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

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
User avatar
Watty
Posts: 14083
Joined: Wed Oct 10, 2007 3:55 pm

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

Post by Watty » Thu May 24, 2018 5:55 pm

I would pay it off. Investing the money and getting a higher investment return is harder than it sounds because you have a sequence of returns risk. Here is an example that I have posted before.
 If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To break even the next year you would need to gain back the $16K and another $6,000 for the next years mortgage payments which is $22K. That would take a 25.6% return on the remaining $84K just to break even.

Slacker
Posts: 608
Joined: Thu May 26, 2016 8:40 am

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

Post by Slacker » Thu May 24, 2018 6:38 pm

Watty wrote:
Thu May 24, 2018 5:55 pm
I would pay it off. Investing the money and getting a higher investment return is harder than it sounds because you have a sequence of returns risk. Here is an example that I have posted before.
 If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To break even the next year you would need to gain back the $16K and another $6,000 for the next years mortgage payments which is $22K. That would take a 25.6% return on the remaining $84K just to break even.
You would only need to gain back the $10K, not the entire $16K otherwise you'd have the expectation of paying $106K on the mortgage.

TX_Drew
Posts: 33
Joined: Wed May 16, 2018 11:37 am

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

Post by TX_Drew » Thu May 24, 2018 7:34 pm

If you loose 10%, you have to gain back the 10k plus the amoritized interest on the principal.

If you pay it off, it’s like 3.7% bond plus mortgage equity payments monthly*market ROR.

Not really a wrong decision, but don’t discount that freed up mortgage payment for investing over the life of the loan.

If you keep the cash, you have more liquidity, but also higher monthly expenses if something bad does happen.

User avatar
Watty
Posts: 14083
Joined: Wed Oct 10, 2007 3:55 pm

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

Post by Watty » Thu May 24, 2018 7:40 pm

Slacker wrote:
Thu May 24, 2018 6:38 pm
Watty wrote:
Thu May 24, 2018 5:55 pm
I would pay it off. Investing the money and getting a higher investment return is harder than it sounds because you have a sequence of returns risk. Here is an example that I have posted before.
 If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To break even the next year you would need to gain back the $16K and another $6,000 for the next years mortgage payments which is $22K. That would take a 25.6% return on the remaining $84K just to break even.
You would only need to gain back the $10K, not the entire $16K otherwise you'd have the expectation of paying $106K on the mortgage.
I don't follow what you are saying.

Here is how I would look at it;

During year 2 if your portfolio gained $10K that would bring it up from $84K to $94K but you would still have $6K in mortgage payments so at the end of year two the balance would be $88K.

That may be oversimplified a bit since part of each mortgage payments goes to paying down the mortgage but that would usually be a small factor if the mortgage still has a long time until it will be paid off.

Slacker
Posts: 608
Joined: Thu May 26, 2016 8:40 am

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

Post by Slacker » Thu May 24, 2018 9:58 pm

Watty -

I had it slightly wrong and TX_Drew actually had the more accurate response.

If you have a $100K mortgage and you pay it off then you have $0 owed and $0 in cash.

If you have a $100K mortgage and you pay $6000/yr then after year 1 you would have $94K in investments and slightly more than $94K owed on the mortgage (depending on interest rate and amortization schedule). Therefore, you don't need to gain in the market all the way back up to $100K to make the mortgage payments - you need to gain $94K + interest accrued on the loan with the assumption that it is okay to eventually have $0 in the market and $0 on the mortgage.

Maybe you were addressing those who think "the market will return more than the mortgage" and were implying that they'd pay their mortgage while keeping the $100K untouched due to market gains. In that case, your example holds just fine.

User avatar
HiLIfe
Posts: 14
Joined: Sat Nov 16, 2013 10:38 pm
Location: Hawaii

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

Post by HiLIfe » Fri May 25, 2018 1:35 am

bgf wrote:
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.
If your property value significantly fell and you lost your job at the same time, no guarantee the bank will approve a heloc. If no cash savings to draw upon until a new job or other income stream, then the paid off house could be lost due for other reasons like failing to pay property taxes.

Church Lady
Posts: 471
Joined: Sat Jun 28, 2014 7:49 pm

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

Post by Church Lady » Fri May 25, 2018 2:17 am

OP,
There is yet another option. You could take some of that money and 'recast' your mortgage. You'd keep the loan rate and the term, but you'd reduce your payment. Just saying!

Assuming you have no problems cash flowing the mortgage and have enough surplus to enjoy life a little, I'd lean towards keeping the mortgage. But that's me; I expect inflation to increase from here. You mentioned you don't like your job. If you desire to be financially independent or to retire early, which approach gets you there faster?

Good luck!
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity. Ecclesiastes 1:8

madbrain
Posts: 5058
Joined: Thu Jun 09, 2011 5:06 pm
Location: San Jose, California

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

Post by madbrain » Fri May 25, 2018 4:18 am

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...
Because you need income in order to qualify for the loan. If you lose your job, you won't be able to qualify for a HELOC afterwards, period.

Case in point - I actually got laid off last week. I have a mortgage for $300K at 3.375%, 30 year fixed. And $1.5M in investments. I have been sleeping OK. I'll really start worrying if I don't have a job with comparable or higher income in a year.

I have about $1.1 to $1.7M in home equity, depending on who I trust to value it. Regardless, even when working, I couldn't get a HELOC for more than $190K due to debt to income ratio. That's in part because there is a mortgage and 2 car payments (at 1.79% and 1.99%) as well. If the mortgage was paid off, I would have qualified for a larger HELOC, but it would be less advantageous since HELOCs generally have variable interest rates and some have shorter terms as well. In any case, the only way for me to access the full amount of my home equity would be to sell my home and move, whether I was working or not.

ddurrett896
Posts: 864
Joined: Wed Nov 05, 2014 3:23 pm

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

Post by ddurrett896 » Fri May 25, 2018 6:26 am

rantk81 wrote:
Thu May 24, 2018 7:58 am
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 have a large sum of $ and deciding to pay off loan or save - neither is a mistake!!!

Personally I would be hard pressed to pay off the mortgage at 3.6%. Figure inflation is around 2%, so it's really 1.6% you're paying. Instead, I would make additional payments to pay off sooner (maybe in 10-15 years) but not all at once.

Having a mortgage paid of peace of mind.
Having cash in the bank to pay off the mortgage is the same peace of mine. The difference is this route gives a cushion for any future investments, emergency expenses or anything else that might arise.

international001
Posts: 438
Joined: Thu Feb 15, 2018 7:31 pm

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

Post by international001 » Fri May 25, 2018 6:42 am

101 wrote:
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.
I'm talking about an individual bonds, not a bond portfolio

It's true for any amount you want to payoff. I you invest on a bond, you can get the interest to pay the interests, and you sell some of the bonds to pay the principal. By the end of the mortgage, you didn't have to pay anything extra, so you are even. Yield remains constant during the 30 years. Current yield on a 30 year is 3.17

I used this same thinking to payoff my mortgage. If a 30 year yield was 6%, I would have bought a bond. Or stocks, if I wanted more risk.

bgf
Posts: 607
Joined: Fri Nov 10, 2017 9:35 am

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

Post by bgf » Fri May 25, 2018 7:24 am

HiLIfe wrote:
Fri May 25, 2018 1:35 am
bgf wrote:
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


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.
If your property value significantly fell and you lost your job at the same time, no guarantee the bank will approve a heloc. If no cash savings to draw upon until a new job or other income stream, then the paid off house could be lost due for other reasons like failing to pay property taxes.
if property values fell that significantly then markets would have fallen more. if i've lost my job and have no income, decimated property values, decimated portfolio value, then im left with my emergency fund, just like anyone else. the difference being, i dont have a mortgage payment that i have to make every month or lose my house.

id rather be dealing with a property tax issue that pops up once a year and can be resolved for a few thousand than a monthly recurring mortgage issue that pops up every month.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

bgf
Posts: 607
Joined: Fri Nov 10, 2017 9:35 am

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

Post by bgf » Fri May 25, 2018 7:26 am

madbrain wrote:
Fri May 25, 2018 4:18 am
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...
Because you need income in order to qualify for the loan. If you lose your job, you won't be able to qualify for a HELOC afterwards, period.

Case in point - I actually got laid off last week. I have a mortgage for $300K at 3.375%, 30 year fixed. And $1.5M in investments. I have been sleeping OK. I'll really start worrying if I don't have a job with comparable or higher income in a year.

I have about $1.1 to $1.7M in home equity, depending on who I trust to value it. Regardless, even when working, I couldn't get a HELOC for more than $190K due to debt to income ratio. That's in part because there is a mortgage and 2 car payments (at 1.79% and 1.99%) as well. If the mortgage was paid off, I would have qualified for a larger HELOC, but it would be less advantageous since HELOCs generally have variable interest rates and some have shorter terms as well. In any case, the only way for me to access the full amount of my home equity would be to sell my home and move, whether I was working or not.
what if you had opened up the HELOC before you lost your job? can't you do that without actually drawing any money from it?
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

madbrain
Posts: 5058
Joined: Thu Jun 09, 2011 5:06 pm
Location: San Jose, California

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

Post by madbrain » Fri May 25, 2018 4:11 pm

bgf wrote:
Fri May 25, 2018 7:26 am
madbrain wrote:
Fri May 25, 2018 4:18 am
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...
Because you need income in order to qualify for the loan. If you lose your job, you won't be able to qualify for a HELOC afterwards, period.

Case in point - I actually got laid off last week. I have a mortgage for $300K at 3.375%, 30 year fixed. And $1.5M in investments. I have been sleeping OK. I'll really start worrying if I don't have a job with comparable or higher income in a year.

I have about $1.1 to $1.7M in home equity, depending on who I trust to value it. Regardless, even when working, I couldn't get a HELOC for more than $190K due to debt to income ratio. That's in part because there is a mortgage and 2 car payments (at 1.79% and 1.99%) as well. If the mortgage was paid off, I would have qualified for a larger HELOC, but it would be less advantageous since HELOCs generally have variable interest rates and some have shorter terms as well. In any case, the only way for me to access the full amount of my home equity would be to sell my home and move, whether I was working or not.
what if you had opened up the HELOC before you lost your job? can't you do that without actually drawing any money from it?
I did actually open the HELOC before I lost my job. That was in 2012. At the time, the home appraised for about $1M with the lender. I had a new first mortgage for $417,000 at 3.375% fixed, and HELOC was $190,000 . $190k was the max the lender could approve me for, despite the fact that they allowed HELOCs up to 80% LTV, which means I should have been able to get about $380k HELOC, double what I got . The amount of the HELOC was capped due to debt to income ratio. If there was no first mortgage, of course I would have gotten a larger HELOC. But it still would have been capped, probably around $600K, due to DTI ratio.

teddytimtam
Posts: 77
Joined: Mon Jan 01, 2018 9:35 pm

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

Post by teddytimtam » Fri May 25, 2018 6:46 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. (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?
Pay off your mortgage today. Your grass will feel greener. You will feel free. No payments. No debt. You will sleep better at night knowing that house is 100% yours.

Now you can focus on building wealth without any payments. And you'll be able to build wealth a lot quicker without any restrains (mortgage payments, etc.)

To flip the scenario, IF your house was paid for; would you borrow $220k on your home at 3.625% interest just to invest? Don't look at it mathematically with theories and assumed rate of returns. Would you physically go to the bank and ask for a $220k loan on your HOME just to invest in SP500 or whatever. It's a gamble I'm definitely not going to take.

TallBoy29er
Posts: 476
Joined: Thu Jul 18, 2013 9:06 pm

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

Post by TallBoy29er » Fri May 25, 2018 6:58 pm

Stepping back, I think you should enjoy the moment where you have the difficult decision, at age 36, to either pay off the $200k+ mortgage and own your house outright, or invest in your $1M+ portfolio. Sweet.

letsgobobby
Posts: 11575
Joined: Fri Sep 18, 2009 1:10 am

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

Post by letsgobobby » Fri May 25, 2018 9:16 pm

rantk81 wrote:
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?
Not crazy, but I wouldn't.

User avatar
HiLIfe
Posts: 14
Joined: Sat Nov 16, 2013 10:38 pm
Location: Hawaii

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

Post by HiLIfe » Fri May 25, 2018 11:39 pm

teddytimtam wrote:
Fri May 25, 2018 6:46 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. (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?
To flip the scenario, IF your house was paid for; would you borrow $220k on your home at 3.625% interest just to invest? Don't look at it mathematically with theories and assumed rate of returns. Would you physically go to the bank and ask for a $220k loan on your HOME just to invest in SP500 or whatever. It's a gamble I'm definitely not going to take.
If one still has a mortgage, should they not invest in stock market via a 401k or a Roth IRA because they are still using leverage to invest in the stock market? On this theory, they should pay down/off their entire mortgage balance before investing into the stock market.

User avatar
HiLIfe
Posts: 14
Joined: Sat Nov 16, 2013 10:38 pm
Location: Hawaii

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

Post by HiLIfe » Sat May 26, 2018 2:29 am

bgf wrote:
Fri May 25, 2018 7:24 am
HiLIfe wrote:
Fri May 25, 2018 1:35 am
bgf wrote:
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


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.
If your property value significantly fell and you lost your job at the same time, no guarantee the bank will approve a heloc. If no cash savings to draw upon until a new job or other income stream, then the paid off house could be lost due for other reasons like failing to pay property taxes.
if property values fell that significantly then markets would have fallen more. if i've lost my job and have no income, decimated property values, decimated portfolio value, then im left with my emergency fund, just like anyone else. the difference being, i dont have a mortgage payment that i have to make every month or lose my house.

id rather be dealing with a property tax issue that pops up once a year and can be resolved for a few thousand than a monthly recurring mortgage issue that pops up every month.
My reply was with regards to having $0 in the bank (ie. no emergency fund) and then relying on being approved for a HELOC as the emergency fund.

gamboolman
Posts: 44
Joined: Mon Feb 17, 2014 7:32 am

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

Post by gamboolman » Sat May 26, 2018 3:26 am

81
We had almost same interest rate and amount owed.
Paid it off 4 year ago and no regrets.

It’s a personal choice and you can make your head explode doing the analysis until you get paralysis.

For ms gamboogal and I it was best decision as we plan to retire next year. We have no debt and that is a wonderful place to be

strafe
Posts: 837
Joined: Sat Mar 03, 2007 12:49 pm

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

Post by strafe » Sat May 26, 2018 5:23 am

TallBoy29er wrote:
Fri May 25, 2018 6:58 pm
Stepping back, I think you should enjoy the moment where you have the difficult decision, at age 36, to either pay off the $200k+ mortgage and own your house outright, or invest in your $1M+ portfolio. Sweet.
+1

For all the strong opinions on this topic, in the end, the difference between either strategy is nothing more than a rounding error.

bltn
Posts: 184
Joined: Mon Feb 20, 2017 9:32 pm

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

Post by bltn » Sat May 26, 2018 7:40 am

If I was in your position, I would pay off my mortgage, then I would unfailingly make the monthly house payment into my savings. Yearly I would write a check for insurance and property tax.

steadyhand
Posts: 45
Joined: Thu Mar 02, 2017 11:56 am

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

Post by steadyhand » Sat May 26, 2018 8:32 am

Wondering if how long the OP thinks they will stay in this potentially paid-off home matters here. For me, just a few years older than the OP, I like the liquidity so I can buy my next house before I sell my current one so as to not have to put conditional offers in. This is important given the OP’s age and high likelihood this may not be the house he/she lives in forever due to job changes among other reasons.

Also, if one thinks 3.625% is a good rate to hang onto, then I am not sure paying it off even a few years earlier is a good strategy. If rates are going to stay where they are or higher, I would keep this loan as long as I could, assuming you sleep well at night with it.

minesweep
Posts: 1194
Joined: Fri Mar 02, 2007 9:17 pm
Location: PA

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

Post by minesweep » Sat May 26, 2018 9:20 am

Given the mortgage deductibility is no longer a factor to consider I would pay off the mortgage. You can’t put a price tag on peace of mind. You’re already leaning that way anyway. So just do it.

User avatar
tainted-meat
Posts: 721
Joined: Tue Dec 20, 2011 9:35 pm
Location: Kentucky

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

Post by tainted-meat » Sat May 26, 2018 11:56 am

I have the exact same mortgage rate. I am not going to pay it off early as interest rates are going up, inflation is starting to creep up and assuming wages follow the low mortgage rate of 3.625% is a great deal.

madbrain
Posts: 5058
Joined: Thu Jun 09, 2011 5:06 pm
Location: San Jose, California

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

Post by madbrain » Sat May 26, 2018 6:57 pm

strafe wrote:
Sat May 26, 2018 5:23 am
TallBoy29er wrote:
Fri May 25, 2018 6:58 pm
Stepping back, I think you should enjoy the moment where you have the difficult decision, at age 36, to either pay off the $200k+ mortgage and own your house outright, or invest in your $1M+ portfolio. Sweet.
+1

For all the strong opinions on this topic, in the end, the difference between either strategy is nothing more than a rounding error.
That is not necessarily the case. The vast majority of my portfolio is in tax deferred investments. Until my father passed away 8 years ago and I got inheritance, it was 100% in tax deferred. If my mortgage was paid off, and I had to draw from my portfolio to meet expenses while looking for a job, there would be severe penalties and taxes involved, much more than a rounding error.
Even as it stands, out of the $1.5M portfolio, only $500K are are in taxable. If my $300k mortgage was paid off, that means I would have $200K available while in between jobs. That would last at the very most about 2.5 years, in reality probably less than 2 years with capital gains taxes that might be due. I would feel significantly less secure in my current situation with only $200k available in taxable that $500k.
Of course, I have to hope that the job search doesn't last that long. I will move to lower COLA (and probably out of the country) if it takes over a year.

PharmerBrown
Posts: 57
Joined: Sat Mar 08, 2014 7:50 pm
Location: Pennsylvania

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

Post by PharmerBrown » Sat May 26, 2018 7:40 pm

teddytimtam wrote:
Fri May 25, 2018 6:46 pm
rantk81 wrote:
Thu May 24, 2018 7:58 am

To flip the scenario, IF your house was paid for; would you borrow $220k on your home at 3.625% interest just to invest? Don't look at it mathematically with theories and assumed rate of returns. Would you physically go to the bank and ask for a $220k loan on your HOME just to invest in SP500 or whatever. It's a gamble I'm definitely not going to take.
People keep saying this but it's just not the same thing. In one situation you are deciding what to do with your money, and in the other, you're deciding what to do with the bank's money. If I decide to go for a $200 dinner tonight and I have a mortgage, would you ask me if "if you didn't have a mortgage, would you go borrow $200 against your house to go to dinner"?

teddytimtam
Posts: 77
Joined: Mon Jan 01, 2018 9:35 pm

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

Post by teddytimtam » Sat May 26, 2018 8:16 pm

PharmerBrown wrote:
Sat May 26, 2018 7:40 pm
teddytimtam wrote:
Fri May 25, 2018 6:46 pm
rantk81 wrote:
Thu May 24, 2018 7:58 am

To flip the scenario, IF your house was paid for; would you borrow $220k on your home at 3.625% interest just to invest? Don't look at it mathematically with theories and assumed rate of returns. Would you physically go to the bank and ask for a $220k loan on your HOME just to invest in SP500 or whatever. It's a gamble I'm definitely not going to take.
People keep saying this but it's just not the same thing. In one situation you are deciding what to do with your money, and in the other, you're deciding what to do with the bank's money. If I decide to go for a $200 dinner tonight and I have a mortgage, would you ask me if "if you didn't have a mortgage, would you go borrow $200 against your house to go to dinner"?
The difference is the OP has a chance to be debt free with no mortgage. So why not take the opportunity to get rid of $220k debt for the rest of your life? That was the intent of the analogy.

lakpr
Posts: 275
Joined: Fri Mar 18, 2011 9:59 am

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

Post by lakpr » Sat May 26, 2018 8:17 pm

teddytimtam wrote:
rantk81 wrote:
To flip the scenario, IF your house was paid for; would you borrow $220k on your home at 3.625% interest just to invest? Don't look at it mathematically with theories and assumed rate of returns. Would you physically go to the bank and ask for a $220k loan on your HOME just to invest in SP500 or whatever. It's a gamble I'm definitely not going to take.
People keep saying this but it's just not the same thing. In one situation you are deciding what to do with your money, and in the other, you're deciding what to do with the bank's money. If I decide to go for a $200 dinner tonight and I have a mortgage, would you ask me if "if you didn't have a mortgage, would you go borrow $200 against your house to go to dinner"?
I think this is a false comparison given the magnitude of debt, one is a thousand times more than the other. Conceivably one can pay off a $200 dinner in a relatively short time, paying off $200K takes decades.

If we must make such a comparison, an equivalent question would be like “would you pawn your jewelry to borrow $200 and spend that money on a steak dinner, and choosing to pay the pawnshop 3.625% for 30 years for that dinner? Even though you have $200 in your bank account today?”

I know what my answer for that question would be.

TomCat96
Posts: 524
Joined: Sun Oct 18, 2015 12:18 pm

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

Post by TomCat96 » Sat May 26, 2018 8:31 pm

rantk81 wrote:
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?

You understand all the relevant factors. You understand that your return is a guaranteed 3.625 (minus of course the deductibility of the interest).
The issue as so you concluded really comes down to psychological factors.

The pertinent question is how do you value that psychological factor? We cannot answer this question for you.

I can however offer you my subjective take. I personally have no trouble risking 100% of my portfolio in stocks. I sleep soundly at night. I find it amusing when I get blowback on this site. Usually the arguments go something to the tune of "how can you risk 100% of your portfolio when the risk adjusted rewards for 60/40 or 70/30 is so much more efficient?" My counterargument is that may well be true, but the returns on the 100% portfolio are greater. And because being 100% truly doesn't bother me, I don't mind taking on substantially more risk for marginally more reward.

But even a risk taker like myself would welcome the decision to pay off a mortgage. If I were in your position with 1.1M in equity index funds, I would pay off the mortgage in a heartbeat. From a risk standpoint that probably doesn't accord with my former position.

We are creatures of emotion. You're a smart fellow making 145 a year. It was my mistake in the past to undervalue my emotions and to overvalue logic. At the end of the day, its the head sitting on my shoulders that allows me to go out and be productive. The removal of any psychological encumberances I have found is worth far more than I initially gave it credit for. If you're smart enough to produce 145 a year, and understand all the factors you laid forth, it may well be for you as well.

PharmerBrown
Posts: 57
Joined: Sat Mar 08, 2014 7:50 pm
Location: Pennsylvania

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

Post by PharmerBrown » Sat May 26, 2018 8:38 pm

lakpr wrote:
Sat May 26, 2018 8:17 pm
teddytimtam wrote:
rantk81 wrote:
To flip the scenario, IF your house was paid for; would you borrow $220k on your home at 3.625% interest just to invest? Don't look at it mathematically with theories and assumed rate of returns. Would you physically go to the bank and ask for a $220k loan on your HOME just to invest in SP500 or whatever. It's a gamble I'm definitely not going to take.
People keep saying this but it's just not the same thing. In one situation you are deciding what to do with your money, and in the other, you're deciding what to do with the bank's money. If I decide to go for a $200 dinner tonight and I have a mortgage, would you ask me if "if you didn't have a mortgage, would you go borrow $200 against your house to go to dinner"?
I think this is a false comparison given the magnitude of debt, one is a thousand times more than the other. Conceivably one can pay off a $200 dinner in a relatively short time, paying off $200K takes decades.

If we must make such a comparison, an equivalent question would be like “would you pawn your jewelry to borrow $200 and spend that money on a steak dinner, and choosing to pay the pawnshop 3.625% for 30 years for that dinner? Even though you have $200 in your bank account today?”

I know what my answer for that question would be.
Changing the magnitude only makes it seem more ridiculous. I'm fine if that is your philosophy, but then your philosophy is that anytime you have debt and you choose to do something that isn't essential with your money (as opposed to putting it toward the debt), you are financing that activity with the debt.
Just because you can pay it off quickly doesn't change the math. Anytime someone with a mortgage is investing, they are borrowing against their home to invest.

lakpr
Posts: 275
Joined: Fri Mar 18, 2011 9:59 am

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

Post by lakpr » Sat May 26, 2018 9:06 pm

Changing the magnitude makes it more ridiculous, I agree. That’s exactly my point too when I am replying to teddytimtam. When you want to borrow $x, it us more reasonable and customary to offer as collateral something of equivalent value, not something that is thousand times more valuable. That’s why the statement of “would you borrow $200 from a HELOC to have a nice dinner” is not quite equivalent to “would you borrow $200K against a paid off house”. The first question is quite silly, IMO, especially if you have $200 available without having to tap the HELOC.

I think this is an example of reductio ad absurdum, where you shrink or exaggerate the main point being made and then drawing the conclusion that the argument is silly. Completely ignoring the fact that the very act of absurdly exaggerating or shrinking the argument to situations where a common man would not quite apply, is the flaw in the counter argument.

Coming back to my example in the previous post: if you have $1000 worth of jewelry and you want to pawn it to me, and ask to borrow $200 at an interest rate of 3.625%, I would do it in a jiffy. The $200 is something I can afford to lose, also I would have the collateral that I can sell to reclaim any loss. If you ask me instead to loan you $200K and you pledge your house worth $400K as collateral: it is just scaling the same equation by a factor of 1000. I would hesitate a great deal and even afterwards I might not bite on the offer. A $200K loss would devastate me.

PharmerBrown
Posts: 57
Joined: Sat Mar 08, 2014 7:50 pm
Location: Pennsylvania

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

Post by PharmerBrown » Sat May 26, 2018 9:36 pm

rantk81 wrote:
I think this is a false comparison given the magnitude of debt, one is a thousand times more than the other. Conceivably one can pay off a $200 dinner in a relatively short time, paying off $200K takes decades.

If we must make such a comparison, an equivalent question would be like “would you pawn your jewelry to borrow $200 and spend that money on a steak dinner, and choosing to pay the pawnshop 3.625% for 30 years for that dinner? Even though you have $200 in your bank account today?”

I know what my answer for that question would be.
The pawn shop example is not the same. We are talking to about making decisions on what to do with "your" money. If I decide to invest my money and I have a mortgage; I am not doing the equivalent of taking a loan against my hose to invest. It doesn't matter if the mortgage balance is $200,000 or $2,000.

bsteiner
Posts: 3484
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

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

Post by bsteiner » Sat May 26, 2018 9:46 pm

There's a benefit to the liquidity. If you itemize, there's a tax arbitrage since the interest is deductible against ordinary income but much of the investment income is favorably taxes. A 3.625% interest rate is below market.

lakpr
Posts: 275
Joined: Fri Mar 18, 2011 9:59 am

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

Post by lakpr » Sat May 26, 2018 10:08 pm

PharmerBrown wrote: The pawn shop example is not the same. We are talking to about making decisions on what to do with "your" money. If I decide to invest my money and I have a mortgage; I am not doing the equivalent of taking a loan against my hose to invest. It doesn't matter if the mortgage balance is $200,000 or $2,000.
Ok let’s approach that scenario (of making decisions on what to do with ‘your’ money). What is your take on rent-to-own furniture places? Or for that matter, even car leases and car financings? Assume you have the money in the bank to buy outright whatever you are financing. Should I assume you prefer to finance your mattress than buy outright, or finance your car than buy outright?

teddytimtam
Posts: 77
Joined: Mon Jan 01, 2018 9:35 pm

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

Post by teddytimtam » Sat May 26, 2018 10:40 pm

lakpr wrote:
Sat May 26, 2018 10:08 pm
PharmerBrown wrote: The pawn shop example is not the same. We are talking to about making decisions on what to do with "your" money. If I decide to invest my money and I have a mortgage; I am not doing the equivalent of taking a loan against my hose to invest. It doesn't matter if the mortgage balance is $200,000 or $2,000.
Ok let’s approach that scenario (of making decisions on what to do with ‘your’ money). What is your take on rent-to-own furniture places? Or for that matter, even car leases and car financings? Assume you have the money in the bank to buy outright whatever you are financing. Should I assume you prefer to finance your mattress than buy outright, or finance your car than buy outright?
Very interesting discussion came about based on 1 comment.

Personally, I would never finance anything besides a mortgage. Never would I finance a consumer product. If I don't have the money at the time to buy it outright, then I wouldn't buy it at all.

If the OP decides to pay off $220k, then he/she would have zero debt. If the OP keeps the cash on hands, then the "scenario" would essentially be the same as borrowing money on the house (Debt $220k cash $220k). The risk is high with this amount of money. Especially when the $220k can easily be spent or lost in investment. There's a huge difference between $2000 and $200,000.

jalbert
Posts: 3669
Joined: Fri Apr 10, 2015 12:29 am

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

Post by jalbert » Sun May 27, 2018 3:33 am

You answered your own question:
OP wrote: Plus, psychologically, I desire to simplify my finances and I desire to have the peace of mind of a paid off home
Risk is not a guarantor of return.

PharmerBrown
Posts: 57
Joined: Sat Mar 08, 2014 7:50 pm
Location: Pennsylvania

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

Post by PharmerBrown » Sun May 27, 2018 9:39 am

lakpr wrote:
Sat May 26, 2018 10:08 pm
PharmerBrown wrote: The pawn shop example is not the same. We are talking to about making decisions on what to do with "your" money. If I decide to invest my money and I have a mortgage; I am not doing the equivalent of taking a loan against my hose to invest. It doesn't matter if the mortgage balance is $200,000 or $2,000.
Ok let’s approach that scenario (of making decisions on what to do with ‘your’ money). What is your take on rent-to-own furniture places? Or for that matter, even car leases and car financings? Assume you have the money in the bank to buy outright whatever you are financing. Should I assume you prefer to finance your mattress than buy outright, or finance your car than buy outright?
You shouldn't assume that at all. I'm not advocating for debt. My initial point was that asking someone if they would borrow against a paid off house to invest is not a valid question. Anything you do with money when you have a mortgage could then be looked at as "borrowing against your house to do X". That $200 I spent on dinner instead of sending to my mortgage company was then financed on the back of my mortgage. I know Dave says it all of the time but if you believe that statement to be true, you are borrowing against your house to invest when you are putting 15% into retirement and the rest toward the mortgage.
It's your money and you get to decide how you want to use it. You can pay off the mortgage, you can invest it, you can buy a new 911 GT3. They are all going to have different financial outcomes. We don't know what the outcome will be. It all comes down to figuring out your priorities and what will allow you to sleep best at night.

ThePrince
Posts: 348
Joined: Sun Aug 20, 2017 9:15 pm
Location: U.S.A.

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

Post by ThePrince » Sun May 27, 2018 11:44 am

bgf wrote:
Fri May 25, 2018 7:24 am
HiLIfe wrote:
Fri May 25, 2018 1:35 am
bgf wrote:
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


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.
If your property value significantly fell and you lost your job at the same time, no guarantee the bank will approve a heloc. If no cash savings to draw upon until a new job or other income stream, then the paid off house could be lost due for other reasons like failing to pay property taxes.
if property values fell that significantly then markets would have fallen more. if i've lost my job and have no income, decimated property values, decimated portfolio value, then im left with my emergency fund, just like anyone else. the difference being, i dont have a mortgage payment that i have to make every month or lose my house.

id rather be dealing with a property tax issue that pops up once a year and can be resolved for a few thousand than a monthly recurring mortgage issue that pops up every month.
+1

Church Lady
Posts: 471
Joined: Sat Jun 28, 2014 7:49 pm

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

Post by Church Lady » Sun May 27, 2018 1:42 pm

Given the mortgage deductibility is no longer a factor to consider
Oh, it's still a consideration. This year I am mulling over whether to set my income such that 1/3 of the mortgage interest is subsidized by the government, or all the mortgage interest is subsidized. But I will certainly itemize and deduct some part of it this year. Each case is different. The OP has to compute for himself whether the interest is tax deductible.

Just saying!
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity. Ecclesiastes 1:8

Atgard
Posts: 385
Joined: Wed Apr 09, 2014 2:02 pm

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

Post by Atgard » Tue May 29, 2018 1:18 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...
Except we have no idea what interest rates will be at that time, how much you'll be approved for, etc. So it's not a sure thing like already having the cash sitting in your bank account, or being invested in a liquid portfolio. If I had to guess, a HELOC at some random future time will probably be higher than 3.625%, maybe much higher.

So with a mortgage you have a guaranteed historically low rate, and are gaining liquidity (that you may or may not need), and if you don't need it, you can invest it and it is likely (though not guaranteed) that most reasonable asset allocations over decent time frames will probably beat 3.625%.

You also get 28 years of inflation protection by having a fixed mortgage payment, even if interest rates continue to increase. I have little doubt that there will be some time over the next 28 years where you can beat 3.625% in a savings/money market account or CD.

All that said, I do get the psychological reasons for wanting to pay off the house and be done. Personally, it doesn't work for me since I still have so many other house-related costs I still have to pay -- which can easily be as much or more than the mortgage payment. It would be different if you could literally make one payment and never have to put another cent into your house forever. But I feel psychologically better having $210K in cash or investable assets to cover my $210K mortgage (plus property taxes, etc.) that I have 28 years to pay off... vs. having $210K less in cash/investments and no mortgage, but still need to cover property taxes, insurance, HOA, maintenance, utilities, and other costs of living. To each their own; the OP will be fine either way.

mptfan
Posts: 4661
Joined: Mon Mar 05, 2007 9:58 am

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

Post by mptfan » Tue May 29, 2018 1:50 pm

Atgard wrote:
Tue May 29, 2018 1:18 pm
All that said, I do get the psychological reasons for wanting to pay off the house and be done. Personally, it doesn't work for me since I still have so many other house-related costs I still have to pay -- which can easily be as much or more than the mortgage payment. It would be different if you could literally make one payment and never have to put another cent into your house forever. But I feel psychologically better having $210K in cash or investable assets to cover my $210K mortgage (plus property taxes, etc.) that I have 28 years to pay off... vs. having $210K less in cash/investments and no mortgage, but still need to cover property taxes, insurance, HOA, maintenance, utilities, and other costs of living. To each their own; the OP will be fine either way.
I have never understood the logic of this argument. The existence of other expenses related to maintaing a house should not impact the decision to have or not have a mortgage, because you will have those other expenses either way. By that logic, I could suggest that having a car loan is a good idea, since you have other expenses like gas and maintenance and registration fees to pay anyway. Or taking out a loan on a vacation home is a good idea for the same reasons because the costs of maintaining the vacation home is greater than the loan payments? I don't get it.

wolf359
Posts: 1382
Joined: Sun Mar 15, 2015 8:47 am

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

Post by wolf359 » Tue May 29, 2018 1:56 pm

I don't think either is a bad choice. The primary benefit to paying off the mortgage is to improve your cash flow by eliminating your mortgage payment. Paying DOWN a mortgage without paying it off is what most people propose. In that case, I'd use the strategy of investing in VTSAX until the balance is high enough, then decide if you want to pay it off or keep the money invested in stocks.

What you have is the ability to pay OFF the mortgage in one fell swoop. That does improve your cash flow immediately, and still have some money left to invest.

I could go for either choice.

JoeRetire
Posts: 1587
Joined: Tue Jan 16, 2018 2:44 pm

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

Post by JoeRetire » Tue May 29, 2018 2:01 pm

mptfan wrote:
Tue May 29, 2018 1:50 pm
Atgard wrote:
Tue May 29, 2018 1:18 pm
All that said, I do get the psychological reasons for wanting to pay off the house and be done. Personally, it doesn't work for me since I still have so many other house-related costs I still have to pay -- which can easily be as much or more than the mortgage payment. It would be different if you could literally make one payment and never have to put another cent into your house forever. But I feel psychologically better having $210K in cash or investable assets to cover my $210K mortgage (plus property taxes, etc.) that I have 28 years to pay off... vs. having $210K less in cash/investments and no mortgage, but still need to cover property taxes, insurance, HOA, maintenance, utilities, and other costs of living. To each their own; the OP will be fine either way.
I have never understood the logic of this argument. The existence of other expenses related to maintaing a house should not impact the decision to have or not have a mortgage, because you will have those other expenses either way. By that logic, I could suggest that having a car loan is a good idea, since you have other expenses like gas and maintenance and registration fees to pay anyway. Or taking out a loan on a vacation home is a good idea for the same reasons because the costs of maintaining the vacation home is greater than the loan payments? I don't get it.
The point is that folks who choose to pay off the mortgage for the peace of mind of having no expenses, still actually have expenses.

Some folks seems to see a binary choice - no mortgage = freedom versus mortgage = not freedom. But in reality, the expenses we will have without regard to a mortgage just make this more of a "freedom spectrum" without any magic cutoff level.

Does that help explain it?

mptfan
Posts: 4661
Joined: Mon Mar 05, 2007 9:58 am

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

Post by mptfan » Tue May 29, 2018 2:18 pm

JoeRetire wrote:
Tue May 29, 2018 2:01 pm
The point is that folks who choose to pay off the mortgage for the peace of mind of having no expenses, still actually have expenses.

Some folks seems to see a binary choice - no mortgage = freedom versus mortgage = not freedom. But in reality, the expenses we will have without regard to a mortgage just make this more of a "freedom spectrum" without any magic cutoff level.

Does that help explain it?
No. I think you are setting up a strawman argument when you say "the point is that folks who choose to pay off the mortgage for the peace of mind of having no expenses, still actually have expenses." You are setting up a false premise and then arguing in opposition to that false premise because no sensible person chooses to pay off a mortgage for the peace of mind of having *NO* expenses...rather, people pay off a mortgage for (among other reasons) the peace of mind of having eliminated the mortgage payment expense. Thus, what you wrote was false from the beginning, it did not have to be proven false.
Last edited by mptfan on Tue May 29, 2018 2:25 pm, edited 1 time in total.

bgf
Posts: 607
Joined: Fri Nov 10, 2017 9:35 am

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

Post by bgf » Tue May 29, 2018 2:23 pm

JoeRetire wrote:
Tue May 29, 2018 2:01 pm
mptfan wrote:
Tue May 29, 2018 1:50 pm
Atgard wrote:
Tue May 29, 2018 1:18 pm
All that said, I do get the psychological reasons for wanting to pay off the house and be done. Personally, it doesn't work for me since I still have so many other house-related costs I still have to pay -- which can easily be as much or more than the mortgage payment. It would be different if you could literally make one payment and never have to put another cent into your house forever. But I feel psychologically better having $210K in cash or investable assets to cover my $210K mortgage (plus property taxes, etc.) that I have 28 years to pay off... vs. having $210K less in cash/investments and no mortgage, but still need to cover property taxes, insurance, HOA, maintenance, utilities, and other costs of living. To each their own; the OP will be fine either way.
I have never understood the logic of this argument. The existence of other expenses related to maintaing a house should not impact the decision to have or not have a mortgage, because you will have those other expenses either way. By that logic, I could suggest that having a car loan is a good idea, since you have other expenses like gas and maintenance and registration fees to pay anyway. Or taking out a loan on a vacation home is a good idea for the same reasons because the costs of maintaining the vacation home is greater than the loan payments? I don't get it.
The point is that folks who choose to pay off the mortgage for the peace of mind of having no expenses, still actually have expenses.

Some folks seems to see a binary choice - no mortgage = freedom versus mortgage = not freedom. But in reality, the expenses we will have without regard to a mortgage just make this more of a "freedom spectrum" without any magic cutoff level.

Does that help explain it?
not really because nobody wants to pay off their mortgage to have no expenses; they want to pay off their mortgage to have no mortgage payment (principal + interest).

my mortgage is 2.875%. i do not currently have enough money in a taxable account to pay it off. if i did have enough, i probably wouldn't pay it off because of the capital gains i would have to pay.

on the other hand, once i pay my mortgage off, i'm not going to walk right back into the bank and take out another 15 year mortgage for the 'liquidity.' therefore, my ideal financial situation is to own the home with no mortgage payment. the compromise of purchasing the home with a 15 year fixed interest rate loan of 2.875% was desirable compared to renting and taking many more years (10+) to save and pay cash.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

JoeRetire
Posts: 1587
Joined: Tue Jan 16, 2018 2:44 pm

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

Post by JoeRetire » Tue May 29, 2018 2:27 pm

mptfan wrote:
Tue May 29, 2018 2:18 pm
JoeRetire wrote:
Tue May 29, 2018 2:01 pm
The point is that folks who choose to pay off the mortgage for the peace of mind of having no expenses, still actually have expenses.

Some folks seems to see a binary choice - no mortgage = freedom versus mortgage = not freedom. But in reality, the expenses we will have without regard to a mortgage just make this more of a "freedom spectrum" without any magic cutoff level.

Does that help explain it?
No. I think you are setting up a strawman argument when you say "the point is that folks who choose to pay off the mortgage for the peace of mind of having no expenses, still actually have expenses." You are setting up a false premise and then arguing in opposition to that false premise because no sensible person chooses to pay off a mortgage for the peace of mind of having *NO* expenses...rather, people pay off a mortgage for (among other reasons) the peace of mind of having eliminated the mortgage payment expense. Thus, what you wrote was false from the beginning, it did not have to be proven false.
You seem to be missing the point. I'm not arguing either side. I'm trying to explain the thinking that eludes you such that you "don't get it".

mptfan
Posts: 4661
Joined: Mon Mar 05, 2007 9:58 am

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

Post by mptfan » Tue May 29, 2018 2:30 pm

JoeRetire wrote:
Tue May 29, 2018 2:27 pm
You seem to be missing the point. I'm not arguing either side. I'm trying to explain the thinking that eludes you such that you "don't get it".
Let me be more clear...I understand the argument, but the argument is flawed and not logical, therefore I don't get why people advance that argument to support having a mortgage, and I don't get how people don't see the flaw in that argument.

JoeRetire
Posts: 1587
Joined: Tue Jan 16, 2018 2:44 pm

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

Post by JoeRetire » Tue May 29, 2018 2:32 pm

bgf wrote:
Tue May 29, 2018 2:23 pm
not really because nobody wants to pay off their mortgage to have no expenses; they want to pay off their mortgage to have no mortgage payment (principal + interest).
I disagree with the term "nobody" here. Someone in this very thread wrote "Pay off your mortgage today. Your grass will feel greener. You will feel free. No payments. No debt. You will sleep better at night knowing that house is 100% yours." Doesn't matter anyway.

If people can get "peace of mind" or "freedom from debt" by reducing their monthly payments by "principal + interest" and are willing and able to spend a lump sum and reduce their liquidity to do so, then good for them. It's not crazy, even if it may not be financially optimal. I understand it, even if I might not agree with it.
Last edited by JoeRetire on Tue May 29, 2018 2:42 pm, edited 2 times in total.

JoeRetire
Posts: 1587
Joined: Tue Jan 16, 2018 2:44 pm

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

Post by JoeRetire » Tue May 29, 2018 2:33 pm

mptfan wrote:
Tue May 29, 2018 2:30 pm
JoeRetire wrote:
Tue May 29, 2018 2:27 pm
You seem to be missing the point. I'm not arguing either side. I'm trying to explain the thinking that eludes you such that you "don't get it".
Let me be more clear...I understand the argument, but the argument is flawed and not logical, therefore I don't get why people advance that argument to support having a mortgage, and I don't get how people don't see the flaw in that argument.
Okay. We'll agree to disagree on the math.

JoeRetire
Posts: 1587
Joined: Tue Jan 16, 2018 2:44 pm

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

Post by JoeRetire » Tue May 29, 2018 2:40 pm

cfs wrote:
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
LOL!

Or don't pay it off, then let us know how it feels.
And if it feels really, really bad, then you can still pay it off later!

Post Reply