Anyone regret paying off mortgage early?

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TheCowbell
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Re: Anyone regret paying off mortgage early?

Post by TheCowbell »

CletusCaddy wrote: Fri Apr 22, 2022 8:23 pm
corn18 wrote: Fri Apr 22, 2022 7:39 pm
TheCowbell wrote: Fri Apr 22, 2022 4:49 pm
corn18 wrote: Sun Apr 17, 2022 1:07 pm I am really enjoying having enough money to pay off my mortgage but instead of doing that, I am building a CD ladder that pays more than my mortgage interest net of taxes.
i-bonds!
Be nice if I could buy $500k of them at once.
You can, it would just take 25 years to deliver between you and your spouse.
With 3 kids and an LLC, could I reasonably easily put 60k into them?
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

At the moment, it now looks like a Treasury ladder matching a long-term mortgage would be over 2.9%.

But you could also park it at 2.72% over two years, and see what happens next.
Ron Ronnerson
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

CletusCaddy wrote: Fri Apr 22, 2022 8:23 pm
corn18 wrote: Fri Apr 22, 2022 7:39 pm
TheCowbell wrote: Fri Apr 22, 2022 4:49 pm
corn18 wrote: Sun Apr 17, 2022 1:07 pm I am really enjoying having enough money to pay off my mortgage but instead of doing that, I am building a CD ladder that pays more than my mortgage interest net of taxes.
i-bonds!
Be nice if I could buy $500k of them at once.
You can, it would just take 25 years to deliver between you and your spouse.
You can also utilize entity accounts. In 2022, we've been able to purchase $70k in I Bonds between two personal accounts, two business accounts, a joint trust, and gifting between spouses (to be delivered in January of next year). We didn't bother setting up a new trust for each of us separately or using the tax refund method. If we had, that would have added another $25k to how much we could purchase. Some people set up many trusts to purchase additional I Bonds so the limit could be extended even more. Then there is, of course, the purchasing of gifts for spouses to be delivered over many years that you mentioned. I also happen to have a kid. We didn't want to gift money to our seven-year-old but we could have purchased for her as well had we wanted to do so.

On a related note, we also put about $20k in a bunch of checking accounts that are paying a weighted average of 4% currently. We also churn bank accounts for bonuses and purchased I Bonds last year as well. The cash to do all this has come from a cash-out refi last year where we borrowed at 2.375% for 30 years.
Ron Ronnerson
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

TheCowbell wrote: Fri Apr 22, 2022 9:04 pm
CletusCaddy wrote: Fri Apr 22, 2022 8:23 pm
corn18 wrote: Fri Apr 22, 2022 7:39 pm
TheCowbell wrote: Fri Apr 22, 2022 4:49 pm
corn18 wrote: Sun Apr 17, 2022 1:07 pm I am really enjoying having enough money to pay off my mortgage but instead of doing that, I am building a CD ladder that pays more than my mortgage interest net of taxes.
i-bonds!
Be nice if I could buy $500k of them at once.
You can, it would just take 25 years to deliver between you and your spouse.
With 3 kids and an LLC, could I reasonably easily put 60k into them?
These may be worth reading:
https://thefinancebuff.com/buy-i-bonds-kids-name.html
https://thefinancebuff.com/buy-i-bonds- ... r-llc.html
Apathizer
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

Ron Ronnerson wrote: Fri Apr 22, 2022 9:18 pm On a related note, we also put about $20k in a bunch of checking accounts that are paying a weighted average of 4% currently. We also churn bank accounts for bonuses and purchased I Bonds last year as well. The cash to do all this has come from a cash-out refi last year where we borrowed at 2.375% for 30 years.
A couple questions:

1) Which checking accounts are paying 4% interest weighted average? Savings accounts don't pay nearly that much, so I'm really curious which checking accounts do.

2) Is the 4% return adjusted for the 2.375% borrowing rate? If not, do you realize the actual return is only 1.625%?
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
Ron Ronnerson
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

Apathizer wrote: Sat Apr 23, 2022 4:24 pm
Ron Ronnerson wrote: Fri Apr 22, 2022 9:18 pm On a related note, we also put about $20k in a bunch of checking accounts that are paying a weighted average of 4% currently. We also churn bank accounts for bonuses and purchased I Bonds last year as well. The cash to do all this has come from a cash-out refi last year where we borrowed at 2.375% for 30 years.
A couple questions:

1) Which checking accounts are paying 4% interest weighted average? Savings accounts don't pay nearly that much, so I'm really curious which checking accounts do.

2) Is the 4% return adjusted for the 2.375% borrowing rate? If not, do you realize the actual return is only 1.625%?
Scroll down to the “Mega High-Interest” section on this page: https://www.doctorofcredit.com/high-int ... gs-to-get/

My wife and I have accounts at the following credit unions: DCU, Blue Federal CU, Service Credit Union, and Genisys CU. It’s a lot of accounts with small amounts in them that are earning rates of 3% or more, with a weighted average of just a tad above 4%. However, once the accounts are established, not much needs to be done for them to earn the higher rate except for the Genisys account which requires 10 monthly debit card charges. My wife loads up her Starbucks app at the start of the month and makes 10 transactions in about 2 minutes to fulfill that requirement. In any case, managing a bunch of accounts is likely too much hassle for a lot of people as it adds complexity. However, just personally speaking, I will take the yield wherever I can get it these days since banks are typically paying so little.

Yes, I realize that the actual return is less than 4% and the 2.375% needs to be subtracted. I do itemize on state taxes so the effective interest rate on my mortgage is a bit less than 2.375%. However, I also need to pay tax on the roughly 4% interest earned on the various credit union accounts. We are in the 12% federal bracket and don’t have any state income tax liability (we’re in California).

The main point is that I’ve been able to borrow at 2.375% (though actually a little lower than that due to currently itemizing on state taxes and potentially also itemizing on federal taxes as of 2026 when the Tax Cuts and Jobs Act expires) and turn around and safely earn a rate greater than the rate at which I borrowed on the portion of the loan that I took out in cash, albeit with time and effort required. In 2021, I focused on churning bank and brokerage accounts for bonuses with the cash I took out of the home and earned $5100 in interest. In 2022, I’ve been focusing on I Bonds, having purchased $90k worth since late last year.

I primarily took cash out of the home for liquidity reasons. Finding a good place to put it was a secondary concern but, at least so far, opportunities have presented themselves nicely.
Apathizer
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

Ron Ronnerson wrote: Sat Apr 23, 2022 5:02 pm
Apathizer wrote: Sat Apr 23, 2022 4:24 pm
Ron Ronnerson wrote: Fri Apr 22, 2022 9:18 pm On a related note, we also put about $20k in a bunch of checking accounts that are paying a weighted average of 4% currently. We also churn bank accounts for bonuses and purchased I Bonds last year as well. The cash to do all this has come from a cash-out refi last year where we borrowed at 2.375% for 30 years.
A couple questions:

1) Which checking accounts are paying 4% interest weighted average? Savings accounts don't pay nearly that much, so I'm really curious which checking accounts do.

2) Is the 4% return adjusted for the 2.375% borrowing rate? If not, do you realize the actual return is only 1.625%?
Scroll down to the “Mega High-Interest” section on this page: https://www.doctorofcredit.com/high-int ... gs-to-get/

My wife and I have accounts at the following credit unions: DCU, Blue Federal CU, Service Credit Union, and Genisys CU. It’s a lot of accounts with small amounts in them that are earning rates of 3% or more, with a weighted average of just a tad above 4%. However, once the accounts are established, not much needs to be done for them to earn the higher rate except for the Genisys account which requires 10 monthly debit card charges. My wife loads up her Starbucks app at the start of the month and makes 10 transactions in about 2 minutes to fulfill that requirement. In any case, managing a bunch of accounts is likely too much hassle for a lot of people as it adds complexity. However, just personally speaking, I will take the yield wherever I can get it these days since banks are typically paying so little.

Yes, I realize that the actual return is less than 4% and the 2.375% needs to be subtracted. I do itemize on state taxes so the effective interest rate on my mortgage is a bit less than 2.375%. However, I also need to pay tax on the roughly 4% interest earned on the various credit union accounts. We are in the 12% federal bracket and don’t have any state income tax liability (we’re in California).

The main point is that I’ve been able to borrow at 2.375% (though actually a little lower than that due to currently itemizing on state taxes and potentially also itemizing on federal taxes as of 2026 when the Tax Cuts and Jobs Act expires) and turn around and safely earn a rate greater than the rate at which I borrowed on the portion of the loan that I took out in cash, albeit with time and effort required. In 2021, I focused on churning bank and brokerage accounts for bonuses with the cash I took out of the home and earned $5100 in interest. In 2022, I’ve been focusing on I Bonds, having purchased $90k worth since late last year.

I primarily took cash out of the home for liquidity reasons. Finding a good place to put it was a secondary concern but, at least so far, opportunities have presented themselves nicely.
That seems like a ridiculously convoluted amount of work for pittance return, and most interest rates most are well below 4%. Most are about 3% and only with a low balance. Even without a guaranteed return you're more likely to do better with something like 30% stocks/70% bonds, which would also be much simpler.

Either way, taking out a HELOC for either option doesn't seem nearly worth the hassle it to me.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
international001
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Re: Anyone regret paying off mortgage early?

Post by international001 »

It seems they only apply to the first $1k/$2k. Looks like a lot of work for a very small return (if you consider your total portfolio).
Ron Ronnerson
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

Apathizer wrote: Sat Apr 23, 2022 6:32 pm
Ron Ronnerson wrote: Sat Apr 23, 2022 5:02 pm
Apathizer wrote: Sat Apr 23, 2022 4:24 pm
Ron Ronnerson wrote: Fri Apr 22, 2022 9:18 pm On a related note, we also put about $20k in a bunch of checking accounts that are paying a weighted average of 4% currently. We also churn bank accounts for bonuses and purchased I Bonds last year as well. The cash to do all this has come from a cash-out refi last year where we borrowed at 2.375% for 30 years.
A couple questions:

1) Which checking accounts are paying 4% interest weighted average? Savings accounts don't pay nearly that much, so I'm really curious which checking accounts do.

2) Is the 4% return adjusted for the 2.375% borrowing rate? If not, do you realize the actual return is only 1.625%?
Scroll down to the “Mega High-Interest” section on this page: https://www.doctorofcredit.com/high-int ... gs-to-get/

My wife and I have accounts at the following credit unions: DCU, Blue Federal CU, Service Credit Union, and Genisys CU. It’s a lot of accounts with small amounts in them that are earning rates of 3% or more, with a weighted average of just a tad above 4%. However, once the accounts are established, not much needs to be done for them to earn the higher rate except for the Genisys account which requires 10 monthly debit card charges. My wife loads up her Starbucks app at the start of the month and makes 10 transactions in about 2 minutes to fulfill that requirement. In any case, managing a bunch of accounts is likely too much hassle for a lot of people as it adds complexity. However, just personally speaking, I will take the yield wherever I can get it these days since banks are typically paying so little.

Yes, I realize that the actual return is less than 4% and the 2.375% needs to be subtracted. I do itemize on state taxes so the effective interest rate on my mortgage is a bit less than 2.375%. However, I also need to pay tax on the roughly 4% interest earned on the various credit union accounts. We are in the 12% federal bracket and don’t have any state income tax liability (we’re in California).

The main point is that I’ve been able to borrow at 2.375% (though actually a little lower than that due to currently itemizing on state taxes and potentially also itemizing on federal taxes as of 2026 when the Tax Cuts and Jobs Act expires) and turn around and safely earn a rate greater than the rate at which I borrowed on the portion of the loan that I took out in cash, albeit with time and effort required. In 2021, I focused on churning bank and brokerage accounts for bonuses with the cash I took out of the home and earned $5100 in interest. In 2022, I’ve been focusing on I Bonds, having purchased $90k worth since late last year.

I primarily took cash out of the home for liquidity reasons. Finding a good place to put it was a secondary concern but, at least so far, opportunities have presented themselves nicely.
That seems like a ridiculously convoluted amount of work for pittance return, and most interest rates most are well below 4%. Most are about 3% and only with a low balance. Even without a guaranteed return you're more likely to do better with something like 30% stocks/70% bonds, which would also be much simpler.

Either way, taking out a HELOC for either option doesn't seem nearly worth the hassle it to me.
This is money that I don't want invested and prefer to keep in cash. I live in the Bay Area on a single income as a teacher and my spouse is a stay-at-home parent. We had an AGI under $50k last year and do what we can to get by. Anyhow, I don't mind doing a few contortions as it keeps me limber but, as I said above, "managing a bunch of accounts is likely too much hassle for a lot of people as it adds complexity." Basically, it's not for everyone but $800 in annual interest is enough of an incentive for me that I don't mind doing this. Once everything is set up, to earn the interest requires 2 minutes of work per month.
Ron Ronnerson
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

international001 wrote: Sat Apr 23, 2022 6:44 pm It seems they only apply to the first $1k/$2k. Looks like a lot of work for a very small return (if you consider your total portfolio).
It varies, actually. For the accounts that I'm utilizing, the higher rates are for the first $500 to $7,500. There are some accounts that exist which earn 3% or more on much higher amounts such as $15k or $20k. Each spouse can usually set up an account and thus double the limit. The accounts I'm using require very little work on my part to earn the higher rates once the accounts have been established. There are others out there that require more work such as a certain number of log-ins per month, a regular direct deposit, certain number of monthly debit card transactions, etc. I'm not typically interested in those. For a high enough interest rate, though, I'd jump through those hoops too. People have to decide which offers are worthwhile for them and what is too much trouble for too little gain.
Apathizer
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

Ron Ronnerson wrote: Sat Apr 23, 2022 7:40 pm
international001 wrote: Sat Apr 23, 2022 6:44 pm It seems they only apply to the first $1k/$2k. Looks like a lot of work for a very small return (if you consider your total portfolio).
It varies, actually. For the accounts that I'm utilizing, the higher rates are for the first $500 to $7,500. There are some accounts that exist which earn 3% or more on much higher amounts such as $15k or $20k. Each spouse can usually set up an account and thus double the limit. The accounts I'm using require very little work on my part to earn the higher rates once the accounts have been established. There are others out there that require more work such as a certain number of log-ins per month, a regular direct deposit, certain number of monthly debit card transactions, etc. I'm not typically interested in those. For a high enough interest rate, though, I'd jump through those hoops too. People have to decide which offers are worthwhile for them and what is too much trouble for too little gain.
That's still an awful lot of work just for the sake of immediate liquidity. I just use the settlement fund on my Vanguard account as savings. It's not returning much now, but that will likely improve, and historically the return is almost 4%. That seems much simpler to me and there's no leverage.
Last edited by Apathizer on Wed Apr 27, 2022 3:24 am, edited 1 time in total.
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Ron Ronnerson
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

Apathizer wrote: Sat Apr 23, 2022 8:02 pm
Ron Ronnerson wrote: Sat Apr 23, 2022 7:40 pm
international001 wrote: Sat Apr 23, 2022 6:44 pm It seems they only apply to the first $1k/$2k. Looks like a lot of work for a very small return (if you consider your total portfolio).
It varies, actually. For the accounts that I'm utilizing, the higher rates are for the first $500 to $7,500. There are some accounts that exist which earn 3% or more on much higher amounts such as $15k or $20k. Each spouse can usually set up an account and thus double the limit. The accounts I'm using require very little work on my part to earn the higher rates once the accounts have been established. There are others out there that require more work such as a certain number of log-ins per month, a regular direct deposit, certain number of monthly debit card transactions, etc. I'm not typically interested in those. For a high enough interest rate, though, I'd jump through those hoops too. People have to decide which offers are worthwhile for them and what is too much trouble for too little gain.
That's still an awful lot of work just for the sake of immediate liquidity. I just the settlement fund on my Vanguard account as savings. It's not returning much now, but that will likely improve, and historically the return is almost 4%. That seems much simpler to me and there's no leverage.
Fair enough. Do whatever works best for you. :sharebeer
international001
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Re: Anyone regret paying off mortgage early?

Post by international001 »

Ron Ronnerson wrote: Sat Apr 23, 2022 7:28 pm
This is money that I don't want invested and prefer to keep in cash. I live in the Bay Area on a single income as a teacher and my spouse is a stay-at-home parent. We had an AGI under $50k last year and do what we can to get by. Anyhow, I don't mind doing a few contortions as it keeps me limber but, as I said above, "managing a bunch of accounts is likely too much hassle for a lot of people as it adds complexity." Basically, it's not for everyone but $800 in annual interest is enough of an incentive for me that I don't mind doing this. Once everything is set up, to earn the interest requires 2 minutes of work per month.
That's great. I have run similar schemes in the past, but when the limits where more around $10k

Just be aware that often those are promotional rates and they go down. So it may mean more work down the road
4% for $800 means you have $20k invested. Have you thought on I-bonds, or not quite liquid?
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

international001 wrote: Tue Apr 26, 2022 5:14 pm
Ron Ronnerson wrote: Sat Apr 23, 2022 7:28 pm
This is money that I don't want invested and prefer to keep in cash. I live in the Bay Area on a single income as a teacher and my spouse is a stay-at-home parent. We had an AGI under $50k last year and do what we can to get by. Anyhow, I don't mind doing a few contortions as it keeps me limber but, as I said above, "managing a bunch of accounts is likely too much hassle for a lot of people as it adds complexity." Basically, it's not for everyone but $800 in annual interest is enough of an incentive for me that I don't mind doing this. Once everything is set up, to earn the interest requires 2 minutes of work per month.
That's great. I have run similar schemes in the past, but when the limits where more around $10k

Just be aware that often those are promotional rates and they go down. So it may mean more work down the road
4% for $800 means you have $20k invested. Have you thought on I-bonds, or not quite liquid?
Yes, it's approximately $20k spread out over a bunch of bank accounts paying higher-than-typical rates on small amounts. I understand that rates can change down the road but these accounts are working well for me at this point in time.

I have purchased $90k in I Bonds over the last few months and think they're great. As you guessed, I want to keep some money more liquid, though.
international001
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Re: Anyone regret paying off mortgage early?

Post by international001 »

Ron Ronnerson wrote: Tue Apr 26, 2022 7:18 pm I have purchased $90k in I Bonds over the last few months and think they're great. As you guessed, I want to keep some money more liquid, though.
$90k?
If you really did that, it deserves another thread ;-)
drk
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Re: Anyone regret paying off mortgage early?

Post by drk »

international001 wrote: Wed Apr 27, 2022 4:19 pm $90k?
If you really did that, it deserves another thread ;-)
Examples abound on the I Bonds Mega-Thread: viewtopic.php?f=10&t=346091
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

international001 wrote: Wed Apr 27, 2022 4:19 pm
Ron Ronnerson wrote: Tue Apr 26, 2022 7:18 pm I have purchased $90k in I Bonds over the last few months and think they're great. As you guessed, I want to keep some money more liquid, though.
$90k?
If you really did that, it deserves another thread ;-)
Here's the quick version:
Near the end of 2021, my wife and I each purchased $10k, for a total of $20k between the two of us.

At the beginning of 2022, my wife and I each purchased $10k again. We also purchased $10k in the name of our joint trust account (the trust was established years ago). Then each of us purchased $10k in the name of our business (for a total of $20k as we have separate businesses). We've each had registered businesses with EINs for several years. Then my wife and I each gifted $10k to one another. The gift sits in a gift box in the treasury direct account but accrues interest in the meanwhile. We'll transfer the gift to each other in January of 2023. That adds up to $70k purchased this year.
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Re: Anyone regret paying off mortgage early?

Post by willthrill81 »

Ron Ronnerson wrote: Wed Apr 27, 2022 7:41 pmThen my wife and I each gifted $10k to one another. The gift sits in a gift box in the treasury direct account but accrues interest in the meanwhile. We'll transfer the gift to each other in January of 2023. That adds up to $70k purchased this year.
Wait, what? You can gift someone else I bonds in excess of the $10k limit per person? This seems like too easy of a workaround for couples.
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Re: Anyone regret paying off mortgage early?

Post by John Doe 123 »

willthrill81 wrote: Wed Apr 27, 2022 9:08 pm
Ron Ronnerson wrote: Wed Apr 27, 2022 7:41 pmThen my wife and I each gifted $10k to one another. The gift sits in a gift box in the treasury direct account but accrues interest in the meanwhile. We'll transfer the gift to each other in January of 2023. That adds up to $70k purchased this year.
Wait, what? You can gift someone else I bonds in excess of the $10k limit per person? This seems like too easy of a workaround for couples.
Each person can only accumulate 10k of ibonds per year, whether that is via direct purchase or gift received. So, you can buy 10k now to gift to your spouse in 2023. This will fill their 2023 allocation, and your spouse will not be able to directly purchase any ibonds in 2023.

The benefit of this is that the "gifted" bonds will begin to accrue interest immediately, and your spouse will be eligible to sell those bonds 1 year after the initial purchase of the gift.

My spouse and I each bought 10k to "gift" each other in 2023. I'm not sure I would buy more than that because I'm not sure where the rates will go in 2023-2024...
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

willthrill81 wrote: Wed Apr 27, 2022 9:08 pm
Ron Ronnerson wrote: Wed Apr 27, 2022 7:41 pmThen my wife and I each gifted $10k to one another. The gift sits in a gift box in the treasury direct account but accrues interest in the meanwhile. We'll transfer the gift to each other in January of 2023. That adds up to $70k purchased this year.
Wait, what? You can gift someone else I bonds in excess of the $10k limit per person? This seems like too easy of a workaround for couples.
Since my wife has already purchased $10k in I bonds this year, she can't buy anymore this year nor receive any gifted I bonds this year. Gifting, however, does work as a way of front-loading. Interest starts accruing upon purchase and sit's in the purchaser's "gift box." However, the gift isn't actually delivered until some point in the future. Some people are buying several tens of thousands of dollars worth of I bonds as gifts for their spouse and plan to deliver them over several years. Similarly, some people open a number of entity accounts (trusts and businesses) and use those to purchase even more I Bonds.

This article explains how gifting works (and doesn't work): https://thefinancebuff.com/buy-i-bonds-as-gift.html

Edit: Looks like someone chimed in as I was typing. Similar to John Doe, I also only bought one year's worth of gift for my spouse ($10k worth) and she did the same for me. I didn't want to go any further. Some are buying $50k or more per spouse in gifts. It will take 5 years to deliver the gifts, though.
Last edited by Ron Ronnerson on Wed Apr 27, 2022 9:36 pm, edited 1 time in total.
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Re: Anyone regret paying off mortgage early?

Post by willthrill81 »

John Doe 123 wrote: Wed Apr 27, 2022 9:32 pm
willthrill81 wrote: Wed Apr 27, 2022 9:08 pm
Ron Ronnerson wrote: Wed Apr 27, 2022 7:41 pmThen my wife and I each gifted $10k to one another. The gift sits in a gift box in the treasury direct account but accrues interest in the meanwhile. We'll transfer the gift to each other in January of 2023. That adds up to $70k purchased this year.
Wait, what? You can gift someone else I bonds in excess of the $10k limit per person? This seems like too easy of a workaround for couples.
Each person can only accumulate 10k of ibonds per year, whether that is via direct purchase or gift received. So, you can buy 10k now to gift to your spouse in 2023. This will fill their 2023 allocation, and your spouse will not be able to directly purchase any ibonds in 2023.

The benefit of this is that the "gifted" bonds will begin to accrue interest immediately, and your spouse will be eligible to sell those bonds 1 year after the initial purchase of the gift.

My spouse and I each bought 10k to "gift" each other in 2023. I'm not sure I would buy more than that because I'm not sure where the rates will go in 2023-2024...
Ron Ronnerson wrote: Wed Apr 27, 2022 9:34 pm Since my wife has already purchased $10k in I bonds this year, she can't buy anymore this year nor receive any gifted I bonds this year. Gifting, however, does work as a way of front-loading. Interest starts accruing upon purchase and sit's in the purchaser's "gift box." However, the gift isn't actually delivered until some point in the future. Some people are buying several tens of thousands of dollars worth of I bonds as gifts for their spouse and plan to deliver them over several years. Similarly, some people open a number of entity accounts (trusts and businesses) and use those to purchase even more I Bonds.

This article explains how gifting works (and doesn't work): https://thefinancebuff.com/buy-i-bonds-as-gift.html
Gotcha. You're just buying future years' allotment of I bonds now. Still, that's pretty cool.
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Re: Anyone regret paying off mortgage early?

Post by HMSVictory »

Just checking in on the "I'm not paying my house off I'm investing the money people here". :D

BND is -10% YTD

VTI is -17% YTD

Plus your mortgage interest rate...... maybe borrowing on the house to invest isn't wise? :shock:

I know, I know over the long term you are crushing your mortgage interest rate but this year is a good reminder that investment returns are based upon probabilities and not guaranteed (like paying the house off is).
Stay the course!
Elysium
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Re: Anyone regret paying off mortgage early?

Post by Elysium »

HMSVictory wrote: Fri May 13, 2022 8:16 am Just checking in on the "I'm not paying my house off I'm investing the money people here". :D

BND is -10% YTD

VTI is -17% YTD

Plus your mortgage interest rate...... maybe borrowing on the house to invest isn't wise? :shock:
BND has an expected return of 3% from hereon over next 5-6 years.
VTI has an expected return in the range of 6.5% to 10.5% over the next decade.

15 year Mortgage hit rock bottom of under 2% just a year back.

A 15 year Treasury bond ladder can be built to earn over 3% today.

It doesn't pay to payoff the mortgage at those rates, as you keep paying with cheaper dollars, but if I stopped working then I would pay it off just to have the convenience of not needing to pay every month. The economics say that anyone with that low rates should not pay off when Treasury bonds purchased and held to maturity is giving more, with no risk.
59Gibson
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Re: Anyone regret paying off mortgage early?

Post by 59Gibson »

HMSVictory wrote: Fri May 13, 2022 8:16 am Just checking in on the "I'm not paying my house off I'm investing the money people here". :D

BND is -10% YTD

VTI is -17% YTD

Plus your mortgage interest rate...... maybe borrowing on the house to invest isn't wise? :shock:

I know, I know over the long term you are crushing your mortgage interest rate but this year is a good reminder that investment returns are based upon probabilities and not guaranteed (like paying the house off is).
Yeah I'm sure there are many in/near retirement wishing they'd just paid it off instead of playing the leverage game. I can understand someone younger wanting to let it ride.
But at 2.5-3% rates- that's a mighty low hurdle. How does 6% change the calc, if they remain that high?
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

HMSVictory wrote: Fri May 13, 2022 8:16 am Just checking in on the "I'm not paying my house off I'm investing the money people here". :D
So we de facto invest our mortgage proceeds in a combination of a stable value fund and a cash-balance pension.

That cash-balance pension returns I believe 4% annual. As of the end of April, I believe the stable value fund was at about +0.6% YTD, and heading higher.

So, it is looking very likely those particular assets are going to average better than our 2.5% mortgage this year.

But, thank you for checking in!
I know, I know over the long term you are crushing your mortgage interest rate but this year is a good reminder that investment returns are based upon probabilities and not guaranteed (like paying the house off is).


So of course a lot of what you are doing is evaluating marketed investments by gains/losses in NAV, but not doing anything equivalent for your mortgage payoff.

Again, a mortgage payoff is equivalent to a nominal bond ladder. If you actually put a NAV on that virtual nominal bond ladder, and then tracked it, you would see your mortgage payoff has lost a lot of NAV recently!

But you are avoiding this rather important conclusion by using two different forms of accounting, the least favorable one for marketed investments and the most favorable one for the mortgage payoff.
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

Elysium wrote: Fri May 13, 2022 8:23 am
HMSVictory wrote: Fri May 13, 2022 8:16 am Just checking in on the "I'm not paying my house off I'm investing the money people here". :D

BND is -10% YTD

VTI is -17% YTD

Plus your mortgage interest rate...... maybe borrowing on the house to invest isn't wise? :shock:
BND has an expected return of 3% from hereon over next 5-6 years.
VTI has an expected return in the range of 6.5% to 10.5% over the next decade.

15 year Mortgage hit rock bottom of under 2% just a year back.

A 15 year Treasury bond ladder can be built to earn over 3% today.

It doesn't pay to payoff the mortgage at those rates, as you keep paying with cheaper dollars, but if I stopped working then I would pay it off just to have the convenience of not needing to pay every month. The economics say that anyone with that low rates should not pay off when Treasury bonds purchased and held to maturity is giving more, with no risk.
Yeah, as I just noted, what that poster did was not compare rates to rates, or NAV changes to NAV changes, but instead compared NAV changes on nominal bonds to rates on the mortgage payoff. And what a surprise, it turns out NAV changes are more volatile.

If you actually compare rates to rates, then recently the case for not paying off a sub-3% mortgage has gotten stronger, of course.

That said, if you actually put the proceeds from your mortgage into a matching nominal bond ladder when rates were lower, that would still be at a lower rate. But no one to my knowledge did that, because it doesn't make much sense to do.

Now, though, you could consider buying that nominal bond ladder and lock in your arbitrage profit. I won't, but it at least as some merit now.
drk
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Re: Anyone regret paying off mortgage early?

Post by drk »

HMSVictory wrote: Fri May 13, 2022 8:16 am Just checking in on the "I'm not paying my house off I'm investing the money people here". :D
It should go without saying that a long-term plan should not be judged on the basis of a few months. And yet.

BTW, I thought you were done?
HMSVictory wrote: Sun Mar 27, 2022 12:25 pm This will be my last post on this thread [...]
In a way, this underlines the behavioral part of this decision: knowing whether one has the will-power to stick to a plan even when it's tempting to do otherwise.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

59Gibson wrote: Fri May 13, 2022 8:24 am
HMSVictory wrote: Fri May 13, 2022 8:16 am Just checking in on the "I'm not paying my house off I'm investing the money people here". :D

BND is -10% YTD

VTI is -17% YTD

Plus your mortgage interest rate...... maybe borrowing on the house to invest isn't wise? :shock:

I know, I know over the long term you are crushing your mortgage interest rate but this year is a good reminder that investment returns are based upon probabilities and not guaranteed (like paying the house off is).
Yeah I'm sure there are many in/near retirement wishing they'd just paid it off instead of playing the leverage game.
So as usual, that would typically not make much sense.

Suppose you were trying to retire with a TIPS ladder sufficient to cover your anticipated expenses. Most people would do something more risky/ambitious than that, but for simplicity sake we can start there.

OK, if you had paid off the mortgage, your expected expenses would be lower. So that would be good.

But if you had paid off the mortgage, your TIPS ladder would be smaller. So that would be bad.

OK, what has happened recently is many expected expenses have gone up faster in real terms than expected, and while this is expected to slow down, it is still now expected to average higher than it was recently expected to average. In the long run, this could potentially include things like home insurance, home maintenance, property taxes, utilities, and so on, and of course all sorts of other expenses.

Your expected fixed-rate mortgage payments would be a notable exception, however--they have not gone up.

Meanwhile, if you had a TIPS ladder, their expected payout is increasing upward with increased inflation expectations.

OK, so which side of this has done better recently?

Obviously the people with more TIPS + a mortgage, as opposed to the people with no mortgage but fewer TIPS. The former are actually in better shape in the sense the mortgage is now expected to take up less of the expected proceeds from their TIPS. The latter, though, are looking at increased expenses going forward but with fewer TIPS to cover them.

Again, what that poster was doing was obscuring all this by using two different forms of accounting. Because real rates have gone up, if you were tracking the NAV of that TIPS ladder, it would have gone down recently. But because nominal rates have gone up even more, if you were tracking the NAV of the mortgage payoff, it would have gone down much more! And that would confirm the fact that the people with the bigger TIPS ladder had recently done better than the people who paid off the mortgage instead.

And I would at least hope any retirees around here would understand the need to do consistent accounting when making such comparisons.
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HMSVictory
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Re: Anyone regret paying off mortgage early?

Post by HMSVictory »

drk wrote: Fri May 13, 2022 9:10 am
HMSVictory wrote: Fri May 13, 2022 8:16 am Just checking in on the "I'm not paying my house off I'm investing the money people here". :D
It should go without saying that a long-term plan should not be judged on the basis of a few months. And yet.

BTW, I thought you were done?
HMSVictory wrote: Sun Mar 27, 2022 12:25 pm This will be my last post on this thread [...]
In a way, this underlines the behavioral part of this decision: knowing whether one has the will-power to stick to a plan even when it's tempting to do otherwise.
:D

My point was to simply illustrate that investing carries risk.

Paying off debt does not - other than having less in liquid assets. Ok you got me I'm out!
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NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

HMSVictory wrote: Fri May 13, 2022 9:31 am My point was to simply illustrate that investing carries risk.

Paying off debt does not - other than having less in liquid assets.
And again, if you used consistent accounting, it would be clear this claim is incorrect. Paying off long-term fixed-rate debt has the same returns risk as investing in matching nominal bonds, and then adds in the risks involved in lack of liquidity.
hoofaman
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Re: Anyone regret paying off mortgage early?

Post by hoofaman »

NiceUnparticularMan wrote: Fri May 13, 2022 9:36 am
HMSVictory wrote: Fri May 13, 2022 9:31 am My point was to simply illustrate that investing carries risk.

Paying off debt does not - other than having less in liquid assets.
And again, if you used consistent accounting, it would be clear this claim is incorrect. Paying off long-term fixed-rate debt has the same returns risk as investing in matching nominal bonds, and then adds in the risks involved in lack of liquidity.
The bond yields would be taxed which needs to be considered, especially if one just takes the standard deduction. Also you can always get a HELOC with a convertible option to a fixed rate loan if you need to pull equity later
HootingSloth
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Re: Anyone regret paying off mortgage early?

Post by HootingSloth »

NiceUnparticularMan wrote: Fri May 13, 2022 9:36 am
HMSVictory wrote: Fri May 13, 2022 9:31 am My point was to simply illustrate that investing carries risk.

Paying off debt does not - other than having less in liquid assets.
And again, if you used consistent accounting, it would be clear this claim is incorrect. Paying off long-term fixed-rate debt has the same returns risk as investing in matching nominal bonds, and then adds in the risks involved in lack of liquidity.
This seems like it should be correct, so I am trying to understand the "consistent accounting" that shows it to be true. Let's say I have a 3.5% fixed rate mortgage and make a $100k prepayment at a time when prevailing interest rates for a bond with an appropriately matched duration is 1%. If the next month rates rise so that the comparable interest rate is 2%, we would not normally say my net worth has declined (which we would if I had invested the $100k in a matching bond). How do we fix the disconnect?
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NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

hoofaman wrote: Fri May 13, 2022 9:50 am
NiceUnparticularMan wrote: Fri May 13, 2022 9:36 am
HMSVictory wrote: Fri May 13, 2022 9:31 am My point was to simply illustrate that investing carries risk.

Paying off debt does not - other than having less in liquid assets.
And again, if you used consistent accounting, it would be clear this claim is incorrect. Paying off long-term fixed-rate debt has the same returns risk as investing in matching nominal bonds, and then adds in the risks involved in lack of liquidity.
The bond yields would be taxed which needs to be considered, especially if one just takes the standard deduction.
So possibly you would be investing in tax-protected accounts. But yes, you should make sure to account for taxes.
Also you can always get a HELOC with a convertible option to a fixed rate loan if you need to pull equity later
So obviously you don't know what rate that would be at, and in fact it is not always possible to get such a loan. It would depend on what else was going on in your financial life.
hoofaman
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Re: Anyone regret paying off mortgage early?

Post by hoofaman »

NiceUnparticularMan wrote: Fri May 13, 2022 10:29 am
hoofaman wrote: Fri May 13, 2022 9:50 am
NiceUnparticularMan wrote: Fri May 13, 2022 9:36 am
HMSVictory wrote: Fri May 13, 2022 9:31 am My point was to simply illustrate that investing carries risk.

Paying off debt does not - other than having less in liquid assets.
And again, if you used consistent accounting, it would be clear this claim is incorrect. Paying off long-term fixed-rate debt has the same returns risk as investing in matching nominal bonds, and then adds in the risks involved in lack of liquidity.
The bond yields would be taxed which needs to be considered, especially if one just takes the standard deduction.
So possibly you would be investing in tax-protected accounts. But yes, you should make sure to account for taxes.
Also you can always get a HELOC with a convertible option to a fixed rate loan if you need to pull equity later
So obviously you don't know what rate that would be at, and in fact it is not always possible to get such a loan. It would depend on what else was going on in your financial life.
Likewise, if rates rise considerably you don't know how much money your investments in bonds would be worth if you had to sell them
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corn18
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Re: Anyone regret paying off mortgage early?

Post by corn18 »

No way I am paying off my 30 year 2.25% fixed rate mortgage (29 years left). And I retired last year. $480k balance.

I just built a 5 year CD ladder with an average yield of 2.9% with $480k of my 401k. That should silence the risk adjusted crowd, but it won't. The pundits always espouse paying off a mortgage before retirement. If I could extend mine to 50 years, I would.
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hoofaman
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Re: Anyone regret paying off mortgage early?

Post by hoofaman »

corn18 wrote: Fri May 13, 2022 10:51 am No way I am paying off my 30 year 2.25% fixed rate mortgage (29 years left). And I retired last year. $480k balance.

I just built a 5 year CD ladder with an average yield of 2.9% with $480k of my 401k. That should silence the risk adjusted crowd, but it won't. The pundits always espouse paying off a mortgage before retirement. If I could extend mine to 50 years, I would.
That's actually a great solution, I would do the same if I could. I doubt most are following your example though
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

HootingSloth wrote: Fri May 13, 2022 9:54 am
NiceUnparticularMan wrote: Fri May 13, 2022 9:36 am
HMSVictory wrote: Fri May 13, 2022 9:31 am My point was to simply illustrate that investing carries risk.

Paying off debt does not - other than having less in liquid assets.
And again, if you used consistent accounting, it would be clear this claim is incorrect. Paying off long-term fixed-rate debt has the same returns risk as investing in matching nominal bonds, and then adds in the risks involved in lack of liquidity.
This seems like it should be correct, so I am trying to understand the "consistent accounting" that shows it to be true. Let's say I have a 3.5% fixed rate mortgage and make a $100k prepayment at a time when prevailing interest rates for a bond with an appropriately matched duration is 1%. If the next month rates rise so that the comparable interest rate is 2%, we would not normally say my net worth has declined (which we would if I had invested the $100k in a matching bond). How do we fix the disconnect?
So, let's start with the observation that if you don't account for the mortgage payoff at all in making your net worth calculation, then at the time you pay off the mortgage with $100K, it will look like your net worth just dropped by $100K. So if you compare that to the bonds, which you do account for, even if your bonds drop in market value the next day, you would still look ahead in net worth. The bonds would actually have to go down to $0 to make it look even.

That, of course, is wrong. But how to fix it?

Well, as I have noted, a mortgage payoff is the same as a matching nominal bond ladder. So, you could figure out how much that would be worth at current bond market prices. A little math, but not too bad.

But in your hypothetical, you would have to adjust for the fact that the mortgage rate was higher than the matching bond ladder rate. But if you are comfortable with bond pricing principles, that is also doable, with enough work.

OK, so you have done all that, and now have a market value for your mortgage payoff. Sorta. Problem is, you now have to adjust for the lack of liquidity. Otherwise, you are overvaluing the mortgage by using nominal bond rates. That is trickier, but maybe doable . . . .

OK, you finally arrive at a market value for your mortgage payoff.

Alright, next day bond rates go up. What happens to your mortgage payoff market value?

Well, you should redo the calculation in light of the new market bond rates. And if you did that, it would show a drop in market value.

Now, that is all a lot of work. I for one don't do anything like that, and in fact don't track net worth at all.

But if you are going to track net worth, and you want to compare how bond investments would be going versus paying off your mortgage instead in those terms . . . that is the sort of work you would need to do. And continually update it.
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

hoofaman wrote: Fri May 13, 2022 10:37 am
NiceUnparticularMan wrote: Fri May 13, 2022 10:29 am
hoofaman wrote: Fri May 13, 2022 9:50 am
NiceUnparticularMan wrote: Fri May 13, 2022 9:36 am
HMSVictory wrote: Fri May 13, 2022 9:31 am My point was to simply illustrate that investing carries risk.

Paying off debt does not - other than having less in liquid assets.
And again, if you used consistent accounting, it would be clear this claim is incorrect. Paying off long-term fixed-rate debt has the same returns risk as investing in matching nominal bonds, and then adds in the risks involved in lack of liquidity.
The bond yields would be taxed which needs to be considered, especially if one just takes the standard deduction.
So possibly you would be investing in tax-protected accounts. But yes, you should make sure to account for taxes.
Also you can always get a HELOC with a convertible option to a fixed rate loan if you need to pull equity later
So obviously you don't know what rate that would be at, and in fact it is not always possible to get such a loan. It would depend on what else was going on in your financial life.
Likewise, if rates rise considerably you don't know how much money your investments in bonds would be worth if you had to sell them
Well, that depends on what you invest in. As noted, one of the things I de facto invest in is a stable value fund, so that gives a (mostly) reliable liquidation value.

But as always, you can take more risk in pursuit of higher returns. Whatever logic you normally apply to that tradeoff should apply to this situation as well.
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corn18
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Re: Anyone regret paying off mortgage early?

Post by corn18 »

hoofaman wrote: Fri May 13, 2022 10:55 am
corn18 wrote: Fri May 13, 2022 10:51 am No way I am paying off my 30 year 2.25% fixed rate mortgage (29 years left). And I retired last year. $480k balance.

I just built a 5 year CD ladder with an average yield of 2.9% with $480k of my 401k. That should silence the risk adjusted crowd, but it won't. The pundits always espouse paying off a mortgage before retirement. If I could extend mine to 50 years, I would.
That's actually a great solution, I would do the same if I could. I doubt most are following your example though
And the kicker is the NPV of my mortgage balance is $269k @ 8% inflation. I don't think inflation will stay at 8% for 30 years, though. I use 3% inflation for the next 29 years. That puts the NPV of my mortgage balance @ $450k. So I am paying $450k for a $480k mortgage. That includes P&I. Who wouldn't take that deal?
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NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

hoofaman wrote: Fri May 13, 2022 10:55 am
corn18 wrote: Fri May 13, 2022 10:51 am No way I am paying off my 30 year 2.25% fixed rate mortgage (29 years left). And I retired last year. $480k balance.

I just built a 5 year CD ladder with an average yield of 2.9% with $480k of my 401k. That should silence the risk adjusted crowd, but it won't. The pundits always espouse paying off a mortgage before retirement. If I could extend mine to 50 years, I would.
That's actually a great solution, I would do the same if I could. I doubt most are following your example though
Yeah, this gets into the option value of mortgages.

Normally, people would say there is reinvestment risk after 5 years, if rates go low enough by then.

But in this case, if that happens you can just pay off the mortgage then.

So, kinda hard to justify exercising that option early, if you can make more in something else while you wait to see what happens next.
nhs76
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Re: Anyone regret paying off mortgage early?

Post by nhs76 »

Nope. Theoretically we could be better off in an inflationary environment if we didn't, but that's offset by the peace of mind of knowing the house is ours as long as we can pay the taxes and maintain it, a much lower nut.
HootingSloth
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Re: Anyone regret paying off mortgage early?

Post by HootingSloth »

NiceUnparticularMan wrote: Fri May 13, 2022 10:56 am
HootingSloth wrote: Fri May 13, 2022 9:54 am
NiceUnparticularMan wrote: Fri May 13, 2022 9:36 am
HMSVictory wrote: Fri May 13, 2022 9:31 am My point was to simply illustrate that investing carries risk.

Paying off debt does not - other than having less in liquid assets.
And again, if you used consistent accounting, it would be clear this claim is incorrect. Paying off long-term fixed-rate debt has the same returns risk as investing in matching nominal bonds, and then adds in the risks involved in lack of liquidity.
This seems like it should be correct, so I am trying to understand the "consistent accounting" that shows it to be true. Let's say I have a 3.5% fixed rate mortgage and make a $100k prepayment at a time when prevailing interest rates for a bond with an appropriately matched duration is 1%. If the next month rates rise so that the comparable interest rate is 2%, we would not normally say my net worth has declined (which we would if I had invested the $100k in a matching bond). How do we fix the disconnect?
So, let's start with the observation that if you don't account for the mortgage payoff at all in making your net worth calculation, then at the time you pay off the mortgage with $100K, it will look like your net worth just dropped by $100K. So if you compare that to the bonds, which you do account for, even if your bonds drop in market value the next day, you would still look ahead in net worth. The bonds would actually have to go down to $0 to make it look even.

That, of course, is wrong. But how to fix it?

Well, as I have noted, a mortgage payoff is the same as a matching nominal bond ladder. So, you could figure out how much that would be worth at current bond market prices. A little math, but not too bad.

But in your hypothetical, you would have to adjust for the fact that the mortgage rate was higher than the matching bond ladder rate. But if you are comfortable with bond pricing principles, that is also doable, with enough work.

OK, so you have done all that, and now have a market value for your mortgage payoff. Sorta. Problem is, you now have to adjust for the lack of liquidity. Otherwise, you are overvaluing the mortgage by using nominal bond rates. That is trickier, but maybe doable . . . .

OK, you finally arrive at a market value for your mortgage payoff.

Alright, next day bond rates go up. What happens to your mortgage payoff market value?

Well, you should redo the calculation in light of the new market bond rates. And if you did that, it would show a drop in market value.

Now, that is all a lot of work. I for one don't do anything like that, and in fact don't track net worth at all.

But if you are going to track net worth, and you want to compare how bond investments would be going versus paying off your mortgage instead in those terms . . . that is the sort of work you would need to do. And continually update it.
Interesting. I think it is typical to calculate net worth as assets minus liabilities and so decreasing a liability, e.g. a mortgage, by $100k increases net worth by $100k. The prepayment saves additional interest and so in the future further increases net worth by the accumulated amount of saved interest. Or, in other words, the prepayment increases your net worth at a given time by the difference between what your mortgage balance actually is at such time from what it would have been under the original amortization schedule. Seems much more straightforward and more consistent with how net worth is typically defined than this very complex suggestion.
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Re: Anyone regret paying off mortgage early?

Post by ScubaHogg »

HootingSloth wrote: Fri May 13, 2022 12:54 pm
Interesting. I think it is typical to calculate net worth as assets minus liabilities and so decreasing a liability, e.g. a mortgage, by $100k increases net worth by $100k.
Never minding the complex solution above, i don’t think what you said is accurate. If you use assets to pay off $100k mortgage your net worth has not changed at all. You’ve just decreased both your assets and liabilities by $100k.
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HootingSloth
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Re: Anyone regret paying off mortgage early?

Post by HootingSloth »

ScubaHogg wrote: Fri May 13, 2022 1:18 pm
HootingSloth wrote: Fri May 13, 2022 12:54 pm
Interesting. I think it is typical to calculate net worth as assets minus liabilities and so decreasing a liability, e.g. a mortgage, by $100k increases net worth by $100k.
Never minding the complex solution above, i don’t think what you said is accurate. If you use assets to pay off $100k mortgage your net worth has not changed at all. You’ve just decreased both your assets and liabilities by $100k.
Sure. If you spend, say, $100k you were already holding in cash then your assets decrease by $100k and your liabilities decrease by $100k, leaving your net worth unchanged. Same thing, though, if you spend $100k in cash to buy $100k in bonds. But, with the bonds your future changes in net worth are exposed to fluctuations in interest rates while we would not normally say the same with the prepayment (unless we calculate net worth using NiceUnparticularMan's method). Just an observation that either the way he is viewing things is a bit odd or the way we normally calculate net worth is a bit odd (or both).

Edit: I suspect that which one is "odd" may depend on how you are using the number, the extent to which you have sufficient other sources of liquidity, and whether interest rates for the matching bond end up rising higher than the mortgage rate.
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Apathizer
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

HootingSloth wrote: Fri May 13, 2022 1:22 pm
ScubaHogg wrote: Fri May 13, 2022 1:18 pm
HootingSloth wrote: Fri May 13, 2022 12:54 pm
Interesting. I think it is typical to calculate net worth as assets minus liabilities and so decreasing a liability, e.g. a mortgage, by $100k increases net worth by $100k.
Never minding the complex solution above, i don’t think what you said is accurate. If you use assets to pay off $100k mortgage your net worth has not changed at all. You’ve just decreased both your assets and liabilities by $100k.
Sure. If you spend, say, $100k you were already holding in cash then your assets decrease by $100k and your liabilities decrease by $100k, leaving your net worth unchanged. Same thing, though, if you spend $100k in cash to buy $100k in bonds. But, with the bonds your future changes in net worth are exposed to fluctuations in interest rates while we would not normally say the same with the prepayment (unless we calculate net worth using NiceUnparticularMan's method). Just an observation that either the way he is viewing things is a bit odd or the way we normally calculate net worth is a bit odd (or both).
True, but paying off the mortgage reduces risk and uncertainty. Debt always increases risk. By paying off the mortgage you're creating a floor for potential losses.

Think about the 2008-2009 financial crisis when home values plummeted. Consider someone with a mortgage balance of say $300K on a home valued at $400K. In some areas property values fell by as much as 50% or more. Their previously $400K home is now only worth $200K, and they still owe $300K, so their home equity is now -$100K :shock:

Now consider someone with a paid for or mostly paid for home. Even though a 50% home equity decrease sucks, at least they don't have negative equity. Their home equity is $200K rather than -$100K. That's the risk of holding significant debt.
Last edited by Apathizer on Fri May 13, 2022 1:54 pm, edited 1 time in total.
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corn18
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Re: Anyone regret paying off mortgage early?

Post by corn18 »

Apathizer wrote: Fri May 13, 2022 1:47 pm
HootingSloth wrote: Fri May 13, 2022 1:22 pm
ScubaHogg wrote: Fri May 13, 2022 1:18 pm
HootingSloth wrote: Fri May 13, 2022 12:54 pm
Interesting. I think it is typical to calculate net worth as assets minus liabilities and so decreasing a liability, e.g. a mortgage, by $100k increases net worth by $100k.
Never minding the complex solution above, i don’t think what you said is accurate. If you use assets to pay off $100k mortgage your net worth has not changed at all. You’ve just decreased both your assets and liabilities by $100k.
Sure. If you spend, say, $100k you were already holding in cash then your assets decrease by $100k and your liabilities decrease by $100k, leaving your net worth unchanged. Same thing, though, if you spend $100k in cash to buy $100k in bonds. But, with the bonds your future changes in net worth are exposed to fluctuations in interest rates while we would not normally say the same with the prepayment (unless we calculate net worth using NiceUnparticularMan's method). Just an observation that either the way he is viewing things is a bit odd or the way we normally calculate net worth is a bit odd (or both).
True, but paying off the mortgage reduces risk and uncertainty. Debt always increases risk. By paying off the mortgage you're creating a floor for potential losses.

Think about the 2008-2009 financial crisis when home values plummeted. Consider someone with a mortgage balance of say $300K on a home valued at $350K. In some areas property values fell by as much as 50% or more. Their previously $350K home is now only worth $175K, and they still owe $300K, so their home equity is now -$125K :shock:

Now consider someone with a paid for or mostly paid for home. Even though a 50% home equity decrease sucks, at least they aren't in debt. Their home equity is $175K rather than -$125K. That's the risk of holding significant debt.
If they still had a job, neither scenario is worse than the other. Although the person with the paid off house and no cash is arguably worse off than the person with a mortgage and $350k in their portfolio. They may last a lot longer than the person with a paid off mortgage.
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Apathizer
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

corn18 wrote: Fri May 13, 2022 1:52 pm
Apathizer wrote: Fri May 13, 2022 1:47 pm
HootingSloth wrote: Fri May 13, 2022 1:22 pm
ScubaHogg wrote: Fri May 13, 2022 1:18 pm
HootingSloth wrote: Fri May 13, 2022 12:54 pm
Interesting. I think it is typical to calculate net worth as assets minus liabilities and so decreasing a liability, e.g. a mortgage, by $100k increases net worth by $100k.
Never minding the complex solution above, i don’t think what you said is accurate. If you use assets to pay off $100k mortgage your net worth has not changed at all. You’ve just decreased both your assets and liabilities by $100k.
Sure. If you spend, say, $100k you were already holding in cash then your assets decrease by $100k and your liabilities decrease by $100k, leaving your net worth unchanged. Same thing, though, if you spend $100k in cash to buy $100k in bonds. But, with the bonds your future changes in net worth are exposed to fluctuations in interest rates while we would not normally say the same with the prepayment (unless we calculate net worth using NiceUnparticularMan's method). Just an observation that either the way he is viewing things is a bit odd or the way we normally calculate net worth is a bit odd (or both).
True, but paying off the mortgage reduces risk and uncertainty. Debt always increases risk. By paying off the mortgage you're creating a floor for potential losses.

Think about the 2008-2009 financial crisis when home values plummeted. Consider someone with a mortgage balance of say $300K on a home valued at $400K. In some areas property values fell by as much as 50% or more. Their previously $400K home is now only worth $200K, and they still owe $300K, so their home equity is now -$100K :shock:

Now consider someone with a paid for or mostly paid for home. Even though a 50% home equity decrease sucks, at least they aren't in debt. Their home equity is $200K rather than -$100K. That's the risk of holding significant debt.
If they still had a job, neither scenario is worse than the other. Although the person with the paid off house and no cash is arguably worse off than the person with a mortgage and $400k in their portfolio. They may last a lot longer than the person with a paid off mortgage.
I didn't say they had $400K in their portfolio. Not everyone does, and since homeownership is expensive homeowners are less likely to have such liquid assets.

Incidentally a renter with $400K in liquid investments is better off than either. Even if their portfolio drops 50%, they'll still have $200K in accessible capital without being chained to negative home equity.
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JoeRetire
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Re: Anyone regret paying off mortgage early?

Post by JoeRetire »

HMSVictory wrote: Fri May 13, 2022 8:16 am Just checking in on the "I'm not paying my house off I'm investing the money people here". :D

BND is -10% YTD

VTI is -17% YTD

Plus your mortgage interest rate...... maybe borrowing on the house to invest isn't wise? :shock:

I know, I know over the long term you are crushing your mortgage interest rate but this year is a good reminder that investment returns are based upon probabilities and not guaranteed (like paying the house off is).
Making decisions based on 5 months ("YTD") returns might not be wise.
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JoeRetire
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Re: Anyone regret paying off mortgage early?

Post by JoeRetire »

Apathizer wrote: Fri May 13, 2022 1:47 pmConsider someone with a mortgage balance of say $300K on a home valued at $400K. In some areas property values fell by as much as 50% or more. Their previously $400K home is now only worth $200K, and they still owe $300K, so their home equity is now -$100K :shock:

Now consider someone with a paid for or mostly paid for home. Even though a 50% home equity decrease sucks, at least they don't have negative equity. Their home equity is $200K rather than -$100K. That's the risk of holding significant debt.
If you could snap your fingers and make your mortgage disappear, then everyone would do it.

But in this scenario, there's the little matter of the $300k it cost you to pay off the mortgage. That has to come from somewhere...
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

JoeRetire wrote: Fri May 13, 2022 2:31 pm
Apathizer wrote: Fri May 13, 2022 1:47 pmConsider someone with a mortgage balance of say $300K on a home valued at $400K. In some areas property values fell by as much as 50% or more. Their previously $400K home is now only worth $200K, and they still owe $300K, so their home equity is now -$100K :shock:

Now consider someone with a paid for or mostly paid for home. Even though a 50% home equity decrease sucks, at least they don't have negative equity. Their home equity is $200K rather than -$100K. That's the risk of holding significant debt.
If you could snap your fingers and make your mortgage disappear, then everyone would do it.

But in this scenario, there's the little matter of the $300k it cost you to pay off the mortgage. That has to come from somewhere...
But if you pay off the mortgage risk is decreased. With significant mortgage debt there's more potential risk. You have to pay interest on a potentially deprecating asset (house), and your portfolio might also depreciate. That's why debt is risky.
Last edited by Apathizer on Fri May 13, 2022 4:13 pm, edited 1 time in total.
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