Pay off mortgage balance or dollar cost average into the market?

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nguy44
Posts: 323
Joined: Sun Jul 09, 2017 1:52 pm

Pay off mortgage balance or dollar cost average into the market?

Post by nguy44 »

Everyone's situation is different. I am looking for feedback on my specific situation.

I currently have a mortgage on our home:
- House "paper value": $460,000
- Mortgage balance: $52,000
- Mortgage term: 15 year refinance taken out in 2013, current payoff will be in 2028 (coincidentally I turn 70 that year)
- Mortgage interest rate: 2.875%
- Current monthly payment: $620/month (actual required payment is $613 and change, I just round it up a bit for payment purposes)

Coming into this year, I was looking at paying it off, for the following reasons:
  • We have no other debt.
  • We have currently about $455,000 in cash. It is a lot, some may say too much, but was the "sleep well at night factor" based on (a) not being forced to sell equities during severe market downturns, before my SS FRA age, (b) potential medical premiums (which are turning out to be half of what we planned for), and (c) potentially paying off mortgage balance early.
  • Beyond the cash our stocks (almost all broad market mutual funds/ETFs) and bonds (almost all in a stable value bond fund) currently total $1.8 million (before the current meltdown allocation among stocks/bonds/cash was 34/43/23). We have only touched these for Roth conversions (okay, a little to "celebrate" at times our portfolio hit a nice milestone on the way up).
  • I have a very good pension, my wife still chooses to do part time work (though we do not depend on it for our plans), and she has started taking her SS. These items are covering 99% of our regular monthly expenses. Paying off the mortgage would free up that $620/month for whatever we wanted.
  • I track our "cash flow out". In 21 months of retirement, our cash flow out has averaged $2300 a month on our non-saver "luxury" lifestyle. This roughly half of what we thought our cash outflow would be so far. So the decrease in cash would not impact our current spending rate.
With the current market downturn/volatility, the "risk" component of my mind is considering this a current buying opportunity for the long run - to invest cash we do not need for 5-10 years.

I am considering dollar cost averaging the $52K that I would use to pay off the mortgage into our funds and ETFs, over the next 5-6 months. I do not see the current volatility setting down before then (of course my guess is as good as yours).

If you were in my situation, would you consider investing the $52K instead of paying off the mortgage? I am sure there are factors I have not thought about. Some of my current random thoughts:
  • One factor against doing this is to simplify our finances for my wife, who, with a paid-off house, would would have one less major expense to deal with in the event of my death before the current payment schedule ends ( I am very healthy, but no one is guaranteed tomorrow).
  • Some may feel I have enough cash to both pay off the mortgage and dollar cost average cash into the market, but there is my "sleep well at night" factor.
  • A coincidence, we purchased this home in 1990, the original mortgage was for 30 years. Paying it off this year would mean, even after refinancing 3 times, we still paid it off on schedule from the original mortgage. More a psychological "feel good" thing. :happy
  • Perhaps I am being greedy in investing the cash, I have "won the game", if I can weather this type of downturn at my age, why take any further risk.
I am interested in getting feedback from this community.
Last edited by nguy44 on Fri Mar 20, 2020 9:23 am, edited 1 time in total.
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8foot7
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Re: Pay off mortgage balance or dollar cost average into the market?

Post by 8foot7 »

I would do neither and re-evaluate in 3-6 months. But I am much more bearish about this current acute situation than many on this board it seems.
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JoMoney
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Re: Pay off mortgage balance or dollar cost average into the market?

Post by JoMoney »

I think you're in a win-win situation, both are potentially good options.
Personally I hope my heavy stock investments will earn more than 3% over the next 15 years, but that's not a given, so it's a much riskier situation than paying off the mortgage.
I'm fond of getting rid of debt, as Dave Ramsey would say, if you decide later on you miss being in debt you can always take out another mortgage.
The increased cash flow you have from no longer paying on the mortgage can then be "DCA" into the market if you wish.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
chevca
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Re: Pay off mortgage balance or dollar cost average into the market?

Post by chevca »

With your portfolio, cash on hand, low rate mortgage, and low mortgage balance, it matters little what you decide to do here.

IMO though, pay off the mortgage and be done with it. Don't try to DCA anything into the market... you don't need it. You've won the game... stop playing.
daheld
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Location: Midwest US

Re: Pay off mortgage balance or dollar cost average into the market?

Post by daheld »

Your pension plus wife's SS covers your expenses. I consider myself pretty darn conservative, and based on the amount of cash, stocks, plus pension and SS income you have, I would do both and pay off the mortgage and invest some of that cash. Your cash balance is enough to cover your monthly "cash flow out" for 16 years.

I think a compromise could be to pay off the mortgage over the next year or so, plus invest whatever amount of cash over whatever time period makes you comfortable.

The bottom line is you're in good shape and you should do whatever makes you most able to sleep at night. It should be a comfort that in all practical senses, it doesn't REALLY matter which option you choose. You have a reliable income stream and a good nest egg.
Topic Author
nguy44
Posts: 323
Joined: Sun Jul 09, 2017 1:52 pm

Re: Pay off mortgage balance or dollar cost average into the market?

Post by nguy44 »

An update. Thanks again for all of the responses. I decided, as 8foot7 said, to wait a few months and see what happens.

During these 3+ months, our cash has grown to over $460K, even with paying a little extra to reduce our mortgage balance to $49K. With our travel plans minimized for the balance of the year, the cash will continue to grow. At this point, we have decided to pay off the mortgage.We want to continue to simplify our finances. The mortgage payoff check was mailed out today. :D
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SB1234
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Re: Pay off mortgage balance or dollar cost average into the market?

Post by SB1234 »

nguy44 wrote: Wed Jul 08, 2020 4:46 pm An update. Thanks again for all of the responses. I decided, as 8foot7 said, to wait a few months and see what happens.

During these 3+ months, our cash has grown to over $460K, even with paying a little extra to reduce our mortgage balance to $49K. With our travel plans minimized for the balance of the year, the cash will continue to grow. At this point, we have decided to pay off the mortgage.We want to continue to simplify our finances. The mortgage payoff check was mailed out today. :D
Congrats. Now you can have a :beer for a job extremely well done.
anecdotes are not data
mortfree
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Re: Pay off mortgage balance or dollar cost average into the market?

Post by mortfree »

Surprised they didn’t require you to wire the funds for the calculated payoff amount.

Be sure to notify your insurance company and check the county records in a few weeks to ensure your title is clear (something like that. It’s been a while since I paid off my old mortgage but I remember following up with the county).
Shael_AT
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Joined: Mon Jul 15, 2019 2:36 pm

Re: Pay off mortgage balance or dollar cost average into the market?

Post by Shael_AT »

Mortgage balance: $52,000
Man, if I had a mortgage balance of 50k, I would have paid off the house yesterday. There is no greater freedom than having no mortgage or rent. I know the math doesn't make sense, but the peace of mind and bliss of knowing that asset is yours must be in-freaking-credible.

Congrats on the update and kudos!
Topic Author
nguy44
Posts: 323
Joined: Sun Jul 09, 2017 1:52 pm

Re: Pay off mortgage balance or dollar cost average into the market?

Post by nguy44 »

mortfree wrote: Wed Jul 08, 2020 7:52 pm Surprised they didn’t require you to wire the funds for the calculated payoff amount.

Be sure to notify your insurance company and check the county records in a few weeks to ensure your title is clear (something like that. It’s been a while since I paid off my old mortgage but I remember following up with the county).
The payoff letter gave me an address to mail the final payment to. They also sent an addendum if I wished to wire the proceeds, but that was optional. I called the bank to find out who exactly to make the check payable to, as they are merged with another bank and the two are changing their name to something else, and the customer service rep just told me who to make the check out to. I

Thanks for the info about the followups, I have added those tasks to my calendar. The bank will also send me some documents that should contain any additional followup info.
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