estimate ROI lowers to reduce risk.

I don't really buy the cash flow arguments because lets say you have unstable income; it’s still debatable your course of action:
1) Pay off mortgage as quickly as possible and risk setting up to high of payments leading to foreclosure or depleting your necessary larger emergency fund leading to bankruptcy / needing to sell home.
2) Pay off your mortgage slowly and when a bad year comes around risk not having the funds to pay the mortgage and foreclose.
Last edited by docnews on Tue Apr 29, 2014 9:09 am, edited 1 time in total.

GeauxBR
Posts: 113
Joined: Mon Sep 12, 2011 10:53 pm
Location: Baton Rouge

Re: How long to pay off your mortgage?

Post by GeauxBR » Tue Apr 29, 2014 9:05 am

We'll be done in Dec of 2025 (15yr mortgage). Our son will be 14. The plan was just to have it paid before he finished high school.

Achelois
Posts: 120
Joined: Sun Jul 10, 2011 12:50 pm

Re: How long to pay off your mortgage?

Post by Achelois » Tue Apr 29, 2014 7:55 pm

hoops777 wrote:To help you understand the peace of mind thing.....You have no payment to make no matter what happens and your money is not at risk in the market.Also psychologically/emotionally depending on the individual and their history it can be a big deal.If you grew up wealthy and always had money it means nothing.If you grew up without much and struggled to make it that can be a pretty big thing.

I grew up poor, one of seven children. Nine people in a 3BR, one bath house of less than 1000 sq ft. I was homeless for a while in my twenties. I still do not get it, but I am not a very emotional person. I have lived in many places and my current home, while nice and comfortable, is just one more.

I do not mind my money being in the market.

oragne lovre
Posts: 482
Joined: Tue Nov 25, 2008 3:34 pm

Re: How long to pay off your mortgage?

Post by oragne lovre » Tue Apr 29, 2014 8:20 pm

I've this month paid off my mortgage in 10 years. Accelerating payments toward principal, which I've diligently adhered to for the past 2 years, help. I belong to the camp that is averse to debt.
The finest, albeit the most difficult, of all human achievements is being reasonable.

bulldog1
Posts: 46
Joined: Thu Nov 29, 2012 10:06 pm

Re: How long to pay off your mortgage?

Post by bulldog1 » Tue Apr 29, 2014 8:23 pm

I paid off the mortgage earlier this month. Such a great feeling walking into the credit union and having the teller transfer the money. My stress level is next to nothing, even at work. I just feel more free, healthy and peace of mind.

poker27
Posts: 728
Joined: Mon Apr 01, 2013 2:48 pm

Re: How long to pay off your mortgage?

Post by poker27 » Tue Apr 29, 2014 8:25 pm

Ive been reading through this for the past week, and figured I would add my own .02.

I am 2 years into a 30 year fixed at 4%. Estimating after the tax deduction im around 3.5%. I could pay down the 3.5% and it would be a very safe return/investment (as long as Chicago doesnt become the next detroit). So I would have a safe 3.5% return in the least liquid way possible. If something comes up, I can take cash out of a 'somewhat safe' bond fund. If something comes up, I need to move to hopefully take cash out of my house.

Now on the flip side, I can only imagine how it feels to not have to pay a mortgage every month. Of course I will have a nearly 1k check to write with taxes, assesments, and insurance, it would be a 1/3 of what I currently am stuck with.

When I get a sizable # in my taxable account (not sure what it is) I will probably start contributing more to my mortgage. But for the potential larger gains, and liquidity of stock/bond investments

letsgobobby
Posts: 11475
Joined: Fri Sep 18, 2009 1:10 am

Re: How long to pay off your mortgage?

Post by letsgobobby » Tue Apr 29, 2014 10:20 pm

maybe I can 'split the difference' by accelerating mortgage paydown while converting an equal amount of stable value fund and TBM in my 403b to stocks?

Although I have a low rate mortgage (3.25%), I am unlikely to remain in the house more than 3-5 years at the very most. Therefore this could be the right decision?

poker27
Posts: 728
Joined: Mon Apr 01, 2013 2:48 pm

Re: How long to pay off your mortgage?

Post by poker27 » Tue Apr 29, 2014 10:46 pm

letsgobobby wrote:maybe I can 'split the difference' by accelerating mortgage paydown while converting an equal amount of stable value fund and TBM in my 403b to stocks?

Although I have a low rate mortgage (3.25%), I am unlikely to remain in the house more than 3-5 years at the very most. Therefore this could be the right decision?
How will you rebalance if your stocks in your account tank? What if your house loses value and you have to sell it at a loss? Thinking of your house as a 'bond' in terms of return is one thing, but using your home as a bond in your AA is a bit scary to me

NorCalHiker
Posts: 51
Joined: Tue Mar 01, 2011 2:39 am

Re: How long to pay off your mortgage?

Post by NorCalHiker » Tue Apr 29, 2014 11:43 pm

Great topic! I shared the enthusiasm of the 1.99% HEL that several people have mentioned. I bought our house in '99, a few years before I got married. We remodeled about 2 years back. Our first mortgage was at 7% I believe. Then we refi'd to around 5%, then got PenFed's 5/5 ARM at 4%. Right about this time, we decided to go ahead with our remodel. This hurt, because we had our balance down to 75K and our monthly payment was something like $500! Had to refi at 3.25% 15-year to get money out to finance the remodel (back up 175K balance). We paid for some of the remodel with savings, but didn't feel like cashing in a bunch of funds, besides, 3.25% seemed really low.

As much as we needed to remodel, it was demoralizing to have the balance go UP to 175k! Right after the remodel, we took advantage of the 5-year 1.99% HEL, and we are now down to 105K, while not making any extra payments. Debated long and hard about getting a 5/5 or traditional 15/30 in order to take advantage of the low rates instead of the high-monthly-payment 1.99%, but our balance is pretty low so it didn't hurt TOO much for a 5 year HEL.

At our current rate, we will pay it off in 3 years. We will be 43/40 and our oldest kid will be in 4th grade. I *will* be posting a post here when it happens! :-) Feel very blessed.

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