Mortgage payoff - Am I crazy?

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Dontridetheindexdown
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Re: Mortgage payoff - Am I crazy?

Post by Dontridetheindexdown » Thu Apr 09, 2020 8:55 pm

Yes, by all means pay it off and don't look back.

You will never regret paying off your mortgage, trust me on this.

There is no better feeling in the world than to know you only need to pay for monthly and annual expenses - food, fuel, utilities, property taxes.

BeneIRA
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Re: Mortgage payoff - Am I crazy?

Post by BeneIRA » Thu Apr 09, 2020 9:14 pm

Placenshow wrote:
Thu Apr 09, 2020 5:37 pm
Thank you all for your responses, sorry I've been a bit tardy responding to some of your questions...please see my responses below.

Current EF: $30k

HELOC: Yes, $100K, has not been touched.

House value: Approx $300k

College: To date, we've been paying for college via cash flow on our end + assistance from our daughter. Two years in, no debt. She goes to a state school, approx $16k/year. There is a 90% chance my son will go to the same school in 2021 (he is also looking at Navy/Air Force).

Monthly household expenses: With home, approx $4200....without home, approx $2700.

Household income: Approx $125k/year

Asset allocation: 70/30

Thanks again!
Klangfool provided a pretty good breakdown of your options. I honestly have swung the other way reading through this entire thread. Originally from your first post, I was on the "pay it off" side but I have changed my mind. It seems to me like you have two unstable jobs and you don't have perfect information at this time if it is a good or bad decision to pay it off. I am with ItsHenderson that I would wait a bit and then make the decision. If I am you, I would wait one to two months because you or your spouse getting laid off is a game changer. If this goes on another three months, I would expect your spouse would be laid off/furloughed or have their hours reduced, complicating things. Your mortgage is a fixed cost, so while normally I would be concerned with inflation, in terms of your mortgage, you are fine with inflation since the mortgage is what it is no matter what happens. It's an inflation hedge. Wait a month or two and reassess. The answer will probably be obvious then.

gr7070
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Re: Mortgage payoff - Am I crazy?

Post by gr7070 » Thu Apr 09, 2020 9:56 pm

KlangFool wrote:
Thu Apr 09, 2020 5:02 pm
gr7070 wrote:
Thu Apr 09, 2020 4:41 pm
KlangFool wrote:
Thu Apr 09, 2020 3:44 pm
College education funding for 2 kids will deplete those funds in less than 20 months. Or, OP will end up taking a more expensive student loan to bridge the gap. That is a very big elephant in the room.

KlangFool
OP can weigh-in further on their college and highschooler or can take your recommendation for heavy consideration of this fact.

Even if they have no college savings and are footing the bill for, say $30,000 annually they still have a ton of money to result handle that significant scenario that right now is a very manageable "reduced hours".

I'm truly unconcerned for them - that's not said disdainfully. They are in great shape and will be in even better shape with a paid for house.
gr7070,

My kids' college education cost 30K per kid per year. If OP is unemployed, it won't take long to use up that 50K. The bottom line is this. OP needs to take college education funding into consideration before paying off the mortgage. There are folks that pay off the mortgage and then take a more expensive student loan for their kids. They assume that they will be employed when their kids go to college.

KlangFool
I have zero qualms about OP taking that into consideration.

Being employed is an incredibly reasonable assumption. Especially when one child is a high school junior. You're being ridiculously conservative.

Even at my 30k assumption they're 2 years out from two kids in college, with tons of non-30k-per-year options.

I'm out on the belt, suspenders, bib overalls, hazmat suit plan.

Carry on.

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Duckie
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Re: Mortgage payoff - Am I crazy?

Post by Duckie » Thu Apr 09, 2020 10:09 pm

Placenshow wrote:We recently received an inheritance from my FIL, with approx. $120k of it being cash. He also left IRA’s & stocks that we’ll keep in the market for now and hope for a rebound.
Keeping it in the market is one thing. Keeping the same assets your FIL chose is another. Depending on the stocks (especially the taxable assets) now is the time to sell before there are any taxable gains. Then you can buy the funds/ETFs that you choose at the brokerage/custodian you choose.

absolute zero
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Re: Mortgage payoff - Am I crazy?

Post by absolute zero » Thu Apr 09, 2020 10:19 pm

KlangFool wrote:
Thu Apr 09, 2020 8:50 pm
Placenshow wrote:
Thu Apr 09, 2020 5:37 pm
Thank you all for your responses, sorry I've been a bit tardy responding to some of your questions...please see my responses below.

Current EF: $30k

HELOC: Yes, $100K, has not been touched.

House value: Approx $300k

College: To date, we've been paying for college via cash flow on our end + assistance from our daughter. Two years in, no debt. She goes to a state school, approx $16k/year. There is a 90% chance my son will go to the same school in 2021 (he is also looking at Navy/Air Force).

Monthly household expenses: With home, approx $4200....without home, approx $2700.

Household income: Approx $125k/year

Asset allocation: 70/30

Thanks again!
Placenshow,

A) Pay off the mortgage -> EF = 30K + 50K = 80K. Annual expense = 32.4K +16K = 48.4K

If you lose your job, your HELOC is canceled, you can last 80K/48.4 = 1.65 years with your EF.

B) Do not pay off the mortgage -> EF = 30K + 120K = 150K. Annual expense = 50K + 16K = 66K.

If you lose your job and your HELOC is canceled, you can last 2.27 years with your EF.

KlangFool
1) These calculations for how many years the OP “lasts” assume that he doesn’t even take the time to file for unemployment benefits. They assume that he doesn’t find some source of additional income. I know that I’d be bagging groceries, mowing lawns, driving for Uber, doing anything to slow down the depletion of my savings and buy me time.

2) At the end of the 1.65 years, the OP doesn’t starve to death. He and his family still have another $240k worth of stocks/bonds. Obviously not ideal to sell them, but not the end of the world.

OP - all that being said I would lean towards keeping the cash for awhile. But I stand by my earlier post - you are in a fine position. If paying off the mortgage would make you happy, by all means do it.

Index24
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Re: Mortgage payoff - Am I crazy?

Post by Index24 » Fri Apr 10, 2020 12:31 am

Atilla wrote:
Thu Apr 09, 2020 2:52 pm
Right now cash is KING. Hold onto the money until this stupidity passes over - then pay off the mortgage once you are both more secure in your jobs.

If you both had bullet-proof government jobs or something comparable, I'd say pay it off now.
Completely agree

gr7070
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Re: Mortgage payoff - Am I crazy?

Post by gr7070 » Fri Apr 10, 2020 1:15 am

The guy has approaching two years worth for an emergency fund and it's not enough.

What would it take three years? No, but certainly four years would, right?

viewtopic.php?f=2&t=247392

No, according to Bogleheads not even four years is enough. Obviously there is no amount that will make some comfortable. That is scary.

And before you ask how big is it today... it's, what, 1 year plus 80%? of 3 years. I know, I know, still not enough.

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vineviz
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Re: Mortgage payoff - Am I crazy?

Post by vineviz » Fri Apr 10, 2020 7:00 am

gr7070 wrote:
Fri Apr 10, 2020 1:15 am
The guy has approaching two years worth for an emergency fund and it's not enough.

What would it take three years? No, but certainly four years would, right?

viewtopic.php?f=2&t=247392

No, according to Bogleheads not even four years is enough. Obviously there is no amount that will make some comfortable. That is scary.

And before you ask how big is it today... it's, what, 1 year plus 80%? of 3 years. I know, I know, still not enough.
"Bogleheads: Recklessly Conservative, since 1998"

I should make t-shirts.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

cherijoh
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Re: Mortgage payoff - Am I crazy?

Post by cherijoh » Fri Apr 10, 2020 7:19 am

gr7070 wrote:
Thu Apr 09, 2020 9:58 am
Not crazy at all.

The 3.75% mortgage is roughly a tax-equivalent return of 4.75%. That alone is darn good when the stock market predictions for a decade have been 7%.

It is also guaranteed return. That guarantee is worth some amount mathematically. I don't think 2% is an unreasonable amount for that value; I suspect that's conservative.

So maybe a 6.75% return, greater? No brainier to me.
You are double dipping. The "guaranteed" part of the return is already built into the 3.75%.

cherijoh
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Re: Mortgage payoff - Am I crazy?

Post by cherijoh » Fri Apr 10, 2020 7:33 am

RetiredInTheWest wrote:
Thu Apr 09, 2020 12:39 pm
IMO with only 68 payments to go, you're going to have to pay this off one way or the other in less than six years. These are scary times, but it looks like you have enough liquidity (and keeping the rest as emergency fund sounds right). Could you borrow against the house if this doesn't work out?

I'd pay it off.
If it "doesn't work out" the ability to borrow against the house may be severely compromised. These are unusual times and I don't think I'd depend on standard solutions.

Dandy
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Re: Mortgage payoff - Am I crazy?

Post by Dandy » Fri Apr 10, 2020 7:34 am

In this time of uncertainty, it is great to have a big pile of cash instead of a payoff house.
+1

I'm normally a pay off the mortgage guy. In the midst of a pandemic the likes of which we haven't seen I'd conserve cash. Employment is shaky for most --either loss of job or lower income. We don't have a good idea of when and how we come out of the pandemic. Maybe in a year or so we will. Once you have a better idea of what your future employment/income will be then I'd start paying down (not off) the mortgage for awhile -- then if it looks like things are steady then pay it off.

cherijoh
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Re: Mortgage payoff - Am I crazy?

Post by cherijoh » Fri Apr 10, 2020 7:57 am

Placenshow wrote:
Thu Apr 09, 2020 8:56 am
We have approx. $70k principal left in our mortgage (68 payments), with total interest remaining of $7500. Interest rate is 3.75%.

We recently received an inheritance from my FIL, with approx. $120k of it being cash. He also left IRA’s & stocks that we’ll keep in the market for now and hope for a rebound.

Am I crazy in wanting to use some of the cash to pay off the mortgage being we are close to the finish line with not much interest remaining? The mortgage is our only debt outside of normal monthly household utility/food/etc. bills.

The rest of the cash would be applied to our emergency fund.

My wife recently had her hours cut due to COVID-19 and my job is not entirely stable either. We have a sophomore in college and a junior in high school.

Not counting the recent inheritance, our net worth is a bit north of $500k.

Just looking to receive some helpful advice.

Stay safe.
Does the net worth number above include home equity or is it liquid assets only? If you have included home equity then I would definitely NOT pay off the mortgage. Under that scenario, it is quite possible that you already have too much of your net worth tied up in the house.

You would get a more appropriate answer if you provided a bit more additional information since posters are making their own assumptions. I would suggest splitting out these categories below:
  • Emergency fund (this could include excess checking acct balance and money in savings, MM, CDs)
  • Taxable brokerage accounts
  • Traditional retirement accounts
  • Roth retirement accounts (contributions can be withdrawn penalty-free)
  • Balances in 529 accounts for kids education
  • Balances in HSA accounts
  • Current estimated home equity without paying off the mortgage
At various times I have seen each of these included in a net worth number. Each category has different tax treatment and/or ease of redemption/liquidation.

As other posters have suggested it would also be helpful to calculate your EF as months of current expenses AND months of reduced expenses after paying off the mortgage.

eldinerocheapo
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Re: Mortgage payoff - Am I crazy?

Post by eldinerocheapo » Fri Apr 10, 2020 8:06 am

We've paid off two mortgages via borrowing from my 401k and then paying the loan with interest back to ourselves. We know this flies in the face of conventional wisdom. Family members said we were missing out on the returns stocks provide, but we strongly believe in being debt free whenever possible. I'd pay off your mortgage, then use the residual balance to be certain the kids get through school. Our method allowed us to have both our kids graduate college with no student loans, and then give each a sizable matching down payment on their first homes.
"Do, or do not." Yoda

cherijoh
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Re: Mortgage payoff - Am I crazy?

Post by cherijoh » Fri Apr 10, 2020 9:28 am

gr7070 wrote:
Thu Apr 09, 2020 9:56 pm
I have zero qualms about OP taking that into consideration.

Being employed is an incredibly reasonable assumption. Especially when one child is a high school junior. You're being ridiculously conservative.
Seriously? The OP stated:
My wife recently had her hours cut due to COVID-19 and my job is not entirely stable either.
The point you appear to be overlooking is that this is not a one-chance-to-pay-off-mortgage deal. OP can do it anytime in the future. The cost for delaying paying off the mortgage balance for one month is under $25. I think the OP will know a lot more about their family situation within a few months. That seems like really cheap insurance to me.

But once it is paid off, they have lost significant flexibility. As noted by other posters, not paying off the mortgage extends the period of time before they burn through their EF. Mortgage lenders pulled the plug on plenty of unused HELOC credit limits during the Great Recession to the dismay of plenty of homeowners who were counting on their HELOC as a back-up EF.

What was your situation during the Great Recession? Did you own a home or have a family? Did you lose your job? Were you over 40 (as the OP and his wife likely are)? Klangfool is pretty conservative, but his actual life experiences made him that way.

bikechuck
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Re: Mortgage payoff - Am I crazy?

Post by bikechuck » Fri Apr 10, 2020 9:43 am

Keep in mind that this does not need to be an all or nothing choice. The OP could choose to pay off only a portion (perhaps half) of the remaining mortgage keeping some funds back for their emergency fund.

That is what I would do if I felt conflicted about this decision.

KlangFool
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Re: Mortgage payoff - Am I crazy?

Post by KlangFool » Fri Apr 10, 2020 9:46 am

bikechuck wrote:
Fri Apr 10, 2020 9:43 am
Keep in mind that this does not need to be an all or nothing choice. The OP could choose to pay off only a portion (perhaps half) of the remaining mortgage keeping some funds back for their emergency fund.

That is what I would do if I felt conflicted about this decision.
bikechuck,

This is the worst possible decision.

A) OP does not reduce his annual expenses.

B) OP reduces his EF.

Either pay it off or do nothing is a better option.

KlangFool

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vineviz
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Re: Mortgage payoff - Am I crazy?

Post by vineviz » Fri Apr 10, 2020 9:55 am

KlangFool wrote:
Fri Apr 10, 2020 9:46 am
bikechuck wrote:
Fri Apr 10, 2020 9:43 am
Keep in mind that this does not need to be an all or nothing choice. The OP could choose to pay off only a portion (perhaps half) of the remaining mortgage keeping some funds back for their emergency fund.
This is the worst possible decision.

A) OP does not reduce his annual expenses.

B) OP reduces his EF.

Either pay it off or do nothing is a better option.

KlangFool
I agree: partially paying down the mortgage incurs the risks of both approaches and the benefits of neither.

Flipping a coin would be better than a compromise.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

gr7070
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Re: Mortgage payoff - Am I crazy?

Post by gr7070 » Fri Apr 10, 2020 10:49 am

cherijoh wrote:
Fri Apr 10, 2020 9:28 am
gr7070 wrote:
Thu Apr 09, 2020 9:56 pm
I have zero qualms about OP taking that into consideration.

Being employed is an incredibly reasonable assumption. Especially when one child is a high school junior. You're being ridiculously conservative.
Seriously? The OP stated:
My wife recently had her hours cut due to COVID-19 and my job is not entirely stable either.
My reply was directly to klangfool's regarding *both* kids being in college:
KlangFool wrote:
Thu Apr 09, 2020 5:02 pm
College education funding for 2 kids will deplete those funds in less than 20 months. Or, OP will end up taking a more expensive student loan to bridge the gap.
Do you (cherijoh) seriously think that both are going to be unemployed when both children are in college 1.5+ years from now?!

It would be an absolutely absurd assumption to believe both would be unemployed, and there's zero reason to suspect even one will be unemployed 1.5+ year from now, other than it happens to about 3% of us.


cherijoh wrote:
Fri Apr 10, 2020 9:28 am
What was your situation during the Great Recession? Did you own a home or have a family? Did you lose your job? Were you over 40 (as the OP and his wife likely are)? Klangfool is pretty conservative, but his actual life experiences made him that way.
I'm a 48 year old engineer with a family. I survived the recession. I own(ed) my own home and rental property through the recession.

I have/had a 6 month emergency fund and fortunate enough to be able to hold some taxable investments.

I did lose my job in the recession. My wife has a lowish paying job, so things were tight for a short while. Everything worked out just as it should with an appropriate personal finance situation.

Having said that I don't personally have had to live through that to be able to make rational decisions.

The OP will have an incredibly unusual personal finance situation with a 20 month EF and no mortgage. They'll weather any and every financial storm that will come their way short of the apocalypse. Good on them!

bikechuck
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Re: Mortgage payoff - Am I crazy?

Post by bikechuck » Fri Apr 10, 2020 11:47 am

KlangFool wrote:
Fri Apr 10, 2020 9:46 am
bikechuck wrote:
Fri Apr 10, 2020 9:43 am
Keep in mind that this does not need to be an all or nothing choice. The OP could choose to pay off only a portion (perhaps half) of the remaining mortgage keeping some funds back for their emergency fund.

That is what I would do if I felt conflicted about this decision.
bikechuck,

This is the worst possible decision.

A) OP does not reduce his annual expenses.

B) OP reduces his EF.

Either pay it off or do nothing is a better option.

KlangFool
I disagree, I followed the path that I suggested in a similar situation and making progress on all fronts worked out VERY well for me enabling me to have a decent emergency fund, help my daughters with their college expenses whilst accelerating my mortgage payoff so it was gone a few years before I retired.

YMMV

KlangFool
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Re: Mortgage payoff - Am I crazy?

Post by KlangFool » Fri Apr 10, 2020 11:53 am

bikechuck wrote:
Fri Apr 10, 2020 11:47 am
KlangFool wrote:
Fri Apr 10, 2020 9:46 am
bikechuck wrote:
Fri Apr 10, 2020 9:43 am
Keep in mind that this does not need to be an all or nothing choice. The OP could choose to pay off only a portion (perhaps half) of the remaining mortgage keeping some funds back for their emergency fund.

That is what I would do if I felt conflicted about this decision.
bikechuck,

This is the worst possible decision.

A) OP does not reduce his annual expenses.

B) OP reduces his EF.

Either pay it off or do nothing is a better option.

KlangFool
I disagree, I followed the path that I suggested in a similar situation and making progress on all fronts worked out VERY well for me enabling me to have a decent emergency fund, help my daughters with their college expenses whilst accelerating my mortgage payoff so it was gone a few years before I retired.

YMMV
bikechuck,

You were lucky.

Counting being lucky is not a good planning strategy.

KlangFool

Grt2bOutdoors
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Re: Mortgage payoff - Am I crazy?

Post by Grt2bOutdoors » Fri Apr 10, 2020 12:00 pm

Atilla wrote:
Thu Apr 09, 2020 2:52 pm
Right now cash is KING. Hold onto the money until this stupidity passes over - then pay off the mortgage once you are both more secure in your jobs.

If you both had bullet-proof government jobs or something comparable, I'd say pay it off now.
+1 - There is NO WAY I would pay off the mortgage today, knowing that you might lose your job or a cut in pay that will result in you not being able to pay the bills, put food on the table AND you have two dependents to think about as well. Keep the cash until things settle down. Another way to think of this is: Are you willing to fork over $70,000 to save $2,625 this year? Think about it - $70,000 can pay alot of bills, put food on the table and pay the mortgage, for at least another year or two. Nope, keep the cash in the bank.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Grt2bOutdoors
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Re: Mortgage payoff - Am I crazy?

Post by Grt2bOutdoors » Fri Apr 10, 2020 12:03 pm

eldinerocheapo wrote:
Fri Apr 10, 2020 8:06 am
We've paid off two mortgages via borrowing from my 401k and then paying the loan with interest back to ourselves. We know this flies in the face of conventional wisdom. Family members said we were missing out on the returns stocks provide, but we strongly believe in being debt free whenever possible. I'd pay off your mortgage, then use the residual balance to be certain the kids get through school. Our method allowed us to have both our kids graduate college with no student loans, and then give each a sizable matching down payment on their first homes.
Yes, borrow from your 401K, but guess what happens when you lose your job? The 401K loan is due and payable within 60 days - try paying that back when you have no job and your emergency fund is 3-6 months or less. Nope, taking a 401K loan to pay off your mortgage is the worse thing to do, especially in this job environment.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

bdpb
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Re: Mortgage payoff - Am I crazy?

Post by bdpb » Fri Apr 10, 2020 2:39 pm

KlangFool wrote:
Thu Apr 09, 2020 8:50 pm
Placenshow wrote:
Thu Apr 09, 2020 5:37 pm
Thank you all for your responses, sorry I've been a bit tardy responding to some of your questions...please see my responses below.

Current EF: $30k

HELOC: Yes, $100K, has not been touched.

House value: Approx $300k

College: To date, we've been paying for college via cash flow on our end + assistance from our daughter. Two years in, no debt. She goes to a state school, approx $16k/year. There is a 90% chance my son will go to the same school in 2021 (he is also looking at Navy/Air Force).

Monthly household expenses: With home, approx $4200....without home, approx $2700.

Household income: Approx $125k/year

Asset allocation: 70/30

Thanks again!
Placenshow,

A) Pay off the mortgage -> EF = 30K + 50K = 80K. Annual expense = 32.4K +16K = 48.4K

If you lose your job, your HELOC is canceled, you can last 80K/48.4 = 1.65 years with your EF.

B) Do not pay off the mortgage -> EF = 30K + 120K = 150K. Annual expense = 50K + 16K = 66K.

If you lose your job and your HELOC is canceled, you can last 2.27 years with your EF.

KlangFool
C) Draw 100k from HELOC -> EF = 30k + 88k (120k - 32k set aside for college) + 100k = 218k. Annual expense = 50k + 5.7k = 57.7k.

If you lose your job, you can last 218k / 57.5k = 5.8 years with your EF.

gblack
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Re: Mortgage payoff - Am I crazy?

Post by gblack » Fri Apr 10, 2020 4:10 pm

I'd pay off the mortgage.

If really worried about job, perhaps adjust asset allocation a bit.

OP will have 80k in cash with 2,700 a month burn and both are currently employed. That's 29 months of expenses in an EF.

I'd agree with the more cautious posters about keeping cash IF both of you had lost jobs. But to presume a double job loss in this case feels beyond excessively cautious. By that measure, nearly everyone ought to be building up huge EF and/or adjusting asset allocations.

There are a whole bunch of sensible moves to make if/when job loss happens.

bikechuck
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Re: Mortgage payoff - Am I crazy?

Post by bikechuck » Fri Apr 10, 2020 5:10 pm

KlangFool wrote:
Fri Apr 10, 2020 11:53 am
bikechuck wrote:
Fri Apr 10, 2020 11:47 am
KlangFool wrote:
Fri Apr 10, 2020 9:46 am
bikechuck wrote:
Fri Apr 10, 2020 9:43 am
Keep in mind that this does not need to be an all or nothing choice. The OP could choose to pay off only a portion (perhaps half) of the remaining mortgage keeping some funds back for their emergency fund.

That is what I would do if I felt conflicted about this decision.
bikechuck,

This is the worst possible decision.

A) OP does not reduce his annual expenses.

B) OP reduces his EF.

Either pay it off or do nothing is a better option.

KlangFool
I disagree, I followed the path that I suggested in a similar situation and making progress on all fronts worked out VERY well for me enabling me to have a decent emergency fund, help my daughters with their college expenses whilst accelerating my mortgage payoff so it was gone a few years before I retired.

YMMV
bikechuck,

You were lucky.

Counting being lucky is not a good planning strategy.

KlangFool
It is good to be lucky, however I don't ascribe my outcome to luck. I carefully thought through the potential risks and benefits of several alternatives and chose a strategy. Once I settled on a strategy I committed to it, implemented it and stuck with it.

Perhaps there was an element of luck but it was not dumb luck and I think that far too often people look at these decisions as all or nothing binary choices which they are not.

eldinerocheapo
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Re: Mortgage payoff - Am I crazy?

Post by eldinerocheapo » Sat Apr 11, 2020 8:53 am

Grt2bOutdoors wrote:
Fri Apr 10, 2020 12:03 pm
eldinerocheapo wrote:
Fri Apr 10, 2020 8:06 am
Yes, borrow from your 401K, but guess what happens when you lose your job? The 401K loan is due and payable within 60 days - try paying that back when you have no job and your emergency fund is 3-6 months or less. Nope, taking a 401K loan to pay off your mortgage is the worse thing to do, especially in this job environment.
Yeah, I get it. However, considering that we didn't borrow much, could've paid off the mortgage with savings (but wanted to keep a large EF intact), it was a viable option at the time. It also didn't hurt that we were paying ourselves the interest instead of the loan company. As luck would have it, we borrowed before a large dip in the market and again paid ourselves back at lower NAV's every two weeks. Same payment, more shares. It worked for us, but of course realize, it's not for everybody.
"Do, or do not." Yoda

cherijoh
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Re: Mortgage payoff - Am I crazy?

Post by cherijoh » Sat Apr 11, 2020 9:26 am

gr7070 wrote:
Fri Apr 10, 2020 10:49 am


Do you (cherijoh) seriously think that both are going to be unemployed when both children are in college 1.5+ years from now?!

It would be an absolutely absurd assumption to believe both would be unemployed, and there's zero reason to suspect even one will be unemployed 1.5+ year from now, other than it happens to about 3% of us.
[/quoute]

I have already seen comparisons between the pandemic and the Great Depression with respect to its economic impact. People were definitely unemployed longer than 2 years then. The truth is that this is unprecedented and we just don't know. I stand by my opinion that it would be foolish to commit to paying off the mortgage now when the OP could just as easily wait a few months and reassess it then at the cost of a minimal amount of interest paid.

KlangFool
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Re: Mortgage payoff - Am I crazy?

Post by KlangFool » Sat Apr 11, 2020 10:26 am

cherijoh wrote:
Sat Apr 11, 2020 9:26 am
gr7070 wrote:
Fri Apr 10, 2020 10:49 am


Do you (cherijoh) seriously think that both are going to be unemployed when both children are in college 1.5+ years from now?!

It would be an absolutely absurd assumption to believe both would be unemployed, and there's zero reason to suspect even one will be unemployed 1.5+ year from now, other than it happens to about 3% of us.
I have already seen comparisons between the pandemic and the Great Depression with respect to its economic impact. People were definitely unemployed longer than 2 years then. The truth is that this is unprecedented and we just don't know. I stand by my opinion that it would be foolish to commit to paying off the mortgage now when the OP could just as easily wait a few months and reassess it then at the cost of a minimal amount of interest paid.
+1,000.

In 2 weeks, we have about 10+ million unemployment claims. This is more than all the unemployment claims through the whole 2 years of 2008/2009 GFC. And, it is not over yet. Proceed with caution...

KlangFool

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willthrill81
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Re: Mortgage payoff - Am I crazy?

Post by willthrill81 » Sat Apr 11, 2020 10:36 am

vineviz wrote:
Thu Apr 09, 2020 3:36 pm
lthenderson wrote:
Thu Apr 09, 2020 2:38 pm
What happens if both were to lose their jobs which the OP seems to indicate could be a possibility?
That's ALWAYS a possibility, and as you mentioned the OP hasn't given us enough detail to analyze any scenarios exhaustively.

What we DO know is that we have, for now, a dual income household with a net worth in excess of $620k including an existing "emergency fund" of unknown size.

Let's imagine that hypothetically the mortgage payment is equal to about 20% of monthly household spending. Further, let's also imagine that the household has emergency fund equal to nine months of household spending.

Paying off the mortgage immediately extends the duration of the emergency fund by reducing monthly expenses by20%, so now it is nearly 11 months worth of expenses. Furthermore, the remainder of the inherited cash (approx. $50k) plus the stocks/inherited IRA accounts bumps up the emergency fund even more and this could easily amount to over nine additional months of non-discretionary expenses.

So hypothetically, we have couple that MIGHT lose one or both of their jobs at some point with nearly 20 months of savings in an emergency fund that can save an ADDITIONAL 2-3 months of expenses each year until that job loss potentially happens simply by redirecting the previous mortgage payment. And that's before we consider the possibility of a HELOC or home equity loan, hardship withdrawal, etc.

Could such a household face an economic shock that would deplete a 20 month emergency fund? Of course it's possible but I don't see enough red flags here to suggest declining the chance to get a guaranteed risk-free 3.75% return on some portion of the inheritance.
I entirely agree. Paying off the mortgage seems like very close to a 'no-brainer' to me.

We paid ours off two months ago and have zero regrets.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Placenshow
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Re: Mortgage payoff - Am I crazy?

Post by Placenshow » Tue Apr 14, 2020 8:01 am

Thank you all for your helpful advice and input.

I reviewed all responses and my unofficial tally is...20 in favor of keeping cash and 17 in favor of paying off mortgage.

My wife was always in the camp of keeping cash and I was on the fence.

With all the uncertainty surrounding the virus and potential job loss/reduce pay, we're going to bank the cash and look to maybe re-visit the topic in a year once hopefully everything has settled down a bit.

Take care & stay safe.

gr7070
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Re: Mortgage payoff - Am I crazy?

Post by gr7070 » Tue Apr 14, 2020 9:59 am

Placenshow wrote:
Tue Apr 14, 2020 8:01 am
With all the uncertainty surrounding the virus and potential job loss/reduce pay, we're going to bank the cash and look to maybe re-visit the topic in a year once hopefully everything has settled down a bit
Only thing different I'd suggest is to revisit this every few months. Hopefully we've moved past this in three or by at least six months?

You're in a great position regardless.

bdpb
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Re: Mortgage payoff - Am I crazy?

Post by bdpb » Tue Apr 14, 2020 10:03 am

Placenshow wrote:
Thu Apr 09, 2020 8:56 am
We recently received an inheritance from my FIL, with approx. $120k of it being cash. He also left IRA’s & stocks that we’ll keep in the market for now and hope for a rebound.
You should not necessarily wait for a "rebound" to sell the stocks. That is a mental trap that many folks fall into. If the stocks are not something that fits into your long term plans then you should probably sell them right now because they will have little or no capital gains and maybe even capital losses.

You should then take the proceeds and invest in stocks that you do plan to keep for the long term. These newly purchased stocks will rebound similar to the old stocks.

You might even readdress your paying off the mortgage with the proceeds from these stocks.

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