Paying off sub 4% mortgage interest rate early

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Frugalbear
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Paying off sub 4% mortgage interest rate early

Post by Frugalbear »

Is anyone who has a sub 4% fixed mortgage interest rate paying it off aggressively early? If you are, why?
Small Savanna
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Re: Paying off sub 4% mortgage interest rate early

Post by Small Savanna »

Refinanced at 3.5%, 30 year term less than a year ago, and rates are now below that. I'm paying an extra $1K per month now and thinking of paying it off entirely before I retire or the first few years after I retire. Even at 3.5%, it's a better return than buying bonds.
Goal33
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Re: Paying off sub 4% mortgage interest rate early

Post by Goal33 »

Start by paying it off in full with a no cost refinance under 3%, then decide.
FBanks
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Re: Paying off sub 4% mortgage interest rate early

Post by FBanks »

We’re 2.5 years into a 15 year mortgage, 3.25% interest rate. As the kids cycle out of daycare, we funnel that money to the mortgage. We’re on track to knock it out in 5 years.

Why?

*We’re maxing out HSA FSA 401K BD Roths; contributing to 529s, taxable brokerage, and a NQDC plan; we have an emergency fund; we have no other debt; and we’re saving 50% of salary overall, beyond the principal pay down, so it doesn’t stop us from investing at a high savings rate.

*We want to be completely debt free in 5 years. We’re 37/39 respectively, with young kids. We want the mortgage gone while we’re in our peak earning years.

*Many people start getting laid off at 50. A big part of our financial plan is to be financially independent (33xretirement expenses) and completely debt free well before that date. Some consider this an emotional decision, but it’s math to me. I never take our high incomes for granted or assume we’ll always have the cashflow to pay at term. High earners at megacorps get laid off all the time and often never recover their high incomes. We want to avoid the financial damage while it’s easy for us to do so. So we make hay while the sun is shining.

*We’re strongly considering enrolling our kids in private highschool (in 8 years) With the mortgage gone, this expense will not impact our lifestyle.

*We want to be financially free in our early 40s. Low expenses make us happy 😃
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kellyfj
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Re: Paying off sub 4% mortgage interest rate early

Post by kellyfj »

Yes - 3 years into 30 Year 3.75% Mortgage

Paying an extra $1000 per month (thanks to a recent cash bonus)

Why? 3.75% guaranteed is the best rate I can find especially compared to savings accounts yielding < 1.0%
Plus my 401k and College savings for two kids are on track.
grettman
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Re: Paying off sub 4% mortgage interest rate early

Post by grettman »

kellyfj wrote: Fri Sep 11, 2020 4:51 am Yes - 3 years into 30 Year 3.75% Mortgage

Paying an extra $1000 per month (thanks to a recent cash bonus)

Why? 3.75% guaranteed is the best rate I can find especially compared to savings accounts yielding < 1.0%
Plus my 401k and College savings for two kids are on track.
+1. I have been trowing $2,000 extra per month. I am around 95% equities. All other goals have either been achieved or are close to it.

Makes more sense than plowing even more money into market (which I do every two weeks anyway) or having it sit in savings.

I am not enamored with bonds.....
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JoeRetire
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Re: Paying off sub 4% mortgage interest rate early

Post by JoeRetire »

Frugalbear wrote: Fri Sep 11, 2020 12:34 am Is anyone who has a sub 4% fixed mortgage interest rate paying it off aggressively early?
I'm not.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
grettman
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Re: Paying off sub 4% mortgage interest rate early

Post by grettman »

grettman wrote: Fri Sep 11, 2020 5:01 am
kellyfj wrote: Fri Sep 11, 2020 4:51 am Yes - 3 years into 30 Year 3.75% Mortgage

Paying an extra $1000 per month (thanks to a recent cash bonus)

Why? 3.75% guaranteed is the best rate I can find especially compared to savings accounts yielding < 1.0%
Plus my 401k and College savings for two kids are on track.
+1. I have been throwing $2,000 extra per month. I am around 95% equities. All other goals have either been achieved or are close to it.

Makes more sense than plowing even more money into market (which I do every two weeks anyway) or having it sit in savings.

I am not enamored with bonds.....
McDougal
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Re: Paying off sub 4% mortgage interest rate early

Post by McDougal »

Yes for me too. Sitting on a 2.875% 7/1 ARM that resets in mid-2022. Couple reasons for me, pretty close to the end (only about 100K left), and DW won't let me retire until it is paid off. \_(ツ)_/
Notsobad
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Re: Paying off sub 4% mortgage interest rate early

Post by Notsobad »

Yes, but not aggressively. If we are having a good year and exceeding our savings goals, then we make a couple extra payments a year. It still adds up.
teddytimtam
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Re: Paying off sub 4% mortgage interest rate early

Post by teddytimtam »

Yes, I am. Will pay off $200k mortgage at 3.5% by end of year. (150k paid this year). I don't care what math tells you. I don't care if you can "theoretically" get a larger return investing it. Main drive is to set a solid foundation for future wealth building.
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Taz
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Re: Paying off sub 4% mortgage interest rate early

Post by Taz »

Had 30yr 6.25% in 2006; refinanced to 15 yr 3.25% in 2012. We've paid extra principal over the years.

Current balance is $70k and it is calling out to me to make it go away. We have a $13k NFCU CD (special 3% rate that no longer available) maturing in a couple of weeks. Our plan is to use that and knock the mortgage down a bit as well as doubling up on payments. We are at 55/45 stock/ bonds right now so this will be a better use of extra cash.
The destination matters.
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vineviz
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Re: Paying off sub 4% mortgage interest rate early

Post by vineviz »

Frugalbear wrote: Fri Sep 11, 2020 12:34 am Is anyone who has a sub 4% fixed mortgage interest rate paying it off aggressively early? If you are, why?
At 4%-ish, there is absolutely no better fixed income investment you can make than paying down a mortgage.

Certainly no investor should be holding bonds in any taxable account while carrying a mortgage at rates above 2.75%.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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hornet96
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Re: Paying off sub 4% mortgage interest rate early

Post by hornet96 »

I am wondering why all the folks with 3.5% - 3.75% mortgages aren’t doing a no cost refi down to 2.75% or so, unless you’re planning to pay it off completely in 2 years or so.
petulant
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Re: Paying off sub 4% mortgage interest rate early

Post by petulant »

hornet96 wrote: Fri Sep 11, 2020 7:16 am I am wondering why all the folks with 3.5% - 3.75% mortgages aren’t doing a no cost refi down to 2.75% or so, unless you’re planning to pay it off completely in 2 years or so.
Not everybody has access to those rates, whether due to state/market, credit score, or smaller mortgage balance.
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hornet96
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Re: Paying off sub 4% mortgage interest rate early

Post by hornet96 »

petulant wrote: Fri Sep 11, 2020 7:19 am
hornet96 wrote: Fri Sep 11, 2020 7:16 am I am wondering why all the folks with 3.5% - 3.75% mortgages aren’t doing a no cost refi down to 2.75% or so, unless you’re planning to pay it off completely in 2 years or so.
Not everybody has access to those rates, whether due to state/market, credit score, or smaller mortgage balance.
Seems like almost everyone on Bogleheads does, judging by the Refinance Mega Thread.
Admiral
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Re: Paying off sub 4% mortgage interest rate early

Post by Admiral »

2.25%, 11 years remaining. Not paying extra and doubt I will, as even large lump sum payments don't save very much nor shave much time off.

I do plan to stop working full time a year or two before the mortgage ends, so at that point, with $25-50k left, I might pay it off just to be rid of it.

Note that I do not holds bonds in taxable, only stocks and cash (EF).
bonglehead
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Re: Paying off sub 4% mortgage interest rate early

Post by bonglehead »

I recently closed on a fixed 2.5% for 30 yrs and plan to keep making additional principal payments of around $15K/yr.
I always wanted a 15yr term but given that the difference between a 15 and 30yr mortgage rate was not much, I decided to go with a 30yr but make extra payments when I can so that the effective term of the mortgage is reduced to 15yrs.
runner3081
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Re: Paying off sub 4% mortgage interest rate early

Post by runner3081 »

Paid off a 30-year at 3.49% a couple of years back after only holding for 7-years.
hightower
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Re: Paying off sub 4% mortgage interest rate early

Post by hightower »

Frugalbear wrote: Fri Sep 11, 2020 12:34 am Is anyone who has a sub 4% fixed mortgage interest rate paying it off aggressively early? If you are, why?
We just refinanced last week to a 30 year fixed at 2.87%. We are confident we want to stay in our home long term so we do want to pay it off early. I'm still undecided on the best method for accomplishing this. At this point I plan on trying to continue to build our taxable account until we have enough in there to lump sum pay it all off early. But, at the same time, I recognize that the stock market is not a guarantee and could result in years of poor returns or losses. What kind of makes my situation unique though is that my current high income career is not stable and could go away in the next year or two. Or it might not. I'm just not sure right now. So, having a paid off house or at least enough money to pay it off in taxable, is kind of a security thing for me. In the mean time, regardless, I keep saving aggressively. If something changes with my career, we'll take a look at the big picture and reassess our plans at that point. If I keep my current job, I'm not too worried about our mortgage because it's relatively small and affordable for what I make (a little over 1X annual income).
Andyrunner
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Re: Paying off sub 4% mortgage interest rate early

Post by Andyrunner »

2.99% 15 year paid if off a few months ago.

Why? Several reasons.

1) I like cash flow
2) I don't like debt
3) I have this thing where I can't let things linger. Can't have unread emails in my inbox, when I start looking at buying something, I gotta research, shop and pull the trigger soon, my only saving grace is I get distracted and focus on something else for a short time. Mortgage was probably the biggest one, kept sitting in my mind, I'd review it every month (sometimes twice) to see what I can do to pay it off early, how much I owed, what interest I'd save. Now that its done, one less thing to think about.
Admiral
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Re: Paying off sub 4% mortgage interest rate early

Post by Admiral »

I would add that if you're not maxing retirement accounts (and thus deferring taxes at your marginal rate) pre-paying a sub-4% mortgage is rarely a good idea except under some specific circumstances (being very close to retirement being one).

For example, for me to pre-pay $1,000 a month, I would have to reduce my retirement contribution and pay taxes on $1,250 to clear the $1000, which then would save me an eventual 2.25%.

Not an especially good deal.
knowledge
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Re: Paying off sub 4% mortgage interest rate early

Post by knowledge »

After investigating refinancing options and coming up empty, I've decided to start paying down my 3% 7/1 ARM, at least until I get down to the confirming loan limit and then re-evaluate. The 3% return vs. cash make sense as I got out of my state's muni bonds earlier this year.
guppyguy
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Re: Paying off sub 4% mortgage interest rate early

Post by guppyguy »

We are about 70% through aggressively paying off a 3.25% mortgage. We are 46, maxing out our 401K/Roth IRAs. We don't have a true AA between stocks and bonds. 100% of our tax advantaged accounts are in stocks. A healthy taxable emergency fund and paid off rental properties are our "stable" bond like funds.

We view our mortgage as a negative bond. Once it is paid off, we will put those payments towards setting up a LMP of TIPS/I-Bonds to cover ages 60-70, or between when I retire and collect SS at age 70.
Ron Ronnerson
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Re: Paying off sub 4% mortgage interest rate early

Post by Ron Ronnerson »

This has been our route:
2010: purchased home with 3% down (no PMI), 30 year fixed at 5.25%; paid extra each month
2012: did a no-cost refi to another 30 yr fixed at 3.25% and stopped making extra payments
2020: did a no-cost refi to another 30 yr fixed at 2.875% and restarted the 30 year clock (could afford the 15 year term); not paying extra

The hope is to refi in early 2021 to another 30 year term at a lower rate to extend the term out again.

We’re in the Bay Area, are in our mid-40s and have 60% equity in the home. I have secure employment, don’t plan to retire early, and am expecting a pension. Our mortgage payment of $1440/month is roughly half what it was in 2010. Instead of paying it off early, I’d like to drag it out as long as possible at sub-3% rates.
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Chief_Engineer
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Re: Paying off sub 4% mortgage interest rate early

Post by Chief_Engineer »

hornet96 wrote: Fri Sep 11, 2020 7:22 am Seems like almost everyone on Bogleheads does, judging by the Refinance Mega Thread.
Selection bias. People who can't get a good rate won't refinance and probably won't post in the thread.

I've got a little over $100k at 3.75% in the midwest. Can't get a better rate without paying $2k+ in closing costs. Just not worth it.
Afty
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Re: Paying off sub 4% mortgage interest rate early

Post by Afty »

When we were at 3.625%, I was paying extra. We recently refinanced to 2.625% and have stopped the extra payments. Doesn't seem worth it with such a low rate.
adam1712
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Re: Paying off sub 4% mortgage interest rate early

Post by adam1712 »

Frugalbear wrote: Fri Sep 11, 2020 12:34 am Is anyone who has a sub 4% fixed mortgage interest rate paying it off aggressively early? If you are, why?
I have been paying off aggressively as I can't find any bonds yields or savings accounts paying more 1.5%.
Admiral
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Re: Paying off sub 4% mortgage interest rate early

Post by Admiral »

Ron Ronnerson wrote: Fri Sep 11, 2020 9:33 am This has been our route:
2010: purchased home with 3% down (no PMI), 30 year fixed at 5.25%; paid extra each month
2012: did a no-cost refi to another 30 yr fixed at 3.25% and stopped making extra payments
2020: did a no-cost refi to another 30 yr fixed at 2.875% and restarted the 30 year clock (could afford the 15 year term); not paying extra

The hope is to refi in early 2021 to another 30 year term at a lower rate to extend the term out again.

We’re in the Bay Area, are in our mid-40s and have 60% equity in the home. I have secure employment, don’t plan to retire early, and am expecting a pension. Our mortgage payment of $1440/month is roughly half what it was in 2010. Instead of paying it off early, I’d like to drag it out as long as possible at sub-3% rates.
If you can afford a 15 year mortgage, why do you want to have a mortgage payment for (seemingly) the rest of your life? If nothing else, a 15 year note would allow you to build equity much faster and thus have less to pay off later (if and when you sell). Having a lower payment is fine. Having more of your payment go to principal is, IMO, more appealing.
JS-Elcano
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Re: Paying off sub 4% mortgage interest rate early

Post by JS-Elcano »

I am. Started a 30-yr mortgage in 2008, refinanced to 15-yr 3.5% in 2011, making some extra payments to accelerate. So, all in all mortgage will be paid off in 2024 instead of 2038 :D. I don't even care very much whether it's the right thing to do from a financial standpoint, but emotionally it's the best feeling to be rid of it. It's my only debt. Also, having it paid off coincides quite nicely with becoming eligible for catch-up contributions to retirement accounts. I also like that once the mortgage is paid off my expenses will be more similar to what I expect in retirement - like a test drive as a I get closer to early-ish retirement.
jsapiandante
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Re: Paying off sub 4% mortgage interest rate early

Post by jsapiandante »

We recently refinanced to 30 year 2.75%. We aren’t in a hurry to pay it off. Trying to reach FI first and then decide then whether to pay it off in full or not. I doubt we will. We will get there in 2-3 years. Right now our concern is accumulating as much wealth as possible. I’m not comfortable paying it off until we reach 2 mil in net worth even though we are FI at $1.25 mil. I plan to work until I no longer want to (own my own business) and my son is out of the house (he’s turning 3).
LittleMaggieMae
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Re: Paying off sub 4% mortgage interest rate early

Post by LittleMaggieMae »

I have a 5% 30 year mortgage on a rental property with a balance of 21K (the original loan amount was 45K) 2020 is year 10. It's been on a "I will pay this off in 15 years plan since day one). I was going to pay it off in March 2020 because I had cash on hand - but the world got weird and I decided to hold the cash a little longer (in a CD maturing in Novemenber 2020). I will be paying it off in December 2020. woo hoo! I free up $225 a month and 'save' about 1,200 in interest.

My other mortgages are alittle over 4% (60K left on an original loan 80K) or a little below 4% (153K left on an original loan 156K). I will move the $225 per month to the smaller mortgage. I'm just leaving the new bigger mortgage be for the time being.

Why am I paying downing low interest mortgages? I'm taking full advantage of other tax advantaged accounts, my monthly spending plan is reliable (fun stuff funded, sinking funds for quarterly/biyearly, yearly expense funded), I have an EF i'm comfortable with, and I have an after tax account I'm steadily building (set it and forget it). That means any "extra" money is going to pay down "debt" and the only debt I have is mortgages. I'm also about 5 years or less from a change in finances - via "financial freedom" or maybe a form of early retirement. not having so many mortgages seems like a "nice thing to accomplish".
Last edited by LittleMaggieMae on Fri Sep 11, 2020 11:17 am, edited 1 time in total.
GoodOmens
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Re: Paying off sub 4% mortgage interest rate early

Post by GoodOmens »

I'm at 3.375 in the beginnings of a refinance to either a 2.75 or 2.625 30 year. I've been overpaying about $750 a month (basically at a 15 year rate).

After this next refinance I might stop my overpayment and throw it into the market, especially if there is a correction around the next election results. Sub 3 seems stupid cheap.
EddyB
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Re: Paying off sub 4% mortgage interest rate early

Post by EddyB »

Frugalbear wrote: Fri Sep 11, 2020 12:34 am Is anyone who has a sub 4% fixed mortgage interest rate paying it off aggressively early? If you are, why?
I don't quite qualify, but I had 12 years left on an exactly 4% mortgage on a rental property that I decided to pay off at the end of August. The bond portion of my portfolio allocation was nearly a decade of my family's expenses (plenty, in my opinion), and would still be more than seven years' worth after selling to pay off the mortgage. I just didn't see the reason to keep paying the interest.

At the same time, I have so far not been inclined to pay off the 2.75% mortgage on my home, which has 7 years left on it, but if the current low interest-rate environment continues, I can see deciding to do so once the bond portion of my portfolio is back up in the 10-years-of-expenses range.
davemanjam
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Re: Paying off sub 4% mortgage interest rate early

Post by davemanjam »

I have a 2.75% 10year.
For a while CDs and short term rates approached that (>2%). Right now they won't touch it, but the spread between 2.75% and 0.5% isn't that large.
I predict short term rates will improve in 2-3 years. That's my own prediction, apply your own if you don't like it.
And this is just short term. A balanced portfolio over that same time blasted 2.75%.

But by the same account by going with a 10-year term I have chosen already to go aggressive. so maybe that's a bit of a contradiction to what I've already said.
luckyducky99
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Re: Paying off sub 4% mortgage interest rate early

Post by luckyducky99 »

Frugalbear wrote: Fri Sep 11, 2020 12:34 am Is anyone who has a sub 4% fixed mortgage interest rate paying it off aggressively early? If you are, why?
Yes, because I was paying 3.75% which is way more than I could earn on any (equally safe) fixed income investment, so was a win.
Last edited by luckyducky99 on Fri Sep 11, 2020 1:25 pm, edited 1 time in total.
iasw
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Re: Paying off sub 4% mortgage interest rate early

Post by iasw »

We paid ours off last month, 7 years early on a 15-year loan. We are a one-income household. We put math aside and listened to the "sleep better at night" side of the argument.
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Toons
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Re: Paying off sub 4% mortgage interest rate early

Post by Toons »

I am not
But
I Would
If I had a Mortgage




:mrgreen:
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Admiral
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Re: Paying off sub 4% mortgage interest rate early

Post by Admiral »

Toons wrote: Fri Sep 11, 2020 12:09 pm I am not
But
I Would
If I had a Mortgage




:mrgreen:
Toons I always enjoy your Haiku-esque responses! :happy
new2bogle
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Re: Paying off sub 4% mortgage interest rate early

Post by new2bogle »

No, I do not. Went from 3.6% to 2.87% mortgage last month and now it makes less sense. Instead, I dump all extra money into total stock market fund.
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willthrill81
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Re: Paying off sub 4% mortgage interest rate early

Post by willthrill81 »

Frugalbear wrote: Fri Sep 11, 2020 12:34 am Is anyone who has a sub 4% fixed mortgage interest rate paying it off aggressively early? If you are, why?
We paid off our 3.375% mortgage back in February for several reasons. First, despite having an aggressive investment approach, neither my wife nor I felt comfortable using our primary residence to leverage our investments, which is precisely what having a mortgage while you're investing does. Second, it provided us a reasonable, guaranteed return on our capital. Third, paying off mortgage improved our cash flow by substantially reducing our essential expenses, which is very meaningful in the current environment especially.

For the sake of comparison, over the five year in which we paid off our mortgage, TBM returned about 3.27% on a pre-tax basis (time-weighted, not money-weighted), so paying off our 3.375% post-tax mortgage definitely came out ahead in that regard. And 3.375% nominal is almost certainly far more than what TBM will return over the next decade.
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hornet96
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Re: Paying off sub 4% mortgage interest rate early

Post by hornet96 »

Chief_Engineer wrote: Fri Sep 11, 2020 10:06 am
hornet96 wrote: Fri Sep 11, 2020 7:22 am Seems like almost everyone on Bogleheads does, judging by the Refinance Mega Thread.
Selection bias. People who can't get a good rate won't refinance and probably won't post in the thread.

I've got a little over $100k at 3.75% in the midwest. Can't get a better rate without paying $2k+ in closing costs. Just not worth it.
Selection bias is indeed very prevalent across this whole forum. I didn't mean to imply anything with my comments, but wanted to make sure the OP and others in this thread had considered refinancing (even if they want to pay it off early), given the historical lows and limited time to get a refi in before the new fee goes into effect in December.

As you note, it seems that unfortunately not everyone will be able to economically take advantage of this refi window. In addition to my own 2nd refi of 2020, I'm looking into helping my MIL refi her mortgage (also in the midwest), and am wondering how effective her refi path will be compared to ours. Just noticed that LenderFi is not licensed in MO, so that throws a wrench into my plans for her.
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firedup
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Re: Paying off sub 4% mortgage interest rate early

Post by firedup »

My wife and I have a 3.0% rate on a 10-year ARM that resets in 2023.

Despite the favorable rate and ratio of principal to interest, we are paying off our mortgage this year to reduce our annual expenses by about 30K going forward.

We could certainly keep the mortgage, but we feel better getting rid of it as we are close to retirement.

Plus, I just hate having debt.
"We are more alike, my friends, than we are unalike" --Maya Angelou
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anon_investor
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Re: Paying off sub 4% mortgage interest rate early

Post by anon_investor »

Nope. Recently refinanced to a 2.75% 30yr fixed. Not sure if this is our forever home. Likely 20+ years from retirement. Instead of prepaying we will put extra money into VTSAX in our taxable account. If rates get even lower we would refinance again before considering prepayment.
BrooklynInvest
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Re: Paying off sub 4% mortgage interest rate early

Post by BrooklynInvest »

Yep. Have 2 years left before my 7 year ARM resets and hoping to be done with the mortgage entirely within a year and going back to school for a masters degree. My sequence -

- Made minimal additional mortgage payments while investing in after tax portfolio (after maxing 401k) until my portfolio got to within 20% of what I figured I needed for early retirement and beyond

- Then diverted all extra cash to paying down the mortgage

- Once done, while I'm still working, will go back to adding to after tax portfolio

Ideally I should have been doing both consistently (dollar cost averaging across the debt and the portfolio) but I work in the corporate world and liked the security of getting my portfolio almost to where I wanted it to be prior.
Colorado13
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Re: Paying off sub 4% mortgage interest rate early

Post by Colorado13 »

I paid mine off and now direct all extra funds to after-tax 401k contributions, to fund my mega backdoor Roth. I'm aiming for early retirement so the mortgage payoff was a great decision for my situation. It's fabulous to not have that monthly payment.
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changingtimes
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Re: Paying off sub 4% mortgage interest rate early

Post by changingtimes »

hornet96 wrote: Fri Sep 11, 2020 7:16 am I am wondering why all the folks with 3.5% - 3.75% mortgages aren’t doing a no cost refi down to 2.75% or so, unless you’re planning to pay it off completely in 2 years or so.
I was one of them, at 3.625%, and I really wanted to see a good deal below 3.0 before bothering, remembering how ghastly the refinance process used to be. But I decided to give it a whirl with better.com, and my diligence over the years in scanning all important documents and saving them on my hard drive finally came in handy. :) Am now locked in at 2.875% for $277k/30year (for a house in a HCOL area worth about $950k).
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hornet96
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Re: Paying off sub 4% mortgage interest rate early

Post by hornet96 »

changingtimes wrote: Fri Sep 11, 2020 3:38 pm
hornet96 wrote: Fri Sep 11, 2020 7:16 am I am wondering why all the folks with 3.5% - 3.75% mortgages aren’t doing a no cost refi down to 2.75% or so, unless you’re planning to pay it off completely in 2 years or so.
I was one of them, at 3.625%, and I really wanted to see a good deal below 3.0 before bothering, remembering how ghastly the refinance process used to be. But I decided to give it a whirl with better.com, and my diligence over the years in scanning all important documents and saving them on my hard drive finally came in handy. :) Am now locked in at 2.875% for $277k/30year (for a house in a HCOL area worth about $950k).
Nice! Good luck with the refi. We just locked in the rate on our 2nd refi of the year yesterday (near zero cost, going from 3.125% to 2.75%). I was already happy with 3.125%, but I guess I like to try to optimize everything if there are minimal costs involved. :sharebeer
Ron Ronnerson
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Re: Paying off sub 4% mortgage interest rate early

Post by Ron Ronnerson »

Admiral wrote: Fri Sep 11, 2020 10:37 am
Ron Ronnerson wrote: Fri Sep 11, 2020 9:33 am This has been our route:
2010: purchased home with 3% down (no PMI), 30 year fixed at 5.25%; paid extra each month
2012: did a no-cost refi to another 30 yr fixed at 3.25% and stopped making extra payments
2020: did a no-cost refi to another 30 yr fixed at 2.875% and restarted the 30 year clock (could afford the 15 year term); not paying extra

The hope is to refi in early 2021 to another 30 year term at a lower rate to extend the term out again.

We’re in the Bay Area, are in our mid-40s and have 60% equity in the home. I have secure employment, don’t plan to retire early, and am expecting a pension. Our mortgage payment of $1440/month is roughly half what it was in 2010. Instead of paying it off early, I’d like to drag it out as long as possible at sub-3% rates.
If you can afford a 15 year mortgage, why do you want to have a mortgage payment for (seemingly) the rest of your life? If nothing else, a 15 year note would allow you to build equity much faster and thus have less to pay off later (if and when you sell). Having a lower payment is fine. Having more of your payment go to principal is, IMO, more appealing.
It's a risk but I expect that the after-tax (I'm in the 12% federal tax bracket and don't pay any California income tax) returns on investments over the long term will exceed the rate on my mortgage (which is a little bit lower than 2.875% since I itemize on state taxes). After inflation, the mortgage payment should effectively be (quite a bit?) less by the time I retire in 15 years or so.

Not only do I not mind carrying mortgage debt at a sub-3% rate, I prefer to carry it as long as possible. Basically, at low enough rates, I like the idea of borrowing money. While it is more risky than paying off the house, I suppose I just don't mind hanging on to debt that is lower than the average historic inflation rate. I do appreciate those who prefer to pay off their house. Everyone's circumstances and preferences are different.

By the way, at current rates, the very first payment on a 30-year loan starts with roughly half the payment going toward principal so the balance is definitely going down over time as well. Inflation is making the balance go down too, even though it's not necessarily as easy to notice.

If the 30-year goes below 2% for a cash-out refi, I would be very interested.
grettman
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Re: Paying off sub 4% mortgage interest rate early

Post by grettman »

willthrill81 wrote: Fri Sep 11, 2020 1:07 pm
Frugalbear wrote: Fri Sep 11, 2020 12:34 am Is anyone who has a sub 4% fixed mortgage interest rate paying it off aggressively early? If you are, why?
We paid off our 3.375% mortgage back in February for several reasons. First, despite having an aggressive investment approach, neither my wife nor I felt comfortable using our primary residence to leverage our investments, which is precisely what having a mortgage while you're investing does. Second, it provided us a reasonable, guaranteed return on our capital. Third, paying off mortgage improved our cash flow by substantially reducing our essential expenses, which is very meaningful in the current environment especially.

For the sake of comparison, over the five year in which we paid off our mortgage, TBM returned about 3.27% on a pre-tax basis (time-weighted, not money-weighted), so paying off our 3.375% post-tax mortgage definitely came out ahead in that regard. And 3.375% nominal is almost certainly far more than what TBM will return over the next decade.
I’m in a very similar situation.

What are you doing with the freed up cash flow?
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