Anyone regret paying off mortgage early?

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SQRT
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Re: Anyone regret paying off mortgage early?

Post by SQRT » Sun Jun 10, 2018 9:49 am

supersharpie wrote:
Sun Jun 03, 2012 11:13 am
Psychologically paying off the mortgage is beneficial. Financially it doesn't make sense unless you are an ultra-conservative investor.
This is a judgemental statement. Might be true for someone still working and fairly young. In retirement though, you dont have to be a “ultra conservative investor” to pay your mortgage off. There have been some good previous posts that refer to the sharp ratio. This is an attempt to risk adjust expected returns. Bottom line, if you want to equate expected returns from investments as compared to paying off your mortgage you need to take risk into account. Most unsophisticated investors don’t, but they should.

In retirement, risk is a four letter word. Paying your mortgage off reduces risk.

hookemhorns
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Re: Anyone regret paying off mortgage early?

Post by hookemhorns » Sun Jun 10, 2018 12:29 pm

Our mortgage is 30yr fixed at 3.75%, which after tax is ~2.5%. The after tax cost could be even lower if income tax rates go up, which is possible long term. Using round numbers, lets say our house cost $600k with a $500k mortgage. Instead of using $500k to pay down the debt, we have used that money to remain fully invested in the broad global equity market.

According to Vanguard, our portfolio has returned 14% compounded since inception (admittedly, it was initially funded at a great time), 11% over the past 5 years, and 9% last year, so lets say 10% compounded over time. The cost to fund that $500k was 2.5% after tax, so we achieved a net return of 7.5% after funding costs. By using a mortgage instead of paying off the house, we generated an extra ~$200k in net worth over 5 years, or >$500k over 10 years. These are all real calculations, though I've changed the numbers a bit for privacy.

Beyond the simple math above, not paying off the mortgage gives us tremendous financial flexibility because we have a large investment balance we can tap at any time. If we have a medical emergency, need to suddenly move across the country for a new job, house burns down, etc we have quick access to a large amount of capital. On the other hand, if we had paid off the mortgage we would have much less flexibility. We want financial flexibility and overall diversification of our investments.

Having all your investments tied up in one asset (i.e. house, individual stock, gold, etc.) is never a good idea. Your personal house is no exception to this rule.

vg55
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Re: Anyone regret paying off mortgage early?

Post by vg55 » Sun Jun 10, 2018 12:44 pm

We paid off our mortgage years ago and kept a HELOC line of credit, if needed. Then when purchasing our beach houses, I used the HELOC to negotiate a cash purchase. Then proceeded to quickly pay off the HELOC balance. We have scaled back to 2 homes and neither carry a mortgage. Not only is the peace of mind great; but when buying / selling real property without having to involve a bank and its bureaucracy -- fantastic! The closing is so simple it is unbelievable.

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wander
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Re: Anyone regret paying off mortgage early?

Post by wander » Sun Jun 10, 2018 12:47 pm

We paid off our 15-year mortgage in 7 years and never looked back. Now we only need to pay property tax and do not have to worry about market up or down. If the market crashes tomorrow, our house is safe.

wrongfunds
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Re: Anyone regret paying off mortgage early?

Post by wrongfunds » Sun Jun 10, 2018 12:58 pm

wander wrote:
Sun Jun 10, 2018 12:47 pm
We paid off our 15-year mortgage in 7 years and never looked back. Now we only need to pay property tax and do not have to worry about market up or down. If the market crashes tomorrow, our house is safe.
Huh? Can you explain why you think so? How does market going up or down affects your monthly mortgage payments? I mean I am assuming you don't have callable mortgage where your lender would suddenly ask you to pay the remaining balance or else.

With the mortgage, the important consideration is your cash flow and NOT your portfolio balance.

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wander
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Re: Anyone regret paying off mortgage early?

Post by wander » Sun Jun 10, 2018 1:22 pm

wrongfunds wrote:
Sun Jun 10, 2018 12:58 pm
wander wrote:
Sun Jun 10, 2018 12:47 pm
We paid off our 15-year mortgage in 7 years and never looked back. Now we only need to pay property tax and do not have to worry about market up or down. If the market crashes tomorrow, our house is safe.
Huh? Can you explain why you think so? How does market going up or down affects your monthly mortgage payments? I mean I am assuming you don't have callable mortgage where your lender would suddenly ask you to pay the remaining balance or else.

With the mortgage, the important consideration is your cash flow and NOT your portfolio balance.
I don't understand your question. We had mortgage with Credit Union and it was very straightforward to add extra to principle until the balance reached zero. When market goes down, I don't need to worry about losing job and ability to make mortgage payments and only need to worry about paying utilities and property tax which with my emergency is not an issue. Basically, I do not borrow money to invest.

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Toons
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Re: Anyone regret paying off mortgage early?

Post by Toons » Sun Jun 10, 2018 1:26 pm

No to the
"Infinity"

🌟🌟🌟
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

AlphaLess
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Re: Anyone regret paying off mortgage early?

Post by AlphaLess » Sun Jun 10, 2018 1:48 pm

I view a mortgage from a few angles:
- financing (i.e., buy house without having the full purchase price in savings),
- selling debt,
- taking advantage of government subsidies,
- taking advantage of the tax law.

When all 4 are lined up, a mortgage is an excellent tool.
I re-fi-ed out 5-1 ARM, 3 years aged, from 3.00% to 2.75% in Sep of 2017.
Now similar 5-1 ARMs are at least 1% higher, if not more:
http://www.mortgagenewsdaily.com/mortgage_rates/

It's too bad that the tax law advantage is not there any more (not to the extent that was there in 2017).
But it is still a great tool, as I can get a 3% return on a 5 year CD.

AlphaLess
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Re: Anyone regret paying off mortgage early?

Post by AlphaLess » Sun Jun 10, 2018 1:50 pm

wander wrote:
Sun Jun 10, 2018 1:22 pm
wrongfunds wrote:
Sun Jun 10, 2018 12:58 pm
wander wrote:
Sun Jun 10, 2018 12:47 pm
We paid off our 15-year mortgage in 7 years and never looked back. Now we only need to pay property tax and do not have to worry about market up or down. If the market crashes tomorrow, our house is safe.
Huh? Can you explain why you think so? How does market going up or down affects your monthly mortgage payments? I mean I am assuming you don't have callable mortgage where your lender would suddenly ask you to pay the remaining balance or else.

With the mortgage, the important consideration is your cash flow and NOT your portfolio balance.
I don't understand your question. We had mortgage with Credit Union and it was very straightforward to add extra to principle until the balance reached zero. When market goes down, I don't need to worry about losing job and ability to make mortgage payments and only need to worry about paying utilities and property tax which with my emergency is not an issue. Basically, I do not borrow money to invest.
That's just mental accounting. If you had not paid your mortgage down, you would be in the same exact situation when the market goes down.

AlphaLess
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Re: Anyone regret paying off mortgage early?

Post by AlphaLess » Sun Jun 10, 2018 1:55 pm

hookemhorns wrote:
Sun Jun 10, 2018 12:29 pm
Our mortgage is 30yr fixed at 3.75%, which after tax is ~2.5%. The after tax cost could be even lower if income tax rates go up, which is possible long term.
My computation shows that the MAJORITY of homeowners can not EFFECTIVELY take advantage of the mortgage interest deduction on Federal Taxes after the 2017 tax law was introduced.

Do you mind sharing if you know for sure that you are taking 100% advantage of the mortgage interest deduction?

In our situation, for 2018:
- standard deduction for MFJ is $24K,
- SALT is limited to $10K (we have a lot of SALT, as R/E taxes alone are $10K, and state income taxes $80K),
- so that leaves a $14K hurdle to overcome,
- our mortgage interest is only around $14-15K.

So unless we make huge charitable deductions (which we don't), we can't take adv of the mortgage interest deduction.

So I am playing the following game:
- 11 mortgage payments in even years, 13 mortgage payments in odd years,
- all charitable deductions go in even years, doubled up.

Thus, in even years, we get to deduct, at the margin:
- about 2 months of mortgage interest payments,
- 2 years worth of charitable deductions.

In odd years, we just take the standard.

Austintatious
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Re: Anyone regret paying off mortgage early?

Post by Austintatious » Sun Jun 10, 2018 2:03 pm

My view is that, whether one is pre-retirement, on the cusp, or well into it, retiring any debt is a reassuring event. For example, we haven't paid a cent of interest on our regularly used credit card accounts for many years and I still take pleasure in paying it off each month. And I can say that putting one's mortgage in the rear view mirror is an especially pleasing thing to do. Highly recommended.

Dottie57
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Re: Anyone regret paying off mortgage early?

Post by Dottie57 » Sun Jun 10, 2018 2:30 pm

One of the best days of my life. Am very happy to have paid it off. Love the cash flow after pay off.

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randomizer
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Re: Anyone regret paying off mortgage early?

Post by randomizer » Sun Jun 10, 2018 2:58 pm

No regrets.
75:25 AA / Expected retirement: 2097

international001
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Re: Anyone regret paying off mortgage early?

Post by international001 » Sun Jun 10, 2018 3:07 pm

To those of you who claim peace of mind.. be aware of the Confirmatory bias

If you paid off a 30 yrs mortgage in 15 years... perhaps you could have asked for a lower rate!

hookemhorns
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Re: Anyone regret paying off mortgage early?

Post by hookemhorns » Sun Jun 10, 2018 5:57 pm

AlphaLess wrote:
Sun Jun 10, 2018 1:55 pm
hookemhorns wrote:
Sun Jun 10, 2018 12:29 pm
Our mortgage is 30yr fixed at 3.75%, which after tax is ~2.5%. The after tax cost could be even lower if income tax rates go up, which is possible long term.
My computation shows that the MAJORITY of homeowners can not EFFECTIVELY take advantage of the mortgage interest deduction on Federal Taxes after the 2017 tax law was introduced.
True, the majority probably do not anymore. However, there are still a fair number of people (and especially Bogleheads :D ) that will have itemized deductions that exceed the new standard deduction.
AlphaLess wrote:
Sun Jun 10, 2018 1:55 pm
Do you mind sharing if you know for sure that you are taking 100% advantage of the mortgage interest deduction?
Our mortgage interest alone is >$24k and we will hit the SALT cap every year. Annual donations are variable but so far have been in $5-10k range, on an upward trajectory. So full deduction of the mortgage interest depends upon donations. I don't see a scenario where our utilization of the interest tax shield will be <60%. So that puts us at a mid to high 2% effective cost of funding.

The decision obviously varies based upon your numbers, that's why categorically saying "pay it off early" is wrong. Paying it off early is the equivalent of buying a totally illiquid muni bond yielding whatever your mortgage interest rate is minus the effective tax shield. For somebody ultraconservative or nearing retirement that might make sense. For somebody in their 30s that can utilize the tax shield and has a long investment horizon paying off early doesn't make sense. I'm in no rush to buy a muni bond yielding <3%. That's almost no real return after inflation.

AlphaLess
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Re: Anyone regret paying off mortgage early?

Post by AlphaLess » Sun Jun 10, 2018 6:31 pm

^^^
Thanks. Make sense.

A lot of people might consider where we live a high cost of living area, but I would disagree.
Our mortgage is $500K, and we live beyond comfortably. With a 2.75% interest rate, we only have $14K a year of interest.
But it is also hard to generate a lot of mortgage interest because there is a mortgage principal cap in the new law.
So, best case scenario is:
- have a mortgage pre-dating the law,
- have the maximum principal, $1MM,
- have a low-ish rate, but still enough interest.

Separately, I wish I could buy back my mortgage from the bank at profit.
They probably hedged (sold) to someone, so some investors are holding the losses now.

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grabiner
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Re: Anyone regret paying off mortgage early?

Post by grabiner » Sun Jun 10, 2018 7:55 pm

AlphaLess wrote:
Sun Jun 10, 2018 6:31 pm
A lot of people might consider where we live a high cost of living area, but I would disagree.
Our mortgage is $500K, and we live beyond comfortably. With a 2.75% interest rate, we only have $14K a year of interest.
But it is also hard to generate a lot of mortgage interest because there is a mortgage principal cap in the new law.
So, best case scenario is:
- have a mortgage pre-dating the law,
- have the maximum principal, $1MM,
- have a low-ish rate, but still enough interest.
Or just be single. If you live in a high-tax state, you can be single and hit the maximum $10K in state income tax plus property tax; now you need to donate only $2K to charity to deduct all the mortgage interest from your taxes.

This is why I don't pay my mortgage down. I have a 2.625% rate (paid lots of points to get that low a rate), which is 2.00% after deducting federal tax at 24%. Since I can borrow at 2% and lend at more than 2%, I am happy to do both.
Wiki David Grabiner

AlphaLess
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Re: Anyone regret paying off mortgage early?

Post by AlphaLess » Sun Jun 10, 2018 8:06 pm

grabiner wrote:
Sun Jun 10, 2018 7:55 pm
AlphaLess wrote:
Sun Jun 10, 2018 6:31 pm
A lot of people might consider where we live a high cost of living area, but I would disagree.
Our mortgage is $500K, and we live beyond comfortably. With a 2.75% interest rate, we only have $14K a year of interest.
But it is also hard to generate a lot of mortgage interest because there is a mortgage principal cap in the new law.
So, best case scenario is:
- have a mortgage pre-dating the law,
- have the maximum principal, $1MM,
- have a low-ish rate, but still enough interest.
Or just be single. If you live in a high-tax state, you can be single and hit the maximum $10K in state income tax plus property tax; now you need to donate only $2K to charity to deduct all the mortgage interest from your taxes.

This is why I don't pay my mortgage down. I have a 2.625% rate (paid lots of points to get that low a rate), which is 2.00% after deducting federal tax at 24%. Since I can borrow at 2% and lend at more than 2%, I am happy to do both.
Good point. That's a nice tax arbitrage.

But being MFJ also saves us a lot in taxes in other ways.

I wonder if any of the states would manage to come up with loop-holes for the $10K SALT limit.
My state is by no means a high tax state: state income tax is under 5% and there is no locality income tax. But still, anything helps.

JBTX
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Re: Anyone regret paying off mortgage early?

Post by JBTX » Sun Jun 10, 2018 8:22 pm

Mid 50's and have $160k mortgage at 3.25. Will not be paying off any time soon. Did a refinance a year ago for remodel and if I had it to do again I would have done more.

most people don't really get that a mortgage essentially has a one way option in your favor. If rates go up you are locked in at low rate. If rates go down you can always choose to pay off (or refinance). Options have value.

Our mortgage payment is on autopay and I don't even think about the monthly payment or mortgage. I truly do not understand the mental burden and stress some seem to associate with it.

bltn
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Re: Anyone regret paying off mortgage early?

Post by bltn » Mon Jun 11, 2018 4:54 am

I am extremely happy that I no longer have a mortgage. For some reason, I ve always considered paying off a mortgage an important part of preparing for retirement.
There is still plenty of home expense with insurance and taxes.

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cfs
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Re: Anyone regret paying off mortgage early?

Post by cfs » Mon Jun 11, 2018 5:26 am

I did it and it feels good (paying off the mortgage). Good luck y gracias por leer / cfs
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EnjoyIt
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Re: Anyone regret paying off mortgage early?

Post by EnjoyIt » Mon Jun 11, 2018 9:06 am

AlphaLess wrote:
Sun Jun 10, 2018 8:06 pm
grabiner wrote:
Sun Jun 10, 2018 7:55 pm
AlphaLess wrote:
Sun Jun 10, 2018 6:31 pm
A lot of people might consider where we live a high cost of living area, but I would disagree.
Our mortgage is $500K, and we live beyond comfortably. With a 2.75% interest rate, we only have $14K a year of interest.
But it is also hard to generate a lot of mortgage interest because there is a mortgage principal cap in the new law.
So, best case scenario is:
- have a mortgage pre-dating the law,
- have the maximum principal, $1MM,
- have a low-ish rate, but still enough interest.
Or just be single. If you live in a high-tax state, you can be single and hit the maximum $10K in state income tax plus property tax; now you need to donate only $2K to charity to deduct all the mortgage interest from your taxes.

This is why I don't pay my mortgage down. I have a 2.625% rate (paid lots of points to get that low a rate), which is 2.00% after deducting federal tax at 24%. Since I can borrow at 2% and lend at more than 2%, I am happy to do both.
Good point. That's a nice tax arbitrage.

But being MFJ also saves us a lot in taxes in other ways.

I wonder if any of the states would manage to come up with loop-holes for the $10K SALT limit.
My state is by no means a high tax state: state income tax is under 5% and there is no locality income tax. But still, anything helps.
Grabiner,
I think you are miscalculating just a little. Because you get a $12k standard deduction, you only benefit on itemizing on cash above $12k since the $12k is accounted for via the standard deception. Allow me to explain via an example:

Example #1
Single
25% tax bracket
Person has Salt of $10k due to cap and $6k in mortgage interest.
Without the mortgage that person would have a $12k standard deduction worth $3k
With the mortgage the person has $16k in deductions worth $4k
$16k is only $4k above the $12k standard deduction.
The extra $6k in mortgage interest is only worth $1k in tax savings which is worth only 16.7% instead of the 25% we would normally expect.
Basically due to the cap you are loosing $2k worth of mortgage interest deduction.

Now, if you have a $2 million mortgage at 2.65% then your deduction starts to get very close to the example's 25% tax bracket.

mptfan
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Re: Anyone regret paying off mortgage early?

Post by mptfan » Mon Jun 11, 2018 9:18 am

hookemhorns wrote:
Sun Jun 10, 2018 12:29 pm
Our mortgage is 30yr fixed at 3.75%, which after tax is ~2.5%.
Are you sure about that after tax number? What are your total itemized deductions excluding mortgage interest? The standard deduction has recently been substantially increased which has greatly reduced or eliminated the tax benefits of having a mortgage for many people.

gamboolman
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Re: Anyone regret paying off mortgage early?

Post by gamboolman » Mon Jun 11, 2018 11:50 am

Nope paid off 3 or 4 years ago
Paid off and it feels good
Sleep great knowing we don’t have mortgage next year when I retire

Carson
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Re: Anyone regret paying off mortgage early?

Post by Carson » Mon Jun 11, 2018 2:38 pm

Well, we were in the process of paying it off early, however, we did develop some regret...

It seemed like some projected development in our neighborhood was unfavorable and there were some questions about school quality for our kids as well. We had some other realizations, this probably isn't our 'forever' house and we're open to moving at some point. We took the difference we were paying off and are saving that each month instead, just to provide $ for liquidity if we need to move.

We were able to refi a few years ago and are at 15 years, 2.75%. The increased cost of interest is $9k to stay on the 15-year schedule instead of paying it off to 12 years. DH and I agree the extra $ saved is worth it.
30-something personal finance enthusiast, just get getting started on this whole portfolio thing.

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Re: Anyone regret paying off mortgage early?

Post by bloom2708 » Mon Jun 11, 2018 2:44 pm

mptfan wrote:
Mon Jun 11, 2018 9:18 am
hookemhorns wrote:
Sun Jun 10, 2018 12:29 pm
Our mortgage is 30yr fixed at 3.75%, which after tax is ~2.5%.
Are you sure about that after tax number? What are your total itemized deductions excluding mortgage interest? The standard deduction has recently been substantially increased which has greatly reduced or eliminated the tax benefits of having a mortgage for many people.
Yep, the post just above this one has an example. If you have charitable donations + property taxes equal to the current standard deduction, then all of your mortgage interest is deductible.

For 2018, mortgage interest + property taxes + charitable donations have to exceed the new higher standard deductions. Most with smaller mortgages won't come close to filling the standard deduction that everyone gets.

This is still the #1 mortgage misconception. All we can do is keep repeating. Most continue to need a mortgage, just don't use the interest deduction to help justify in most scenarios.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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epicahab
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Re: Anyone regret paying off mortgage early?

Post by epicahab » Mon Jun 11, 2018 6:17 pm

Absolutely no regrets, just pride and the occasional smile to myself. :D

WhiteMaxima
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Re: Anyone regret paying off mortgage early?

Post by WhiteMaxima » Mon Jun 11, 2018 6:24 pm

I regret paying off my 1st house too early. Didn't know my company allow aft-tax 401k up to IRS max 50kish. I miss the opportunity to mega Roth. Miss the bear and then bull run. Could triple my tax-free mega Roth.

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grabiner
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Re: Anyone regret paying off mortgage early?

Post by grabiner » Mon Jun 11, 2018 10:23 pm

EnjoyIt wrote:
Mon Jun 11, 2018 9:06 am
grabiner wrote:
Sun Jun 10, 2018 7:55 pm
AlphaLess wrote:
Sun Jun 10, 2018 6:31 pm
A lot of people might consider where we live a high cost of living area, but I would disagree.
Our mortgage is $500K, and we live beyond comfortably. With a 2.75% interest rate, we only have $14K a year of interest.
But it is also hard to generate a lot of mortgage interest because there is a mortgage principal cap in the new law.
So, best case scenario is:
- have a mortgage pre-dating the law,
- have the maximum principal, $1MM,
- have a low-ish rate, but still enough interest.
Or just be single. If you live in a high-tax state, you can be single and hit the maximum $10K in state income tax plus property tax; now you need to donate only $2K to charity to deduct all the mortgage interest from your taxes.

This is why I don't pay my mortgage down. I have a 2.625% rate (paid lots of points to get that low a rate), which is 2.00% after deducting federal tax at 24%. Since I can borrow at 2% and lend at more than 2%, I am happy to do both.
Grabiner,
I think you are miscalculating just a little. Because you get a $12k standard deduction, you only benefit on itemizing on cash above $12k since the $12k is accounted for via the standard deception.
Yes, but I have over $12K in deductions even before my mortgage. I pay more than $10K in state and local income and property tax, and donate more than $2K to charity. Therefore, I get the full benefit of my mortgage interest as a deduction.

This is much less common for a married couple, which would have to donate $14K to charity to have a fully deductible mortgage.
Wiki David Grabiner

pascal
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Re: Anyone regret paying off mortgage early?

Post by pascal » Mon Jun 11, 2018 11:53 pm

grabiner wrote:
Mon Jun 11, 2018 10:23 pm

Yes, but I have over $12K in deductions even before my mortgage. I pay more than $10K in state and local income and property tax, and donate more than $2K to charity. Therefore, I get the full benefit of my mortgage interest as a deduction.

This is much less common for a married couple, which would have to donate $14K to charity to have a fully deductible mortgage.
Hello grabiner,

Could you please elaborate on how contributing to the charity would allow for a fully deductible mortgage in 2018?

Thanks!
"Never underestimate the ability of a bad situation to get worse...rapidly." Ninegrams

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grabiner
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Re: Anyone regret paying off mortgage early?

Post by grabiner » Tue Jun 12, 2018 6:43 pm

pascal wrote:
Mon Jun 11, 2018 11:53 pm
grabiner wrote:
Mon Jun 11, 2018 10:23 pm

Yes, but I have over $12K in deductions even before my mortgage. I pay more than $10K in state and local income and property tax, and donate more than $2K to charity. Therefore, I get the full benefit of my mortgage interest as a deduction.

This is much less common for a married couple, which would have to donate $14K to charity to have a fully deductible mortgage.
Could you please elaborate on how contributing to the charity would allow for a fully deductible mortgage in 2018?
Even if I didn't have the mortgage, I would still itemize, because I have over $12K in other deductions. State and local taxes are limited to $10K, so a single taxpayer needs at least $2K of other deductions such as charity to reach $12K. Since I do this, every additional dollar of itemized deductions from the mortgage is a tax benefit.
Wiki David Grabiner

pascal
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Re: Anyone regret paying off mortgage early?

Post by pascal » Tue Jun 12, 2018 8:33 pm

grabiner wrote:
Tue Jun 12, 2018 6:43 pm

Even if I didn't have the mortgage, I would still itemize, because I have over $12K in other deductions. State and local taxes are limited to $10K, so a single taxpayer needs at least $2K of other deductions such as charity to reach $12K. Since I do this, every additional dollar of itemized deductions from the mortgage is a tax benefit.
Thanks for the perspective.

So - equivalently if a married couple has more than 24k in state taxes, with the new tax law whats missing for people who purchased before 2018 was the deduction of the property tax. But if you were already paying 24k in state taxes you would be hitting AMT in 2017 which has a much higher limit in the new law. So the new tax law and its effect on buyers before 2018 paying more than 24k in state taxes is a non-issue.
"Never underestimate the ability of a bad situation to get worse...rapidly." Ninegrams

Rus In Urbe
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Re: Anyone regret paying off mortgage early?

Post by Rus In Urbe » Tue Jun 12, 2018 9:20 pm

Okay, my mortgage payoff was an extremely gratifying [(removed) --admin LadyGeek] to Chase Bank!

When we bought our current home, my employer offered a guaranteed pre-qualified mortgage adjustable 7 year. We were busy and didn't want to deal with the paperwork (and the house didn't cost much anyway) so we took it, arranging a mortgage from a regional bank. A few years later came the Housing Debacle of 2007-8 and the banks all went from giving any idiot a mortgage to giving no one a mortgage. In 2010, the 7 year period was expiring and interest rates were low; I'm naturally debt allergic, but we were doing so well with the recovering stock market, that I thought, sure, take the 3.75% 15 year, why not keep the money invested in the market? Since we banked at Chase and it had taken in all our paychecks for years, and knew everything about our financial life, Chase should be a cinch, right?

Well, we went through the mortgage application process. And went through it. And went through it. More documents, more phone calls, more and more. Understand that paying off this mortgage constituted less than 10% of our net worth, so the bank could not have been worried about us as a credit risk. Nope, it was just the bureaucratic stupidity that was triggered by the Housing Debacle (and bureaucratic stupidity that led to that!). On and on it went.

Finally I had had enough. Chase had wasted enough of my time. I told off the loan officer. I told off the bank manager, and told him where they could put their loan. A week later we delivered a bank check to the other regional bank that held the mortgage.

Yes, I loved paying off that mortgage because it meant that I would not be giving even 3.75% to Chase.

Never regretted it. And was earning enough that we were plowing lots of new money into the market as it recovered. Never looked back.

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Re: Anyone regret paying off mortgage early?

Post by Papago » Tue Jun 12, 2018 9:33 pm

Warning! We paid off our mortgage on our last home, only to have a title problem when selling it. Here's the catch - your title insurance covers your lender COMPLETELY if the property is unsell-able due to a title problem. HOWEVER, your individual title policy will NOT cover many, many contingencies if the title problem is not something they feel they aren't responsible for, regardless of whether property is unsell-able without resolution.

We ended up delaying the closing for 3 months and spending about $3k to resolve the title problem - had to track down an old owner and have them sign a quit-claim - but our individual title insurance refused to cover any of the costs. All the costs WOULD have been covered if we still had a mortgage, because the lender has more clout than an individual owner. Perhaps you should consider paying down the mortgage a lot, but not completely, if you're likely to move in the future...

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grabiner
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Re: Anyone regret paying off mortgage early?

Post by grabiner » Tue Jun 12, 2018 11:04 pm

pascal wrote:
Tue Jun 12, 2018 8:33 pm
grabiner wrote:
Tue Jun 12, 2018 6:43 pm

Even if I didn't have the mortgage, I would still itemize, because I have over $12K in other deductions. State and local taxes are limited to $10K, so a single taxpayer needs at least $2K of other deductions such as charity to reach $12K. Since I do this, every additional dollar of itemized deductions from the mortgage is a tax benefit.
Thanks for the perspective.

So - equivalently if a married couple has more than 24k in state taxes, with the new tax law whats missing for people who purchased before 2018 was the deduction of the property tax.
There is a $10K limit for state and local tax deductions, including both interest and property taxes, for married as well as single. A married couple would need $14K in other deductions in order to deduct all the mortgage interest, and few couples donate that much to charity.
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epicahab
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Re: Anyone regret paying off mortgage early?

Post by epicahab » Tue Jun 12, 2018 11:50 pm

Making decisions based on tax deductions is putting the cart before the horse. It's much better to eliminate the interest up front.

wolf359
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Re: Anyone regret paying off mortgage early?

Post by wolf359 » Wed Jun 13, 2018 5:32 am

This thread started in 2012. I wonder if anybody who responded back then now regrets having put all that money into their home equity instead of having that several hundred thousand dollars invested into the stock market at the beginning of a multi year bull run?

The returns in the market have greatly exceeded the 3-4% that they saved in interest.

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Re: Anyone regret paying off mortgage early?

Post by grettman » Wed Jun 13, 2018 7:05 am

wolf359 wrote:
Wed Jun 13, 2018 5:32 am
This thread started in 2012. I wonder if anybody who responded back then now regrets having put all that money into their home equity instead of having that several hundred thousand dollars invested into the stock market at the beginning of a multi year bull run?

The returns in the market have greatly exceeded the 3-4% that they saved in interest.
What would also be interesting is to hear from the folks who used low cost passive investment strategies such as investing in VTI only to find out that if they investing in Tesla or other hot stocks they could retire many years earlier. What about all the gains a low cost mutual fund investor missed by not investing in bitcoin?

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Re: Anyone regret paying off mortgage early?

Post by PrettyCoolWorkshop » Wed Jun 13, 2018 7:13 am

I have $160,000 remaining on a 15 year mortgage at 2.75% rate. I am really, really sure that I need to not pay it off early- I'm well into the territory where expected returns trump the interest rate.
One of these days, I'll make a really cool financial calculator thingy. And I'll share a link to it in this signature!

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Re: Anyone regret paying off mortgage early?

Post by Grt2bOutdoors » Wed Jun 13, 2018 7:22 am

wolf359 wrote:
Wed Jun 13, 2018 5:32 am
This thread started in 2012. I wonder if anybody who responded back then now regrets having put all that money into their home equity instead of having that several hundred thousand dollars invested into the stock market at the beginning of a multi year bull run?

The returns in the market have greatly exceeded the 3-4% that they saved in interest.
You are assuming that those who instead of paying off the home actually invested and STAYED invested throughout the period. You are also assuming that those who paid off mortgages did it in one fell swoop, as if they magically dumped $200K into the mortgage on 1/2/12 instead of prepaying it monthly. Prepaying it monthly would have cut down on those returns as you aren't receiving the benefit of past months returns if you never had the money in the market in the first instance.
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Re: Anyone regret paying off mortgage early?

Post by ThePrince » Wed Jun 13, 2018 7:42 am

epicahab wrote:
Tue Jun 12, 2018 11:50 pm
Making decisions based on tax deductions is putting the cart before the horse. It's much better to eliminate the interest up front.
+1

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Cycle
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Re: Anyone regret paying off mortgage early?

Post by Cycle » Wed Jun 13, 2018 7:46 am

I generally just look at the overall housing cost, but I factor in an assumed cost of 5% real gains lost on equity tied up in a house.

For me, at 4% rates it's slighty better to have a mortgage. I profit $2k due to living in a duplex, but with those "lost gains" the cost is more like $15k/yr. With a mortgage it's like $13k/yr. I don't have a mortgage though, bc it's one less bill to pay in a downturn.

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Re: Anyone regret paying off mortgage early?

Post by TX_Drew » Wed Jun 13, 2018 7:52 am

I did it this year without regrets.

It seems a lot of the math on here neglects that the previous interest and equity payments are now being DCA into VTI boglehead style. This is why post-mortgage-payoff I'm less concerned about any pull-back, and actually look forward to a modest one. I have way more monthly to invest, so bring it on...this definitely helps with peace of mind.

For me its also an asset allocation mix. I dislike bonds; always have. So I was like 98/2 split. Assuming mortgage is like a bond, post-mortgage-payoff I'm closer to 80/20. So a touch more conservative.

Note I invested large percent of income for first 18 years of my career, sometimes >30%, so I feel I have plenty of stock market exposure by this point. If I was 28, I would (and did) prioritize investing over extra mortgage payments to get that initial nest egg moving. So where you are on the path to FI probably plays to the preference.

Bottom-line, both are good choices... :sharebeer

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Re: Anyone regret paying off mortgage early?

Post by lostdog » Wed Jun 13, 2018 8:01 am

I don't regret. We feel safe and sleep well knowing we're no longer slaves to a lender.
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Re: Anyone regret paying off mortgage early?

Post by Nowizard » Wed Jun 13, 2018 8:17 am

The concept that one "should" pay off a mortgage is an over simplification of the topic in my opinion. Our approach has been that if one evaluates carefully and determines that the convenience factor of having no mortgage is secondary to other considerations, then having a mortgage can be beneficial. We have always had a higher mortgage than our financial condition would demand, investing the additional assets successfully. We continue to do so though we could pay off our current mortgage and will with a presently contemplated home purchase if we feel the risk is justified. We are both retired and many would not choose this approach.

Tim

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Re: Anyone regret paying off mortgage early?

Post by wolf359 » Wed Jun 13, 2018 11:09 am

Grt2bOutdoors wrote:
Wed Jun 13, 2018 7:22 am
wolf359 wrote:
Wed Jun 13, 2018 5:32 am
This thread started in 2012. I wonder if anybody who responded back then now regrets having put all that money into their home equity instead of having that several hundred thousand dollars invested into the stock market at the beginning of a multi year bull run?

The returns in the market have greatly exceeded the 3-4% that they saved in interest.
You are assuming that those who instead of paying off the home actually invested and STAYED invested throughout the period. You are also assuming that those who paid off mortgages did it in one fell swoop, as if they magically dumped $200K into the mortgage on 1/2/12 instead of prepaying it monthly. Prepaying it monthly would have cut down on those returns as you aren't receiving the benefit of past months returns if you never had the money in the market in the first instance.
Actually, my assumptions were:
1) That the person who responded was a Boglehead, so already invests regularly in the stock market.
2) That the person who responded earlier successfully paid off their mortgage. I wasn't assuming how, although most people probably just paid more than required to achieve early payoff. In either case, they chose to put their extra savings into home equity instead of the stock market.
3) That the ability to pay off the mortgage shows that they had the ability to save the extra money that they used to pay off the mortgage. Therefore, I thought it reasonable to assume that if they hadn't directed the extra savings into home equity, that they would have invested it and stayed in the market.
4) The fact that they had finished paying off the mortgage prior to 2012 meant that they had accumulated the hundreds of thousands of equity prior to 2012, when the stock market was at or near its last low (around 2011.) So if they still had their mortgage today, yes, the entire amount that went to pay off the equity back in 2012 would have been available to be invested.

Paying off the mortgage feels good, but the extra money it takes to do so has an opportunity cost. In this time period, it was a rather large opportunity cost. Of course, there were no guarantees that it would have turned out that way.

But if the economy was terrible, wouldn't it be better to have the liquidity of investments rather than having it locked up in home equity. If the economy was great, then stocks will outperform the 3-4% return obtained from paying off the mortgage.

This isn't an attempt to argue for or against. I'm working on paying off my mortgage early myself (by using the sinking fund method.) I'm just wondering if the bull market changed any minds given the huge opportunity cost that resulted.

Don't forget that someone who paid off their mortgage in 2012 no longer had a mortgage payment since then. They could have been taking that entire mortgage payment savings and investing it. If so, they wouldn't have done as well as someone who had already invested the full amount of equity prior to 2012, but they would probably still be doing very well.
Last edited by wolf359 on Wed Jun 13, 2018 11:42 am, edited 1 time in total.

wolf359
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Re: Anyone regret paying off mortgage early?

Post by wolf359 » Wed Jun 13, 2018 11:37 am

grettman wrote:
Wed Jun 13, 2018 7:05 am
wolf359 wrote:
Wed Jun 13, 2018 5:32 am
This thread started in 2012. I wonder if anybody who responded back then now regrets having put all that money into their home equity instead of having that several hundred thousand dollars invested into the stock market at the beginning of a multi year bull run?

The returns in the market have greatly exceeded the 3-4% that they saved in interest.
What would also be interesting is to hear from the folks who used low cost passive investment strategies such as investing in VTI only to find out that if they investing in Tesla or other hot stocks they could retire many years earlier. What about all the gains a low cost mutual fund investor missed by not investing in bitcoin?
Not the same thing. Investing in home equity has a known positive return (the amount of the interest rate on the mortgage, or around 3-4%.) Investing using passive index funds has an expected positive return (which is greater than 3-4%), especially over the 30 year period covered by most mortgages. Investing in individual stocks or bitcoin is speculative, and an expected return cannot be calculated. In fact, in the case of bitcoin there is no agreed upon basis for valuation, making it more akin to gambling.

When people pay off a low interest mortgage, they probably know that they have a higher expected return elsewhere. The reasons for doing it anyways are myriad, including reducing the housing expense, the psychological benefit of having a paid off home, the accomplishment of a long-standing, difficult goal. That's why there is an overwhelming positive feedback for achieving this milestone. In the specific case of the 2012 responders, however, hindsight shows that the better financial choice was to not pay it off (but there was no way to know this back then.) Also, the 2012 responders may well have been investing their savings because of not having mortgage payments ever since, and are still fully satisfied.

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Re: Anyone regret paying off mortgage early?

Post by jhh9327 » Wed Jun 13, 2018 11:49 am

wolf359 wrote:
Wed Jun 13, 2018 5:32 am
This thread started in 2012. I wonder if anybody who responded back then now regrets having put all that money into their home equity instead of having that several hundred thousand dollars invested into the stock market at the beginning of a multi year bull run?

The returns in the market have greatly exceeded the 3-4% that they saved in interest.
Only if you didn't change your AA. People who paid off a mortgage by reducing their allocation to bonds in their investment portfolio have done quite well.

Comparing a mortgage interest rate to the results of a blended AA that includes bonds doesn't make a ton of sense to me personally. Reduce your bond holdings and get the best of both worlds.

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Re: Anyone regret paying off mortgage early?

Post by Mr.BB » Wed Jun 13, 2018 12:29 pm

No, glad we did it. Takes a lot pressure off the monthly budget and we can take any extra money (that is not going toward the mortgage payment) and invest it.
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Re: Anyone regret paying off mortgage early?

Post by CedarWaxWing » Wed Jun 13, 2018 12:34 pm

I bought my last home in 1990, when interest rates were 9%. Prior to that I bought first home in 1981 when they are also 9% I think, and I got a loan for that one to help with the down payment (paid 10% for that and paid that off over 4 years to a family member).

I paid off the 1990 home as aggressively as possible preferentially to the 1981 home (which I kept as a rental) because the deduction no the 1981 home was worth more to me than a loan on the home I lived it.

There was no way I could get a guaranteed ROI on the money I could otherwise use to reduce the debt of my home loan, and I was the main breadwinner, and we had our first (of 3) children in 1990.

For the sake of my family I therefore did the following:

1. Bought term insurance for enough to allow my wife to pay off all debts, raise the kids, and get in home child care assistance. (The DW also has a highly employable degree that would allow her to work part time or full time.. but with the kids she did not wish to ever have to work full time again.)

2. Paid off the home loan asap.

3. The rental houses( I bought a few more over about 5 years) ... paid that ebt off only when I was making enough money to do so gracefully, at a time when I knew no other way to invest than in single family home rentals. The plan for rentals was to never be stuck with vacancies that I could not gracefully afford... so I paid them off one at a time.

I never borrowed on one house to get funds to buy another... but used the earning profits from rents to invest in Mutual funds. I had planned to sell off one house at a time if the money was needed to pay for college costs for the kids, but that plan would not have worked well when the first one started college in 2008. (I had a backup plan in place that worked fine... ).

(We also decided that if for any reason the main home was lost to us, we could move into one of the rental houses... we tend to think of ways things can go wrong in the worst possible way and have a plan in place for the unexpected.)

4. The easiest way to live beyond our means was to pay off the house, and then the rentals... and bank the difference.

To my way of thinking... freedom/stability for a family in the USA is to have enough resources to be able to live for 2-5 of years in the same home even if the only job you can get pays minimum wage. There are many reasons why even a very smart person can be out of work in a flash in the USA through no personal fault of his/her own.

I valued safety and financial security for the family more than paying less taxes... but am pretty sure paying off the homes put more money in our pockets over the long rung, and allowed me and DW to sleep better at night.

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