Talk me out of paying off mortgage

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Topic Author
foo.c
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Talk me out of paying off mortgage

Post by foo.c »

I have a little over 11 years left on a 15 year note @ 2.875%. ~300K left.

I'm a software engineer with 15 years at the same company. I wasn't furloughed and I think I'd be one of the last employees to be let go if things got worse. We've also started bringing people back.

My wife is an underpaid teacher, but I think with no mortgage we could get by on her salary and unemployment benefits would make it even easier. Also have some other hard assets that we could sell if we had to.

I'm not ecstatic about the stock market right now and feel like banking some returns and re-investing the mortgage payment each month.
TheDDC
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Re: Talk me out of paying off mortgage

Post by TheDDC »

foo.c wrote: Mon Jul 13, 2020 12:24 am I have a little over 11 years left on a 15 year note @ 2.875%. ~300K left.

I'm a software engineer with 15 years at the same company. I wasn't furloughed and I think I'd be one of the last employees to be let go if things got worse. We've also started bringing people back.

My wife is an underpaid teacher, but I think with no mortgage we could get by on her salary and unemployment benefits would make it even easier. Also have some other hard assets that we could sell if we had to.

I'm not ecstatic about the stock market right now and feel like banking some returns and re-investing the mortgage payment each month.
What does your emergency fund look like? You need to be on solid footing there. Do you have any other debts? If you have a solid 3-6 months of expenses saved then I would work on paying down all debts with mortgage being last. Having no debt is true financial freedom.

-TheDDC
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rich126
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Re: Talk me out of paying off mortgage

Post by rich126 »

You could pay part of it off and see how things are 6 or 12 months down the road if you don't have much of a savings buffer. Then pay off the rest.
SnowBog
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Re: Talk me out of paying off mortgage

Post by SnowBog »

Not sure you provided enough info for an informed opinion...

It's one thing if you have $1M already saved, with enough annual cash flow to pay off the house (while still maxing out tax advantaged retirement savings)...

It's another if you only have $10k saved, and a low savings rate...

Personally, we are probably within 10 years of being able to retire, and we paid off the balance of our house a few years ago. Not sure it was the "best" financial decision, but we sleep well at night.

But this also doesn't need to be a binary decision. Again maybe not the "best" financial decision, but we always paid at least 1/12 extra payment each month, which shaves years (and massive amounts of interest) off the loan. But we did this AFTER ensuring we were saving enough for retirement.
babystep
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Re: Talk me out of paying off mortgage

Post by babystep »

foo.c wrote: Mon Jul 13, 2020 12:24 am I have a little over 11 years left on a 15 year note @ 2.875%. ~300K left.

I'm a software engineer with 15 years at the same company. I wasn't furloughed and I think I'd be one of the last employees to be let go if things got worse. We've also started bringing people back.

My wife is an underpaid teacher, but I think with no mortgage we could get by on her salary and unemployment benefits would make it even easier. Also have some other hard assets that we could sell if we had to.

I'm not ecstatic about the stock market right now and feel like banking some returns and re-investing the mortgage payment each month.
How do you fix the bug without the logs and steps to produce the bug?

Tell the full picture that includes income, expenses, age, taxable account balances, tax-advantaged accounts, annual contributions etc.
mortfree
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Re: Talk me out of paying off mortgage

Post by mortfree »

Locking up 300k more in your home could be riskier than keeping the money invested in the stock market.

What exactly are you investing in and do you have an asset allocation?

If you were to do this, what kind of capital gains do you have? You’re going to have to pay taxes on that so paying off the mortgage could be costlier than you expect

With 11 years to go and presumably more than 300k in taxable account I think I would just ride out the mortgage payments, esp at that rate.

But there is just not enough info to know for sure what might be a good option for you.
EdNorton
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Re: Talk me out of paying off mortgage

Post by EdNorton »

Buy low, sell high, which is what you would be doing now if you took money out of stock market to pay off house. I say pay off house. :sharebeer
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btq96r
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Re: Talk me out of paying off mortgage

Post by btq96r »

If you're set with an emergency fund and contributing to retirement, pay off the house. Then you can take the extra money to either max out retirement if you aren't already, or build that $300k back up in a reasonable time by putting what was your mortgage payment into a mix of the total stock market fund or an S&P fund and a bond fund.

Having a paid off house is a bit of security I feel is worth a premium.
teddytimtam
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Re: Talk me out of paying off mortgage

Post by teddytimtam »

Pay off the mortgage! And if you don’t like being debt free without a mortgage, go and get yourself another loan.
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Watty
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Re: Talk me out of paying off mortgage

Post by Watty »

You will get better responses if you post more of your information using this suggested format as a guideline.

viewtopic.php?f=1&t=6212

It would also be important to know the tax impact of selling investments to raise the $300K you would need to pay off the mortgage.
foo.c wrote: Mon Jul 13, 2020 12:24 am My wife is an underpaid teacher, but I think with no mortgage we could get by on her salary and unemployment benefits would make it even easier. Also have some other hard assets that we could sell if we had to.
This may not be a significant factor.

I am usually in the "pay it off camp" but if something happens like you are laid off and you still have the mortgage, then you would also have an extra $300K in your taxable account.

If you get laid off an can't get another software engineering job then you would also likely need to take whatever type of work you could get to bring in some income.
The Broz
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Re: Talk me out of paying off mortgage

Post by The Broz »

TheDDC wrote: Mon Jul 13, 2020 12:37 am
foo.c wrote: Mon Jul 13, 2020 12:24 am I have a little over 11 years left on a 15 year note @ 2.875%. ~300K left.

I'm a software engineer with 15 years at the same company. I wasn't furloughed and I think I'd be one of the last employees to be let go if things got worse. We've also started bringing people back.

My wife is an underpaid teacher, but I think with no mortgage we could get by on her salary and unemployment benefits would make it even easier. Also have some other hard assets that we could sell if we had to.

I'm not ecstatic about the stock market right now and feel like banking some returns and re-investing the mortgage payment each month.
What does your emergency fund look like? You need to be on solid footing there. Do you have any other debts? If you have a solid 3-6 months of expenses saved then I would work on paying down all debts with mortgage being last. Having no debt is true financial freedom.

-TheDDC
+1
ymmt
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Re: Talk me out of paying off mortgage

Post by ymmt »

Don't think it makes sense to be completely uninvested here.

Here's an idea, and I would take these step by step depending on how aggressive you want to be:

#1 Refi into a 30-year mortgage around your current rate, but pay in the same monthly amount you do right now (basically prepaying monthly). You get the flexibility to stop these extra prepayments if something hits the fan and you need extra cash. (For ref: 30 year at 2.75%, 300k balance is $1.2K)

#2 Pay down your mortgage $200K in conjunction with the refi above. You might not be able to find someone willing to refi a 100K balance loan, but you can just get 300K refi, prepay 200K immediately and recast the loan. (For ref: 30 year at 2.75%, 100k balance is $400)

#3 If you are comfortable with it, take the last $100K and put it into a triple levered index fund (i.e. UPRO or TQQQ). Gives you effectively $300K of equity exposure with $100k invested. If you don't like the market, then keep a rolling stop limit on it. Calculate how much $ loss is too much, and set the stop price there.

In this scenario, if the market runs away, then you still benefit but you also get the ability to lower your monthly mortgage payment to $400, Hopefully this is a good balance between fully putting your cash into your mortgage.

Good luck
Call_Me_Op
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Re: Talk me out of paying off mortgage

Post by Call_Me_Op »

foo.c wrote: Mon Jul 13, 2020 12:24 am I have a little over 11 years left on a 15 year note @ 2.875%. ~300K left.

I'm a software engineer with 15 years at the same company. I wasn't furloughed and I think I'd be one of the last employees to be let go if things got worse. We've also started bringing people back.

My wife is an underpaid teacher, but I think with no mortgage we could get by on her salary and unemployment benefits would make it even easier. Also have some other hard assets that we could sell if we had to.

I'm not ecstatic about the stock market right now and feel like banking some returns and re-investing the mortgage payment each month.
Why would I talk you out of a good move? I paid mine off early and couldn't be happier. The only time when you shouldn't do it is when doing so will leave you cash poor. I paid mine off about 6 years into a 30 year mortgage - one big lump sum.

Paying off your mortgage will usually give you the equivalent of a risk-free investment at a higher rate than you can get in treasuries. In addition, there are important psychological benefits.
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hightower
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Re: Talk me out of paying off mortgage

Post by hightower »

I think an important question to consider is if this is a house you plan on keeping "forever." Meaning, if you plan on wanting to move to a different house in say 10 years or so, then paying it off doesn't make much sense to me. Why tie up your own cash in that house if you're going to have to sell it eventually. And, if that is the case, having a 15 year loan at that rate doesn't make much sense either. You can get a 30 year at that rate right now (I just locked a 2.87 rate on a 30 yr refinance last Friday).
Anyway, if this IS going to the be home you retire in, then sure, go ahead and pay it off. That's an important step to retiring in my opinion. I'm planning on paying ours off early if my income allows. But, in the mean time I'm refinancing to the lowest rate and longest term possible to give me flexibility in the future if income is unstable.
Admiral
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Re: Talk me out of paying off mortgage

Post by Admiral »

foo.c wrote: Mon Jul 13, 2020 12:24 am I have a little over 11 years left on a 15 year note @ 2.875%. ~300K left.

I'm a software engineer with 15 years at the same company. I wasn't furloughed and I think I'd be one of the last employees to be let go if things got worse. We've also started bringing people back.

My wife is an underpaid teacher, but I think with no mortgage we could get by on her salary and unemployment benefits would make it even easier. Also have some other hard assets that we could sell if we had to.

I'm not ecstatic about the stock market right now and feel like banking some returns and re-investing the mortgage payment each month.
The subject says "paying off" not "paying down." You have $300k burning a hole in your taxable account that can be used for a pay off?

Paying off and paying down are completely different.
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foo.c
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Re: Talk me out of paying off mortgage

Post by foo.c »

Admiral wrote: Mon Jul 13, 2020 7:20 am The subject says "paying off" not "paying down." You have $300k burning a hole in your taxable account that can be used for a pay off?

Paying off and paying down are completely different.
Yes, I have the funds to pay it off.
Admiral
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Re: Talk me out of paying off mortgage

Post by Admiral »

foo.c wrote: Mon Jul 13, 2020 7:30 am
Admiral wrote: Mon Jul 13, 2020 7:20 am The subject says "paying off" not "paying down." You have $300k burning a hole in your taxable account that can be used for a pay off?

Paying off and paying down are completely different.
Yes, I have the funds to pay it off.
What does your total financial picture look like with the note paid off?

I.e. how much of your wealth is then in the house?
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Re: Talk me out of paying off mortgage

Post by Jack FFR1846 »

Find a no cost HELOC. It doesn't even matter what the rate is. This keeps the equity in your house unlocked. Then you can pay part or all of the mortgage off. I did this decades ago and today, I still have the HELOC sitting with zero balance, not hurting me at all.
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vineviz
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Re: Talk me out of paying off mortgage

Post by vineviz »

foo.c wrote: Mon Jul 13, 2020 7:30 am
Admiral wrote: Mon Jul 13, 2020 7:20 am The subject says "paying off" not "paying down." You have $300k burning a hole in your taxable account that can be used for a pay off?

Paying off and paying down are completely different.
Yes, I have the funds to pay it off.

If you have a large enough bond allocation that you can use some or all of it to pay off the mortgage, then that’s usually a prudent move. Economically, a mortgage is effectively a reverse bond so this transaction is neutral in terms of asset allocation.

Reducing your STOCK holdings to do the same thing is more questionable, since that raises questions of market timing.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
retire57
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Re: Talk me out of paying off mortgage

Post by retire57 »

We paid ours off years ago and never looked back. When you eliminate that big monthly expense, you have so many more options (that don't appear on a calculator).
vested1
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Re: Talk me out of paying off mortgage

Post by vested1 »

It doesn't have to be either one or the other. For example, you can make annual one time payments of $30,000 and reduce the term of your 15 year loan to less than 6 years and save yourself over $42,000 in interest. I would suggest finding an online amortization calculator that allows you to input the effect of additional principal payments of varying amounts by month, quarterly, or yearly to see what your options are and how that satisfies your goals.

I would give you the link to the one I used but it's no longer working.

We did once yearly payments of our mortgage principal of 90k cumulatively and cut what would have taken 19 years off our mortgage, with 22 years of regular payments left when we initiated the extra payments. We ended up selling our house before the plan was completed with only 2 years left for a zero balance. The greatly increased amount of principal paid during regular payments throughout the year after the lump sum payments were posted was deeply gratifying, as was the drastically reduced amount of interest. Taxation needs to be taken into account as part of the formula. Our interest rate was 4.5% though, and with your much lower rate that option is less attractive.

I got some pushback on this forum for initiating this plan, but the bottom line was that it reduced our amount of principal owed by such a huge amount that we were able to sell our home and buy another, much nicer home for cash from the proceeds in a LCOL location, as well as furnishing it and buying luxury items that we otherwise couldn't have afforded. If we had stuck with our original mortgage we would have had to settle for a much less desirable home or would have had to get another mortgage, and would have to put off the purchase of luxury items. Some said this was mental gymnastics, because the additional yearly payments could have been saved or invested.

Regardless of the general consensus here however, returns on investments aren't guaranteed, especially right now, but my "returns" on lowering the principal owed was, and it worked out nicely in our case. In our case, simply paying off the mortgage in one lump sum would have been disastrous for tax purposes. As it was, we remained in the same tax bracket during our accelerated mortgage payoff.
Admiral
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Re: Talk me out of paying off mortgage

Post by Admiral »

Jack FFR1846 wrote: Mon Jul 13, 2020 7:36 am Find a no cost HELOC. It doesn't even matter what the rate is. This keeps the equity in your house unlocked. Then you can pay part or all of the mortgage off. I did this decades ago and today, I still have the HELOC sitting with zero balance, not hurting me at all.
This I would not do. Banks are not only not actively issuing a lot of HELOCs right now but are also closing some lines. Granted, we are in perilous economic times. That said, these are the times you might need to draw on a HELOC.

I don't dislike HELOCs generally for things like education or home remodeling expenses. But I am not a fan of using your house as a piggy bank for general living expenses.
Dandy
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Re: Talk me out of paying off mortgage

Post by Dandy »

I normally would suggest paying off a mortgage. These Covid-19 times are a rare and unsettling. Hard to predict how jobs, taxes, business failures, home sales, health, health insurance etc will turn out. I'd be somewhat wary of using $300k of assets to pay off the mortgage until we know more answers than questions. Once the path to your and the economy's future is a bit clearer maybe consider a 3-5 year pay down to pay off the mortgage.

Of course as has been suggested a full picture of your finances would be useful.
reln
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Re: Talk me out of paying off mortgage

Post by reln »

foo.c wrote: Mon Jul 13, 2020 12:24 am I have a little over 11 years left on a 15 year note @ 2.875%. ~300K left.

I'm a software engineer with 15 years at the same company. I wasn't furloughed and I think I'd be one of the last employees to be let go if things got worse. We've also started bringing people back.

My wife is an underpaid teacher, but I think with no mortgage we could get by on her salary and unemployment benefits would make it even easier. Also have some other hard assets that we could sell if we had to.

I'm not ecstatic about the stock market right now and feel like banking some returns and re-investing the mortgage payment each month.
I wouldn't be against selling low yielding bonds to pay down a mortgage.
Pete3
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Re: Talk me out of paying off mortgage

Post by Pete3 »

foo.c wrote: Mon Jul 13, 2020 12:24 am I have a little over 11 years left on a 15 year note @ 2.875%. ~300K left.
2.875%? Don't do it.

I don't know if you are able to write-off your mortgage interest as well but either way that rate is great, you shouldn't be in a rush to pay it off. You should be able to invest the money you would use to pay it off and outperform that rate, without taking a lot of risk.
Jack FFR1846
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Re: Talk me out of paying off mortgage

Post by Jack FFR1846 »

Admiral wrote: Mon Jul 13, 2020 7:44 am
Jack FFR1846 wrote: Mon Jul 13, 2020 7:36 am Find a no cost HELOC. It doesn't even matter what the rate is. This keeps the equity in your house unlocked. Then you can pay part or all of the mortgage off. I did this decades ago and today, I still have the HELOC sitting with zero balance, not hurting me at all.
This I would not do. Banks are not only not actively issuing a lot of HELOCs right now but are also closing some lines. Granted, we are in perilous economic times. That said, these are the times you might need to draw on a HELOC.

I don't dislike HELOCs generally for things like education or home remodeling expenses. But I am not a fan of using your house as a piggy bank for general living expenses.
It's free insurance, backup of whatever the amount of the HELOC is. I can't speak to banks as mine is with a credit union (DCU) and has sat at zero for quite a long time. I can pull out the HELOC check book and write myself a loan at any time. I took it out for $40k when we adopted our first son. It's still on the books. His 24th birthday was last week. I see zero downside. Perhaps a bank, who has to make a profit off everyone all the time might close one of these on someone, but credit unions exist to help its members. Probably why it's able to be a great backup for me.
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smitcat
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Re: Talk me out of paying off mortgage

Post by smitcat »

Jack FFR1846 wrote: Mon Jul 13, 2020 8:10 am
Admiral wrote: Mon Jul 13, 2020 7:44 am
Jack FFR1846 wrote: Mon Jul 13, 2020 7:36 am Find a no cost HELOC. It doesn't even matter what the rate is. This keeps the equity in your house unlocked. Then you can pay part or all of the mortgage off. I did this decades ago and today, I still have the HELOC sitting with zero balance, not hurting me at all.
This I would not do. Banks are not only not actively issuing a lot of HELOCs right now but are also closing some lines. Granted, we are in perilous economic times. That said, these are the times you might need to draw on a HELOC.

I don't dislike HELOCs generally for things like education or home remodeling expenses. But I am not a fan of using your house as a piggy bank for general living expenses.
It's free insurance, backup of whatever the amount of the HELOC is. I can't speak to banks as mine is with a credit union (DCU) and has sat at zero for quite a long time. I can pull out the HELOC check book and write myself a loan at any time. I took it out for $40k when we adopted our first son. It's still on the books. His 24th birthday was last week. I see zero downside. Perhaps a bank, who has to make a profit off everyone all the time might close one of these on someone, but credit unions exist to help its members. Probably why it's able to be a great backup for me.
Credit unions and banks closed and/or greatly limited HELOC's after the large job loses and income reductions in 2008-2009 right when folks needed them. There was no warning just that you would no longer qualify for the loans.
SimonJester
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Re: Talk me out of paying off mortgage

Post by SimonJester »

retire57 wrote: Mon Jul 13, 2020 7:40 am We paid ours off years ago and never looked back. When you eliminate that big monthly expense, you have so many more options (that don't appear on a calculator).
I think people really underestimate this... Its been 8 years since we paid off our. Never had I said gee I wish I had a mortgage again... In fact its quite the opposite. I'm not stressing over potential job loss, I have a paid for home, maxed out retirements accounts, 2 years of living expenses....

Once your mortgage is gone, you take that entire payment, plus everything extra you were throwing at the mortgage and pile into investing...
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin
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Re: Talk me out of paying off mortgage

Post by Dottie57 »

EdNorton wrote: Mon Jul 13, 2020 5:42 am Buy low, sell high, which is what you would be doing now if you took money out of stock market to pay off house. I say pay off house. :sharebeer
+1. Doesn’t paying mortgage off take a lot of risk off the table - especially if you lose your job?
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Re: Talk me out of paying off mortgage

Post by grabiner »

foo.c wrote: Mon Jul 13, 2020 12:24 am I have a little over 11 years left on a 15 year note @ 2.875%. ~300K left.

I'm a software engineer with 15 years at the same company. I wasn't furloughed and I think I'd be one of the last employees to be let go if things got worse. We've also started bringing people back.

My wife is an underpaid teacher, but I think with no mortgage we could get by on her salary and unemployment benefits would make it even easier. Also have some other hard assets that we could sell if we had to.
Key questions:

Is this interest deductible? You would have to donate a lot to charity to get any deduction.

Do you hold any bonds? If you do, selling bonds to pay off the mortgage is a guaranteed return equal to the yield difference. If you are 100% stock and have to sell stock, you are trading off return for risk, which may or may not be a good deal.

How much will it cost? If you sell stock for a capital gain, this reduces the return on a mortgage payoff by the capital-gains tax. (This is why I delayed paying off my own mortgage. In August 2019, my after-tax mortgage rate was higher than bond yields, but I would have had a large capital gain if I sold stock to pay it off. In March 2020, I was able to sell enough stock for no capital gain to pay it off, then move an equal amount from bonds to stock in my employer plan, so that I kept my stock exposure and had the same benefit from the recovery.)
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btq96r
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Re: Talk me out of paying off mortgage

Post by btq96r »

retire57 wrote: Mon Jul 13, 2020 7:40 am When you eliminate that big monthly expense, you have so many more options (that don't appear on a calculator).
Say it louder for the people in the back! :D
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Re: Talk me out of paying off mortgage

Post by retiredjg »

I didn't see age mentioned. If either of you is 63 years old or older, increasing your income this year (by selling in taxable to gather the money) can increase what you pay for Medicare at age 65 and older.

If there is a mortgage worth keeping, a mortgage at 2.875% is one of them. There is no "need" to make it disappear. But there is no "need" to keep it either. Do whichever you prefer.
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Re: Talk me out of paying off mortgage

Post by Toons »

Pay Off The Mortgage.
Your Mind will fill with available opportunities for you and your wife.
Been There
Done That.
Twice
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bampf
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Re: Talk me out of paying off mortgage

Post by bampf »

For my vote, I would pay it off.
Refi is always an option if you feel remorse.
Emergency fund aside, its a great feeling.
Economics aren't the full story
Do what you want.
Only you can decide.
Money is a means to an end.
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gr7070
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Re: Talk me out of paying off mortgage

Post by gr7070 »

Talk me out of paying off mortgage
Nope.
Pay it off!

Though I would not make this decision based on the current market and predominant views on short term results.

When risk is considered, the tax-free, guaranteed return of paying down a mortgage becomes a very reasonable investment.
Kagord
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Re: Talk me out of paying off mortgage

Post by Kagord »

I paid mine off and haven't had any house mortgage for 20 years.

I hate debt, or owing anybody anything. I especially hate giving any income money to banks, I, even more so, hate PMI. Thinking about it some more, I can't express the words of a bank being on the title of my home. I hate mortgage coupon books even the more so.

See, now I'm happy.
Admiral
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Re: Talk me out of paying off mortgage

Post by Admiral »

Just to be clear: there is broad confirmation bias from people who pay off mortgages early. IIRC there has been only one poster who has posted regrets. Forget user name.

Nobody enjoys debt. The issue is arbitraging it and leveraging a very low interest rate. Your rate is very low. Without your full financial picture I don’t see how anyone can say “pay it off!” Everything depends on your portfolio. If having a paid off house means you are cash poor then it’s not advisable in my view.

Paging KlangFool...
ymmt
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Re: Talk me out of paying off mortgage

Post by ymmt »

Admiral wrote: Mon Jul 13, 2020 10:12 am Just to be clear: there is broad confirmation bias from people who pay off mortgages early. IIRC there has been only one poster who has posted regrets. Forget user name.

Nobody enjoys debt. The issue is arbitraging it and leveraging a very low interest rate. Your rate is very low. Without your full financial picture I don’t see how anyone can say “pay it off!” Everything depends on your portfolio. If having a paid off house means you are cash poor then it’s not advisable in my view.

Paging KlangFool...
Want to echo this:

I'm actually very surprised by the lack of counterarguments towards OP's plan. There are a few instances where it makes sense, but history has proven that it's better to be involved in the markets than not. And it's especially true at OP's rate of financing.

In general, the big winners in the net worth thread probably haven't gotten there because they paid off their mortgages early.

OP: I would seriously take a look at what I wrote earlier, and hopefully it provides a good balance for your situation.
hookemhorns
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Re: Talk me out of paying off mortgage

Post by hookemhorns »

With your rate locked in at 2.875% for 15 years I would definitely not pay it off. What are the chances that inflation alone could be higher than 2.875% over the period? I would say decent. If that happens, the bank is effectively paying your house off for you.

Several years ago I thought about paying down our mortgage and I'm glad I didn't. My portfolio has returned mid to high SD during that period. Doing some rough math, that decision netted me $15-20k/year by simply doing nothing. I sleep a lot better with that incremental $45-60k in assets which I could sell at the drop of a hat if I needed cash.
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foo.c
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Re: Talk me out of paying off mortgage

Post by foo.c »

Admiral wrote: Mon Jul 13, 2020 10:12 am Just to be clear: there is broad confirmation bias from people who pay off mortgages early. IIRC there has been only one poster who has posted regrets. Forget user name.

Nobody enjoys debt. The issue is arbitraging it and leveraging a very low interest rate. Your rate is very low. Without your full financial picture I don’t see how anyone can say “pay it off!” Everything depends on your portfolio. If having a paid off house means you are cash poor then it’s not advisable in my view.

Paging KlangFool...
Definitely would have less cash, but I wouldn't consider it cash poor per normal people standards.
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foo.c
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Re: Talk me out of paying off mortgage

Post by foo.c »

ymmt wrote: Mon Jul 13, 2020 10:56 am Want to echo this:

I'm actually very surprised by the lack of counterarguments towards OP's plan. There are a few instances where it makes sense, but history has proven that it's better to be involved in the markets than not. And it's especially true at OP's rate of financing.

In general, the big winners in the net worth thread probably haven't gotten there because they paid off their mortgages early.

OP: I would seriously take a look at what I wrote earlier, and hopefully it provides a good balance for your situation.
Appreciate all responses, that's why I asked.

I would say it's dangerous or at least somewhat risky to extrapolate from historical outcomes. It may turn out to be a better choice, it may not. It isn't guaranteed. I don't need to win the net worth contest and probably couldn't.

I would still be involved in the market in my retirement accounts. Nothing is going to change as far as my 401k and Roth contributions (currently maxing those).
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corn18
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Re: Talk me out of paying off mortgage

Post by corn18 »

We just sold our house and are building a new house. The previous house was paid off and it felt GREAT!!! I never thought we would ever be in a position to own a home. We now have enough cash sitting in a MM fund to pay cash for the new house. But I also have a 2.75% 30 year mortgage locked in. I go back and forth every day whether to pay cash or take the mortgage. 30 year money @ 2.75% is dirt cheap. And what a great inflation hedge. My massive spreadsheet says take the mortgage. My heart says being mortgage free is GREAT!!! We are going to take the mortgage and then decide what to do.
Don't do something, just stand there!
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sperry8
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Re: Talk me out of paying off mortgage

Post by sperry8 »

vineviz wrote: Mon Jul 13, 2020 7:39 am
foo.c wrote: Mon Jul 13, 2020 7:30 am
Admiral wrote: Mon Jul 13, 2020 7:20 am The subject says "paying off" not "paying down." You have $300k burning a hole in your taxable account that can be used for a pay off?

Paying off and paying down are completely different.
Yes, I have the funds to pay it off.

If you have a large enough bond allocation that you can use some or all of it to pay off the mortgage, then that’s usually a prudent move. Economically, a mortgage is effectively a reverse bond so this transaction is neutral in terms of asset allocation.

Reducing your STOCK holdings to do the same thing is more questionable, since that raises questions of market timing.
This. If you are using bonds/cash to pay off mortgage I'd say it's a no brainer (these investments aren't likely to return more than paying off debt). If you're using stock allocation to pay off mortgage it could be a loser from a financial perspective (assuming stocks return higher than mortgage rate + house appreciation) but you must also factor in psychological security gain.
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acegolfer
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Re: Talk me out of paying off mortgage

Post by acegolfer »

foo.c wrote: Mon Jul 13, 2020 12:24 am I have a little over 11 years left on a 15 year note @ 2.875%. ~300K left.

I'm a software engineer with 15 years at the same company. I wasn't furloughed and I think I'd be one of the last employees to be let go if things got worse. We've also started bringing people back.

My wife is an underpaid teacher, but I think with no mortgage we could get by on her salary and unemployment benefits would make it even easier. Also have some other hard assets that we could sell if we had to.

I'm not ecstatic about the stock market right now and feel like banking some returns and re-investing the mortgage payment each month.
Suppose a bank offers a 11-yr 2.875% (non-breakable) CD. How much will you invest?
ddurrett896
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Re: Talk me out of paying off mortgage

Post by ddurrett896 »

Dottie57 wrote: Mon Jul 13, 2020 8:49 am +1. Doesn’t paying mortgage off take a lot of risk off the table - especially if you lose your job?
It could. My mortgage payment is about 15-20% of my total monthly spend (mortgage, utilities, food, school,etc.) I'm not a fan of tying up a bunch of cash in a home, even with a HELOC. Instead of paying more to the mortgage, I bank it.

Decide we want a pool or remodel? use that cash
Decide we want a new car? use that cash
Decide we want a lake house and need a down payment? use that cash
Decide we are tired of paying for the mortgage? use that cash
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whodidntante
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Re: Talk me out of paying off mortgage

Post by whodidntante »

I purposely carried cheap debt and increased my level of debt for several years to take advantage of cheap leverage. I know it involves some luck but the results were absolutely fantastic. I didn't choose to pay off my mortgage until I chose to reduce my level of risk by deleveraging. The mortgage should be gone next month unless I'm too lazy to deal with the payoff statement and certified check and county and whatnot. I don't seem to get as excited about paying off low-interest debt as some here do.

Ironically, I'm going to pay it off with money gained from unemployment. Currently furloughed. LOL
hudson
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Re: Talk me out of paying off mortgage

Post by hudson »

foo.c wrote: Mon Jul 13, 2020 11:30 am
I would still be involved in the market in my retirement accounts. Nothing is going to change as far as my 401k and Roth contributions (currently maxing those).
I really like being debt free, but I would never seriously degrade my holdings to pay off a debt.
It sounds like paying off the mortgage wouldn't seriously degrade your holdings.
Consider paying it off in phases....but if you've done your homework and due diligence, go for it.
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vineviz
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Re: Talk me out of paying off mortgage

Post by vineviz »

hudson wrote: Mon Jul 13, 2020 12:08 pm Consider paying it off in phases....but if you've done your homework and due diligence, go for it.
From a financial planning perspective, this is kind of the worst of both worlds: you lose liquidity by reducing the bond asset without reducing the monthly cash flow obligation of the mortgage.

Of course it still reduces net interest expense, and the OP may have enough additional cash reserves that the risk of a dangerous financial shock is minimal. Still, I’d normally advise paying off the mortgage completely if there are enough fixed income assets to safely do so.
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gr7070
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Re: Talk me out of paying off mortgage

Post by gr7070 »

ymmt wrote: Mon Jul 13, 2020 10:56 am In general, the big winners in the net worth thread probably haven't gotten there because they paid off their mortgages early.
FWIW I suspect most have gotten there regardless of mortgage status. Ones net worth is predominantly influenced by income and savings rate.

I'd also guess that most of those big winners did pay off their mortgages early. I believe The Millionaire Next Door (though been a long while since I read it) and "Dave Ramsey's" follow-up show this to be the case.

While I certainly won't argue against market historic rates, risk must be accounted for.

Once one is maxing their tax-advantaged vehicles taxable investing or paying extra on the mortgage are perfectly reasonable, good options. If one has room left in their 401k and Roth IRA I would focus on those first.
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Re: Talk me out of paying off mortgage

Post by kupuna »

I proved to myself that I could make more by investing than the effective interest rate of my mortgage. One day I decided to go to the credit union and pay off the loan and it was mentally life-changing. It was a freedom that I didn't realize I was missing.

Sometimes there are more important things than just counting dollars.

I suggest you pay off the mortgage.

TOM
"I can calculate the motions of the heavenly bodies, but not the madness of people." Sir Isaac Newton
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