I want to pay off my mortgage. Am I crazy?

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Archimedes
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I want to pay off my mortgage. Am I crazy?

Post by Archimedes » Tue Apr 17, 2018 6:53 pm

My situation:

Close to retirement
Plenty of income
Plenty of liquid investments, more assets in tax deferred
Own income producing real estate, mortgage loans on investment property all paid off
Continue to invest the max in tax deferred, and we invest in stocks and bonds in taxable space each month on autopilot

Only debt is primary home mortgage
Mortgage rate is 2.6%
Interest is tax deductible (we will continue to itemize going forward due to large charitable contributions)
Effective mortgage rate is 1.4% after tax benefits (high state and federal taxes)
5 years left on the 10 year mortgage, with a quite substantial balance outstanding, roughly 4% of net worth

Part of me wants to pay off this mortgage, but somehow it feels wrong. The interest rate is the lowest I have seen in my lifetime and I feel I may never see a rate like that again. If I could find a very safe investment that would yield more than 3% (taxable) or 2% tax free with very low risk, it would make financial sense to invest rather than pay off the loan. But then there is the somewhat irrational psychological desire to be able to say to myself, "We have no debt whatsoever."

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David Jay
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Re: I want to pay off my mortgage. Am I crazy?

Post by David Jay » Tue Apr 17, 2018 6:58 pm

It feels great. Something to be said for lower monthly expenses.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Archimedes
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Re: I want to pay off my mortgage. Am I crazy?

Post by Archimedes » Tue Apr 17, 2018 7:04 pm

Maybe the amounts involved won't make that much difference either way since we have reached the point in life where we have enough to retire. So the feeling that comes with having no debt might be the most important thing to achieve. On the other hand, after making so many decisions for so long based on investment goals, it is hard to change and simply pay off the mortgage for the purely psychological benefit.

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Toons
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Re: I want to pay off my mortgage. Am I crazy?

Post by Toons » Tue Apr 17, 2018 7:04 pm

"We have no debt whatsoever"
Say It over and over.
pay off the mortgage
You won't regret it.
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

aristotelian
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Re: I want to pay off my mortgage. Am I crazy?

Post by aristotelian » Tue Apr 17, 2018 7:07 pm

Sure. Market is barely off highs. Probably not a great time to leverage debt to invest. Get rid the negative bond, free up cash flow.

How much do you have to pay off and how much liquid do you have in taxable account?

smitcat
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Re: I want to pay off my mortgage. Am I crazy?

Post by smitcat » Tue Apr 17, 2018 7:08 pm

Archimedes wrote:
Tue Apr 17, 2018 7:04 pm
Maybe the amounts involved won't make that much difference either way since we have reached the point in life where we have enough to retire. So the feeling that comes with having no debt might be the most important thing to achieve. On the other hand, after making so many decisions for so long based on investment goals, it is hard to change and simply pay off the mortgage for the purely psychological benefit.
It makes no sense to pay off a mortgage like that early.

Archimedes
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Re: I want to pay off my mortgage. Am I crazy?

Post by Archimedes » Tue Apr 17, 2018 7:12 pm

smitcat wrote:
Tue Apr 17, 2018 7:08 pm
Archimedes wrote:
Tue Apr 17, 2018 7:04 pm
Maybe the amounts involved won't make that much difference either way since we have reached the point in life where we have enough to retire. So the feeling that comes with having no debt might be the most important thing to achieve. On the other hand, after making so many decisions for so long based on investment goals, it is hard to change and simply pay off the mortgage for the purely psychological benefit.
It makes no sense to pay off a mortgage like that early.
That is exactly my struggle. Financially it makes no sense to pay off that mortgage. But psychologically it will probably feel great to do it. I posted because I am trying to work through the financial vs psychological conundrum.

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Re: I want to pay off my mortgage. Am I crazy?

Post by Grt2bOutdoors » Tue Apr 17, 2018 7:22 pm

You have 5 years left on the note, that means most of the payments are principal and less of interest.
Your call, but I'd pay it off and if you so then choose, take those mortgage payments and invest according to your asset allocation.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Hillview
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Re: I want to pay off my mortgage. Am I crazy?

Post by Hillview » Tue Apr 17, 2018 7:39 pm

pay it -- it is so worth it

Good Listener
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Re: I want to pay off my mortgage. Am I crazy?

Post by Good Listener » Tue Apr 17, 2018 7:50 pm

I had a mortgage on my 2nd residence. I paid it off after 1 mortgage payment as I hated owing anything . Pay it off and get pleasure :sharebeer .

Archimedes
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Re: I want to pay off my mortgage. Am I crazy?

Post by Archimedes » Tue Apr 17, 2018 7:52 pm

Good Listener wrote:
Tue Apr 17, 2018 7:50 pm
I had a mortgage on my 2nd residence. I paid it off after 1 mortgage payment as I hated owing anything . Pay it off and get pleasure :sharebeer .
Did you have any regret for paying all those fees to set up the mortgage, only to pay it off after only one mortgage payment?

wrongfunds
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Re: I want to pay off my mortgage. Am I crazy?

Post by wrongfunds » Tue Apr 17, 2018 7:53 pm

what is the ratio of your real estate taxes + insurance compared to your mortgage payment?

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whodidntante
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Re: I want to pay off my mortgage. Am I crazy?

Post by whodidntante » Tue Apr 17, 2018 7:58 pm

Toons wrote:
Tue Apr 17, 2018 7:04 pm
"We have no debt whatsoever"
Say It over and over.
pay off the mortgage
You won't regret it.
:happy
You're going to have to start being consistent with your recommendations about paying off debt. :wink: :happy

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Watty
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Re: I want to pay off my mortgage. Am I crazy?

Post by Watty » Tue Apr 17, 2018 8:12 pm

Archimedes wrote:
Tue Apr 17, 2018 6:53 pm
5 years left on the 10 year mortgage, with a quite substantial balance outstanding, roughly 4% of net worth
I would pay it off especially since there are just five years left on the loan. If you had 30 years left it might be a harder decision.

Investing the money and earning a higher return is harder than it sounds because you have a sequence of returns risk.

Here is a simplified example that I have posted before that can do with your numbers which will be a lot different because you only have five years left on the loan.
 If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To break even the next year you would need to gain back the $16K and another $6,000 for the next years mortgage payments which is $22K. That would take a 25.6% return on the remaining $84K just to break even.

Archimedes
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Re: I want to pay off my mortgage. Am I crazy?

Post by Archimedes » Tue Apr 17, 2018 8:31 pm

wrongfunds wrote:
Tue Apr 17, 2018 7:53 pm
what is the ratio of your real estate taxes + insurance compared to your mortgage payment?
The mortgage is a short term mortgage, 10 years with 5 left to go.

The property taxes and insurance are about 22% of each monthly payment.

When the mortgage is paid off, of course we will still owe the hefty property taxes each year.

We might consider selling and moving at some point in retirement to escape the onerous state and local taxes, but that is less likely if we continue to have more than enough financial resources.

perl
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Re: I want to pay off my mortgage. Am I crazy?

Post by perl » Tue Apr 17, 2018 8:35 pm

Pay off mortgage or invest? is a perennial debate here for a simple reason: it doesn't matter that much. Paying off debt is good. Investing is good. You have lots of savings and are continuing to save. It's not like you're choosing between paying off the mortgage versus funding an expensive heroin habit.

Do whatever you want. It will be fine.

Archimedes
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Re: I want to pay off my mortgage. Am I crazy?

Post by Archimedes » Tue Apr 17, 2018 8:55 pm

Thanks to all for your contributions. I think I am simply going to pay it off. It will feel good. We have enough saved so the emotional benefits are probably worth it.

runner3081
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Re: I want to pay off my mortgage. Am I crazy?

Post by runner3081 » Tue Apr 17, 2018 9:03 pm

Good Listener wrote:
Tue Apr 17, 2018 7:50 pm
I had a mortgage on my 2nd residence. I paid it off after 1 mortgage payment as I hated owing anything . Pay it off and get pleasure :sharebeer .
Does the pleasure pass, or is there initial excitement and then just onto the next thing?

We are within 1-2 years of being able to pay ours off, but I am struggling with the decision.

BigLaw Survivor
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Re: I want to pay off my mortgage. Am I crazy?

Post by BigLaw Survivor » Tue Apr 17, 2018 11:23 pm

I have a mortgage of $745,000 on a house conservatively worth $1.6 million. The interest rate is 3.25 percent. It's an interest only loan for the first 10 years, then readjusts every year (likely higher) and principal payments will also become due. I have four years left before this happens. Until then, the payment is $2019 a month.

I retired three years ago. My monthly budget is $17,500 a month. I find that I can easily make the $2019 payment, and my thinking is that if I paid the mortgage off early I'd have $1.6 million (at least) of my net worth tied into my house and that that's too much. I'd rather keep investing the money elsewhere and remain more liquid. I for one think there is such a thing as good debt.

Once the interest rate adjusts and principal payments become mandatory I'll either sell the house and move some place smaller and become mortgage free, or I'll pay some or all of the mortgage down then.

Just a different way of thinking.

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Re: I want to pay off my mortgage. Am I crazy?

Post by Darth Xanadu » Tue Apr 17, 2018 11:40 pm

Archimedes wrote:
Tue Apr 17, 2018 8:55 pm
Thanks to all for your contributions. I think I am simply going to pay it off. It will feel good. We have enough saved so the emotional benefits are probably worth it.
I'd probably lean the other way. For me, 90% of the psychological benefit would lie in knowing I could pay it off at any time.

So, making payments each month (mostly principal), getting a tax break on the interest piece, and a 5 year time horizon .... I don't know, I guess if the loss of that liquidity by paying it off doesn't bother you at all, then sure, but for me, I'd stick with the mortgage.
"A courageous teacher, failure is."

Thesaints
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Re: I want to pay off my mortgage. Am I crazy?

Post by Thesaints » Tue Apr 17, 2018 11:58 pm

Archimedes wrote:
Tue Apr 17, 2018 7:12 pm
That is exactly my struggle. Financially it makes no sense to pay off that mortgage. But psychologically it will probably feel great to do it. I posted because I am trying to work through the financial vs psychological conundrum.
Seems like you worked through it already: How much sense do those large donations make, financially ?

smitcat
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Re: I want to pay off my mortgage. Am I crazy?

Post by smitcat » Wed Apr 18, 2018 8:18 am

Archimedes wrote:
Tue Apr 17, 2018 7:12 pm
smitcat wrote:
Tue Apr 17, 2018 7:08 pm
Archimedes wrote:
Tue Apr 17, 2018 7:04 pm
Maybe the amounts involved won't make that much difference either way since we have reached the point in life where we have enough to retire. So the feeling that comes with having no debt might be the most important thing to achieve. On the other hand, after making so many decisions for so long based on investment goals, it is hard to change and simply pay off the mortgage for the purely psychological benefit.
It makes no sense to pay off a mortgage like that early.
That is exactly my struggle. Financially it makes no sense to pay off that mortgage. But psychologically it will probably feel great to do it. I posted because I am trying to work through the financial vs psychological conundrum.
Psychologically it would have felt very good for me to buy the new corvette last summer - at that time I did not do it. It would have felt really good for a few days or more but within a short time span that would wear off and I would know it was a poor financial decision for me. Most all of my psychologically friendly but financially less desirable decisions would fall into that category.
But either way it does not seem to be a significant decision for you so I doubt it is really worth your time or emotion to be undecided for long.
FWIW - I am sitting on a low rate mortgage now as well as one other loan that I can pay off but it does not make financial sense to do either.
When the numbers change I will rub them out but until then they stay.

smitcat
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Re: I want to pay off my mortgage. Am I crazy?

Post by smitcat » Wed Apr 18, 2018 8:21 am

runner3081 wrote:
Tue Apr 17, 2018 9:03 pm
Good Listener wrote:
Tue Apr 17, 2018 7:50 pm
I had a mortgage on my 2nd residence. I paid it off after 1 mortgage payment as I hated owing anything . Pay it off and get pleasure :sharebeer .
Does the pleasure pass, or is there initial excitement and then just onto the next thing?

We are within 1-2 years of being able to pay ours off, but I am struggling with the decision.
Does the pleasure pass....
I cannot say for you - but for us 'yes' the excitement of paying down a mortgage or any other loan passes quickly if it was not financially sound.

stan1
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Re: I want to pay off my mortgage. Am I crazy?

Post by stan1 » Wed Apr 18, 2018 8:25 am

You said the mortgage balance is 4% of your net worth and you have 5 years left on a 10 year loan. Paying it off early will make zero difference in your personal finances. You have no need to borrow money but maybe you want to. Maybe its fun to speculate and spend a lot of time while you are retired looking for ways to make sure you earn a little more in interest than you pay. I would regard a mortgage in that situation as a nuisance and would pay it off.

dknightd
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Re: I want to pay off my mortgage. Am I crazy?

Post by dknightd » Wed Apr 18, 2018 8:32 am

I would not pay it off. The rate is low. I'd get enough psychological benefit from knowing that I could pay it off at any time. If for some reason I did not think my investments would return 3% over time I'd reconsider. The way I see it, financially you are probably better not paying it off, but you could if you wanted to. To me that is a win win. You can always pay it off later, but, you may never be able to "unpay" it at that rate. YMMV

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Re: I want to pay off my mortgage. Am I crazy?

Post by LarryAllen » Wed Apr 18, 2018 8:36 am

smitcat wrote:
Tue Apr 17, 2018 7:08 pm
Archimedes wrote:
Tue Apr 17, 2018 7:04 pm
Maybe the amounts involved won't make that much difference either way since we have reached the point in life where we have enough to retire. So the feeling that comes with having no debt might be the most important thing to achieve. On the other hand, after making so many decisions for so long based on investment goals, it is hard to change and simply pay off the mortgage for the purely psychological benefit.
It makes no sense to pay off a mortgage like that early.
Not all decisions in life are strictly financial.

smitcat
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Re: I want to pay off my mortgage. Am I crazy?

Post by smitcat » Wed Apr 18, 2018 8:43 am

LarryAllen wrote:
Wed Apr 18, 2018 8:36 am
smitcat wrote:
Tue Apr 17, 2018 7:08 pm
Archimedes wrote:
Tue Apr 17, 2018 7:04 pm
Maybe the amounts involved won't make that much difference either way since we have reached the point in life where we have enough to retire. So the feeling that comes with having no debt might be the most important thing to achieve. On the other hand, after making so many decisions for so long based on investment goals, it is hard to change and simply pay off the mortgage for the purely psychological benefit.
It makes no sense to pay off a mortgage like that early.
Not all decisions in life are strictly financial.
I absolutely agree they are not. I may have bought the corvette whether it made financial sense or not, as it was I made another purchase that did not make fincial sense.
But I first run the numbers to see what the true costs might be - with that infiormation I can decide what it is worth to me.

Tal-
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Re: I want to pay off my mortgage. Am I crazy?

Post by Tal- » Wed Apr 18, 2018 8:51 am

Financially (and quantitatively), it's probably best to keep the mortgage.

Paying off the mortgage is a financial luxury. It probably has psychological benefits, but has a lower expected return than simply keeping the mortgage.

Your financial situations makes me think that you can afford the luxury of paying off your mortgage. So, the question is: would paying off your mortgage produce enough psychological benefits to offset the lower expected return? This is a very personal question, and one that only you can answer.
Debt is to personal finance as a knife is to cooking.

JBTX
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Re: I want to pay off my mortgage. Am I crazy?

Post by JBTX » Wed Apr 18, 2018 8:54 am

I would never pay off a mortgage that low especially if it’s tax deductible.

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Re: I want to pay off my mortgage. Am I crazy?

Post by bloom2708 » Wed Apr 18, 2018 8:56 am

It makes no sense to pay off a mortgage, except it is a wonderful event. Check the box. Cross if off your bucket list. Get rid of the hassle.

Pay it off.

Re-visit 1 year later. If you miss it, then get a new mortgage.
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

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pezblanco
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Re: I want to pay off my mortgage. Am I crazy?

Post by pezblanco » Wed Apr 18, 2018 9:05 am

Vanguard Intermediate Term Tax Free has SEC yield of 2.34% Depending on your state you might be able to find one that is exempt from your state taxes also. You state your effective mortgage rate is 1.4%. If you are into compartmentalizing, you could take the money for the payoff ... put it aside in a separate account invested in a muni fund and earn .9%+ interest on the money over the remaining life of the mortgage ....

You can think of it as "paid off". For each 100K of balance on the mortgage, you are earning 900+ dollars per year. I suppose to many BHs that is a risible amount of money .... to me it's not.

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One Ping
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Re: I want to pay off my mortgage. Am I crazy?

Post by One Ping » Wed Apr 18, 2018 9:56 am

bloom2708 wrote:
Wed Apr 18, 2018 8:56 am
It makes no sense to pay off a mortgage, except it is a wonderful event. Check the box. Cross if off your bucket list. Get rid of the hassle.

Pay it off.

Re-visit 1 year later. If you miss it, then get a new mortgage.
:D :beer
"Re-verify our range to target ... one ping only."

SouthernCPA
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Re: I want to pay off my mortgage. Am I crazy?

Post by SouthernCPA » Wed Apr 18, 2018 9:57 am

BigLaw Survivor wrote:
Tue Apr 17, 2018 11:23 pm
I have a mortgage of $745,000 on a house conservatively worth $1.6 million. The interest rate is 3.25 percent. It's an interest only loan for the first 10 years, then readjusts every year (likely higher) and principal payments will also become due. I have four years left before this happens. Until then, the payment is $2019 a month.

I retired three years ago. My monthly budget is $17,500 a month. I find that I can easily make the $2019 payment, and my thinking is that if I paid the mortgage off early I'd have $1.6 million (at least) of my net worth tied into my house and that that's too much. I'd rather keep investing the money elsewhere and remain more liquid. I for one think there is such a thing as good debt.

Once the interest rate adjusts and principal payments become mandatory I'll either sell the house and move some place smaller and become mortgage free, or I'll pay some or all of the mortgage down then.

Just a different way of thinking.
Let me preface this by saying I follow the logic and am not afraid of debt (I'm in commercial real estate development where if you don't like/use debt you make terrible returns), but I just don't follow the logic of paying 3.25% interest only to maintain a feeling of better liquidity - especially in retirement when your asset allocation should be more conservative. If the house was paid off, would you go the other way and borrow $745,000 on it at 3.25% to invest in say a 50/50 allocation or even a 60/40 allocation? At conservative allocations in retirement, I just don't think it makes sense to essentially borrow to invest in them (in roundabout way this is what you are doing) as the return spread doesn't justify the risk.

Now if you were doing development deals where you were getting 30-40% annual cash on cash returns, that's a different conversation.

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Toons
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Re: I want to pay off my mortgage. Am I crazy?

Post by Toons » Wed Apr 18, 2018 10:22 am

I would pay off Everything.
Give yourself "options"
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

an_asker
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Re: I want to pay off my mortgage. Am I crazy?

Post by an_asker » Wed Apr 18, 2018 10:31 am

Archimedes wrote:
Tue Apr 17, 2018 6:53 pm
[...]Only debt is primary home mortgage
Mortgage rate is 2.6%
Interest is tax deductible (we will continue to itemize going forward due to large charitable contributions)
Effective mortgage rate is 1.4% after tax benefits (high state and federal taxes)
5 years left on the 10 year mortgage, with a quite substantial balance outstanding, roughly 4% of net worth
[...]
I am confused. A mortgage balance of 4% of your net worth is not substantial. Let's see now - for someone with a Net Worth of $1,000,000, that would be a balance of $40,000. That's very small.

If that's how small it is, I suggest that you pay it off an be done with it.

gamboolman
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Re: I want to pay off my mortgage. Am I crazy?

Post by gamboolman » Wed Apr 18, 2018 10:59 am

We paid ours off
It is a wonderful feeling to have no debt

UncleBen
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Re: I want to pay off my mortgage. Am I crazy?

Post by UncleBen » Wed Apr 18, 2018 11:05 am

For us it was not a financial decision. There is nothing like owing nothing to anyone. The Bible says the borrower is slave to the lender. No debt = freedom.

BigLaw Survivor
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Re: I want to pay off my mortgage. Am I crazy?

Post by BigLaw Survivor » Wed Apr 18, 2018 1:10 pm

SouthernCPA wrote:
Wed Apr 18, 2018 9:57 am
BigLaw Survivor wrote:
Tue Apr 17, 2018 11:23 pm
I have a mortgage of $745,000 on a house conservatively worth $1.6 million. The interest rate is 3.25 percent. It's an interest only loan for the first 10 years, then readjusts every year (likely higher) and principal payments will also become due. I have four years left before this happens. Until then, the payment is $2019 a month.

I retired three years ago. My monthly budget is $17,500 a month. I find that I can easily make the $2019 payment, and my thinking is that if I paid the mortgage off early I'd have $1.6 million (at least) of my net worth tied into my house and that that's too much. I'd rather keep investing the money elsewhere and remain more liquid. I for one think there is such a thing as good debt.

Once the interest rate adjusts and principal payments become mandatory I'll either sell the house and move some place smaller and become mortgage free, or I'll pay some or all of the mortgage down then.

Just a different way of thinking.
Let me preface this by saying I follow the logic and am not afraid of debt (I'm in commercial real estate development where if you don't like/use debt you make terrible returns), but I just don't follow the logic of paying 3.25% interest only to maintain a feeling of better liquidity - especially in retirement when your asset allocation should be more conservative. If the house was paid off, would you go the other way and borrow $745,000 on it at 3.25% to invest in say a 50/50 allocation or even a 60/40 allocation? At conservative allocations in retirement, I just don't think it makes sense to essentially borrow to invest in them (in roundabout way this is what you are doing) as the return spread doesn't justify the risk.

Now if you were doing development deals where you were getting 30-40% annual cash on cash returns, that's a different conversation.
Thanks for your response. Personally, I sleep better at night knowing that I have $1.5 million in a brokerage account and $1 million in home equity than I would with $750k in a brokerage account and $1.75 million in home equity. I just don't want so much of my net worth tied into my house, because it's inaccessible unless I sell. In fact, I often think I'd be better off just renting, and the way I look at it I'm just renting from the bank. There's also the issue of leverage. I paid $1.15 million for the house 8 years ago, putting only 10 percent down, and conservatively it's now worth $1.6 million. Not a bad return.

lostdog
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Re: I want to pay off my mortgage. Am I crazy?

Post by lostdog » Wed Apr 18, 2018 5:33 pm

Borrower is slave to the lender. Pay it off.

chevca
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Re: I want to pay off my mortgage. Am I crazy?

Post by chevca » Wed Apr 18, 2018 5:39 pm

stan1 wrote:
Wed Apr 18, 2018 8:25 am
You said the mortgage balance is 4% of your net worth and you have 5 years left on a 10 year loan. Paying it off early will make zero difference in your personal finances. You have no need to borrow money but maybe you want to. Maybe its fun to speculate and spend a lot of time while you are retired looking for ways to make sure you earn a little more in interest than you pay. I would regard a mortgage in that situation as a nuisance and would pay it off.
I agree with stan here. It matters LITTLE if the OP pays the mortgage off or not in their situation. They're more than fine either. Flip a coin and call it good. It matters not if the OP pays it off tomorrow, or hangs onto it for 5 more years.

Sam1
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Re: I want to pay off my mortgage. Am I crazy?

Post by Sam1 » Wed Apr 18, 2018 5:40 pm

BigLaw Survivor wrote:
Wed Apr 18, 2018 1:10 pm
SouthernCPA wrote:
Wed Apr 18, 2018 9:57 am
BigLaw Survivor wrote:
Tue Apr 17, 2018 11:23 pm
I have a mortgage of $745,000 on a house conservatively worth $1.6 million. The interest rate is 3.25 percent. It's an interest only loan for the first 10 years, then readjusts every year (likely higher) and principal payments will also become due. I have four years left before this happens. Until then, the payment is $2019 a month.

I retired three years ago. My monthly budget is $17,500 a month. I find that I can easily make the $2019 payment, and my thinking is that if I paid the mortgage off early I'd have $1.6 million (at least) of my net worth tied into my house and that that's too much. I'd rather keep investing the money elsewhere and remain more liquid. I for one think there is such a thing as good debt.

Once the interest rate adjusts and principal payments become mandatory I'll either sell the house and move some place smaller and become mortgage free, or I'll pay some or all of the mortgage down then.

Just a different way of thinking.
Let me preface this by saying I follow the logic and am not afraid of debt (I'm in commercial real estate development where if you don't like/use debt you make terrible returns), but I just don't follow the logic of paying 3.25% interest only to maintain a feeling of better liquidity - especially in retirement when your asset allocation should be more conservative. If the house was paid off, would you go the other way and borrow $745,000 on it at 3.25% to invest in say a 50/50 allocation or even a 60/40 allocation? At conservative allocations in retirement, I just don't think it makes sense to essentially borrow to invest in them (in roundabout way this is what you are doing) as the return spread doesn't justify the risk.

Now if you were doing development deals where you were getting 30-40% annual cash on cash returns, that's a different conversation.
Thanks for your response. Personally, I sleep better at night knowing that I have $1.5 million in a brokerage account and $1 million in home equity than I would with $750k in a brokerage account and $1.75 million in home equity. I just don't want so much of my net worth tied into my house, because it's inaccessible unless I sell. In fact, I often think I'd be better off just renting, and the way I look at it I'm just renting from the bank. There's also the issue of leverage. I paid $1.15 million for the house 8 years ago, putting only 10 percent down, and conservatively it's now worth $1.6 million. Not a bad return.
Wait you’re retired with only $1.5 million but with a $1.6 million house???

chevca
Posts: 1908
Joined: Wed Jul 26, 2017 11:22 am

Re: I want to pay off my mortgage. Am I crazy?

Post by chevca » Wed Apr 18, 2018 5:44 pm

BigLaw has more than that...

viewtopic.php?f=2&t=247407

They were just talking about part of the picture in this one.

tesuzuki2002
Posts: 523
Joined: Fri Dec 11, 2015 12:40 pm

Re: I want to pay off my mortgage. Am I crazy?

Post by tesuzuki2002 » Wed Apr 18, 2018 6:49 pm

Toons wrote:
Tue Apr 17, 2018 7:04 pm
"We have no debt whatsoever"
Say It over and over.
pay off the mortgage
You won't regret it.
:happy

I do like that. I'm holding a 70K Mortgage at 3% it just seems cheap.. But I have increased my payments again... so it is accelerating.

Archimedes
Posts: 127
Joined: Wed Feb 15, 2017 11:27 am

Re: I want to pay off my mortgage. Am I crazy?

Post by Archimedes » Wed Apr 18, 2018 6:59 pm

Seems like it makes little difference to pay off the mortgage, or not, even at 2.6% (1.4% effective). But I think it will feel better as there will be fewer bills to pay each month.

I currently own a highly successful business that I started, but the value of the business is illiquid. And our real estate holdings are also illiquid. Our liquid assets make up about 49% of our net worth. Even so, if I pay off this mortgage, our liquid assets will be about 45% of our net worth. Not a huge difference.

At the same time, taxes are extremely high for us. Liquidating the business, the investment real estate, or the tax deferred accounts would cost us huge dollars in taxes. In 2018, we are looking at a marginal combined tax bracket of 46%. So most of our assets would need to be heavily discounted by taxes to be available for use. We have no Roth accounts.

Rainmaker41
Posts: 465
Joined: Tue Apr 26, 2016 11:34 am

Re: I want to pay off my mortgage. Am I crazy?

Post by Rainmaker41 » Wed Apr 18, 2018 7:08 pm

Pay it off. If you decide you don't like not having a mortgage, you can always get another one from the bank later. Congratulations.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Married the most loving woman in the world October 2017.

bradpevans
Posts: 330
Joined: Sun Apr 08, 2018 1:09 pm

Re: I want to pay off my mortgage. Am I crazy?

Post by bradpevans » Wed Apr 18, 2018 7:28 pm

BigLaw Survivor wrote:
Wed Apr 18, 2018 1:10 pm
SouthernCPA wrote:
Wed Apr 18, 2018 9:57 am
BigLaw Survivor wrote:
Tue Apr 17, 2018 11:23 pm
I have a mortgage of $745,000 on a house conservatively worth $1.6 million. The interest rate is 3.25 percent. It's an interest only loan for the first 10 years, then readjusts every year (likely higher) and principal payments will also become due. I have four years left before this happens. Until then, the payment is $2019 a month.

I retired three years ago. My monthly budget is $17,500 a month. I find that I can easily make the $2019 payment, and my thinking is that if I paid the mortgage off early I'd have $1.6 million (at least) of my net worth tied into my house and that that's too much. I'd rather keep investing the money elsewhere and remain more liquid. I for one think there is such a thing as good debt.

Once the interest rate adjusts and principal payments become mandatory I'll either sell the house and move some place smaller and become mortgage free, or I'll pay some or all of the mortgage down then.

Just a different way of thinking.
Let me preface this by saying I follow the logic and am not afraid of debt (I'm in commercial real estate development where if you don't like/use debt you make terrible returns), but I just don't follow the logic of paying 3.25% interest only to maintain a feeling of better liquidity - especially in retirement when your asset allocation should be more conservative. If the house was paid off, would you go the other way and borrow $745,000 on it at 3.25% to invest in say a 50/50 allocation or even a 60/40 allocation? At conservative allocations in retirement, I just don't think it makes sense to essentially borrow to invest in them (in roundabout way this is what you are doing) as the return spread doesn't justify the risk.

Now if you were doing development deals where you were getting 30-40% annual cash on cash returns, that's a different conversation.
Thanks for your response. Personally, I sleep better at night knowing that I have $1.5 million in a brokerage account and $1 million in home equity than I would with $750k in a brokerage account and $1.75 million in home equity. I just don't want so much of my net worth tied into my house, because it's inaccessible unless I sell. In fact, I often think I'd be better off just renting, and the way I look at it I'm just renting from the bank. There's also the issue of leverage. I paid $1.15 million for the house 8 years ago, putting only 10 percent down, and conservatively it's now worth $1.6 million. Not a bad return.
While my numbers are smaller than above ^^^, my philosophy is the same. Invest that "extra" money somewhere else is my $0.02

BigLaw Survivor
Posts: 144
Joined: Mon Oct 19, 2015 8:55 pm

Re: I want to pay off my mortgage. Am I crazy?

Post by BigLaw Survivor » Wed Apr 18, 2018 10:36 pm

Sam1 wrote:
Wed Apr 18, 2018 5:40 pm
BigLaw Survivor wrote:
Wed Apr 18, 2018 1:10 pm
SouthernCPA wrote:
Wed Apr 18, 2018 9:57 am
BigLaw Survivor wrote:
Tue Apr 17, 2018 11:23 pm
I have a mortgage of $745,000 on a house conservatively worth $1.6 million. The interest rate is 3.25 percent. It's an interest only loan for the first 10 years, then readjusts every year (likely higher) and principal payments will also become due. I have four years left before this happens. Until then, the payment is $2019 a month.

I retired three years ago. My monthly budget is $17,500 a month. I find that I can easily make the $2019 payment, and my thinking is that if I paid the mortgage off early I'd have $1.6 million (at least) of my net worth tied into my house and that that's too much. I'd rather keep investing the money elsewhere and remain more liquid. I for one think there is such a thing as good debt.

Once the interest rate adjusts and principal payments become mandatory I'll either sell the house and move some place smaller and become mortgage free, or I'll pay some or all of the mortgage down then.

Just a different way of thinking.
Let me preface this by saying I follow the logic and am not afraid of debt (I'm in commercial real estate development where if you don't like/use debt you make terrible returns), but I just don't follow the logic of paying 3.25% interest only to maintain a feeling of better liquidity - especially in retirement when your asset allocation should be more conservative. If the house was paid off, would you go the other way and borrow $745,000 on it at 3.25% to invest in say a 50/50 allocation or even a 60/40 allocation? At conservative allocations in retirement, I just don't think it makes sense to essentially borrow to invest in them (in roundabout way this is what you are doing) as the return spread doesn't justify the risk.

Now if you were doing development deals where you were getting 30-40% annual cash on cash returns, that's a different conversation.
Thanks for your response. Personally, I sleep better at night knowing that I have $1.5 million in a brokerage account and $1 million in home equity than I would with $750k in a brokerage account and $1.75 million in home equity. I just don't want so much of my net worth tied into my house, because it's inaccessible unless I sell. In fact, I often think I'd be better off just renting, and the way I look at it I'm just renting from the bank. There's also the issue of leverage. I paid $1.15 million for the house 8 years ago, putting only 10 percent down, and conservatively it's now worth $1.6 million. Not a bad return.
Wait you’re retired with only $1.5 million but with a $1.6 million house???
No, I'm retired with $4.6 million in investments beyond my home equity.

CurlyDave
Posts: 703
Joined: Thu Jul 28, 2016 11:37 am

Re: I want to pay off my mortgage. Am I crazy?

Post by CurlyDave » Wed Apr 18, 2018 11:09 pm

Archimedes wrote:
Tue Apr 17, 2018 6:53 pm

...Part of me wants to pay off this mortgage, but somehow it feels wrong. The interest rate is the lowest I have seen in my lifetime and I feel I may never see a rate like that again. If I could find a very safe investment that would yield more than 3% (taxable) or 2% tax free with very low risk, it would make financial sense to invest rather than pay off the loan. But then there is the somewhat irrational psychological desire to be able to say to myself, "We have no debt whatsoever."
Debt can be a tool to improve your investment outcomes.

I am retired and have mortgages on our primary residence, and on investment properties. The payments are less than our pensions and SS, so I have the payments set up for autopay. I have not thought about a mortgage payment in years and the fact that they exist rarely enters my mind.

Maybe not psychologically as good as no mortgage, but putting them on autopilot when there is enough to pay them is a very close second best.

evilpiaget
Posts: 8
Joined: Tue Nov 17, 2015 3:42 pm

Re: I want to pay off my mortgage. Am I crazy?

Post by evilpiaget » Wed Apr 18, 2018 11:52 pm

You can buy brokered cd's at 2.9% Make no sense to pay it off.

madbrain
Posts: 5090
Joined: Thu Jun 09, 2011 5:06 pm
Location: San Jose, California

Re: I want to pay off my mortgage. Am I crazy?

Post by madbrain » Thu Apr 19, 2018 2:09 am

Rainmaker41 wrote:
Wed Apr 18, 2018 7:08 pm
If you decide you don't like not having a mortgage, you can always get another one from the bank later. Congratulations.
I have to shake my head when I read arguments like this.

"If you don't don't like your low-rate, fixed mortgage, with tax-deductible interest, just pay it off.
And if you miss it, well, later on, just get another low-rate, fixed mortgage, with (potentially) tax-deductible interest."
Except, no, you can't actually that. Any future cash out mortgage is going to carry higher closing costs, higher interest rates, and none of the interest will be deductible under any circumstance. In other word, it will be much worse deal than the existing mortgage.

This is not a case where you get to go back on your decision.

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