Is my *entire* life financed when I have a mortgage?

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B4Xt3r
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Is my *entire* life financed when I have a mortgage?

Post by B4Xt3r » Thu Mar 14, 2019 7:37 am

I have a question that has been nagging me for sometime.

Let's say that I have a mortgage (really any debt) that is financed at a non-zero interest rate. Lets then say that I make a $X purchase instead of prepaying the same amount to the mortgage. On the margin, doesn't that mean that I'll pay off the mortgage $X dollars (plus interest) later? If that is true, then the $X purchase is effectively financed at the mortgage rate, for the duration of the mortgage, correct?

(Of course even if it is true, there are many non-discretionary purchases that are still very much worth it, but it puts discretionary purchases in a very harsh light.)

BuckyBadger
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Re: Is my *entire* life financed when I have a mortgage?

Post by BuckyBadger » Thu Mar 14, 2019 7:40 am

Sometimes life is more than math...

goblue100
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Re: Is my *entire* life financed when I have a mortgage?

Post by goblue100 » Thu Mar 14, 2019 7:48 am

Do you really want to do nothing but go to work and eat peanut butter and jelly sandwiches until your house is paid for? I'd rather balance a little more life in those years and accept that it will take longer to pay off the house.
Financial planners are savers. They want us to be 95 percent confident we can finance a 30-year retirement even though there is an 82 percent probability of being dead by then. - Scott Burns

mak1277
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Re: Is my *entire* life financed when I have a mortgage?

Post by mak1277 » Thu Mar 14, 2019 7:59 am

Realistically, every dollar you spend is a trade off unless you're extremely wealthy. You just have to make the decisions that best support the life you want to live.

StandingRock
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Re: Is my *entire* life financed when I have a mortgage?

Post by StandingRock » Thu Mar 14, 2019 8:10 am

You're reaching for something here, not sure what it is.

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sunny_socal
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Re: Is my *entire* life financed when I have a mortgage?

Post by sunny_socal » Thu Mar 14, 2019 8:17 am

I've wondered _exactly_ the same thing OP!

My thoughts:
- I tell myself "money is fungible", as you'll often hear on these boards
- Is there any practical difference between a mortgage payment and a rent payment? If you rented you wouldn't have debt but you'd still have that payment
- It's best to have a balanced approach rather than to be overly single-minded. I've gone through phases of focusing on debt payment, focus on savings, focus on experiences (which are often related to spending, eg. a vacation.)
- What happens when the mortgage is paid? You'll likely still have taxes to pay.
- I try to take a step back. Is my overall debt going down? Net worth going up? Then I'm doing ok.

ohai
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Re: Is my *entire* life financed when I have a mortgage?

Post by ohai » Thu Mar 14, 2019 8:20 am

OP yes, you are correct. The mortgage is collateralized by your house, but economically, every dollar you choose to spend away from paying down debt is effectively borrowed at your mortgage rate.

corysold
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Re: Is my *entire* life financed when I have a mortgage?

Post by corysold » Thu Mar 14, 2019 8:21 am

Couldn't you also say, once your mortgage is paid off, that every purchase is financed at the return you could get if you invested that money?

But you'd also have to put a dollar figure on the happiness that item gives you over time, so it seems like a never ending cycle of trying to figure out value.

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8foot7
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Re: Is my *entire* life financed when I have a mortgage?

Post by 8foot7 » Thu Mar 14, 2019 8:22 am

Technically, yes. But I don't think it's especially useful to think this way unless you have an unmanageable mortgage.

Triple digit golfer
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Re: Is my *entire* life financed when I have a mortgage?

Post by Triple digit golfer » Thu Mar 14, 2019 8:25 am

Yes, technically you're right. If you buy a $2 coffee in the morning, that's $2 that you're not paying to the mortgage, or $2 that could have been paid back instead of remaining as debt.

It's not relevant or actionable to me. Even without a mortgage, anything I buy is money that could have been invested instead. It's more of an opportunity cost than my life being financed.

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ohboy!
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Re: Is my *entire* life financed when I have a mortgage?

Post by ohboy! » Thu Mar 14, 2019 8:35 am

goblue100 wrote:
Thu Mar 14, 2019 7:48 am
Do you really want to do nothing but go to work and eat peanut butter and jelly sandwiches until your house is paid for? I'd rather balance a little more life in those years and accept that it will take longer to pay off the house.
Those are $.20 + ($.20 * 0.4) sandies. Grow your own baby.

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blackfish
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Re: Is my *entire* life financed when I have a mortgage?

Post by blackfish » Thu Mar 14, 2019 8:44 am

I was surprised to find that this thread was not started by LiterallyIronic

Dottie57
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Re: Is my *entire* life financed when I have a mortgage?

Post by Dottie57 » Thu Mar 14, 2019 8:52 am

sunny_socal wrote:
Thu Mar 14, 2019 8:17 am
I've wondered _exactly_ the same thing OP!

My thoughts:
- I tell myself "money is fungible", as you'll often hear on these boards
- Is there any practical difference between a mortgage payment and a rent payment? If you rented you wouldn't have debt but you'd still have that payment
- It's best to have a balanced approach rather than to be overly single-minded. I've gone through phases of focusing on debt payment, focus on savings, focus on experiences (which are often related to spending, eg. a vacation.)
- What happens when the mortgage is paid? You'll likely still have taxes to pay.
- I try to take a step back. Is my overall debt going down? Net worth going up? Then I'm doing ok.
Agreed. OP needs a place to live spit rent or mortgage. I bought inexpensive condo.

mega317
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Re: Is my *entire* life financed when I have a mortgage?

Post by mega317 » Thu Mar 14, 2019 9:10 am

OP your last sentence says much. Think of the people you know buying luxury cars or second homes or other huge things while carrying a mortgage.

mega317
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Re: Is my *entire* life financed when I have a mortgage?

Post by mega317 » Thu Mar 14, 2019 9:13 am

And everyone has their own definition of discretionary. I could stay late at work or go to the library but I prefer to own a computer for the times I have work to bring home so I can eat dinner with my family.

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Re: Is my *entire* life financed when I have a mortgage?

Post by stoptothink » Thu Mar 14, 2019 9:56 am

8foot7 wrote:
Thu Mar 14, 2019 8:22 am
Technically, yes. But I don't think it's especially useful to think this way unless you have an unmanageable mortgage.
It isn't, at all; unfortunately I hate debt so much that these thoughts constantly run through my head. We definitely don't have an unmanageable mortgage - 15yr that we're on pace to have paid off in ~6yrs while saving ~$75k/yr - but it drives me crazy seeing that I'm paying $200/month (nearly enough to feed my family for the month) in interest...I just sent in a random principle payment this morning, for no reason.

ponyboy
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Re: Is my *entire* life financed when I have a mortgage?

Post by ponyboy » Thu Mar 14, 2019 9:59 am

You'll always have a "mortgage."

Property taxes and home insurance. For most, thats $4k+/year. It never goes away. And yes, I know some pay $10k+ for these.

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JoeRetire
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Re: Is my *entire* life financed when I have a mortgage?

Post by JoeRetire » Thu Mar 14, 2019 10:07 am

B4Xt3r wrote:
Thu Mar 14, 2019 7:37 am
I have a question that has been nagging me for sometime.

Let's say that I have a mortgage (really any debt) that is financed at a non-zero interest rate. Lets then say that I make a $X purchase instead of prepaying the same amount to the mortgage. On the margin, doesn't that mean that I'll pay off the mortgage $X dollars (plus interest) later? If that is true, then the $X purchase is effectively financed at the mortgage rate, for the duration of the mortgage, correct?

(Of course even if it is true, there are many non-discretionary purchases that are still very much worth it, but it puts discretionary purchases in a very harsh light.)
That's why you should always pay cash for a home. And wait until you can afford to do so before purchasing.
Don't be a lemming.

Admiral
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Re: Is my *entire* life financed when I have a mortgage?

Post by Admiral » Thu Mar 14, 2019 10:11 am

stoptothink wrote:
Thu Mar 14, 2019 9:56 am
8foot7 wrote:
Thu Mar 14, 2019 8:22 am
Technically, yes. But I don't think it's especially useful to think this way unless you have an unmanageable mortgage.
It isn't, at all; unfortunately I hate debt so much that these thoughts constantly run through my head. We definitely don't have an unmanageable mortgage - 15yr that we're on pace to have paid off in ~6yrs while saving ~$75k/yr - but it drives me crazy seeing that I'm paying $200/month (nearly enough to feed my family for the month) in interest...I just sent in a random principle payment this morning, for no reason.
I can't help you with your emotions ("I hate debt") but I would at least suggest you view debt as a tool, like any other. It has a cost, but it also presents opportunities to accomplish something else. There are very, very few public companies that have zero debt (read: bonds). Nobody likes to pay interest, but that interest is allowing you to do something else with the money: and, often in investing, to make more money than the debt is costing you.

My mortgage rate is 2.25%. I don't hate it. I thank God everyday I was able to get it. It allows me to save $65k per year pre-tax.

Admiral
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Re: Is my *entire* life financed when I have a mortgage?

Post by Admiral » Thu Mar 14, 2019 10:18 am

JoeRetire wrote:
Thu Mar 14, 2019 10:07 am
B4Xt3r wrote:
Thu Mar 14, 2019 7:37 am
I have a question that has been nagging me for sometime.

Let's say that I have a mortgage (really any debt) that is financed at a non-zero interest rate. Lets then say that I make a $X purchase instead of prepaying the same amount to the mortgage. On the margin, doesn't that mean that I'll pay off the mortgage $X dollars (plus interest) later? If that is true, then the $X purchase is effectively financed at the mortgage rate, for the duration of the mortgage, correct?

(Of course even if it is true, there are many non-discretionary purchases that are still very much worth it, but it puts discretionary purchases in a very harsh light.)
That's why you should always pay cash for a home. And wait until you can afford to do so before purchasing.
This makes no sense. I'd wager the percentage of people who pay all cash for a home is between slim and none, and slim left town. Most people can't come up with $400 for an emergency expense. Where are they going to get $200,000? There's nothing inherently wrong with holding a mortgage, as long as it is affordable.

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JoeRetire
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Re: Is my *entire* life financed when I have a mortgage?

Post by JoeRetire » Thu Mar 14, 2019 10:20 am

Admiral wrote:
Thu Mar 14, 2019 10:18 am
JoeRetire wrote:
Thu Mar 14, 2019 10:07 am
That's why you should always pay cash for a home. And wait until you can afford to do so before purchasing.
This makes no sense. I'd wager the percentage of people who pay all cash for a home is between slim and none, and slim left town. Most people can't come up with $400 for an emergency expense. Where are they going to get $200,000? There's nothing inherently wrong with holding a mortgage, as long as it is affordable.
You (and I) apparently aren't as worried about affordable mortgages as some folks.

For those worry wort folks, they wouldn't have a nagging feeling about every purchase if they just paid cash for their homes.
Don't be a lemming.

LiterallyIronic
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Re: Is my *entire* life financed when I have a mortgage?

Post by LiterallyIronic » Thu Mar 14, 2019 10:30 am

stoptothink wrote:
Thu Mar 14, 2019 9:56 am
8foot7 wrote:
Thu Mar 14, 2019 8:22 am
Technically, yes. But I don't think it's especially useful to think this way unless you have an unmanageable mortgage.
It isn't, at all; unfortunately I hate debt so much that these thoughts constantly run through my head. We definitely don't have an unmanageable mortgage - 15yr that we're on pace to have paid off in ~6yrs while saving ~$75k/yr - but it drives me crazy seeing that I'm paying $200/month (nearly enough to feed my family for the month) in interest...I just sent in a random principle payment this morning, for no reason.
I feel you on that. My $450/month interest payment is soul-crushing, not to mention it's higher than what my previous rent was. I'm $4,062 ahead in principal payments so far, and I'm rushing towards the magical $20k ahead so I can recast the mortgage to a lower PITI.
Admiral wrote:
Thu Mar 14, 2019 10:11 am
I can't help you with your emotions ("I hate debt") but I would at least suggest you view debt as a tool, like any other. It has a cost, but it also presents opportunities to accomplish something else. There are very, very few public companies that have zero debt (read: bonds). Nobody likes to pay interest, but that interest is allowing you to do something else with the money: and, often in investing, to make more money than the debt is costing you.

My mortgage rate is 2.25%. I don't hate it. I thank God everyday I was able to get it. It allows me to save $65k per year pre-tax.
I don't follow. I am 17 months into my 3.875% 30-year fixed mortgage. Down from $149,000 to $140,999 balance after those 17 months. And I save $19,500 per year (some pre-tax, some post-tax). But if I didn't have the mortgage, I'd be able to save even more, to the tune of $700.65/month (the principal + interest portion of my PITI). My mortgage doesn't allow me to save more, it prevents me from saving more.

ohai
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Re: Is my *entire* life financed when I have a mortgage?

Post by ohai » Thu Mar 14, 2019 10:32 am

If you pay cash for your home, then your assumption must be that your opportunity cost of capital (i.e. investment return) is lower than your mortgage interest rate, after tax. You have only one opportunity cost in the end - and that is the return that you lose whenever you make a discretionary purchase.

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Re: Is my *entire* life financed when I have a mortgage?

Post by HEDGEFUNDIE » Thu Mar 14, 2019 10:35 am

For those allergic to paying interest, why didn’t you just buy your house in cash?

Oh, you didn’t have the cash upfront? Then the price for you is higher.

Would you rather not live in the house?

TSR
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Re: Is my *entire* life financed when I have a mortgage?

Post by TSR » Thu Mar 14, 2019 10:45 am

The answer, of course, is yes and no. You do not owe your bank the cost of every meal you buy --- you just owe your bank the amount of your monthly payment. But surely you could put every extra dollar toward your mortgage to stop owing your bank anything in the future. Fair enough.

But as with anything that is more of a theoretical concern than a literal truth, there are good and bad ways to use this insight. When I was in law school, it was extremely helpful to me to think that every meal out --- or paying for cable, or having a nicer apartment, or whatever --- was being financed at the rate of my student loans. After all, I had no income, so the money I was spending was literally being drawn from my student loans to pay for discretionary expenses. This was a good way to teach myself the difference between wants and needs. Do I really need to buy that third beer at 6% financing?

But now that I have paid off my student loans, have an income, and have a mortgage, this mode of perceiving things is no longer particularly useful to me. The mortgage is secured debt, was approved based on an assessment of my ability to repay, and it has a fixed repayment schedule with a predictable end. Almost all financial advisors would consider it "good debt," better certainly than student loans. It's good to pay it down faster, but I have no *need* to do that in order to feel free in my life. Perhaps you DO feel that need, which is also fine, but that might speak to some inability on your part to enjoy the fruits of your labors, which is common on theses boards as well. If you need an excuse not to buy things, your rationale is as good as the next. If you're asking whether you MUST deprive yourself of things for that reason, the answer is definitely no.

Just my musings -- good luck!

Admiral
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Re: Is my *entire* life financed when I have a mortgage?

Post by Admiral » Thu Mar 14, 2019 10:47 am

LiterallyIronic wrote:
Thu Mar 14, 2019 10:30 am
stoptothink wrote:
Thu Mar 14, 2019 9:56 am
8foot7 wrote:
Thu Mar 14, 2019 8:22 am
Technically, yes. But I don't think it's especially useful to think this way unless you have an unmanageable mortgage.
It isn't, at all; unfortunately I hate debt so much that these thoughts constantly run through my head. We definitely don't have an unmanageable mortgage - 15yr that we're on pace to have paid off in ~6yrs while saving ~$75k/yr - but it drives me crazy seeing that I'm paying $200/month (nearly enough to feed my family for the month) in interest...I just sent in a random principle payment this morning, for no reason.
I feel you on that. My $450/month interest payment is soul-crushing, not to mention it's higher than what my previous rent was. I'm $4,062 ahead in principal payments so far, and I'm rushing towards the magical $20k ahead so I can recast the mortgage to a lower PITI.
Admiral wrote:
Thu Mar 14, 2019 10:11 am
I can't help you with your emotions ("I hate debt") but I would at least suggest you view debt as a tool, like any other. It has a cost, but it also presents opportunities to accomplish something else. There are very, very few public companies that have zero debt (read: bonds). Nobody likes to pay interest, but that interest is allowing you to do something else with the money: and, often in investing, to make more money than the debt is costing you.

My mortgage rate is 2.25%. I don't hate it. I thank God everyday I was able to get it. It allows me to save $65k per year pre-tax.
I don't follow. I am 17 months into my 3.875% 30-year fixed mortgage. Down from $149,000 to $140,999 balance after those 17 months. And I save $19,500 per year (some pre-tax, some post-tax). But if I didn't have the mortgage, I'd be able to save even more, to the tune of $700.65/month (the principal + interest portion of my PITI). My mortgage doesn't allow me to save more, it prevents me from saving more.
You are mis-stating the situation. You chose debt, because presumably you did not have cash.

There is no magic choice that allows you to say "poof" my mortgage is gone, so now I will invest all that money rather than service my debt. The money has to come from some place. The choice is this: pay cash for house, pay rent, pay mortgage. You chose mortgage.

If I have a 200k mortgage and 200k in cash, I can pay off the mortgage and then invest, starting from zero. Or, I can use the mortgage as leverage, paying a portion from my income each month toward it, and adding anything leftover to my 200k, which provides the magic of compounding.

The higher the mortgage rate, obviously, the less one has leftover to invest. The lower the rate, the more one has. If your 3.8% mortgage does not allow you to save what you want, that's a decision that you made when you bought that house and got that rate. If you could rent for less and save more, that should have also been a factor when you made your choice.

I think the markets will offer a better return on my money than my house will.

aristotelian
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Re: Is my *entire* life financed when I have a mortgage?

Post by aristotelian » Thu Mar 14, 2019 11:01 am

Yes. Also, your whole portfolio is leveraged. However, over a 30 year period, investing with a mortgage is extremely likely to work out in your favor, particularly at historically low mortgage rates.

LiterallyIronic
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Re: Is my *entire* life financed when I have a mortgage?

Post by LiterallyIronic » Thu Mar 14, 2019 11:01 am

Admiral wrote:
Thu Mar 14, 2019 10:47 am
LiterallyIronic wrote:
Thu Mar 14, 2019 10:30 am
stoptothink wrote:
Thu Mar 14, 2019 9:56 am
8foot7 wrote:
Thu Mar 14, 2019 8:22 am
Technically, yes. But I don't think it's especially useful to think this way unless you have an unmanageable mortgage.
It isn't, at all; unfortunately I hate debt so much that these thoughts constantly run through my head. We definitely don't have an unmanageable mortgage - 15yr that we're on pace to have paid off in ~6yrs while saving ~$75k/yr - but it drives me crazy seeing that I'm paying $200/month (nearly enough to feed my family for the month) in interest...I just sent in a random principle payment this morning, for no reason.
I feel you on that. My $450/month interest payment is soul-crushing, not to mention it's higher than what my previous rent was. I'm $4,062 ahead in principal payments so far, and I'm rushing towards the magical $20k ahead so I can recast the mortgage to a lower PITI.
Admiral wrote:
Thu Mar 14, 2019 10:11 am
I can't help you with your emotions ("I hate debt") but I would at least suggest you view debt as a tool, like any other. It has a cost, but it also presents opportunities to accomplish something else. There are very, very few public companies that have zero debt (read: bonds). Nobody likes to pay interest, but that interest is allowing you to do something else with the money: and, often in investing, to make more money than the debt is costing you.

My mortgage rate is 2.25%. I don't hate it. I thank God everyday I was able to get it. It allows me to save $65k per year pre-tax.
I don't follow. I am 17 months into my 3.875% 30-year fixed mortgage. Down from $149,000 to $140,999 balance after those 17 months. And I save $19,500 per year (some pre-tax, some post-tax). But if I didn't have the mortgage, I'd be able to save even more, to the tune of $700.65/month (the principal + interest portion of my PITI). My mortgage doesn't allow me to save more, it prevents me from saving more.
You are mis-stating the situation. You chose debt, because presumably you did not have cash.

There is no magic choice that allows you to say "poof" my mortgage is gone, so now I will invest all that money rather than service my debt. The money has to come from some place. The choice is this: pay cash for house, pay rent, pay mortgage. You chose mortgage.

If I have a 200k mortgage and 200k in cash, I can pay off the mortgage and then invest, starting from zero. Or, I can use the mortgage as leverage, paying a portion from my income each month toward it, and adding anything leftover to my 200k, which provides the magic of compounding.

The higher the mortgage rate, obviously, the less one has leftover to invest. The lower the rate, the more one has. If your 3.8% mortgage does not allow you to save what you want, that's a decision that you made when you bought that house and got that rate. If you could rent for less and save more, that should have also been a factor when you made your choice.

I think the markets will offer a better return on my money than my house will.
But mentally I compare my mortgage to the magical choice that "poofed" the mortgage away. And my mortgage does allow me to save what I want. I even pay extra on the mortgage after saving the amount that I want. And I put even more money aside every month toward my dream car (a DeLorean) and my dream vacation (weeks-long sightseeing trip around Europe). I have more income than I need and I have a mortgage that only makes up 13% of my gross income, so it's not like I'm in a money-tight situation. Yet the mortgage interest is always on the forefront of my mind. Though, to be fair, when I saw this thread, I realized I hadn't thought about my mortgage at all for three or four days, so maybe I'm loosening up a bit.

Admiral
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Re: Is my *entire* life financed when I have a mortgage?

Post by Admiral » Thu Mar 14, 2019 11:09 am

LiterallyIronic wrote:
Thu Mar 14, 2019 11:01 am
Admiral wrote:
Thu Mar 14, 2019 10:47 am
LiterallyIronic wrote:
Thu Mar 14, 2019 10:30 am
stoptothink wrote:
Thu Mar 14, 2019 9:56 am
8foot7 wrote:
Thu Mar 14, 2019 8:22 am
Technically, yes. But I don't think it's especially useful to think this way unless you have an unmanageable mortgage.
It isn't, at all; unfortunately I hate debt so much that these thoughts constantly run through my head. We definitely don't have an unmanageable mortgage - 15yr that we're on pace to have paid off in ~6yrs while saving ~$75k/yr - but it drives me crazy seeing that I'm paying $200/month (nearly enough to feed my family for the month) in interest...I just sent in a random principle payment this morning, for no reason.
I feel you on that. My $450/month interest payment is soul-crushing, not to mention it's higher than what my previous rent was. I'm $4,062 ahead in principal payments so far, and I'm rushing towards the magical $20k ahead so I can recast the mortgage to a lower PITI.
Admiral wrote:
Thu Mar 14, 2019 10:11 am
I can't help you with your emotions ("I hate debt") but I would at least suggest you view debt as a tool, like any other. It has a cost, but it also presents opportunities to accomplish something else. There are very, very few public companies that have zero debt (read: bonds). Nobody likes to pay interest, but that interest is allowing you to do something else with the money: and, often in investing, to make more money than the debt is costing you.

My mortgage rate is 2.25%. I don't hate it. I thank God everyday I was able to get it. It allows me to save $65k per year pre-tax.
I don't follow. I am 17 months into my 3.875% 30-year fixed mortgage. Down from $149,000 to $140,999 balance after those 17 months. And I save $19,500 per year (some pre-tax, some post-tax). But if I didn't have the mortgage, I'd be able to save even more, to the tune of $700.65/month (the principal + interest portion of my PITI). My mortgage doesn't allow me to save more, it prevents me from saving more.
You are mis-stating the situation. You chose debt, because presumably you did not have cash.

There is no magic choice that allows you to say "poof" my mortgage is gone, so now I will invest all that money rather than service my debt. The money has to come from some place. The choice is this: pay cash for house, pay rent, pay mortgage. You chose mortgage.

If I have a 200k mortgage and 200k in cash, I can pay off the mortgage and then invest, starting from zero. Or, I can use the mortgage as leverage, paying a portion from my income each month toward it, and adding anything leftover to my 200k, which provides the magic of compounding.

The higher the mortgage rate, obviously, the less one has leftover to invest. The lower the rate, the more one has. If your 3.8% mortgage does not allow you to save what you want, that's a decision that you made when you bought that house and got that rate. If you could rent for less and save more, that should have also been a factor when you made your choice.

I think the markets will offer a better return on my money than my house will.
But mentally I compare my mortgage to the magical choice that "poofed" the mortgage away. And my mortgage does allow me to save what I want. I even pay extra on the mortgage after saving the amount that I want. And I put even more money aside every month toward my dream car (a DeLorean) and my dream vacation (weeks-long sightseeing trip around Europe). I have more income than I need and I have a mortgage that only makes up 13% of my gross income, so it's not like I'm in a money-tight situation. Yet the mortgage interest is always on the forefront of my mind. Though, to be fair, when I saw this thread, I realized I hadn't thought about my mortgage at all for three or four days, so maybe I'm loosening up a bit.
Side note: Your dream car is a DeLorean, McFly? For reelz? When you get one you'll be paying more in repairs then you pay on your mortgage!

Seriously, I would not even sweat the 3.875% interest each month. My first mortgage was over 8%, and I didn't think about it then. I certainly don't let it keep me up nights at 2.25. The bank gave me 300k. They can have their vig, and I will take the profit and the investment earnings.

deltaneutral83
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Re: Is my *entire* life financed when I have a mortgage?

Post by deltaneutral83 » Thu Mar 14, 2019 11:30 am

StandingRock wrote:
Thu Mar 14, 2019 8:10 am
You're reaching for something here, not sure what it is.
There are bsaic needs we all need, housing, transportation, eat, utilities, etc. After that, it's all luxury. Once the "experts" have decided what that nominal amount is for your household in your zip code, everything on top of that is a luxury. So if your mortgage is at 4%, everything else you do has a 4% tag that you cold have put on your mortgage. It's maddening logic, but I see that side of the equation. Example, buddy has only one debt, a mortgage at 4%, but also has $3k in bitcoin. Leveraging bitcoin doesn't seem bright, but is he leveraging bitcoin, only the "experts" can say with that whole 'money is fungible" axiom?

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Re: Is my *entire* life financed when I have a mortgage?

Post by NoVa Lurker » Thu Mar 14, 2019 11:54 am

deltaneutral83 wrote:
Thu Mar 14, 2019 11:30 am
StandingRock wrote:
Thu Mar 14, 2019 8:10 am
You're reaching for something here, not sure what it is.
There are bsaic needs we all need, housing, transportation, eat, utilities, etc. After that, it's all luxury. Once the "experts" have decided what that nominal amount is for your household in your zip code, everything on top of that is a luxury. So if your mortgage is at 4%, everything else you do has a 4% tag that you cold have put on your mortgage. It's maddening logic, but I see that side of the equation. Example, buddy has only one debt, a mortgage at 4%, but also has $3k in bitcoin. Leveraging bitcoin doesn't seem bright, but is he leveraging bitcoin, only the "experts" can say with that whole 'money is fungible" axiom?
There have been many, many, many, many threads about this, but I come down on the side of yes, when you invest liquid assets while also having a mortgage, you should think of those liquid asset investments as leveraged.

There is nothing special about bitcoin vs a stock fund or any other investment in this respect.

This is why, other than tax-advantaged accounts (fully funding 401(k)'s and putting a bit into 529s) and a small emergency fund in an Ally Bank savings account, we otherwise directed all extra money to pay down our mortgage. So we didn't really have taxable investments for a bunch of years. Now our mortgage is paid off and we are growing those taxable investments again. We had a 2.8% 15-year mortgage, so it almost certainly would have made more financial sense to invest rather than pay it down, but I didn't like the idea of leveraging for non-tax-advantaged investment.

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Re: Is my *entire* life financed when I have a mortgage?

Post by LiterallyIronic » Thu Mar 14, 2019 12:01 pm

Admiral wrote:
Thu Mar 14, 2019 11:09 am
Side note: Your dream car is a DeLorean, McFly? For reelz? When you get one you'll be paying more in repairs then you pay on your mortgage!
Not to mention the fact that I would get comp/coll/under-insured/uninsured coverage instead of just the liability coverage I have now. And I have to build a carport over my driveway so I can park it in a covered location.

One thing I'm thinking of doing is tracking down a broken DeLorean that doesn't run, but has a body in fine shape. It's really just the car's body that matters. Then taking it to my mechanic and have him rip everything out and put in a new engine, transmission, etc, turning it into a modern Ford Taurus or something, but housed within a DeLorean body from the 80s. Then problems could be taken care of for far less time and money. My mechanic estimated a job like that would run me $10k. So if I can get a broken DeLorean for somewhere around $10k less than one that runs, then the break-even point isn't very far in the future. :D

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Re: Is my *entire* life financed when I have a mortgage?

Post by Admiral » Thu Mar 14, 2019 12:03 pm

LiterallyIronic wrote:
Thu Mar 14, 2019 12:01 pm
Admiral wrote:
Thu Mar 14, 2019 11:09 am
Side note: Your dream car is a DeLorean, McFly? For reelz? When you get one you'll be paying more in repairs then you pay on your mortgage!
Not to mention the fact that I would get comp/coll/under-insured/uninsured coverage instead of just the liability coverage I have now. And I have to build a carport over my driveway so I can park it in a covered location.

One thing I'm thinking of doing is tracking down a broken DeLorean that doesn't run, but has a body in fine shape. It's really just the car's body that matters. Then taking it to my mechanic and have him rip everything out and put in a new engine, transmission, etc, turning it into a modern Ford Taurus or something, but housed within a DeLorean body from the 80s. Then problems could be taken care of for far less time and money. My mechanic estimated a job like that would run me $10k. So if I can get a broken DeLorean for somewhere around $10k less than one that runs, then the break-even point isn't very far in the future. :D
Bid to $41k. Yikes.

https://bringatrailer.com/listing/1981- ... dmc-12-16/

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Re: Is my *entire* life financed when I have a mortgage?

Post by LiterallyIronic » Thu Mar 14, 2019 12:12 pm

Admiral wrote:
Thu Mar 14, 2019 12:03 pm
LiterallyIronic wrote:
Thu Mar 14, 2019 12:01 pm
Admiral wrote:
Thu Mar 14, 2019 11:09 am
Side note: Your dream car is a DeLorean, McFly? For reelz? When you get one you'll be paying more in repairs then you pay on your mortgage!
Not to mention the fact that I would get comp/coll/under-insured/uninsured coverage instead of just the liability coverage I have now. And I have to build a carport over my driveway so I can park it in a covered location.

One thing I'm thinking of doing is tracking down a broken DeLorean that doesn't run, but has a body in fine shape. It's really just the car's body that matters. Then taking it to my mechanic and have him rip everything out and put in a new engine, transmission, etc, turning it into a modern Ford Taurus or something, but housed within a DeLorean body from the 80s. Then problems could be taken care of for far less time and money. My mechanic estimated a job like that would run me $10k. So if I can get a broken DeLorean for somewhere around $10k less than one that runs, then the break-even point isn't very far in the future. :D
Bid to $41k. Yikes.

https://bringatrailer.com/listing/1981- ... dmc-12-16/
They usually go for around $30k:

https://www.ebay.com/itm/1981-DeLorean- ... _cvip=true

https://www.ebay.com/itm/1981-DeLorean- ... _cvip=true

NextMil
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Re: Is my *entire* life financed when I have a mortgage?

Post by NextMil » Thu Mar 14, 2019 12:14 pm

Sell your house and buy something that you can pay for with cash, otherwise make principal reductions as best you can. I hate debt and paying off my home aggressively with a sub 3% mortgage, but as someone else said life is more than math.

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Re: Is my *entire* life financed when I have a mortgage?

Post by bottlecap » Thu Mar 14, 2019 12:37 pm

First, who cares what you call it?

Second, you'd be paying rent if you didn't have a mortgage, so it's not an apples to apples comparison, is it?

Third, you are only - at most - financing your "life" to the extent of the interest you pay. Presumably you earn more than your mortgage interest. How would that be considered "financing your entire life?"

Fourth, at a 0% rate, you aren't financing anything. You are paying later with money that is worth less. It's negative financing, if anything.

Don't sweat the semantics.

JT

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Re: Is my *entire* life financed when I have a mortgage?

Post by knpstr » Thu Mar 14, 2019 1:12 pm

Yes.

In my view, I also think it is appropriate to separate out needed vs luxury purchases as you did. You need to buy the necessities so forget about those, since one would choose to buy necessities with debt if they couldn't otherwise pay cash since - by definition - they are needed. Taking on a mortgage expense is permitted since housing is a necessity and would be spent on rent otherwise.

However, any luxury is NOT needed - by definition. Therefore such a purchase is essentially financed at your mortgage rate. The most obvious/direct luxury expense that is financed at mortgage interest is nothing other than "too much house".

Not only that, luxury expense is compared to the opportunity cost of investing -- which is likely a larger cost than the mortgage rate. So each luxury purchase is also delaying the ultimate luxury -- financial independence and/or retirement.

I think it is worthwhile to think about these things. Not to say everyone should abstain from all luxury, but rather to ponder the true "cost" of luxury (which is usually nothing more than temporary pleasure and may very well be a cause of stress/displeasure later).

:beer
Last edited by knpstr on Thu Mar 14, 2019 1:20 pm, edited 1 time in total.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Is my *entire* life financed when I have a mortgage?

Post by MotoTrojan » Thu Mar 14, 2019 1:18 pm

corysold wrote:
Thu Mar 14, 2019 8:21 am
Couldn't you also say, once your mortgage is paid off, that every purchase is financed at the return you could get if you invested that money?

But you'd also have to put a dollar figure on the happiness that item gives you over time, so it seems like a never ending cycle of trying to figure out value.
This. Man that coffee I bought back in 1931 would’ve made me a millionaire if I had just invested instead.

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Re: Is my *entire* life financed when I have a mortgage?

Post by JBTX » Thu Mar 14, 2019 2:26 pm

B4Xt3r wrote:
Thu Mar 14, 2019 7:37 am
I have a question that has been nagging me for sometime.

Let's say that I have a mortgage (really any debt) that is financed at a non-zero interest rate. Lets then say that I make a $X purchase instead of prepaying the same amount to the mortgage. On the margin, doesn't that mean that I'll pay off the mortgage $X dollars (plus interest) later? If that is true, then the $X purchase is effectively financed at the mortgage rate, for the duration of the mortgage, correct?

(Of course even if it is true, there are many non-discretionary purchases that are still very much worth it, but it puts discretionary purchases in a very harsh light.)
True, with a couple of caveats.

- it is really more simple that that. Consumption vs saving. Any consumption is a reduction of savings. Paying off debt is a form of savings.

- the same can be said with investing, and I often thought this way when I was younger. I can spend $X now, but if I save and invest it, in 30 years it may be worth $4X. So is this consumption really worth $4X to me?

- chances are you will have more over the long term if you invest vs paying off mortgage. Over 30 years paying off a mortgage would probably leave you with 1.0 to 1.5x. Investing would likely leave you 2x to 4X.

- interest is really only meaningful to the extent it is net of inflation. If you have a 3.0% mortgage, and inflation is 3.0%, it is effectively a wash. Sure you paid interest, but your principal is now less in inflation adjusted terms. If inflation exceeds your mortgage rate, you are actually earning net interest on the mortgage.

This whole thing can be broken down to 2 components:

- whether you consume or save
- how you invest if you save

The investing could be either paying off mortgage or investing in stocks, bonds, etc.

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Re: Is my *entire* life financed when I have a mortgage?

Post by JGoneRiding » Thu Mar 14, 2019 2:29 pm

LiterallyIronic wrote:
Thu Mar 14, 2019 12:01 pm
Admiral wrote:
Thu Mar 14, 2019 11:09 am
Side note: Your dream car is a DeLorean, McFly? For reelz? When you get one you'll be paying more in repairs then you pay on your mortgage!
Not to mention the fact that I would get comp/coll/under-insured/uninsured coverage instead of just the liability coverage I have now. And I have to build a carport over my driveway so I can park it in a covered location.

One thing I'm thinking of doing is tracking down a broken DeLorean that doesn't run, but has a body in fine shape. It's really just the car's body that matters. Then taking it to my mechanic and have him rip everything out and put in a new engine, transmission, etc, turning it into a modern Ford Taurus or something, but housed within a DeLorean body from the 80s. Then problems could be taken care of for far less time and money. My mechanic estimated a job like that would run me $10k. So if I can get a broken DeLorean for somewhere around $10k less than one that runs, then the break-even point isn't very far in the future. :D
For some reason I don't understand you are not alone and this totally not great car in the first place is REALLY popular right now and non running but otherwise good condition is running 15 to 25k so you are talking 35k for a crappy unsafe car??? Yet worried about the mortgage!

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Re: Is my *entire* life financed when I have a mortgage?

Post by siriusblack » Thu Mar 14, 2019 2:37 pm

Where is Richard Thaler when we need him? This thread reminds of his "mental accounting" concept in the field of behavioral finance/economics. Bottom line, money is fungible ... $1 is $1, regardless of what you end up spending it on.

Here's an anecdote on mental accounting from Thaler:
The best explanation, actually, is in a YouTube video with Gene Hackman and Dustin Hoffman. ... Hackman says when they were both young actors he was over at Dustin Hoffman’s house and Hoffman asks him for a loan.

Hackman goes into the kitchen and sees all these Mason jars with labels — “entertainment” and “books” and “rent” — and they all have money in them. Except for one, the one that says “food.” So he says to Hoffman: “You have plenty of money, why do you need money?” And Hoffman says, ‘There’s no money in the food jar. I can’t touch the other money. ”

They laugh, they go on, it’s funny but you know, it’s serious. Because we all do that.
Source: https://www.nytimes.com/2017/10/13/busi ... rious.html

So, bottom line, if you have debt (of any kind), that debt is effectively against everything you own and everything you may spend rather than paying the debt.

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Re: Is my *entire* life financed when I have a mortgage?

Post by Trader Joe » Thu Mar 14, 2019 2:40 pm

B4Xt3r wrote:
Thu Mar 14, 2019 7:37 am
I have a question that has been nagging me for sometime.

Let's say that I have a mortgage (really any debt) that is financed at a non-zero interest rate. Lets then say that I make a $X purchase instead of prepaying the same amount to the mortgage. On the margin, doesn't that mean that I'll pay off the mortgage $X dollars (plus interest) later? If that is true, then the $X purchase is effectively financed at the mortgage rate, for the duration of the mortgage, correct?

(Of course even if it is true, there are many non-discretionary purchases that are still very much worth it, but it puts discretionary purchases in a very harsh light.)
Yes you are correct. Avoid mortgages (debt) at all cost. Pay cash.

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Re: Is my *entire* life financed when I have a mortgage?

Post by acegolfer » Thu Mar 14, 2019 2:45 pm

You are correct. In financial theory, this is how to properly calculate the cost of capital. People may think financing a project with own fund is free financing. But there's an opportunity cost to own fund.

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Re: Is my *entire* life financed when I have a mortgage?

Post by getthatmarshmallow » Thu Mar 14, 2019 2:46 pm

Yes, because money is fungible. But so what? Our mortgage is reasonable, and we are aggressively paying it down while maintaining a high savings rate. I can't see that I'd be better off renting in my market, or waiting until I had the cash to buy it outright.

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Re: Is my *entire* life financed when I have a mortgage?

Post by jasc15 » Thu Mar 14, 2019 2:53 pm

I've often thought of debt in those terms. "Every dollar you spend not paying off debt is borrowed." I guess mathematically true, but like someone else said above, there is more to life than math.

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Re: Is my *entire* life financed when I have a mortgage?

Post by Beaker » Thu Mar 14, 2019 3:41 pm

No. There is nothing special about the percentage of housing expenses that goes to debt.

Hypothetically, say a retired person has $10 million dollars in a three fund portfolio, spends $100,000 / year, and has a $300,000 mortgage at 3.5%.

Would you say that this person's "entire life is financed"? Obviously not. This person has reasonable expectations that *not* paying the mortgage is the correct financial decision, despite having the means to pay the mortgage off immediately.

But... this is true *regardless* of net worth. Say this person was deciding between investing in his 401k, or paying down the mortgage early. Most financial experts would still argue this is still the right decision.

But... investing more in a 401k is still the "right" decision even if you have NO debt. It's the right decision for almost every dollar. Why not take it to extremes? Live like a pauper, put every cent into the stock market, and die "rich"?

This is not a good system of rationalizing purchases.

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Re: Is my *entire* life financed when I have a mortgage?

Post by barnaclebob » Thu Mar 14, 2019 3:52 pm

Literally everything you do has an opportunity cost.

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Re: Is my *entire* life financed when I have a mortgage?

Post by StandingRock » Thu Mar 14, 2019 4:04 pm

It's like a riddle wrapped in an enigma.

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Re: Is my *entire* life financed when I have a mortgage?

Post by midareff » Thu Mar 14, 2019 4:10 pm

B4Xt3r wrote:
Thu Mar 14, 2019 7:37 am
I have a question that has been nagging me for sometime.

Let's say that I have a mortgage (really any debt) that is financed at a non-zero interest rate. Lets then say that I make a $X purchase instead of prepaying the same amount to the mortgage. On the margin, doesn't that mean that I'll pay off the mortgage $X dollars (plus interest) later? If that is true, then the $X purchase is effectively financed at the mortgage rate, for the duration of the mortgage, correct?

(Of course even if it is true, there are many non-discretionary purchases that are still very much worth it, but it puts discretionary purchases in a very harsh light.)
I take a simplistic perspective to debt. There is good debt and bad debt. I'm 71 and 8 years +/- retired. I have a mortgage on my condo @ 3.0%. The interest and property tax is tax deductible (still) and the money to pay that debt off sits in a IT Tax-Ex Admiral Bond fund at VG distributing about 2.8%. Besides the wash I've had the advantage of inflation making the loan look like smaller dollars annually for about a decade. I have a car loan at 1.49% and have the funds that would be needed for a payoff in an Ally Savings account earning 2.2%. FWIW, there is no other debt.

How would I be financially better off paying off either of these?

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Re: Is my *entire* life financed when I have a mortgage?

Post by MathWizard » Thu Mar 14, 2019 4:12 pm

Until I am Financially Independent, every decision has an effect.

For the truly discretionary spending, I think : For each $300, I can get
$1/month for life. (4% rule).

Or for something that takes a lot of space in my house, especially if it is infrequent use:
The cost of it not only includes the $X of the purchase, it also costs $Y per year, which is the
square footage that it takes up in the house times the ongoing cost per square foot of the house.

This helps me in cases where I am on the fence, and discourages spending which costs me even
more money later.

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