Waiting to prepay mortgage until you can pay the whole thing off?

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somekevinguy
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Waiting to prepay mortgage until you can pay the whole thing off?

Post by somekevinguy » Tue Jun 18, 2019 12:46 am

I'm trying to gauge my thinking... it seems like if you ARE going to pay off your mortgage early, it would make sense to hold off on prepaying your mortgage until you have accumulated enough to pay it off in full. I would imagine saving it up in something relatively safe (ie fixed income) and essentially treating the mortgage like a negative bond so depending on your mortgage size, you may own a large bond/fixed income allocation. I acknowledge there is obviously some risk here vs the guaranteed return of prepaying your mortgage but presumably, you are investing it in relatively safe assets. It also assumes you have a good mortgage rate (ie the 2.5-3.8% mortgage interest rates I imagine many on this forum enjoy) that make investment vs. paying off the mortgage more of a question.

My thoughts on why it makes sense to wait until you can pay off the mortgage in full:

1) This actually results in immediate cash flow benefits (whereas steadily prepaying your mortgage does not until the mortgage is paid off)

2) You no longer have mortgage obligations (in terms of potentially needing liquidity) - ie vs. paying down your mortgage consistently, getting down to a very low loan to value and still being at risk for foreclosure in the event of some financial catastrophe if you can't make your payments- unlikely, but still possible and with much more skin in the game

3) You benefit from increased liquidity for however long it takes you to save up the payment amount (applies whether you lump sum or not)

4) For however long it takes you to accumulate that payoff amount, you benefit from your compounding investment as well as inflation making the dollars you'll eventually pay off your mortgage with less valuable- win-win (this applies even without lump summing as well)

5) You also get a sense of where interest rates are moving and if at such time, you are ready to pay off the mortgage and fixed income is returning more than your mortgage rate, you can let it ride until such time that it doesn't. (you can obviously do this without paying in a lump sum too)

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by mhalley » Tue Jun 18, 2019 1:25 am

You are not taking risk into account. When you pay off a loan, you get a guaranteed rate of return. When you wait for stock market returns, there is always the risk that the gains will go away. Then you have no decrease in principal and no gains in the stock mf. Also, paying the loan earlier has a greater effect on the amortization schedule.

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Nate79
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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by Nate79 » Tue Jun 18, 2019 6:09 am

All of those benefits you are paying for with the spread between the after tax return of the interest rate of your lump sum vs the interest rate of the mortgage. This may be 2% or so. So that is $2k every year for every $100k of money you are holding. That is basically an insurance cost.

But usually people ask that why do you need all those benefits and then suddenly they go away when you pay the lump sum to the mortgage?

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by Jags4186 » Tue Jun 18, 2019 6:19 am

I agree with OPs assessment and am a proponent of that strategy.

There is no free lunch. You can invest your excess cash flow and try to beat your mortgage interest rate with your investments. Maybe you will maybe you won’t. But there is also risk that by prepaying your mortgage you have no liquidity if bad times come and banks don’t care if you’ve been prepaying if all of a sudden you can’t make your payment due to job loss or another emergency that takes all of your money.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by Edward Joseph » Tue Jun 18, 2019 6:26 am

somekevinguy wrote:
Tue Jun 18, 2019 12:46 am
1) This actually results in immediate cash flow benefits (whereas steadily prepaying your mortgage does not until the mortgage is paid off)
You can possibly recast the mortgage after making a large principal payment and without changing any terms of the loan, lower your P&I payment going forward. I'm not sure how often you can do it or the fees attached but it is one way around this point.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by awval999 » Tue Jun 18, 2019 6:34 am

If someone has a lot of equity in the house - they can just sell if hard times comes - and then use the proceeds to downsize into a full cash purchase. Of course you have to have consider the shock to the family to do that. Of course it's a similar shock to the family if "mom lost her job, all of your after-school activities are cancelled, we're not going on vacation, no new school clothes, we're cancelling cable, and not going out to eat on Saturdays for the foreseeable future".

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by MikeG62 » Tue Jun 18, 2019 6:52 am

When I had a mortgage I always paid extra principal (hundreds of dollars) along with each payment, and in addition occasionally made larger one-off payments (tens of thousands at a time). Paid off my last 15 year mortgage (taken out in 2003) in 10 years. I think the interest rate was 4.0%, In fact, about 8 years in I paid off the mortgage in full with funds borrowed on a HELOC, which had an interest rate about 100bps lower than my mortgage (making monthly payments against the HELOC in the same amount as I was paying on my mortgage) I paid off the HELOC in full a couple of years later. I do not regret having paid off the mortgage early in piecemeal and then in full.
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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by nolesrule » Tue Jun 18, 2019 7:09 am

Edward Joseph wrote:
Tue Jun 18, 2019 6:26 am
somekevinguy wrote:
Tue Jun 18, 2019 12:46 am
1) This actually results in immediate cash flow benefits (whereas steadily prepaying your mortgage does not until the mortgage is paid off)
You can possibly recast the mortgage after making a large principal payment and without changing any terms of the loan, lower your P&I payment going forward. I'm not sure how often you can do it or the fees attached but it is one way around this point.
Recasting improves your cashflow only if you make the lower recast payment. But making the lower recast payment increases the amount of interest you will pay relative to keeping the payment the same. The improved cashflow has a cost.

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Nate79
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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by Nate79 » Tue Jun 18, 2019 7:25 am

At some point you need to figure out how much of an emergency fund to hold and stick to it. Holding more than your emergency fund instead of putting on the mortgage as I said has a cost but you are actually saying you need a higher emergency fund than originally planned. So either your target for the original emergency fund was correct or it wasn't.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by vested1 » Tue Jun 18, 2019 8:26 am

My method has been disputed by some, but it's worked out. We knocked out over 100k in principal owed in less than a year by using a combination of money which was not subject to tax (small inheritance) and IRA profits from outperforming positions, which were taxable upon withdrawal. I kept a close eye on taxes to keep them reasonable. The onset of SS, (wife on her record, me getting spousal at FRA) and its lesser tax liability helped. To achieve that 100k decrease in principal owed I paid 90k in two lump sums in two different tax years. Overall tax liability remained the same as before the plan in total dollars.

The increase in the amount of my payment going to principal was dramatic after each of the two lump sum payments toward principal. My regular payment now has 70.6% going toward principal as compared to 36.3% before the initiation of my plan, and increasing slightly every month.

If the OP waits to accumulate enough money to "pay off the whole thing", by amassing that money in investments, he/she is betting on a strong market with little fluctuation IMHO. Reducing the amount of principal owed incrementally improves the percentage of value to loan, which is more of a sure thing, also IMHO.

Our plan allowed us to achieve our dream by giving us increased equity so that we can sell and buy a much better house for cash in a much lower COL area. Some people like to say that home equity is an amorphous figure, while illogically stating that returns on investment are a sure thing. The truth lies somewhere in the middle, and determining your goals and the possibility of using that increased equity to achieve them is an individual decision based on your situation.

Stagnation of the housing market needs to be taken into account, largely determined by the desirability of your home and the area in which its located. Our home had 5 offers before it entered MLS, one at full price and 4 over asking. Escrow is supposed to close in two weeks, 45 days after we made the decision to sell. After the money is in the bank we will have a net of 535k with zero tax liability available to purchase the new house for cash, as opposed to 435k, which was below our target amount, limiting our options. By selling investments at a high mark with an eye to taxes we took the guesswork out of profit, moving money from one pocket to the other with very little risk.

If we had not initiated the mortgage payoff plan we would have needed either a small mortgage on the new house, which has a target price of around 500k, or we would have taken a much larger tax hit from a larger withdrawal from savings subject to tax in order to be mortgage free.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by chevca » Tue Jun 18, 2019 8:45 am

Nate79 wrote:
Tue Jun 18, 2019 7:25 am
At some point you need to figure out how much of an emergency fund to hold and stick to it. Holding more than your emergency fund instead of putting on the mortgage as I said has a cost but you are actually saying you need a higher emergency fund than originally planned. So either your target for the original emergency fund was correct or it wasn't.
This is how I see it also. When one has their emergency fund in place, why hold any cash beyond that? Pay off debt or invest it.

I believe folks talking like the OP is about this topic are fooling themselves with the different reasons. I'd bet the reason they really want to build up all this cash is they hope the safe holding or savings account ends up beating the mortgage rate.

If the goal is to pay off the mortgage aggressively, then pay it down aggressively whenever and as soon as you have extra cash. My take on it anyway.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by bradpevans » Tue Jun 18, 2019 9:14 am

From a cash flow perspective, the choices and consequences are pretty clear.

From a risk / return its not as clear.

If you pay OFF, the mortgage, will those "mortgage dollars" now go into long term investments?
If so, i would suggest not paying extra but rather investing the extra:
over the long haul, getting money in the market sooner is the best advice (IMO)

Trying to outperform the interest rate by investing during the loan may or may not work,
but the long haul money is (IMO) better in the market rather than knocking down the mortgage
only to invest in the market as soon as its paid off.

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somekevinguy
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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by somekevinguy » Tue Jun 18, 2019 9:30 am

Thanks for helping me to think about this- at the end of the day, boils down to the premium you’re willing to pay (either in terms of risk for investing or the after tax interest rate difference between a safe investment and a higher mortgage rate) for liquidity. That being said, if your after tax mortgage rate is more or less equivalent to a muni bond yield or after tax cd rate, seems to make sense to just hold the funds rather than prepay given no/minimal premium nor added risk to do so. Then if you have the full amount and still want to prepay you can do so in a lump sum.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by chevca » Tue Jun 18, 2019 11:08 am

somekevinguy wrote:
Tue Jun 18, 2019 9:30 am
Thanks for helping me to think about this- at the end of the day, boils down to the premium you’re willing to pay (either in terms of risk for investing or the after tax interest rate difference between a safe investment and a higher mortgage rate) for liquidity. That being said, if your after tax mortgage rate is more or less equivalent to a muni bond yield or after tax cd rate, seems to make sense to just hold the funds rather than prepay given no/minimal premium nor added risk to do so. Then if you have the full amount and still want to prepay you can do so in a lump sum.
I would say the opposite. If the two are about equal, it's better to pay off the debt.

I see it as about pointless to borrow your money out buying bonds, when you have borrowed money yourself in the mortgage.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by foamypirate » Tue Jun 18, 2019 12:22 pm

Personally, I cut the difference. I'm currently putting 50% towards principal, immediately reaping the rewards of increased principal payments, and lower overall interest paid. The other 50%, I'm putting into VBIRX (Vanguard Short-Term Bond Index Fund). This has a duration of about 2.6 years, which is pretty close to my estimated timeline for payoff.

Once I have enough saved up in VBIRX to pay off the entire remainder of the mortgage in a lump sum, I will do so. For us, this is the most comfortable scenario, as we get some of the benefit of paying early, but also maintain a reasonable amount of liquidity, that is reasonably safe and earning some income.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by wolf359 » Tue Jun 18, 2019 1:11 pm

chevca wrote:
Tue Jun 18, 2019 11:08 am
somekevinguy wrote:
Tue Jun 18, 2019 9:30 am
Thanks for helping me to think about this- at the end of the day, boils down to the premium you’re willing to pay (either in terms of risk for investing or the after tax interest rate difference between a safe investment and a higher mortgage rate) for liquidity. That being said, if your after tax mortgage rate is more or less equivalent to a muni bond yield or after tax cd rate, seems to make sense to just hold the funds rather than prepay given no/minimal premium nor added risk to do so. Then if you have the full amount and still want to prepay you can do so in a lump sum.
I would say the opposite. If the two are about equal, it's better to pay off the debt.

I see it as about pointless to borrow your money out buying bonds, when you have borrowed money yourself in the mortgage.
The expected return of stocks over a 10+ year period exceeds my mortgage interest rate by a lot, especially if one is dollar cost averaging over that time. If you don't receive that return, nothing prevents you from waiting a little longer until the markets have recovered. In any case, the additional investments provide you with liquidity you wouldn't have had if you had been prepaying the mortgage.

Dollar cost averaging into a bond doesn't provide the same benefit, due to the fact that bonds don't fluctuate as much.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by Presintense » Tue Jun 18, 2019 1:13 pm

mhalley wrote:
Tue Jun 18, 2019 1:25 am
You are not taking risk into account. When you pay off a loan, you get a guaranteed rate of return. When you wait for stock market returns, there is always the risk that the gains will go away. Then you have no decrease in principal and no gains in the stock mf. Also, paying the loan earlier has a greater effect on the amortization schedule.
+1. This was the rationale we had for paying off as we could and things worked out great. Our mortgage interest rate was fairly low but we wanted the guaranteed "return" and also to become debt free more than we wanted to try to eek out a couple more percent.
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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by livesoft » Tue Jun 18, 2019 1:19 pm

The option of having the money invested elsewhere rather than in your home is valuable which most of these analyses ignore. For instance, lots of people talk about comparing to a risk-free rate because paying off the mortgage is risk-free. That completely ignores the optionality of the money. For instance, one has the option to invest in equities and possibly make a killing, then pay off the mortgage.

The big objection to that is that one might lose money instead. But one has the option to NOT sell low and wait for the invested money to outperform the interest rate of the mortgage by any amount that one chooses and ONLY THEN sell the equities and pay off the mortgage. Yes, there is risk, but years ago Michael Milken figured out that people miscalculated risks with junk bonds. I think folks miscalculate risk with this mortgage question and there is a lot of behavioral economics stuff going on. And I realize the Michael Milken was convicted of a felony.
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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by stan1 » Tue Jun 18, 2019 1:30 pm

It is possible to do some of both. You can pay 1 or 2 extra payments per year and also save in a taxable account which gives you liquidity. At some point we decided just to go ahead and pay off the mortgage when the balance was less than 20% of our taxable account balance. I'm glad we built a taxable account before we paid off our mortgage. I realize others prioritize being debt free but it's also nice to look at our unrealized capital gains and see how that has grown over time.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by thx1138 » Tue Jun 18, 2019 1:59 pm

One risk factor not listed yet is that in a severe crisis like 2008-9 the banks foreclose on the properties with the lowest LTV ratio first. This is because they know they will get their money back on those properties. This created some perverse situations in the crisis where someone with a 50% LTV ratio who missed a small number of payments got foreclosed on while someone with a 90% LTV ratio could essentially stop making payments for more than a year and then eventually be blessed with an adjusted mortgage!

The motivation for the bank is obvious. Foreclosing on a 90% LTV mortgage is just locking in a loss if the market tanks by 30% and an unoccupied property depreciates rapidly compared to an occupied property. So it is in the bank's best interests to leave the high LTV properties occupied even if they aren't getting payments. In the same situation a 50% LTV mortgage can be foreclosed on with the bank getting all its 50% back and the foreclosed owner taking the entire 30% market loss in their equity.

Some therefore advocate precisely what you are proposing - as you approach nearly paid off just keep the money a side account until you have enough to pay off in a lump sum. You'll definitely want that liquidity to make payments in a crisis as your low LTV house is going to have cross-hairs on it if you miss a payment in a major crisis.

And as others said if you've already made a bunch of additional payments you can recast as well to reduce the required cash flow to service a mortgage in a crisis.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by fortfun » Tue Jun 18, 2019 2:08 pm

awval999 wrote:
Tue Jun 18, 2019 6:34 am
If someone has a lot of equity in the house - they can just sell if hard times comes - and then use the proceeds to downsize into a full cash purchase. Of course you have to have consider the shock to the family to do that. Of course it's a similar shock to the family if "mom lost her job, all of your after-school activities are cancelled, we're not going on vacation, no new school clothes, we're cancelling cable, and not going out to eat on Saturdays for the foreseeable future".
What's cable :wink:

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by WillRetire » Tue Jun 18, 2019 2:28 pm

Jags4186 wrote:
Tue Jun 18, 2019 6:19 am
I agree with OPs assessment and am a proponent of that strategy.

There is no free lunch. You can invest your excess cash flow and try to beat your mortgage interest rate with your investments. Maybe you will maybe you won’t. But there is also risk that by prepaying your mortgage you have no liquidity if bad times come and banks don’t care if you’ve been prepaying if all of a sudden you can’t make your payment due to job loss or another emergency that takes all of your money.
Yes, I do too. On a previous house, we dealt with the dilemma by taking out a very low rate HELOC and used that to pay off the mortgage. The HELOC rate was something like prime + 0.5%. Then, we paid down the HELOC as we wished, making big payments when we had excess cash, and small payments when we didn't. Paid it off quickly, and kept it for emergencies until we sold the house.

The only risk was if interest rates rose quickly, so would our HELOC rate. That didn't happen before we paid down the balance. Come to think of it, that didn't happen at all(!)

Haven't seen HELOCs like that since before 2008/2009. Too bad because they really did give the borrower a lot of flexibility.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by AnonJohn » Tue Jun 18, 2019 2:41 pm

I'm waiting until I can pay off the whole thing, amassing bonds of comparable duration. I get an inflation hedge (seemingly not worth much!), liquidity, and optionality for the tax-adjusted difference between investment returns and my low mortgage rate (2.85%). Thus far this is proved an advantage.

When I get close I'll probably start tossing in extra payments, assuming rates are what they are now.

For me it comes down to "enough savings that I don't need to worry about liquidity loss" vs enough "need to invest that I don't mind little leveraged investment for higher returns".

In assessing the value of liquidity, I also look ahead to the period when I can do "catch up contributions". I want to make sure I have enough cash to grab that extra tax-advantaged space. Can't be sure I can cash flow it.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by grabiner » Tue Jun 18, 2019 9:03 pm

Even if liquidity isn't an issue, it can be worth waiting to prepay, because of the duration effect.

Suppose that you have 10 years left on your mortgage. Making a small additional payment would be analogous to buying a 10-year, zero-coupon bond, as you don't get any benefit until the final payment in the tenth year is reduced. Therefore, if you sold a 10-year bond with a lower yield than the mortgage rate, you would come out ahead, with no change in risk.

Paying off the mortgage would be analogous to buying a portfolio of 120 bonds maturing in 1-120 months. Such a portfolio would have a 5-year duration. Therefore, if you sold an intermediate-term bond fund with a 5-year duration and a lower yield than the mortgage, you would come out ahead, again with no change in risk. There is less interest-rate risk in paying off the mortgage than in paying it down.

Therefore, if your mortgage rate is between 5-year and 10-year bond yields, and you can't afford to make a large payment, you would be better off buying a 10-year bond now, rather than using the money to pay off the mortgage. By buying the bond now, you retain the option of using the bond to make a mortgage prepayment later if appropriate.

I am currently using exactly this effect in deciding what to do with my mortgage. I have 9 years left on the mortgage, and my after-tax rate (2.625%, 1.79% after federal and state tax) is about equal to the yield on 5.5-year munis (1.96% on a prorated mix of Vanguard Long-Term and Intermediate-Term Tax-Exempt, 1.80% after state tax).

Therefore, if I could pay the whole mortgage off (duration 4.5 years), I would come out ahead. If I could make only a small payment (duration 9 years), I would come out behind. Currently, I could sell enough stock for little or no capital gain to pay down the mortgage from 9 years to 4 (duration 6.5 years), which is not quite worthwhile. If the stock market drops by 20% and interest rates stay where they are, I would pay off the mortgage since the tax cost would go away. If the stock market stays where it is and interest rates drop, it would be worth my paying down the mortgage. And if the stock market and interest rates stay flat for another year, it will be worth my paying off most or all of my then-8-year mortgage.
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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by Willmunny » Tue Jun 18, 2019 9:38 pm

Jags4186 wrote:
Tue Jun 18, 2019 6:19 am
I agree with OPs assessment and am a proponent of that strategy.

There is no free lunch. You can invest your excess cash flow and try to beat your mortgage interest rate with your investments. Maybe you will maybe you won’t. But there is also risk that by prepaying your mortgage you have no liquidity if bad times come and banks don’t care if you’ve been prepaying if all of a sudden you can’t make your payment due to job loss or another emergency that takes all of your money.
Agreed, in general. At some point, depending on the interest rate, I may be in favor of pre-paying principal, but I would want a high amount of liquidity before doing so. I would MUCH rather have, for example, (1) a home purchased for $500,000 with a $400,000 mortgage balance, $100,000 in liquid assets, and a 6 month emergency fund; than (2) a home purchased for $500,000 with a $300,000 mortgage balance and a 6 month emergency fund.

If I lose my job and housing prices fall 40%, I am in danger of not having a place to live in 6 months in scenario (1). I likely have years to get back on my feet in scenario (2). For that security, I will trade off the potential better "return" of prepaying the home if I never fall on hard times.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by 9-5 Suited » Tue Jun 18, 2019 10:54 pm

grabiner wrote:
Tue Jun 18, 2019 9:03 pm
If the stock market stays where it is and interest rates drop, it would be worth my paying down the mortgage.
As usual, appreciate the thorough walk through the logic. In the situation where rates fall, would you first look to refinance options before moving to make a pre-payment?

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by wolf359 » Wed Jun 19, 2019 9:20 am

awval999 wrote:
Tue Jun 18, 2019 6:34 am
If someone has a lot of equity in the house - they can just sell if hard times comes - and then use the proceeds to downsize into a full cash purchase. Of course you have to have consider the shock to the family to do that. Of course it's a similar shock to the family if "mom lost her job, all of your after-school activities are cancelled, we're not going on vacation, no new school clothes, we're cancelling cable, and not going out to eat on Saturdays for the foreseeable future".
The choice is between prepaying the mortgage and investing the excess cash flow into bonds (I'd prefer stocks.) In that case, if Mom loses her job, there may be enough liquid funds to continue paying the mortgage and other expenses until Mom gets a new job.

You're talking about a choice between prepaying the mortgage and living paycheck-to-paycheck. I don't believe that was OP's intent.

In 2008, many people lost their jobs, house prices went down, and the stock market collapsed simultaneously. Selling the house for less than owed on the mortgage was not an option. It was also difficult - nobody was buying because cash was tight, banks weren't making loans, and the cash buyers were only picking up foreclosures (best deal). People I knew who wanted (versus needed) to sell had to hang on until prices recovered and it was possible to sell. I know some people who tried to sell for what they could get, and simply couldn't until they eventually lost the house through foreclosure.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by michaeljc70 » Wed Jun 19, 2019 10:34 am

I don't think this makes sense. You are putting the money into something that is earning less than your mortgage rate if it is a risk-free short-term investment. There is no paying less because of inflation because you are losing inflation on the money you put into the short-term investment. If you really need liquidity, that is the only reason I think this makes sense. If you have an EF and proper planning you can avoid liquidity issues unless you have some unique circumstances.

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Re: Waiting to prepay mortgage until you can pay the whole thing off?

Post by grabiner » Wed Jun 19, 2019 9:29 pm

9-5 Suited wrote:
Tue Jun 18, 2019 10:54 pm
grabiner wrote:
Tue Jun 18, 2019 9:03 pm
If the stock market stays where it is and interest rates drop, it would be worth my paying down the mortgage.
As usual, appreciate the thorough walk through the logic. In the situation where rates fall, would you first look to refinance options before moving to make a pre-payment?
While this would be correct in general, it doesn't apply in my specific situation, because I paid a lot of points to get a lower rate. My 15-year loan had an APR of 3.213% but an interest rate of 2.625%. Thus, even if rates fall, I wouldn't be able to lower my rate by refinancing.

If I had taken out a 3.125% loan with no points instead (2.12% after tax), it would be worth paying down now.
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