Pay off mortgage or not

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AlmostRetiredNY
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Pay off mortgage or not

Post by AlmostRetiredNY »

Hello all. I have a mortgage with a principal amount of $270,000 and and interest rate of 3.625%. It was originally a 30 year fixed and has 22 years to run. I have quite a bit of funds in a bank earning next to nothing. I hate paying $11,000 a year in interest expense. Wife says the rate is low and inflation may come back, so keep the mortgage. I say we have cash earning nothing and inflation is more than 5 to 7+ years away. Who is right? How do I convince her to pay this money sucker off? Thanks!!
bi0hazard
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Re: Pay off mortgage or not

Post by bi0hazard »

I don't think there's a right answer. I struggled with this quite a bit, and just paid off mortgage this week (9.5 yrs into the loan). Feels pretty good.
mhalley
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Re: Pay off mortgage or not

Post by mhalley »

How about meeting in the middle, refi to a 15 year and cut 7 years off and have a lower interest rate, thus less than 11k to the interest?
Last edited by mhalley on Sat Nov 14, 2020 7:55 pm, edited 1 time in total.
Marseille07
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Re: Pay off mortgage or not

Post by Marseille07 »

If the question is cash w/o any intention of investing elsewhere vs paying off the mortgage then you should pay it off. Typically the question is if you should invest the cash elsewhere vs paying it off...
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anon_investor
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Re: Pay off mortgage or not

Post by anon_investor »

AlmostRetiredNY wrote: Sat Nov 14, 2020 7:46 pm Hello all. I have a mortgage with a principal amount of $270,000 and and interest rate of 3.625%. It was originally a 30 year fixed and has 22 years to run. I have quite a bit of funds in a bank earning next to nothing. I hate paying $11,000 a year in interest expense. Wife says the rate is low and inflation may come back, so keep the mortgage. I say we have cash earning nothing and inflation is more than 5 to 7+ years away. Who is right? How do I convince her to pay this money sucker off? Thanks!!
Do a no cost refi and get the interest down under 3%. I did a no cost (lenders credit covered all costs, only had to pay prepaids and fund escrow at closing) refi in July to 2.75% for 30yr fixed (15 yr refis have even lower interest).
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Watty
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Re: Pay off mortgage or not

Post by Watty »

There is a wiki on deciding about paying down debt or investing

https://www.bogleheads.org/wiki/Paying_ ... _investing

but if you just have the money sitting in a bank account that is not really investing the money.

As someone else said if you decide to not pay it off completely they you should really refinance the mortgage.
AlmostRetiredNY wrote: Sat Nov 14, 2020 7:46 pm Who is right? How do I convince her to pay this money sucker off?
If you are just leaving the money in a low interest rate bank account then you are right as long as you would still have an ample emergency fund.

If you were investing the money instead then there are lots of opinions and arguments both ways but there is no real consensus about what is right.

One thing that you might point out to her is that if inflation suddenly went up to 10%+ than having the mortgage might feel great, but you would also lose that 10% of purchasing power of the money that is in the bank. To come out ahead you would really need to have the money invested in something that you expect to do better than inflation. Of course anything like that would have more risk and it could do badly.

If you paid off the house and inflation was 10% then most likely the value of your house would also go up 10% so you would still do well if there is inflation.
Gooch1226
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Re: Pay off mortgage or not

Post by Gooch1226 »

Pay it off ! I recently paid mine and feel stress free! To each is own but to me it’s a piece of mind ! Just open a heloc as a just in case until you build cash up !
Last edited by Gooch1226 on Sat Nov 14, 2020 8:44 pm, edited 1 time in total.
Marseille07
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Re: Pay off mortgage or not

Post by Marseille07 »

One word of caution on the suggestion of refi is refi isn't free. If you have enough cash to pay it off, with no intention of investing elsewhere, then you should just pay it off without even refinancing.
spmysp1
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Re: Pay off mortgage or not

Post by spmysp1 »

we paid off our mortgage this summer. it feels good but not amazing. we had a significant amount of bonds in a taxable account earning very little. the poor return on bonds was the main reason we decided to pay off the remaining 20% of our mortgage balance. no regrets.
tiburblium
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Re: Pay off mortgage or not

Post by tiburblium »

If there was unexpected inflation, how would you benefit by holding money from a loan in a bank account?

Have you considered paying off the mortgage but adding a HELOC? My mortgage is paid off, but I attached a heloc, it is prime rate -0.10%, or 3.15%. A bit more than a fixed rate, but not much, and there is an option to convert the draw to a fixed rate loan. I may not ever tap the heloc, but the option is there, and it was free to open
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Re: Pay off mortgage or not

Post by TropikThunder »

Marseille07 wrote: Sat Nov 14, 2020 8:42 pm One word of caution on the suggestion of refi is refi isn't free. If you have enough cash to pay it off, with no intention of investing elsewhere, then you should just pay it off without even refinancing.
Do you mean that in a literal sense, or in a metaphysical sense? My last two refi's were indeed free: no money out of pocket since lender credits covered everything. Prepaid interest and escrow doesn't count since that would have been payable to the original lender anyway. I did have to sign my name about twelve times though.
manatee2005
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Re: Pay off mortgage or not

Post by manatee2005 »

TropikThunder wrote: Sat Nov 14, 2020 9:27 pm
Marseille07 wrote: Sat Nov 14, 2020 8:42 pm One word of caution on the suggestion of refi is refi isn't free. If you have enough cash to pay it off, with no intention of investing elsewhere, then you should just pay it off without even refinancing.
Do you mean that in a literal sense, or in a metaphysical sense? My last two refi's were indeed free: no money out of pocket since lender credits covered everything. Prepaid interest and escrow doesn't count since that would have been payable to the original lender anyway. I did have to sign my name about twelve times though.
I refied 3 times this year. Lenderfi, Owning, InteractiveMortgage all free. I remember paying $2400 lender fee when I got my original mortgage, what an inexperienced sucker was I.

I am in the camp of paying off your mortgage when it's 4.5%, don't pay it off when it's 2.375%. Can you refinance? You should be paying less than 10k per year in interest if you retired to the latest rates.
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JoeRetire
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Re: Pay off mortgage or not

Post by JoeRetire »

AlmostRetiredNY wrote: Sat Nov 14, 2020 7:46 pmI have quite a bit of funds in a bank earning next to nothing.
Why?
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.
Monsterflockster
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Re: Pay off mortgage or not

Post by Monsterflockster »

AlmostRetiredNY wrote: Sat Nov 14, 2020 7:46 pm Hello all. I have a mortgage with a principal amount of $270,000 and and interest rate of 3.625%. It was originally a 30 year fixed and has 22 years to run. I have quite a bit of funds in a bank earning next to nothing. I hate paying $11,000 a year in interest expense. Wife says the rate is low and inflation may come back, so keep the mortgage. I say we have cash earning nothing and inflation is more than 5 to 7+ years away. Who is right? How do I convince her to pay this money sucker off? Thanks!!
There’s a reason banks make money. I am not a fan of carrying debt. Living debt free is a winning formula. While it is historically accurate to say the market goes up there no guarantee the market will be higher than it is today. I’d pay it off.
Marseille07
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Re: Pay off mortgage or not

Post by Marseille07 »

TropikThunder wrote: Sat Nov 14, 2020 9:27 pm
Marseille07 wrote: Sat Nov 14, 2020 8:42 pm One word of caution on the suggestion of refi is refi isn't free. If you have enough cash to pay it off, with no intention of investing elsewhere, then you should just pay it off without even refinancing.
Do you mean that in a literal sense, or in a metaphysical sense? My last two refi's were indeed free: no money out of pocket since lender credits covered everything. Prepaid interest and escrow doesn't count since that would have been payable to the original lender anyway. I did have to sign my name about twelve times though.
I meant in a literal sense but I'm also sensing that the times have changed :D
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jeffyscott
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Re: Pay off mortgage or not

Post by jeffyscott »

AlmostRetiredNY wrote: Sat Nov 14, 2020 7:46 pmWife says the rate is low and inflation may come back, so keep the mortgage. I say we have cash earning nothing and inflation is more than 5 to 7+ years away. Who is right? How do I convince her to pay this money sucker off? Thanks!!
Maybe tell her the market agrees with you? The 20 year treasury rate of 1.43% and 20 year TIPS rate of -0.4% real, imply expected inflation of 1.83% over the next 20 years. Looking at 7 years it's -1.05% real vs. 0.65% nominal, implying 1.7% inflation expected over the next 7 years and for 5 years it is similar to 7. Doing the math, expected inflation for years 8-20 would still under 2%.

If you pay off the mortgage, you can start putting that $11,000 per year in I-bonds and gradually build up some inflation protection that way.
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jello_nailer
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Re: Pay off mortgage or not

Post by jello_nailer »

Borrow at 1.09% from your IBKR margin account? If you had a pile of bonds and cash in there seems like low risk. Or pay it off and use IBKR as your HELOC to nail a low rate in the future.

One caveat though - OP used words like "quite a bit of funds" in a bank earning nothing so I am assuming those funds are either the EF or probably bond substitutes, which seems the OP would have 2-4x that in equities, or more so this wouldn't be any significant margin call risk. Coverage should be enormous.

I view margin to plow into the market a different risk than margin used as a substitute for other borrowing.

I'm receptive to other comments and harpooning, I'm always eager to learn and understand. Fire away.
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vineviz
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Re: Pay off mortgage or not

Post by vineviz »

AlmostRetiredNY wrote: Sat Nov 14, 2020 7:46 pm Hello all. I have a mortgage with a principal amount of $270,000 and and interest rate of 3.625%. It was originally a 30 year fixed and has 22 years to run. I have quite a bit of funds in a bank earning next to nothing. I hate paying $11,000 a year in interest expense. Wife says the rate is low and inflation may come back, so keep the mortgage. I say we have cash earning nothing and inflation is more than 5 to 7+ years away. Who is right? How do I convince her to pay this money sucker off? Thanks!!
Do you have $270,000 in the bank?

I ask because paying DOWN a mortgage isn’t exactly the same as paying it OFF.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
jello_nailer
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Re: Pay off mortgage or not

Post by jello_nailer »

Good point. You don't pay the $11k a year on any balance. Pay down $135k and you cut that giant sucking sound by 1/2.
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anon_investor
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Re: Pay off mortgage or not

Post by anon_investor »

Marseille07 wrote: Sat Nov 14, 2020 10:47 pm
TropikThunder wrote: Sat Nov 14, 2020 9:27 pm
Marseille07 wrote: Sat Nov 14, 2020 8:42 pm One word of caution on the suggestion of refi is refi isn't free. If you have enough cash to pay it off, with no intention of investing elsewhere, then you should just pay it off without even refinancing.
Do you mean that in a literal sense, or in a metaphysical sense? My last two refi's were indeed free: no money out of pocket since lender credits covered everything. Prepaid interest and escrow doesn't count since that would have been payable to the original lender anyway. I did have to sign my name about twelve times though.
I meant in a literal sense but I'm also sensing that the times have changed :D
Times have definitely changed. I did 2 refis this year, the first one they paid me $2k, the second one I paid $0. I went from 3.875% to 3.375% to 2.75%, and got paid $2k for my trouble. My initial mortgage was only about 2 years into a 30 year, so I only really extended my term 2 years. I would have felt like a sucker on my initial mortgage closing costs, but luckily my company paid all that as part of my relo package :D .
Outer Marker
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Re: Pay off mortgage or not

Post by Outer Marker »

I've also refi'd twice this year. The last one was to a 15 year at 2.125% with $9,000 in lender credits, so I turned a nice profit for taking the lower rate. I've always been a fan of paying off the mortgage, but the rate is now lower than the Stable Value fund in my 401K is paying, so I'll probably keep it to term. I can't image rates will go lower, but if they do, lather, rinse, repeat . . .
aerosurfer
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Re: Pay off mortgage or not

Post by aerosurfer »

Outer Marker wrote: Sun Nov 15, 2020 11:53 am I've also refi'd twice this year. The last one was to a 15 year at 2.125% with $9,000 in lender credits, so I turned a nice profit for taking the lower rate. I've always been a fan of paying off the mortgage, but the rate is now lower than the Stable Value fund in my 401K is paying, so I'll probably keep it to term. I can't image rates will go lower, but if they do, lather, rinse, repeat . . .
Wow, congrats on that. Where was that from? Any relationship hoops or other things you did to get those terms
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Re: Pay off mortgage or not

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aerosurfer wrote: Sun Nov 15, 2020 12:11 pm
Outer Marker wrote: Sun Nov 15, 2020 11:53 am I've also refi'd twice this year. The last one was to a 15 year at 2.125% with $9,000 in lender credits, so I turned a nice profit for taking the lower rate. I've always been a fan of paying off the mortgage, but the rate is now lower than the Stable Value fund in my 401K is paying, so I'll probably keep it to term. I can't image rates will go lower, but if they do, lather, rinse, repeat . . .
Wow, congrats on that. Where was that from? Any relationship hoops or other things you did to get those terms
Loan Depot. I'd been comparison shopping between them, AmeriSave, and better for about a month. The day before the election the rates blipped down; I got a cold call from Loan Depot with those terms and jumped on it. Rates remain very good on 15 year money with all of those companies, even if not quite that good. A lucky score.
aerosurfer
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Re: Pay off mortgage or not

Post by aerosurfer »

I just did a 2.5% 15yr with lenderfi last month...

Congrats on the rate
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Re: Pay off mortgage or not

Post by abuss368 »

anon_investor wrote: Sat Nov 14, 2020 7:54 pm
AlmostRetiredNY wrote: Sat Nov 14, 2020 7:46 pm Hello all. I have a mortgage with a principal amount of $270,000 and and interest rate of 3.625%. It was originally a 30 year fixed and has 22 years to run. I have quite a bit of funds in a bank earning next to nothing. I hate paying $11,000 a year in interest expense. Wife says the rate is low and inflation may come back, so keep the mortgage. I say we have cash earning nothing and inflation is more than 5 to 7+ years away. Who is right? How do I convince her to pay this money sucker off? Thanks!!
Do a no cost refi and get the interest down under 3%. I did a no cost (lenders credit covered all costs, only had to pay prepaids and fund escrow at closing) refi in July to 2.75% for 30yr fixed (15 yr refis have even lower interest).
Excellent advice.
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HMSVictory
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Re: Pay off mortgage or not

Post by HMSVictory »

Pay it off and be done with it.

While you have a lot of "calculations" being discussed about inflation, rate of return and bond yields the bottom line is bonds yield 1% and your mortgage is at 3%. It's like a big negative bond. Oh and it's a guaranteed return of 3% on your money. Plus you can always get another one if you hate being debt free (you won't).

Any time you de-leverage you are decreasing your personal risk. Having the house paid off is a strong personal foundation with which to build wealth. I've seen a few friends and others loose their home to foreclosure. It's a very painful and sad thing.

I send what used to be my mortgage payment to Vanguard every month and holy crap it's turned into a LOT of money.
Stay the course!
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Re: Pay off mortgage or not

Post by abuss368 »

HMSVictory wrote: Sun Nov 15, 2020 7:58 pm Pay it off and be done with it.

While you have a lot of "calculations" being discussed about inflation, rate of return and bond yields the bottom line is bonds yield 1% and your mortgage is at 3%. It's like a big negative bond. Oh and it's a guaranteed return of 3% on your money. Plus you can always get another one if you hate being debt free (you won't).

Any time you de-leverage you are decreasing your personal risk. Having the house paid off is a strong personal foundation with which to build wealth. I've seen a few friends and others loose their home to foreclosure. It's a very painful and sad thing.

I send what used to be my mortgage payment to Vanguard every month and holy crap it's turned into a LOT of money.
I like this advice. We have been paying down debt and simply deleveraging. The return and satisfaction can not be measured. This has also included paying down the mortgage at a faster rate and of course our equity is increasing at a much faster rate.

Not owning the banks anything is very satisfying.
John C. Bogle: “Simplicity is the master key to financial success."
Marseille07
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Re: Pay off mortgage or not

Post by Marseille07 »

abuss368 wrote: Sun Nov 15, 2020 8:11 pm
HMSVictory wrote: Sun Nov 15, 2020 7:58 pm Pay it off and be done with it.

While you have a lot of "calculations" being discussed about inflation, rate of return and bond yields the bottom line is bonds yield 1% and your mortgage is at 3%. It's like a big negative bond. Oh and it's a guaranteed return of 3% on your money. Plus you can always get another one if you hate being debt free (you won't).

Any time you de-leverage you are decreasing your personal risk. Having the house paid off is a strong personal foundation with which to build wealth. I've seen a few friends and others loose their home to foreclosure. It's a very painful and sad thing.

I send what used to be my mortgage payment to Vanguard every month and holy crap it's turned into a LOT of money.
I like this advice. We have been paying down debt and simply deleveraging. The return and satisfaction can not be measured. This has also included paying down the mortgage at a faster rate and of course our equity is increasing at a much faster rate.

Not owning the banks anything is very satisfying.
I like this too, a big fan of eliminating loan obligations of any kind.
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Re: Pay off mortgage or not

Post by protagonist »

AlmostRetiredNY wrote: Sat Nov 14, 2020 7:46 pm Hello all. I have a mortgage with a principal amount of $270,000 and and interest rate of 3.625%. It was originally a 30 year fixed and has 22 years to run. I have quite a bit of funds in a bank earning next to nothing. I hate paying $11,000 a year in interest expense. Wife says the rate is low and inflation may come back, so keep the mortgage. I say we have cash earning nothing and inflation is more than 5 to 7+ years away. Who is right? How do I convince her to pay this money sucker off? Thanks!!
I would always pay off a mortgage, unless the rate was so low that I was making more money in bank interest by leaving the money in the bank than I was paying (or some other nearly 100% secure investment).
A few reasons:
1. You never really know if you would be better off paying it off since you don't know what the future will bring, and paying it off simplifies your life.
2. "Mortgage" is just a fancy word for "debt". Debt is not a good thing, unless necessary. It costs money. If you wanted some other possession that costs $270K, and you didn't have the money but could borrow it today at 3.625% (a Ferrari or whatever), would you take the loan? Or would you wait until you saved enough to buy it?
3. It feels so good to be debt free (as you alluded to in your post....some may not feel that way but I think you do).
4. In today's investment climate, what else would you do with the money?
exigent
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Re: Pay off mortgage or not

Post by exigent »

Marseille07 wrote: Sat Nov 14, 2020 8:42 pm One word of caution on the suggestion of refi is refi isn't free. If you have enough cash to pay it off, with no intention of investing elsewhere, then you should just pay it off without even refinancing.
In the current rate environment, and given OP’s existing rate, a no-cost refi to a substantially better is *absolutely* realisitic.

I like the suggestion of dropping to a 15-year fixed. With decent credit, the rate should be in low-to-mid 2% range with minimal costs.

Fwiw, we could easily kill off our mortgage if we wanted, but rates are *very* low, and it’s a decent inflation hedge. I’d rather carry it for now and continue investing the difference — secure in the knowledge that we can pay it off whenever we want to.
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Re: Pay off mortgage or not

Post by calmaniac »

OP did not note how close they are to retirement.

We paid off our house about 3 years ago with a slug of cash, ≈$230k. One of the things I really like about a paid off house is the greater simplicity of cash flow projections in retirement. With the house paid off there are simply fewer moving parts to the calculation of cash flow.
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Re: Pay off mortgage or not

Post by abuss368 »

calmaniac wrote: Sun Nov 15, 2020 9:44 pm OP did not note how close they are to retirement.

We paid off our house about 3 years ago with a slug of cash, ≈$230k. One of the things I really like about a paid off house is the greater simplicity of cash flow projections in retirement. With the house paid off there are simply fewer moving parts to the calculation of cash flow.
Very true. I look forward to the day where we are largely debt free. Our financial lives will be even more simple.
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Re: Pay off mortgage or not

Post by just_cruisin »

Caution:

A lot of the people bragging about refi’s at low rates have BIG balances on their homes. The mortgage companies view them as cash cows to bleed over the next 30 years and discount their rates to lock them in. The total interest cost over the lifetime if the loan is into the 6 figures.

Source: I have been researching refi’s for a long time but keep getting told my loans are too small. Good problem to have and 3 of them are getting paid off this month. FREEDOM !
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Re: Pay off mortgage or not

Post by Outer Marker »

just_cruisin wrote: Sun Nov 15, 2020 10:48 pm A lot of the people bragging about refi’s at low rates have BIG balances on their homes. The mortgage companies view them as cash cows to bleed over the next 30 years and discount their rates to lock them in. The total interest cost over the lifetime if the loan is into the 6 figures.

Source: I have been researching refi’s for a long time but keep getting told my loans are too small. Good problem to have and 3 of them are getting paid off this month. FREEDOM !
That's incorrect. The rates are generally available to everyone, but the amount of the lender credit will depend on the outstanding balance as to how much its worth to the lender to "buy" your business for the next 15 or 30 years. Obviously, the lender is going to pay less to buy a $100,000 loan at 2.5% than a $700,000 loan at 2.5%. But, either borrower can readily get the 2.5% rate. Anyone can get the 2.5% rate, but if you're the one paying the closing costs out of pocket, it may not be worth it on a small balance loan. With OP's outstanding $270,000 s/he should be able to get very attractive terms and enough in lender credits to fully cover the closing costs and get a much lower rate on a 15 year term. That's what I'd do in this case.
exigent
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Re: Pay off mortgage or not

Post by exigent »

Outer Marker wrote: Sun Nov 15, 2020 11:11 pm
just_cruisin wrote: Sun Nov 15, 2020 10:48 pm A lot of the people bragging about refi’s at low rates have BIG balances on their homes. The mortgage companies view them as cash cows to bleed over the next 30 years and discount their rates to lock them in. The total interest cost over the lifetime if the loan is into the 6 figures.

Source: I have been researching refi’s for a long time but keep getting told my loans are too small. Good problem to have and 3 of them are getting paid off this month. FREEDOM !
That's incorrect. The rates are generally available to everyone, but the amount of the lender credit will depend on the outstanding balance as to how much its worth to the lender to "buy" your business for the next 15 or 30 years. Obviously, the lender is going to pay less to buy a $100,000 loan at 2.5% than a $700,000 loan at 2.5%. But, either borrower can readily get the 2.5% rate. Anyone can get the 2.5% rate, but if you're the one paying the closing costs out of pocket, it may not be worth it on a small balance loan. With OP's outstanding $270,000 s/he should be able to get very attractive terms and enough in lender credits to fully cover the closing costs and get a much lower rate on a 15 year term. That's what I'd do in this case.
Yup. Shorten to 15 years, nail down a much lower rate, and pay virtually nothing out-of-pocket to make it happen. This is the way.
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Re: Pay off mortgage or not

Post by brianH »

Outer Marker wrote: Sun Nov 15, 2020 11:11 pm That's incorrect. The rates are generally available to everyone, but the amount of the lender credit will depend on the outstanding balance as to how much its worth to the lender to "buy" your business for the next 15 or 30 years. Obviously, the lender is going to pay less to buy a $100,000 loan at 2.5% than a $700,000 loan at 2.5%. But, either borrower can readily get the 2.5% rate. Anyone can get the 2.5% rate, but if you're the one paying the closing costs out of pocket, it may not be worth it on a small balance loan.
This was the problem I had trying to refi a mortgage with a less than 100K balance. It might also be an artifact of Pennsylvania's tile insurance/appraisal rules (I didn't research that deep), but I was unable to find a no-cost refi or one that involved <$3000 out of pocket. My napkin math calculated I'd be better just paying it off, as long as I did it within 5 years (as I plan to.)

I certainly didn't regret paying off the mortgage on my last house, and I doubt I will for this one. I don't think buying taxable bonds in this environment makes any sense when you're sitting on an after-tax mortgage payment with a higher interest rate.
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Re: Pay off mortgage or not

Post by just_cruisin »

Outer Marker wrote: Sun Nov 15, 2020 11:11 pm
just_cruisin wrote: Sun Nov 15, 2020 10:48 pm A lot of the people bragging about refi’s at low rates have BIG balances on their homes. The mortgage companies view them as cash cows to bleed over the next 30 years and discount their rates to lock them in. The total interest cost over the lifetime if the loan is into the 6 figures.

Source: I have been researching refi’s for a long time but keep getting told my loans are too small. Good problem to have and 3 of them are getting paid off this month. FREEDOM !
That's incorrect. The rates are generally available to everyone, but the amount of the lender credit will depend on the outstanding balance as to how much its worth to the lender to "buy" your business for the next 15 or 30 years. Obviously, the lender is going to pay less to buy a $100,000 loan at 2.5% than a $700,000 loan at 2.5%. But, either borrower can readily get the 2.5% rate. Anyone can get the 2.5% rate, but if you're the one paying the closing costs out of pocket, it may not be worth it on a small balance loan. With OP's outstanding $270,000 s/he should be able to get very attractive terms and enough in lender credits to fully cover the closing costs and get a much lower rate on a 15 year term. That's what I'd do in this case.
Your statement regarding rates is in direct contradiction to several loan officers I know.

This summer and autumn people with mortgages at the high end of conforming loan balances (but not into jumbo territory) were getting 2.25 on 30 year refi’s while those with balances of only 100-200k were getting 3.5 - 3.75.
just_cruisin
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Re: Pay off mortgage or not

Post by just_cruisin »

brianH wrote: Mon Nov 16, 2020 9:14 pm
Outer Marker wrote: Sun Nov 15, 2020 11:11 pm That's incorrect. The rates are generally available to everyone, but the amount of the lender credit will depend on the outstanding balance as to how much its worth to the lender to "buy" your business for the next 15 or 30 years. Obviously, the lender is going to pay less to buy a $100,000 loan at 2.5% than a $700,000 loan at 2.5%. But, either borrower can readily get the 2.5% rate. Anyone can get the 2.5% rate, but if you're the one paying the closing costs out of pocket, it may not be worth it on a small balance loan.
This was the problem I had trying to refi a mortgage with a less than 100K balance. It might also be an artifact of Pennsylvania's tile insurance/appraisal rules (I didn't research that deep), but I was unable to find a no-cost refi or one that involved <$3000 out of pocket. My napkin math calculated I'd be better just paying it off, as long as I did it within 5 years (as I plan to.)

I certainly didn't regret paying off the mortgage on my last house, and I doubt I will for this one. I don't think buying taxable bonds in this environment makes any sense when you're sitting on an after-tax mortgage payment with a higher interest rate.
One of the loan officers I know told me “it’s a great problem to have” regarding my $100,000ish mortgage balance(s).

I stopped trying to compete with all the huge mortgage people bragging about their low refi rates and have actually begun just paying them off (for other reasons).

It will be nice to have a 0.0% interest rate!
Outer Marker
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Re: Pay off mortgage or not

Post by Outer Marker »

just_cruisin wrote: Fri Nov 20, 2020 7:31 pm
Outer Marker wrote: Sun Nov 15, 2020 11:11 pm
just_cruisin wrote: Sun Nov 15, 2020 10:48 pm A lot of the people bragging about refi’s at low rates have BIG balances on their homes. The mortgage companies view them as cash cows to bleed over the next 30 years and discount their rates to lock them in. The total interest cost over the lifetime if the loan is into the 6 figures.

Source: I have been researching refi’s for a long time but keep getting told my loans are too small. Good problem to have and 3 of them are getting paid off this month. FREEDOM !
That's incorrect. The rates are generally available to everyone, but the amount of the lender credit will depend on the outstanding balance as to how much its worth to the lender to "buy" your business for the next 15 or 30 years. Obviously, the lender is going to pay less to buy a $100,000 loan at 2.5% than a $700,000 loan at 2.5%. But, either borrower can readily get the 2.5% rate. Anyone can get the 2.5% rate, but if you're the one paying the closing costs out of pocket, it may not be worth it on a small balance loan. With OP's outstanding $270,000 s/he should be able to get very attractive terms and enough in lender credits to fully cover the closing costs and get a much lower rate on a 15 year term. That's what I'd do in this case.
Your statement regarding rates is in direct contradiction to several loan officers I know.

This summer and autumn people with mortgages at the high end of conforming loan balances (but not into jumbo territory) were getting 2.25 on 30 year refi’s while those with balances of only 100-200k were getting 3.5 - 3.75.
Anecdotal stories from a few people you "know" is not evidence. Get some current competing offers from the same lenders at $150K vs $350K principal balance. The rate is going to be the same. The closing costs are going to be the same. The amount of the potential lender credit will be different, and higher with the higher loan amount. Check it out and report back . . .
just_cruisin
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Re: Pay off mortgage or not

Post by just_cruisin »

Outer Marker wrote: Fri Nov 20, 2020 7:41 pm
just_cruisin wrote: Fri Nov 20, 2020 7:31 pm
Outer Marker wrote: Sun Nov 15, 2020 11:11 pm
just_cruisin wrote: Sun Nov 15, 2020 10:48 pm A lot of the people bragging about refi’s at low rates have BIG balances on their homes. The mortgage companies view them as cash cows to bleed over the next 30 years and discount their rates to lock them in. The total interest cost over the lifetime if the loan is into the 6 figures.

Source: I have been researching refi’s for a long time but keep getting told my loans are too small. Good problem to have and 3 of them are getting paid off this month. FREEDOM !
That's incorrect. The rates are generally available to everyone, but the amount of the lender credit will depend on the outstanding balance as to how much its worth to the lender to "buy" your business for the next 15 or 30 years. Obviously, the lender is going to pay less to buy a $100,000 loan at 2.5% than a $700,000 loan at 2.5%. But, either borrower can readily get the 2.5% rate. Anyone can get the 2.5% rate, but if you're the one paying the closing costs out of pocket, it may not be worth it on a small balance loan. With OP's outstanding $270,000 s/he should be able to get very attractive terms and enough in lender credits to fully cover the closing costs and get a much lower rate on a 15 year term. That's what I'd do in this case.
Your statement regarding rates is in direct contradiction to several loan officers I know.

This summer and autumn people with mortgages at the high end of conforming loan balances (but not into jumbo territory) were getting 2.25 on 30 year refi’s while those with balances of only 100-200k were getting 3.5 - 3.75.
Anecdotal stories from a few people you "know" is not evidence. Get some current competing offers from the same lenders at $150K vs $350K principal balance. The rate is going to be the same. The closing costs are going to be the same. The amount of the potential lender credit will be different, and higher with the higher loan amount. Check it out and report back . . .

Some people are just transmit only I guess.......



For the rest of you out there, the “sweet spot” varies by bank but is mostly mortgage balances from $250,000 to $510,400 (upper limit of conforming loans). If you are in the sweet spot you will be offered the best rates. If your mortgage is “too small” your chances of getting these great rates and many other incentives is slim.

Source: several NMLS certified loan officers and a mortgage company owner (private lender that originates loans to high net worth individuals)
Outer Marker
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Re: Pay off mortgage or not

Post by Outer Marker »

just_cruisin wrote: Fri Nov 20, 2020 7:53 pm Some people are just transmit only I guess.......

For the rest of you out there, the “sweet spot” varies by bank but is mostly mortgage balances from $250,000 to $510,400 (upper limit of conforming loans). If you are in the sweet spot you will be offered the best rates. If your mortgage is “too small” your chances of getting these great rates and many other incentives is slim.

Source: several NMLS certified loan officers and a mortgage company owner (private lender that originates loans to high net worth individuals)
This is just story telling. Show us the data.

What matters is your credit score and loan to value ratio.
just_cruisin
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Re: Pay off mortgage or not

Post by just_cruisin »

Outer Marker wrote: Fri Nov 20, 2020 8:00 pm
just_cruisin wrote: Fri Nov 20, 2020 7:53 pm Some people are just transmit only I guess.......

For the rest of you out there, the “sweet spot” varies by bank but is mostly mortgage balances from $250,000 to $510,400 (upper limit of conforming loans). If you are in the sweet spot you will be offered the best rates. If your mortgage is “too small” your chances of getting these great rates and many other incentives is slim.

Source: several NMLS certified loan officers and a mortgage company owner (private lender that originates loans to high net worth individuals)
This is just story telling. Show us the data.

What matters is your credit score and loan to value ratio.


Like I said, some people are just transmit only......
Valueinvestor2
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Re: Pay off mortgage or not

Post by Valueinvestor2 »

AlmostRetiredNY wrote: Sat Nov 14, 2020 7:46 pm Hello all. I have a mortgage with a principal amount of $270,000 and and interest rate of 3.625%. It was originally a 30 year fixed and has 22 years to run. I have quite a bit of funds in a bank earning next to nothing. I hate paying $11,000 a year in interest expense. Wife says the rate is low and inflation may come back, so keep the mortgage. I say we have cash earning nothing and inflation is more than 5 to 7+ years away. Who is right? How do I convince her to pay this money sucker off? Thanks!!
Don’t pay off mortgage. Keep cash in online savings. Sell SPY puts and make 6%. If market dumps you get to buy cheap shares.
Bud
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Re: Pay off mortgage or not

Post by Bud »

Most interested is paid on the front end of the loan. If you pay off half of the loan amount, you will significantly reduce the amount of interest you pay annually while still maintaining a cash cushion. Then, if you want, you can pay down more monthly or annually or intermittently. You can check various scenarios here.

https://www.bankrate.com/calculators/mo ... lator.aspx

In my experience, refi is rarely worth the hassle. Not to say you can't get a lower rate, but your mileage may vary.

We had a 15 year loan we paid off in 4.5 years. Basically put an extra $5k or $10k towards it when we had the opportunity. Did something similar with our rentals. Long and short of it is, without mortgage payments, life simplifies. There is value in beyond dollars and cents in simplicity.

All the best.
Lazareth
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Re: Pay off mortgage or not

Post by Lazareth »

At age 65, in 2018, I paid mine off. While I could certainly make a financial argument against it, I am very happy with the decision. It's like adding a chunk of bonds to my AA, but better... I look at is as a guaranteed 3.75% after tax return (my mortgage rate), which is not bad for a non-stock asset. The real benefit is the satisfaction and peace of mind of owning our home.
a/66, retired, married, enjoy p/t employment.
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Iowa David
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Re: Pay off mortgage or not

Post by Iowa David »

HMSVictory wrote: Sun Nov 15, 2020 7:58 pm Pay it off and be done with it.

While you have a lot of "calculations" being discussed about inflation, rate of return and bond yields the bottom line is bonds yield 1% and your mortgage is at 3%. It's like a big negative bond. Oh and it's a guaranteed return of 3% on your money. Plus you can always get another one if you hate being debt free (you won't).

Any time you de-leverage you are decreasing your personal risk. Having the house paid off is a strong personal foundation with which to build wealth. I've seen a few friends and others loose their home to foreclosure. It's a very painful and sad thing.

I send what used to be my mortgage payment to Vanguard every month and holy crap it's turned into a LOT of money.
Another +1 on this comment.

It's been nearly two years since we have paid off our mortgage and have zero regrets. If anything, our risk tolerance has increased because our static emergency fund ($60K) gives our family a few additional month of coverage and the monthly cash flow has been redirected to buying 100% Total Domestic and International stock funds.

If you can have the discipline to avoid having this money burn in your pocket then I think you'll appreciate the additional option the monthly cash flow provide.
"Just a 1 percent difference in expenses makes an 18 percent difference in returns when compounded over 20 years." The Boglehead's Guide to Investing
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ohboy!
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Re: Pay off mortgage or not

Post by ohboy! »

With fixed income opportunity so low paying off my mortgage was the next best thing for me. I recommend it.
Outer Marker
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Re: Pay off mortgage or not

Post by Outer Marker »

Bud wrote: Fri Nov 20, 2020 9:20 pm Most interested is paid on the front end of the loan. If you pay off half of the loan amount, you will significantly reduce the amount of interest you pay annually while still maintaining a cash cushion. ***

In my experience, refi is rarely worth the hassle. Not to say you can't get a lower rate, but your mileage may vary.
Paying off is certainly reasonable, but in this case, I think a 15 year fixed at today's super low rates make sense.

My current rate is 2.125% on a 15 year, which is less than the 2.2% my stable value fund is paying in a 401K. That is damn close to risk-free return. If interest rates tick up just a bit and money market funds return to 4-5%, I'm effectively making twice the annual return of the mortgage. It is also a powerful inflation hedge, considering all of the money that the fed has printed and will continue to print. My 70/30 portfolio is returning a lot more than the mortgage - but I agree that its not apples-to-apples, since there is obviously more risk associated with my portfolio.

OP can easily get a 15 year loan for under 2.5% at zero cost. Taking, say, 1.25% off the current rate saves $3,375 a year in interest on a $270,000 balance. Well worth the small amount of effort.

Before internet lending, it was indeed a hassle tracking down and faxing and fedexing bank statements, etc. These days, I downloand and upload them and have the application done in less than an hour. 15 mintues to walk the appraiser around the house; 30 minutes to sign the papers. Boom. Done. I'm on my 3rd refi in less than 12 months. Very little hassle involved.

Finally, while its true you pay more interest as a percentage of the payment in the beginning, that is just a function of having a larger principal balance. You pay the same % on the outstanding balance regardless of what it is. For this reason, I prefer the 15 year ammortization schedule. Its nice to be able to see the goal posts in view, and I like opening my statement each month and seeing the loan balance being steadily chipped away. Its depressinly slow on a 30 year term.
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Re: Pay off mortgage or not

Post by Cruise »

It may not make sense to pay off a mortgage, but it may make you feel really good and secure. I did it, and very happy that I made this decision.
Outer Marker
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Re: Pay off mortgage or not

Post by Outer Marker »

Cruise wrote: Sat Nov 21, 2020 1:37 pm It may not make sense to pay off a mortgage, but it may make you feel really good and secure. I did it, and very happy that I made this decision.
I hear you! I don't discount the psychic benefit at all. I have always been a "pay off the mortgage" guy. I did it once, and it felt great. Due to unforeseen life circumstances, I am forced to do it again. But, "this time is different." :? I say that only partially tongue in cheek. The covid crisis and fed monitary policy have led to some birazze upside down results. Who would of thought oil would be trading for negative $37 bbl in April, right? I don't think mortage rates in the low 2% range (about the cost of inflation) are going to be around very long. I'd jump on it.

A 15 year term seems a comfortable balance between paying it off and having a "big, long, mortgage to hold forever" and die owing money. I can pay off my mortgage tomorrow if I want to, but would have to sell equities and pay capital gains. I sleep well knowing that, even though I own the bank money. OP is in a similar position with enough cash to pay it off at whim.
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