Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

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rantk81
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Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by rantk81 » Thu May 24, 2018 7:58 am

My situation:
- I have 2 rental condos in a building that is being de-converted from condos into an apartment building (whole building is being sold, at a big premium over market value, to a big real estate investor.)
- I no longer want to be a landlord, so I am choosing not to do a 1031 exchange, and I will be paying depreciation recapture and LTCG taxes.
- After all expenses with the transaction (broker, lawyer, title, etc) and after making estimated tax payments from the gains, I should net about $330K.

I am torn between:
1) Just sending it all to my after-tax brokerage account and buying some low-cost index (like VT) , Or,
2) Using $210K of it to pay off my 30-yr-fixed-3.625% mortgage (28 years remaining on it) and then the remainder (~ $120K) to the after-tax brokerage.

- I am already maxing out my 401k, HSA, my IRA and spousal IRA (backdoor ROTH on both.)
- I have no debt, other than that $210K mortgage. (I use credit cards, but pay in full each month.)
- I have about $1.1M of assets invested in equity index funds (100% stock, mostly SP500 Index) spread between 401k, Roth IRA, HSA, after-tax Brokerage.
- Age 36, Married with non-working spouse, no children nor plans to ever have any
- $145K/yr W-2 salary at an office job I do not like at all, but can tolerate for now.
- Currently live in HCOL area condo. I'd love to move to LCOL area house some day, but spouse right now prefers the HCOL area. Not sure what we're going to do in the future.

Paying off the mortgage would be a "guaranteed" 3.625% return, which exceeds the "safe" 30 year US bond yield right now. (Also, tax-deductibility of mortgage interest is now irrelevant to me after the recent tax reform due to the much higher standard deduction.) Plus, psychologically, I desire to simplify my finances and I desire to have the peace of mind of a paid off home. I am leaning toward this option. Would I be making a big mistake?

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8foot7
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by 8foot7 » Thu May 24, 2018 8:08 am

Wow, I hate debt but I'd be hard pressed to pay off 200 grand at 3.625.
One thing you could do is put an amount equivalent to your mortgage balance in taxable in something like a 60/40 mix. Call it your mortgage payoff fund. Evaluate each year whether or not return in the fund exceeds interest rate on mortgage. A few down years and you may just decide to be rid of the mortgage. A few good years and maybe you keep the loan. But either way you maintain the flexibility of the loan at a rate that I personally suspect won't come around for a long time.

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David Jay
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by David Jay » Thu May 24, 2018 8:11 am

At your age with your savings rate and portfolio, I don't think that either choice is a "mistake", it is a matter of optimization at the margins. A few thoughts:

1. The money is now invested in real estate. Paying off the mortgage maintains that allocation.
2. Since you are already maxing out your tax-advantaged space, you will need to keep these funds in taxable investments if you don't put it on the mortgage.

If you wanted to continue to be a landlord, the options would look different.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

deltaneutral83
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by deltaneutral83 » Thu May 24, 2018 8:12 am

You can split the difference if you wish and pay half the mortgage off and put the rest in your AA.

JBTX
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by JBTX » Thu May 24, 2018 8:15 am

I probably wouldn’t pay it off now, but I would pay it off faster.

bh7785
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by bh7785 » Thu May 24, 2018 8:20 am

deltaneutral83 wrote:
Thu May 24, 2018 8:12 am
You can split the difference if you wish and pay half the mortgage off and put the rest in your AA.
This is what I did. I couldn't really decide between the two, so I just split it down the middle. It's been a year and I feel pretty good about that decision, no regrets. I was initially leaning towards paying off the mortgage just because I love how that feels.

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goingup
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by goingup » Thu May 24, 2018 8:25 am

I'd pay off the mortgage at that rate coupled with the fact you won't be able to deduct interest.

One consideration for me would be cash flow. Without the income of 2 rental properties how will your budget look? Maybe eliminating the monthly mortgage will help keep the balance.

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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by Grt2bOutdoors » Thu May 24, 2018 8:33 am

Pay it off. You have plenty of assets in "risk" categories, your castle does not need to be another source of "risk".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by retiredjg » Thu May 24, 2018 8:38 am

rantk81 wrote:
Thu May 24, 2018 7:58 am
Plus, psychologically, I desire to simplify my finances and I desire to have the peace of mind of a paid off home. I am leaning toward this option. Would I be making a big mistake?
No. There is more to finances than making the most money. While I see no financial "need" to pay off the mortgage, apparently you will receive an emotional benefit. That's near priceless in my opinion.

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8foot7
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by 8foot7 » Thu May 24, 2018 8:47 am

I get the peace of mind angle, but I question this as the end game for "simplifying your finances." Is it really tough to write a check once a month to pay the mortgage? How hard is it to set that bad boy to autodraft and forget about it? Is that really complexity? If you escrow now, when your loan is paid, you'll need to write at least one check to pay your property taxes yourself, and perhaps more than one, and more than once a year at that depending on jurisdiction. I would assume you'd still have homeowners insurance, so you still have to manage that. Still have to manage the condo association stuff. Is the administration of the monthly mortgage payment really a huge burden?

Can't put a price on peace of mind -- for sure that's a totally valid reason -- but just make sure you're doing what you're doing for the right reasons.

Mike Scott
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by Mike Scott » Thu May 24, 2018 8:55 am

It's probably a borderline financial / personal decision but if you plan to stay there for a while, I would pay it off. You capture the long term interest savings and gain cash flow which can then be put into your choice of investments.

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jharkin
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by jharkin » Thu May 24, 2018 9:00 am

You probably cant go wrong either way. Though in your situation I'd most likely pay it and be done.

Im guessing your total NW is in the 1.2-1.5 range??.... for a 145k income at 36 you are already way ahead of the game. With your savings rate your expenses are probably well under 100k, putting you already over 15x expenses saved... in other words, short of some calamity you are likely on track to retire before 50. So just flip a coin.... :beer

rantk81
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by rantk81 » Thu May 24, 2018 9:25 am

Thanks to all for your input and giving me a quick gut-check on this.

Since my AA (other than rentals and primary residence) is just about 100% equities, I do think that in lieu of having bonds, I think it makes sense to retire the mortgage.

@DavidJay - Very good points about the assets already being invested in real-estate, and raising the idea that paying off the mortgage would maintain that AA. I hadn't thought about it that way.

@goingup - Good point about the cashflow. However, for my situation (living much below my means), it isn't a concern for me. I do realize that for others this may be a reasonable concern though.

@jharkin - Yeah you pretty much nailed it :) Combination of good salary + living below means + investing. Cheers.

cusetownusa
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by cusetownusa » Thu May 24, 2018 9:40 am

rantk81 wrote:
Thu May 24, 2018 9:25 am
Thanks to all for your input and giving me a quick gut-check on this.

Since my AA (other than rentals and primary residence) is just about 100% equities, I do think that in lieu of having bonds, I think it makes sense to retire the mortgage.

This is what I was thinking...If you had a bunch of bonds I would have suggested paying off your mortgage and then shifting your AA more towards stocks.

I am in the process of doing something similar...quickly paying down my mortgage (3.75%) while shifting my AA more towards stocks.

Atgard
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by Atgard » Thu May 24, 2018 9:47 am

Lots of differing opinions with no universal right or wrong answer. My personal opinion is I would keep the mortgage, 3.625% is a great rate. I am in a similar situation with 3.75%. I think in the next 28 years there will come a time when you're happy to have someone loaning you money at 3.625% -- not that long ago I was earning 5-6% in risk-free savings accounts and CDs.

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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by FullYellowJacket » Thu May 24, 2018 9:55 am

I have adjacent questions regarding the setup of your post. What are the mechanics of a condo building selling the entire building? A majority of owners need to agree? Every homeowner needs to be bought out separately? What happens if you don't want to sell?

mortfree
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by mortfree » Thu May 24, 2018 9:59 am

I would pay it down to 100k...

then revisit in a few months/years.

I paid off a mortgage at 39 yrs old - it is overrated for the emotional part (or maybe it was just me).

moved and have a mortgage again.

The problem I ran into is that all of my cash was tied up in the house. so that had to sell first. It all worked out but I didn't have as much leverage/upper hand during the home buying/selling process.

Mjar
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by Mjar » Thu May 24, 2018 10:05 am

I would pay off the mortgage, once you do that the house is yours and yours only, no one can take it away. What happens if you lose your job? I would be concerned with that since you have a non-working spouse. What ever payments you were making on the house I would funnel that to brokerage. I am in a similar situation but with different numbers. I have invested as a silent partner in two homes, once I get the principal back in the coming months I am putting that towards the $61k @2.99% on a 15yr mortgage that I am 2 years into to pay off it off be free and clear. Payments I was making I am going to funnel that right back in to the brokerage. This is slowly allowing me to worry less about "losing" my job on what will happen in the short term

If you look at it from a numbers game then as long as you can assure you will beat 3.6%+ inflation then its better to invest it but that piece of mind of truly "owning" your home no matter what happens with your financial situation you get to keep is worth it IMHO.

Good luck!

$J@r

rantk81
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by rantk81 » Thu May 24, 2018 10:07 am

FullYellowJacket wrote:
Thu May 24, 2018 9:55 am
I have adjacent questions regarding the setup of your post. What are the mechanics of a condo building selling the entire building? A majority of owners need to agree? Every homeowner needs to be bought out separately? What happens if you don't want to sell?
The mechanics of it can vary based on what the condo declaration docs say or what state or local laws are in place. In my scenario, the state condominium law requires at least 75% of owner interest to vote positively to agree to a sales contract.

A little over a year ago, there was quite a bit of interest from real estate investors in buying our whole building and turning it into apartments. The condo board held a meeting to get a feel for the support for this among the owners, and it was mostly positive. So they decided to list the building with a broker who specializes in condo de-conversions in this locale.

We received a very attractive offer (far above what we are able to sell the units for, on an individual basis) from a buyer, and we had to vote on the contract. After a 75%+ vote (in our locale) succeeded, the state statute essentially forces all buyers to comply with the closing process. We each receive proceeds of the whole building sale, in proportion to our ownership interest in the building. (We also split up the building reserve fund, accordingly.)

The buyer's offer was contingent upon being able to purchase every single unit. We have a legal firm that is handling all of the closings, which should take place all at once. (We are all scheduling appointments to do the signing of the sales documents ahead of time, and offering a limited power of attorney so the legal firm can correct minor details at the closing.)

If a unit owner doesn't want to sell, and doesn't cooperate, they can be fined daily by the association, and possibly held liable for damages.

If an owner doesn't feel the sales price is fair, they have an opportunity to object and there is a process around having their specific unit(s) appraised by multiple appraisers... And they are then forced to use that appraisal price in the bulk building sale (whether it is more or even less than their original proportional proceeds.) In my situation, nobody is taking this approach.

Luke Duke
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by Luke Duke » Thu May 24, 2018 10:15 am

How confident are you that a paid off mortgage (more disposable income/month) will not lead to lifestyle creep? If you think that it will, that could be an argument toward not paying it off. I know that the second that my house is paid off my wife will want to start remodeling.

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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by grettman » Thu May 24, 2018 10:48 am

I am paying mine off (3.5%). I max pre-tax accounts, I have an emergency fund, and I have a moderate amount of taxable $$ in VTI. From a risk perspective I want to pay down my mortgage as I have the other bases covered.

crit
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by crit » Thu May 24, 2018 10:53 am

I'm in a not-dissimilar position, with somewhat less of a total NW.

Our mortgage is 3.4% fixed, and we're 5 years into it. The main reason I'd think about retiring it is the recent change in SALT deduction. Without getting political, I don't expect that change to last beyond this presidency, if it makes it that far. But if it does, then I'll think about killing the mortgage, because paying interest is paying interest even if it's "only" 3.4%, and it's not "easy" to ignore that fact even if the check-writing habit is easy.
Last edited by crit on Thu May 24, 2018 11:59 am, edited 1 time in total.

crit
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by crit » Thu May 24, 2018 10:54 am

A further question on mechanics -- are current owners staying on as renters in their own units?

rantk81
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by rantk81 » Thu May 24, 2018 10:59 am

crit wrote:
Thu May 24, 2018 10:54 am
A further question on mechanics -- are current owners staying on as renters in their own units?
Yes, some are doing the so-called "lease-back". The contract outlined terms for unit owners who were interested in doing this. In our situation, the terms of the leases are quite flexible, allowing for people to stay for a only a short time while they work out alternate living arrangements, or sign a longer term lease if desired.
Last edited by rantk81 on Thu May 24, 2018 11:54 am, edited 1 time in total.

gotester2000
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by gotester2000 » Thu May 24, 2018 11:02 am

After paying off the mortgage you will have 1.2M + paid off house + 145k income at age 36 - plenty of mental peace - pay off the mortgage.

keystone
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by keystone » Thu May 24, 2018 11:46 am

In your situation, I think I'd pay it off.

I have about 25 years left on a 3.25% mortgage. I've never been motivated to pay it down, I like saving extra in a taxable account because it makes me feel more secure in the event of a job loss and I feel that my rate is low enough that I should do better investing the funds. However, if I had enough to pay off my entire mortgage balance plus have a sizable cushion in non-retirement accounts, I think I would just pay it off since I'd no longer have that liquidity concern.

international001
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by international001 » Thu May 24, 2018 12:37 pm

Paying it off it's equivalent to investing o a 3.625% 28 year bond (tax-free !)

If your portfolio needs more bonds, it's a good rate right now. Unless you are 100% stocks, sell some of your bond funds and pay it off.

mptfan
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by mptfan » Thu May 24, 2018 12:41 pm

I would pay it off.

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Que1999
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by Que1999 » Thu May 24, 2018 12:47 pm

I would probably put $100k into the mortgage and invest the rest. Since mortgages are mostly front-loaded with interest, I'd take comfort in knowing that that $100k would be more weighted towards interest as opposed to the last $100k which would be more weighted towards principal payments. This is something I did with my mortgage, payed it down to a point where my interest payments are inconsequential and now invest in 100% equities for the remaining 6 year duration on the mortgage(which is mostly all principal payments).... I may even throw $150k or so into the mortgage, even less interest then remaining on the outstanding $50k.

Either way you really can't go wrong. You're doing great for your age! :sharebeer
Last edited by Que1999 on Thu May 24, 2018 1:19 pm, edited 1 time in total.

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unclescrooge
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by unclescrooge » Thu May 24, 2018 12:49 pm

There are no wrong answers.

However, how did you get to $1mm+ in investments???? Please share.

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TinyElvis
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by TinyElvis » Thu May 24, 2018 12:53 pm

Plus, psychologically, I desire to simplify my finances and I desire to have the peace of mind of a paid off home. I am leaning toward this option. Would I be making a big mistake?
It's not a mistake. Don't overthink it. I over-thought it for over a year and finally paid off my $180K mortgage balance last month and haven't given it a second thought. My wife was very happy.

clutchied
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by clutchied » Thu May 24, 2018 1:15 pm

you have a stay at home spouse? wow that's a hot ticket luxury item.

I would not pay it off.

CoAndy
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by CoAndy » Thu May 24, 2018 1:20 pm

As you are already investing a lot of money, I would go ahead and pay it off. Congrats on a job (very) well done!

Atgard
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by Atgard » Thu May 24, 2018 1:21 pm

Mjar wrote:
Thu May 24, 2018 10:05 am
I would pay off the mortgage, once you do that the house is yours and yours only, no one can take it away. What happens if you lose your job?
I respectfully disagree. First, you certainly can lose your paid-off house if you don't make property tax payments, don't pay HOA fees (if any), can't afford maintenance or a new roof, or can't afford insurance and a catastrophic event occurs. There is no such thing as a fully paid-off house that you never have to invest another dime into.

On a related note, if I lost my job tomorrow, I would rather have $210K in the bank and a mortgage payment due every month, than $0 in the bank and a paid-off mortgage but nothing to cover property taxes and other expenses.

Now, OP has plenty of other assets, can get loans, etc. so he will be OK either way, but looking just at the mortgage I'd sleep better at night with $210K liquid assets and a mortgage, vs. $0 and a paid-off mortgage but still have other expenses due.

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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by bgf » Thu May 24, 2018 1:27 pm

Atgard wrote:
Thu May 24, 2018 1:21 pm
Mjar wrote:
Thu May 24, 2018 10:05 am
I would pay off the mortgage, once you do that the house is yours and yours only, no one can take it away. What happens if you lose your job?
On a related note, if I lost my job tomorrow, I would rather have $210K in the bank and a mortgage payment due every month, than $0 in the bank and a paid-off mortgage but nothing to cover property taxes and other expenses.
why? you can always take out a HELOC with a paid off house IF an emergency arises. in that case, the liquidity of the house is there if and when needed. with a mortgage, you are paying the interest rate on the mortgage for liquidity that you don't need...
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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greg24
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by greg24 » Thu May 24, 2018 1:31 pm

If the house was paid off, would you be interested in taking out a 28-year mortgage at 3.625% in order to invest in the stock market?

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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by inbox788 » Thu May 24, 2018 1:40 pm

rantk81 wrote:
Thu May 24, 2018 7:58 am
1) Just sending it all to my after-tax brokerage account and buying some low-cost index (like VT) , Or,
2) Using $210K of it to pay off my 30-yr-fixed-3.625% mortgage (28 years remaining on it) and then the remainder (~ $120K) to the after-tax brokerage.
...
Paying off the mortgage would be a "guaranteed" 3.625% return, which exceeds the "safe" 30 year US bond yield right now. (Also, tax-deductibility of mortgage interest is now irrelevant to me after the recent tax reform due to the much higher standard deduction.) Plus, psychologically, I desire to simplify my finances and I desire to have the peace of mind of a paid off home. I am leaning toward this option. Would I be making a big mistake?
No, it wouldn't be a mistake. For me, 3-4% is indifferent and I don't expect it would make much of a difference to you unless the market was to perform a lot worse or a lot better than expected/average. It's just how lucky you feel about it. In your shoes, I'd just pay off the mortgage and keep investing the rest as you were (taxable account, if that's the best option remaining).
8foot7 wrote:
Thu May 24, 2018 8:47 am
I get the peace of mind angle, but I question this as the end game for "simplifying your finances." Is it really tough to write a check once a month to pay the mortgage?
It's really not any simpler to take the mortgage payment each month and buy equities in taxable account, but paying off the mortgage does eliminate an account, which is mentally simpler and liberating.

The key is to keep taking the monthly mortgage payments and keep investing it instead of spending it. So it's like the lumpsum vs. dollar cost averaging and there is something soothing (smoothing) about the latter.

EnjoyIt
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by EnjoyIt » Thu May 24, 2018 1:49 pm

Atgard wrote:
Thu May 24, 2018 1:21 pm
Mjar wrote:
Thu May 24, 2018 10:05 am
I would pay off the mortgage, once you do that the house is yours and yours only, no one can take it away. What happens if you lose your job?
I respectfully disagree. First, you certainly can lose your paid-off house if you don't make property tax payments, don't pay HOA fees (if any), can't afford maintenance or a new roof, or can't afford insurance and a catastrophic event occurs. There is no such thing as a fully paid-off house that you never have to invest another dime into.

On a related note, if I lost my job tomorrow, I would rather have $210K in the bank and a mortgage payment due every month, than $0 in the bank and a paid-off mortgage but nothing to cover property taxes and other expenses.

Now, OP has plenty of other assets, can get loans, etc. so he will be OK either way, but looking just at the mortgage I'd sleep better at night with $210K liquid assets and a mortgage, vs. $0 and a paid-off mortgage but still have other expenses due.
A paid of mortgage is a luxury. You lose some liquidity and likely lost revenue on not investing that money at your predetermined asset allocation. If that is a luxury you are happy spending money on then I think it is a reasonable choice. Personally, unless I was financially independent, I would hold unto the mortgage and invest the money.

I also don't like the idea of splitting the money 50/50. You get the worst outcome. You still have a mortgage payment every month but also have money locked up in an illiquid asset. You get the most benefit from paying a low interest rate mortgage down quickly when it is fully paid off and not a day sooner.

At your current wealth and current spending you are set to be financially independent in less than 10 years.

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cfs
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by cfs » Thu May 24, 2018 1:59 pm

Ric Ederman: Do not pay it!
Dave Ramsey: Pay it now!
I am with Mister Dave. I did it, and it feels good. Go ahead, pay it, then let us know how it feels. Good luck y gracias por leer / cfs
~ Member of the Active Retired Force since 2014 ~

Mjar
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by Mjar » Thu May 24, 2018 2:16 pm

Atgard wrote:
Thu May 24, 2018 1:21 pm
Mjar wrote:
Thu May 24, 2018 10:05 am
I would pay off the mortgage, once you do that the house is yours and yours only, no one can take it away. What happens if you lose your job?
I respectfully disagree. First, you certainly can lose your paid-off house if you don't make property tax payments, don't pay HOA fees (if any), can't afford maintenance or a new roof, or can't afford insurance and a catastrophic event occurs. There is no such thing as a fully paid-off house that you never have to invest another dime into.

On a related note, if I lost my job tomorrow, I would rather have $210K in the bank and a mortgage payment due every month, than $0 in the bank and a paid-off mortgage but nothing to cover property taxes and other expenses.

Now, OP has plenty of other assets, can get loans, etc. so he will be OK either way, but looking just at the mortgage I'd sleep better at night with $210K liquid assets and a mortgage, vs. $0 and a paid-off mortgage but still have other expenses due.
I see your points...but all of what you listed is still true regardless if you own the home or not. A reasonable assumption on the OP is that if they have $1MM in assets and is responsible with money then they will be taking care of the misc costs that come with having a home that you listed regardless if they own the home or make payments. Losing your home to was more for foreclosure type of reasons. Getting a return in the market is not guaranteed no matter who you are to bank on vs the interest payment no matter how low is a guarantee that you will have to pay. Why be perpetually (figuratively over the 30 years) paying interest when you have the means not to? You are stretching yourself thinner than you need to. The $0 in the bank for the OP is not completely valid enlargement as if he doesn't have any sort of emergency fund to cover those events you listed then he should hold back an amount needed for the emergency fund...but if he as what he has in assets he should be ok either way he goes that is for sure. Thanks for showing a different way of looking at it.

dkeeney
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by dkeeney » Thu May 24, 2018 2:23 pm

rantk81 wrote:
Thu May 24, 2018 7:58 am
Plus, psychologically, I desire to simplify my finances and I desire to have the peace of mind of a paid off home. I am leaning toward this option. Would I be making a big mistake?
IMO this is the most important 'dividend' you will realize. When we paid off a *GULP* 2.5% mortgage a couple years ago I went through similar calculations about expected return on the money. Then I asked myself -- Would I BORROW that money to invest it? Would I walk to the bank, take out a loan for the purpose of investing the money? I suppose some would say YES, but I thought absolutely not. I don't invest on leverage.

The feeling one gets from truly OWNING their home is unlike having a house that the bank owns and you pay on. The grass between your toes feels different. The feeling you get sweeping out the garage is different.

Good luck.

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Que1999
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by Que1999 » Thu May 24, 2018 2:59 pm

EnjoyIt wrote:
Thu May 24, 2018 1:49 pm
Atgard wrote:
Thu May 24, 2018 1:21 pm
Mjar wrote:
Thu May 24, 2018 10:05 am
I would pay off the mortgage, once you do that the house is yours and yours only, no one can take it away. What happens if you lose your job?
I respectfully disagree. First, you certainly can lose your paid-off house if you don't make property tax payments, don't pay HOA fees (if any), can't afford maintenance or a new roof, or can't afford insurance and a catastrophic event occurs. There is no such thing as a fully paid-off house that you never have to invest another dime into.

On a related note, if I lost my job tomorrow, I would rather have $210K in the bank and a mortgage payment due every month, than $0 in the bank and a paid-off mortgage but nothing to cover property taxes and other expenses.

Now, OP has plenty of other assets, can get loans, etc. so he will be OK either way, but looking just at the mortgage I'd sleep better at night with $210K liquid assets and a mortgage, vs. $0 and a paid-off mortgage but still have other expenses due.
A paid of mortgage is a luxury. You lose some liquidity and likely lost revenue on not investing that money at your predetermined asset allocation. If that is a luxury you are happy spending money on then I think it is a reasonable choice. Personally, unless I was financially independent, I would hold unto the mortgage and invest the money.

I also don't like the idea of splitting the money 50/50. You get the worst outcome. You still have a mortgage payment every month but also have money locked up in an illiquid asset. You get the most benefit from paying a low interest rate mortgage down quickly when it is fully paid off and not a day sooner.

At your current wealth and current spending you are set to be financially independent in less than 10 years.
I'm not sure I would say having a paid off house is a luxury... If you've been a contributing member of society you deserve to have a paid off home, no? But on to the splitting of the money. For my mortgage @ 4.375%, the interest or bank money for the first 15 years = $97,312. For years 16-30 interest was $42,038. And for the last 5 years total interest is $5,407. It's true that you still have a mortgage payment that hasn't changed since day 1, but if you don't have any cash-flow concerns and a good-enough emergency fund pay-down should be a viable option for many people that will save money on your investment and bring that mortgage-free day closer and closer, all while still having some cash to invest and grow as you slowly pay it down. Either way, you're still doing great and in the long-run I'm not sure it will really make that much of a difference for you in the end.

101
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by 101 » Thu May 24, 2018 4:09 pm

international001 wrote:
Thu May 24, 2018 12:37 pm
Paying it off it's equivalent to investing o a 3.625% 28 year bond (tax-free !)
I believe this would only be the case if the payment was less than or equal to one year's mortgage payments.

Paying it off in full would generate positive cash flows at the first month, second month, all the way to the 12*28th month, one for each mortgage payment that is no longer due. A bond portfolio that would match those cash flows would have an average duration of 14 years.

A cursory look at Vanguard Long-Term Treasury shows it has an average duration of 16.8 years and a SEC yield of 2.92%. You would expect a fund with a 14 year duration to have a lower return than that, and taxes would lower it further, so it would appear at the moment that paying off the mortgage is a better investment than what the market is currently offering.

TX_Drew
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by TX_Drew » Thu May 24, 2018 4:23 pm

I’m was in same situation in Jan this year. I paid off a lower mortgage rate than you, around 200k.

It’s a bit surreal, but thinking of new ideas for your monthly mortgage cash flow is pretty sweet. Upping after-tax savings is pretty fun, everything else is max.

No mortgage really helps me actually visualize early retirement, rental properties, etc. Looking forward to a mild correction to dollar cost average more into equities. I don’t have to beat a mortgage rate in returns...the race is complete.

No wrong decision for you, but I’m enjoying the decision I made.

Nate79
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by Nate79 » Thu May 24, 2018 4:48 pm

From a balance sheet perspective you have a loan at 3.625% for which you are investing in stocks to get let's say anywhere from 5-10% return over the next decade. Long term who knows, let's say 8%.

The reality is you are taking on leverage for an actual 1.4- 6.4% return over the interest rate. Likely in the long long term it will pay off but at 100% stock already you are really like 130% stock.

I would pay off the home.

lazydavid
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by lazydavid » Thu May 24, 2018 4:54 pm

8foot7 wrote:
Thu May 24, 2018 8:08 am
One thing you could do is put an amount equivalent to your mortgage balance in taxable in something like a 60/40 mix. Call it your mortgage payoff fund. Evaluate each year whether or not return in the fund exceeds interest rate on mortgage. A few down years and you may just decide to be rid of the mortgage. A few good years and maybe you keep the loan. But either way you maintain the flexibility of the loan at a rate that I personally suspect won't come around for a long time.
Though I agree with your last sentence, the rest sounds like the worst form of market timing--Buy high, sell low.

mortfree
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by mortfree » Thu May 24, 2018 5:09 pm

bgf wrote:
Thu May 24, 2018 1:27 pm
Atgard wrote:
Thu May 24, 2018 1:21 pm
Mjar wrote:
Thu May 24, 2018 10:05 am
I would pay off the mortgage, once you do that the house is yours and yours only, no one can take it away. What happens if you lose your job?
On a related note, if I lost my job tomorrow, I would rather have $210K in the bank and a mortgage payment due every month, than $0 in the bank and a paid-off mortgage but nothing to cover property taxes and other expenses.
why? you can always take out a HELOC with a paid off house IF an emergency arises. in that case, the liquidity of the house is there if and when needed. with a mortgage, you are paying the interest rate on the mortgage for liquidity that you don't need...
That plan for a HELOC has flaws.

You may not get approved for various reasons.

Ask the people during the housing crisis.

I’ve also seen it mentioned on here as well to be cautious about relying on the HELOC during an emergency time.

YMMV

carguyny
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by carguyny » Thu May 24, 2018 5:18 pm

Assume the market and your portfolio drops 50% and you're also out of a job. What feels better? $600k in stocks and $0 income with no mortgage or $700k in stocks and $0 income with a mortgage payment. You could also adjust your AA and get to a place you're comfortable with but every $ in stocks you should assume it falls by at least 50% when considering downside scenarios.

Also not clear how much of the money is taxable vs non, but that really impacts the risk analysis for me.

JoeRetire
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by JoeRetire » Thu May 24, 2018 5:35 pm

rantk81 wrote:
Thu May 24, 2018 7:58 am
Paying off the mortgage would be a "guaranteed" 3.625% return, which exceeds the "safe" 30 year US bond yield right now.
I'm not sure why the 30-year US bond yield matters. Are you so risk averse that all of your new investments will be only 30-year bonds?
Plus, psychologically, I desire to simplify my finances and I desire to have the peace of mind of a paid off home. I am leaning toward this option. Would I be making a big mistake?
You didn't mention an emergency fund. Assuming you have one of sufficient size, then even if not optimal, paying off your mortgage wouldn't be a big mistake.

And paying a bit for "simplified finances" and "peace of mind" might be worth more to you than liquidity and the difference between 3.65% and what you usually earn in the market.

It's not what I would do, but then I have plenty of peace of mind anyway. Don't worry - no matter which path you choose, you'll be fine.

bgf
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Re: Am I crazy to pay off my 30-yr fixed 3.625 mortgage?

Post by bgf » Thu May 24, 2018 5:40 pm

mortfree wrote:
Thu May 24, 2018 5:09 pm
bgf wrote:
Thu May 24, 2018 1:27 pm
Atgard wrote:
Thu May 24, 2018 1:21 pm
Mjar wrote:
Thu May 24, 2018 10:05 am
I would pay off the mortgage, once you do that the house is yours and yours only, no one can take it away. What happens if you lose your job?
On a related note, if I lost my job tomorrow, I would rather have $210K in the bank and a mortgage payment due every month, than $0 in the bank and a paid-off mortgage but nothing to cover property taxes and other expenses.
why? you can always take out a HELOC with a paid off house IF an emergency arises. in that case, the liquidity of the house is there if and when needed. with a mortgage, you are paying the interest rate on the mortgage for liquidity that you don't need...
That plan for a HELOC has flaws.

You may not get approved for various reasons.

Ask the people during the housing crisis.

I’ve also seen it mentioned on here as well to be cautious about relying on the HELOC during an emergency time.

YMMV
i don't have experience with HELOCs, but i cannot imagine a bank not loaning me 20% of the value of my home with the entirety of it as collateral. that just makes no sense. if that isn't what a HELOC is then fine, some other loan. whatever its called. there is straight up no way a banker would not do that deal.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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