Anyone regret paying off mortgage early?

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Admiral
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Re: Anyone regret paying off mortgage early?

Post by Admiral »

lazydavid wrote: Mon May 16, 2022 9:26 am
Apathizer wrote: Mon May 16, 2022 8:50 am So you don't know if you'll ever sell? That's the only practical financial reason to buy a house in the first place. If you never sell, you might as well save yourself the trouble of homeownership and just rent. If you do intend to sell, paying off the mortgage sooner means you reap more proceeds upon sale.
This is a pretty silly statement coming from somebody who talks at such great lengths about how desirable eliminating a monthly housing payment is.

The primary financial reason to purchase a house is imputed rent. If you own a home that you never sell, you never have to pay rent. Ever. You'll have to explain to me why paying continuously-escalating rent for 50, 60, 80 years (or even across generations) is better than, well NOT.
+1. "Selling is the only reason to buy" is totally non-sensical. The reasons to buy are probably too numerous to name but here's a shortlist:

1) Fixed housing cost for decades, regardless of inflation
2) Imputed rent
3) Housing cost eventually goes to zero (save taxes/insurance which are also paid by renters, even if hidden)
4) Stability
5) Control over lived-in environment
6) Large monthly expense goes toward something that CAN be sold eventually (though does not HAVE to be sold).
7) Price appreciation (owing to inflation, if nothing else)

Exactly zero of those benefits accrue to renters.
Admiral
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Re: Anyone regret paying off mortgage early?

Post by Admiral »

Apathizer wrote: Mon May 16, 2022 9:02 am
Tom_T wrote: Mon May 16, 2022 8:52 am
59Gibson wrote: Mon May 16, 2022 7:45 am
CloseEnough wrote: Mon May 16, 2022 6:20 am Does anyone regret reading this entire thread? I don't, because I have not. An executive summary would be helpful. But I can guess some of the comments and responses.
Haha..BH Executive Summaries should be a thing w/ threads over a few pages
Here's the summary: Some people don't regret paying off the mortgage early; one person said he does; others who haven't paid it off said they don't plan to do so early. There you are!
Since only one says they regret it, I think it's fair to say most don't. Whether paying it off early makes sense depends on a number of complex, highly variable, and oft unpredictable factors.
That's what's known as selection bias. Regret is an emotion or a psychological condition that most people attempt to avoid, and therefore are not going to report it (even if true).

What's relevant for this thread is what is financially optimal, not what causes the least amount of regret. There are always going to be personal details that sway the decision one way or the other. I think there are very good reasons for some people to rent, and to continue to rent. However, unlike you, I don't take the position that renting is somehow intrinsically superior to buying, or that "debt is bad, regardless of the details," which seems to be your (and ivygirl's) position.
Apathizer
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

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Last edited by Apathizer on Mon May 16, 2022 11:43 am, edited 1 time in total.
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nigel_ht
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Re: Anyone regret paying off mortgage early?

Post by nigel_ht »

JoeRetire wrote: Mon May 16, 2022 8:06 am
nigel_ht wrote: Mon May 16, 2022 8:03 am
JoeRetire wrote: Sun May 15, 2022 7:16 pm
Ivygirl wrote: Sun May 15, 2022 12:56 pm
JoeRetire wrote: Sun May 15, 2022 11:54 am
The only thing this particular "partner" wants you to do is to pay your monthly mortgage and maintain your insurance and taxes.

If you want to give this "partner" a bunch of money so that you aren't "forced to do things you don't want", you can always do so. Then you'll still have plenty of other "partners" remaining. Your tax "partner" will always remain. And you would be silly (not to mention risky) to dismiss your insurance "partner". I suppose it would be possible (if rather unlikely) to get rid of your electricity "partner", your water "partner", your telephone "partner", your internet "partner", etc, etc, etc.

You can attempt to become "partner free", but you will always fail.
Why have more of this kind of risk than you have to?
Partner risk isn't a thing.
Ah what? Sure it’s a thing.
Sure. Partner risk as defined in the context of this thread isn't a thing.

(Can't believe I actually had to clarify that...)
small risk isn't the same as zero risk...and I guess it's a thing even if a couple folks think it's a thing. It obviously isn't your thing, or mine.
nigel_ht
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Re: Anyone regret paying off mortgage early?

Post by nigel_ht »

Admiral wrote: Mon May 16, 2022 11:10 am
Apathizer wrote: Mon May 16, 2022 9:02 am
Tom_T wrote: Mon May 16, 2022 8:52 am
59Gibson wrote: Mon May 16, 2022 7:45 am
CloseEnough wrote: Mon May 16, 2022 6:20 am Does anyone regret reading this entire thread? I don't, because I have not. An executive summary would be helpful. But I can guess some of the comments and responses.
Haha..BH Executive Summaries should be a thing w/ threads over a few pages
Here's the summary: Some people don't regret paying off the mortgage early; one person said he does; others who haven't paid it off said they don't plan to do so early. There you are!
Since only one says they regret it, I think it's fair to say most don't. Whether paying it off early makes sense depends on a number of complex, highly variable, and oft unpredictable factors.
That's what's known as selection bias. Regret is an emotion or a psychological condition that most people attempt to avoid, and therefore are not going to report it (even if true).

What's relevant for this thread is what is financially optimal, not what causes the least amount of regret. There are always going to be personal details that sway the decision one way or the other. I think there are very good reasons for some people to rent, and to continue to rent. However, unlike you, I don't take the position that renting is somehow intrinsically superior to buying, or that "debt is bad, regardless of the details," which seems to be your (and ivygirl's) position.

I regret not getting a mortgage...maybe that's not the same thing...
nigel_ht
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Re: Anyone regret paying off mortgage early?

Post by nigel_ht »

JupiterJones wrote: Mon May 16, 2022 9:24 am
Apathizer wrote: Mon May 16, 2022 9:02 am
Tom_T wrote: Mon May 16, 2022 8:52 am
59Gibson wrote: Mon May 16, 2022 7:45 am
CloseEnough wrote: Mon May 16, 2022 6:20 am Does anyone regret reading this entire thread? I don't, because I have not. An executive summary would be helpful. But I can guess some of the comments and responses.
Haha..BH Executive Summaries should be a thing w/ threads over a few pages
Here's the summary: Some people don't regret paying off the mortgage early; one person said he does; others who haven't paid it off said they don't plan to do so early. There you are!
Since only one says they regret it, I think it's fair to say most don't. Whether paying it off early makes sense depends on a number of complex, highly variable, and oft unpredictable factors.
And after all, the title of this thread is not "Is paying off the mortgage early the correct/best/mathematically-optimal thing to do?". It's just asking if anyone has regretted doing it. That's a very different question--which was a point made by the OP in the first post, in fact!

Heck, I've made several decisions in my life that I don't regret, even though they were not even remotely close to being good ideas. :beer

But yes, despite the dozens of pages of people arguing over something else, I don't think there's any argument over the conclusion of the actual question: Very few Bogleheads regret paying off their mortgage. (Or if they do, they're not willing to admit it in this thread.)
Well, given that a lot of us can afford to pay off our mortgages but don't implies that we probably would regret it if we did...otherwise we'd have done it by now.

I'd also guess a few folks do wish they had sold off some stocks at the beginning of the year and paid off their mortgage too..so there may be some mild regret that they didn't do so...
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MortgageOnBlack
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Re: Anyone regret paying off mortgage early?

Post by MortgageOnBlack »

Due to our low interest rate on our mortgage (2.125%), wife and I decided to stop paying our extra $150 on principal and move it to Savings instead. Ironically, I discovered our Escrow was re-adjusted to $140.xx more a month due to higher property tax and insurance renewal costs so this is a wash.

One terrible side-effect of the higher housing prices is higher property taxes if you don't plan on selling.
Apathizer
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

Admiral wrote: Mon May 16, 2022 10:48 am
lazydavid wrote: Mon May 16, 2022 9:26 am
Apathizer wrote: Mon May 16, 2022 8:50 am So you don't know if you'll ever sell? That's the only practical financial reason to buy a house in the first place. If you never sell, you might as well save yourself the trouble of homeownership and just rent. If you do intend to sell, paying off the mortgage sooner means you reap more proceeds upon sale.
This is a pretty silly statement coming from somebody who talks at such great lengths about how desirable eliminating a monthly housing payment is.

The primary financial reason to purchase a house is imputed rent. If you own a home that you never sell, you never have to pay rent. Ever. You'll have to explain to me why paying continuously-escalating rent for 50, 60, 80 years (or even across generations) is better than, well NOT.
+1. "Selling is the only reason to buy" is totally non-sensical. The reasons to buy are probably too numerous to name but here's a shortlist:

1) Fixed housing cost for decades, regardless of inflation
2) Imputed rent
3) Housing cost eventually goes to zero (save taxes/insurance which are also paid by renters, even if hidden)
4) Stability
5) Control over lived-in environment
6) Large monthly expense goes toward something that CAN be sold eventually (though does not HAVE to be sold).
7) Price appreciation (owing to inflation, if nothing else)

Exactly zero of those benefits accrue to renters.
1) Nope. See 2.
2) It wont' necessarily be that imputed, or the difference will be modest.
3) Taxes and insurance are typically much less for renters than owners, and renters don't need to worry about maintenance costs.
4) That's probably true, though less important to some than others.
5) True. Probably the most compelling argument for homeownership to me.
6) They're both expensive, and while owning might pay-off in the very long run, there are also many disadvantages like inflexibility.
7) While this is likely true it's not guaranteed. The housing market is a market, so home value can fluctuate like anything else.

Even if the home is fully paid for, homeowners pay forms of rent. Higher utilities, property taxes, maybe an HOA are all forms of rent since you must pay then continuously and regularly to keep your home. They will oft increase just like any other form of rent, though rent doesn't always increase; sometimes it decreases despite recency bias leading many to believe it doesn't.

There's also the opportunity cost of home equity. The equity in a home could be used for other investments. Something doesn't serve as an investment until you sell, and if you don't have heirs (me) there's no practical reason to be a life-long homeowner. If you never sell it in practical financial terms your home is just an elaborate coffin.

There are trade-offs with both renting and owning; neither is inherently superior.
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NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

Apathizer wrote: Mon May 16, 2022 11:56 am Something doesn't serve as an investment until you sell
I mean, technically you could say a residence you own is a durable consumption good versus an investment per se. They are similar in that you pay a certain amount up front and then get a return over time, but it is true that with durable consumption goods, a lot the return is in the form of the use you get out of it, with the possible addition of a resale return as well.

And as with other durable consumption goods, including cars, appliances, and so on, you can compare the lifecycle costs between owning and leasing. And typically that depends on a variety of things, including whether you want to further invest in customizing the good, how quickly you might want to turn over to an entirely new version of that good, available financing terms, and so on.
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

HootingSloth wrote: Fri May 13, 2022 1:22 pmBut, 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.
So my point about consistent accounting is if you are going to compare buying a bond ladder versus paying off a mortgage over time, and you want to use net worth as your measure of comparison, you need to account for the net worth of each alternative the same way.

So if your bond accounting involves some sort of variable discounting of the future bond payments to present value based on changes in market interest rates, your mortgage accounting should ALSO involve the same sort of variable discounting of the future saved mortgage payments to present value based on changes in market interest rates, PLUS some adjustment for lack of liquidity.

If you instead choose to keep things "simple" by just assuming your mortgage payoff was always just worth what it cost you, then you could do the same thing with bond ladder too. It cost you $100,000, so that is what is worth forever.

But again, if you are instead going to do the complicated thing with the bond ladder and keep adjusting its worth to you based on ever-changing market interest rates, you then must do the same thing with your mortgage payoff . . . at least you must if you want to compare them meaningfully.

And yes, that is a bit "odd" in the sense I don't know of any people who actually do that. But the original poster to whom I was responding wanted to compare how paying off a mortgage was doing against investing in bonds recently, and answering that question properly would require such an analysis, odd as it may be.
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

Apathizer wrote: Fri May 13, 2022 3:07 pm 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.
Again, you are stating things as facts which clearly are not facts.

The proceeds from a mortgage can be used to pay the interest on a mortgage and for other things as well. If the return on the proceeds is higher than the mortgage interest, it can do that indefinitely. But even if the return is lower than the mortgage interest, it can potentially do that for a very long period of time.

If you instead pay off the mortgage, you have eliminated not being able to pay the interest on your mortgage as a risk, but you have increased the risk of not being able to pay for those other things.

For whatever reason, some people here seem to always assume away the type of risk that is increased when you pay off the mortgage. And if you are wealthy enough, it might not be a big risk. But if you are wealthy enough, likely the risk involved in paying your mortgage interest is also not a big risk.

So ironically, the cases in which a person might go through a financial crisis in which they are struggling to pay mortgage interest out of other income are also precisely the cases in which they might also be struggling to pay for other expenses out of other income, and therefore these cases actually show how paying off the mortgage can increase risk.
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Re: Anyone regret paying off mortgage early?

Post by Dottie57 »

kd2008 wrote: Sun Mar 20, 2022 7:35 am
HMSVictory wrote: Sun Mar 20, 2022 7:19 am
NiceUnparticularMan wrote: Sun Mar 20, 2022 7:10 am
willthrill81 wrote: Sat Mar 19, 2022 1:55 pm My experience is that too many here (not necessarily saying you) worship at the altar of liquidity. Not being forced to make a monthly payment to avoid being evicted from our home seems pretty low risk to me.
Having savings from which you can pay both the mortgage AND other expenses is even lower risk.

Again, if you think no matter what happens you will have enough other liquid savings to meet all your spending needs until the end of your life, then having even more savings in the form of illiquid home equity is not necessarily a problem.

But if there are possible scenarios in which you would need or at least want to draw on savings you have in the form of home equity, then converting some of that illiquid home equity to liquid savings while you have good terms available can potentially reduce risk.
Is this cost free? Let's see here - 3% mortgage minus 0.4% return on savings.... cost of "liquidity"?

Know one (including me) is saying to go down to your last penny to be debt free.

What we are saying is your lower your overall risk profile when you are debt free!

I don't think a lot of these posters have seen someone foreclosed on and thrown out of their home. Its a painful process.
You are conflating so many things just to make your point that it is on the verge of ridiculous.

People who get foreclosed typically wouldn't ever be in position to pay down their mortgage to begin with.

Mortgage rate of 3% or investment return of 8% is also possible. You are only comparing gauranteed rate. People with means to pay down mortgage can also choose to take risk in the market. Depends on the individual.

Lowering risk profile is admiral but not necessarily optimal. Or even necessary depending on the individual.

This is my final comment. You are entitled to your views. Know that you are animated by fear and probably a few steps away from being a prepper.

I am glad I surround myself with more positive people who are not doom and gloom.

We invested our proceeds from sale of our previous home in April 2020. Our gains have exceeded the lifetime interest on our current 15-yr 2% mortgage.
You use the word “optimal” in your response. Since this is a financial forum I suspect you mean financially optimal.

I want to optimize my life by spending my assets on the life I want instead of paying off debt.
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

Apathizer wrote: Sat May 14, 2022 12:12 pm I doubt those advocating for holding mortgage debt advocate holding other forms of debt like car loans or cc debt, but the principles are the same even if the interest rate is different. While you can treat borrowed money as an investment tool, doing so is inherently riskier for reason we've discussed ad nauseum.
Speaking just for myself, we have also intentionally not paid off a low-fixed-rate consolidated student loan.

And it is true the same principals apply, and therefore true that doing that is actually less risky in certain rather notable ways.
HootingSloth
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Re: Anyone regret paying off mortgage early?

Post by HootingSloth »

NiceUnparticularMan wrote: Mon May 16, 2022 12:21 pm
HootingSloth wrote: Fri May 13, 2022 1:22 pmBut, 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.
So my point about consistent accounting is if you are going to compare buying a bond ladder versus paying off a mortgage over time, and you want to use net worth as your measure of comparison, you need to account for the net worth of each alternative the same way.

So if your bond accounting involves some sort of variable discounting of the future bond payments to present value based on changes in market interest rates, your mortgage accounting should ALSO involve the same sort of variable discounting of the future saved mortgage payments to present value based on changes in market interest rates, PLUS some adjustment for lack of liquidity.

If you instead choose to keep things "simple" by just assuming your mortgage payoff was always just worth what it cost you, then you could do the same thing with bond ladder too. It cost you $100,000, so that is what is worth forever.

But again, if you are instead going to do the complicated thing with the bond ladder and keep adjusting its worth to you based on ever-changing market interest rates, you then must do the same thing with your mortgage payoff . . . at least you must if you want to compare them meaningfully.

And yes, that is a bit "odd" in the sense I don't know of any people who actually do that. But the original poster to whom I was responding wanted to compare how paying off a mortgage was doing against investing in bonds recently, and answering that question properly would require such an analysis, odd as it may be.
Thanks. Based on Walkure's comments upthread, it seems like the difference between these two approaches might be viewed in terms of a different choice for the appropriate discount rate for determining the present value of the mortgage liability. If you assume a discount rate equal to the mortgage interest rate (or, perhaps, you instead assume that you already have the resources in full to pay off the mortgage immediately and there is no prepayment penalty), then the present value of the mortgage liability is always equal to the current balance of the mortgage. This seems to be the standard approach that most individuals (or, say, U.S. GAAP accounting) takes when they are valuing this liability on a balance sheet. Instead, you might assume a discount rate equal to the market interest rate on a matching bond. This seems like a more reasonable discount rate to use in deciding whether or not to prepay because it compares against the closest alternative use of the funds, which I think is related to your points about using consistent accounting in making this kind of decision. If you use this discount rate, it does also seem you have to make other assumptions about the timing of your payments, e.g. that you really would otherwise pay off the mortgage exactly according to its schedule and not refinance or sell before the term, or perhaps make other calculations about option value. You could do all of these kinds of calculations, and other attempts to quantify the benefits of liquidity, etc., and it probably would be needed if you were super interested in "optimizing" this decision from a purely financial point of view.

I am not an optimizer, so I will stick with the dumbed-down version for the purposes I use it for (basically I use it for tracking the fixed income part of my asset allocation given that I have already decided to make prepayments--not in deciding whether or not to prepay), but it is nice to understand how and why it differs from what an alternative, careful approach might say.
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NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

Apathizer wrote: Sat May 14, 2022 12:51 pm Holding a loan on a depreciating asset doesn't make sense.
That is not particularly relevant to my decisions about whether or not to keep some debt. My concern is just what terms I get, and whether I want a loans on those terms.

But for the record--the fact the security interest on some loan I have taken out is subject to depreciation is not my problem as the borrower, it is the lender's problem. As in, conceivably they could end up with a security interest that is insufficient to cover the unpaid portion of their loan in the event I default.

Now I do not particularly anticipate defaulting. But to the extent it is an option I might exercise in certain extreme scenarios, the possibility of depreciation does not make that option to default less valuable--to me. Just to my lender.
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

HootingSloth wrote: Mon May 16, 2022 12:39 pm
NiceUnparticularMan wrote: Mon May 16, 2022 12:21 pm
HootingSloth wrote: Fri May 13, 2022 1:22 pmBut, 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.
So my point about consistent accounting is if you are going to compare buying a bond ladder versus paying off a mortgage over time, and you want to use net worth as your measure of comparison, you need to account for the net worth of each alternative the same way.

So if your bond accounting involves some sort of variable discounting of the future bond payments to present value based on changes in market interest rates, your mortgage accounting should ALSO involve the same sort of variable discounting of the future saved mortgage payments to present value based on changes in market interest rates, PLUS some adjustment for lack of liquidity.

If you instead choose to keep things "simple" by just assuming your mortgage payoff was always just worth what it cost you, then you could do the same thing with bond ladder too. It cost you $100,000, so that is what is worth forever.

But again, if you are instead going to do the complicated thing with the bond ladder and keep adjusting its worth to you based on ever-changing market interest rates, you then must do the same thing with your mortgage payoff . . . at least you must if you want to compare them meaningfully.

And yes, that is a bit "odd" in the sense I don't know of any people who actually do that. But the original poster to whom I was responding wanted to compare how paying off a mortgage was doing against investing in bonds recently, and answering that question properly would require such an analysis, odd as it may be.
Thanks. Based on Walkure's comments upthread, it seems like the difference between these two approaches might be viewed in terms of a different choice for the appropriate discount rate for determining the present value of the mortgage liability. If you assume a discount rate equal to the mortgage interest rate (or, perhaps, you instead assume that you already have the resources in full to pay off the mortgage immediately and there is no prepayment penalty), then the present value of the mortgage liability is always equal to the current balance of the mortgage. This seems to be the standard approach that most individuals (or, say, U.S. GAAP accounting) takes when they are valuing this liability on a balance sheet. Instead, you might assume a discount rate equal to the market interest rate on a matching bond. This seems like a more reasonable discount rate to use in deciding whether or not to prepay because it compares against the closest alternative use of the funds, which I think is related to your points about using consistent accounting in making this kind of decision. If you use this discount rate, it does also seem you have to make other assumptions about the timing of your payments, e.g. that you really would otherwise pay off the mortgage exactly according to its schedule and not refinance or sell before the term, or perhaps make other calculations about option value. You could do all of these kinds of calculations, and other attempts to quantify the benefits of liquidity, etc., and it probably would be needed if you were super interested in "optimizing" this decision from a purely financial point of view.

I am not an optimizer, so I will stick with the dumbed-down version for the purposes I use it for (basically I use it for tracking the fixed income part of my asset allocation given that I have already decided to make prepayments--not in deciding whether or not to prepay), but it is nice to understand how and why it differs from what an alternative, careful approach might say.
That seems right to me.

By the way, I actually don't think anyone should spend a lot of time worrying about this issue, because to my knowledge very few, if any, people have actually used mortgage proceeds to buy a matching nominal bond ladder. That is because normally a nominal bond ladder like that is not a form of investment any of us would choose. Because in real terms, that is a risky form of investment.

And so at least most of us choose to the invest the mortgage proceeds the way we would normally invest, which then is inherently an apples to oranges comparison.

But of course that does raise the bar a bit on the mortgage payoff alternative. Like, if that is not normally a form of investment you would choose, why are you choosing it now?

And there are possible answers to that question. Maybe it is at a really high rate versus market rates, or at least once you account for taxes. That would explain why you might choose paying off a mortgage when you would not usually just buy a nominal bond ladder otherwise.

But that is the right way to think of the question--assuming you would not normally choose a nominal bond ladder as your preferred form of investment, are the returns on your mortgage payoff so high that they overcome your normal preference for other forms of investment?
Apathizer
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

NiceUnparticularMan wrote: Mon May 16, 2022 12:07 pm
Apathizer wrote: Mon May 16, 2022 11:56 am Something doesn't serve as an investment until you sell
I mean, technically you could say a residence you own is a durable consumption good versus an investment per se. They are similar in that you pay a certain amount up front and then get a return over time, but it is true that with durable consumption goods, a lot the return is in the form of the use you get out of it, with the possible addition of a resale return as well.

And as with other durable consumption goods, including cars, appliances, and so on, you can compare the lifecycle costs between owning and leasing. And typically that depends on a variety of things, including whether you want to further invest in customizing the good, how quickly you might want to turn over to an entirely new version of that good, available financing terms, and so on.
Exactly. I'm being generous referring to a home as an investment when it's really a consumer product. It's that rare consumer product this likely appreciates, so can serve somewhat as an investment, but that's not its inherent value.
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nigel_ht
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Re: Anyone regret paying off mortgage early?

Post by nigel_ht »

NiceUnparticularMan wrote: Mon May 16, 2022 12:31 pm So ironically, the cases in which a person might go through a financial crisis in which they are struggling to pay mortgage interest out of other income are also precisely the cases in which they might also be struggling to pay for other expenses out of other income, and therefore these cases actually show how paying off the mortgage can increase risk.
I think many places have homestead exemptions so if you own a home it's more protected as long as you can still manage taxes. That's assuming those other expenses is debt vs things like utilities and food...

Whereas if you invested the difference, unless it in an IRA/401K, it likely is an asset you lose if you declare bankruptcy...
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Re: Anyone regret paying off mortgage early?

Post by nigel_ht »

Apathizer wrote: Mon May 16, 2022 1:10 pm
NiceUnparticularMan wrote: Mon May 16, 2022 12:07 pm
Apathizer wrote: Mon May 16, 2022 11:56 am Something doesn't serve as an investment until you sell
I mean, technically you could say a residence you own is a durable consumption good versus an investment per se. They are similar in that you pay a certain amount up front and then get a return over time, but it is true that with durable consumption goods, a lot the return is in the form of the use you get out of it, with the possible addition of a resale return as well.

And as with other durable consumption goods, including cars, appliances, and so on, you can compare the lifecycle costs between owning and leasing. And typically that depends on a variety of things, including whether you want to further invest in customizing the good, how quickly you might want to turn over to an entirely new version of that good, available financing terms, and so on.
Exactly. I'm being generous referring to a home as an investment when it's really a consumer product. It's that rare consumer product this likely appreciates, so can serve somewhat as an investment, but that's not its inherent value.
I can generate income/positive cashflow by renting a room in a house I own.

You generally can't generate positive cash flow when renting unless you have a really sweet deal and often that's going to be under the table for in some rent controlled place.
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Re: Anyone regret paying off mortgage early?

Post by nigel_ht »

Apathizer wrote: Sat May 14, 2022 12:51 pm
queso wrote: Sat May 14, 2022 12:43 pmI'm prob an outlier, but am holding a 15 year mortgage at 2% and a 3 year auto loan at 2.1%. We're usually cash people, but for me it came down to the rate. I just wasn't willing to part with cash when they were offering 2% rates.
The mortgage I understand, but not the car. A house is much more likely to appreciate while in the long-term a car invariably depreciates. Holding a loan on a depreciating asset doesn't make sense.
At a low enough interest rate you can make money on a car loan. At 0% it's a no brainer. 2.1% it is still a no brainer if I can buy an iBond with the difference...9.62%...
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

Apathizer wrote: Mon May 16, 2022 1:10 pm I'm being generous referring to a home as an investment when it's really a consumer product. It's that rare consumer product this likely appreciates, so can serve somewhat as an investment, but that's not its inherent value.
Personally, I am dubious about the expecting the structure itself to appreciate over long run, at least in real terms.

The component that might appreciate is the land rights (or share in land rights, when you are talking about condos in multi-unit buildings and such). That itself is a complex topic, but it is a little more plausible that well-located land would appreciate with time.
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

nigel_ht wrote: Mon May 16, 2022 1:28 pm
NiceUnparticularMan wrote: Mon May 16, 2022 12:31 pm So ironically, the cases in which a person might go through a financial crisis in which they are struggling to pay mortgage interest out of other income are also precisely the cases in which they might also be struggling to pay for other expenses out of other income, and therefore these cases actually show how paying off the mortgage can increase risk.
I think many places have homestead exemptions so if you own a home it's more protected as long as you can still manage taxes. That's assuming those other expenses is debt vs things like utilities and food...
I was referring primarily to other expenses precisely like taxes, food, utilities, health care, transportation, insurance, and so on.

I think people are typically imagining someone who is debt free other than the mortgage. Then things happen and their income is insufficient to cover both their mortgage interest and their other expenses.

OK, but now assume they paid off their mortgage instead of investing the proceeds. This likely means their income goes down even further. So why assume their income can now cover their other expenses?

In fact, unless you put the mortgage proceeds into something really risky, generally speaking you should be able to use it to generate income to cover both mortgage interest AND some other expenses for quite a while. Like if, say, you put it in a bond ladder, even at a lower interest rate than your mortgage, you could sell bonds over time to pay both the mortgage interest and other expenses. This would likely be sustainable for many years.

If you instead lock into using that capital just to cover mortgage interest, you may not be able to cover your other expenses in the assumed sort of income crisis.
Last edited by NiceUnparticularMan on Mon May 16, 2022 2:06 pm, edited 1 time in total.
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

nigel_ht wrote: Mon May 16, 2022 1:40 pm
Apathizer wrote: Sat May 14, 2022 12:51 pm
queso wrote: Sat May 14, 2022 12:43 pmI'm prob an outlier, but am holding a 15 year mortgage at 2% and a 3 year auto loan at 2.1%. We're usually cash people, but for me it came down to the rate. I just wasn't willing to part with cash when they were offering 2% rates.
The mortgage I understand, but not the car. A house is much more likely to appreciate while in the long-term a car invariably depreciates. Holding a loan on a depreciating asset doesn't make sense.
At a low enough interest rate you can make money on a car loan. At 0% it's a no brainer. 2.1% it is still a no brainer if I can buy an iBond with the difference...9.62%...
Yeah, the fact the asset is depreciating really makes no difference to the sort of borrower we are discussing.

In fact, it is kinda hard for me to understand why anyone would even think it does in the first place. But my best guess is this sentiment is spilling over from an entirely different situation, one in which the borrower needs the car loan just to afford the car, and does not therefore invest all the proceeds of the loan, but instead has to pay it back out of future wages.

THAT is potentially risky. Although potentially also worth doing. Like, if you need a car for a better job and need a car loan to get a decent car, that might still be a good idea.

But we are not talking about that here. We are talking about people who COULD pay cash for the car, but decide to carry a car loan anyway, and invest the proceeds.

And for those people, the fact the car is depreciating is not really an issue at all.
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Re: Anyone regret paying off mortgage early?

Post by JupiterJones »

nigel_ht wrote: Mon May 16, 2022 11:47 am
JupiterJones wrote: Mon May 16, 2022 9:24 am But yes, despite the dozens of pages of people arguing over something else, I don't think there's any argument over the conclusion of the actual question: Very few Bogleheads regret paying off their mortgage. (Or if they do, they're not willing to admit it in this thread.)
Well, given that a lot of us can afford to pay off our mortgages but don't implies that we probably would regret it if we did...otherwise we'd have done it by now.
True. The "survey" is self-selecting, I suppose. The sort of people who would possibly regret paying off their mortgage are exactly the sort of people who aren't paying off their mortgage in the first place! Too bad we can't randomly assign people into control and test groups and then force the test group to pay off their mortgages and force the control group to keep it. :P

More accurate to say "very few Bogleheads who made the decision to pay off their mortgage have later publicly expressed regret in doing so."

In other words, this thread's conclusion mostly pertains to people who already want to pay off their mortgage, but might be concerned that they will later regret it. To them we can safely say: Go for it! (And then ignore the pages and pages of posts here trying to convince you that you're wrong for not regretting it.)
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Re: Anyone regret paying off mortgage early?

Post by AnEngineer »

JupiterJones wrote: Mon May 16, 2022 2:31 pm In other words, this thread's conclusion mostly pertains to people who already want to pay off their mortgage, but might be concerned that they will later regret it. To them we can safely say: Go for it! (And then ignore the pages and pages of posts here trying to convince you that you're wrong for not regretting it.)
I don't think we can say that, as the people who decided to pay it off and are not regretting it did not decide based on other people not regretting it. Making a decision with such information may lead to many who regret it.
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Re: Anyone regret paying off mortgage early?

Post by carminered2019 »

I paid off my mortgage in my early 30's so I could take more investment risks with greater return with no regret.
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Re: Anyone regret paying off mortgage early?

Post by nigel_ht »

NiceUnparticularMan wrote: Mon May 16, 2022 1:56 pm
nigel_ht wrote: Mon May 16, 2022 1:28 pm
NiceUnparticularMan wrote: Mon May 16, 2022 12:31 pm So ironically, the cases in which a person might go through a financial crisis in which they are struggling to pay mortgage interest out of other income are also precisely the cases in which they might also be struggling to pay for other expenses out of other income, and therefore these cases actually show how paying off the mortgage can increase risk.
I think many places have homestead exemptions so if you own a home it's more protected as long as you can still manage taxes. That's assuming those other expenses is debt vs things like utilities and food...
I was referring primarily to other expenses precisely like taxes, food, utilities, health care, transportation, insurance, and so on.

I think people are typically imagining someone who is debt free other than the mortgage. Then things happen and their income is insufficient to cover both their mortgage interest and their other expenses.

OK, but now assume they paid off their mortgage instead of investing the proceeds. This likely means their income goes down even further. So why assume their income can now cover their other expenses?

In fact, unless you put the mortgage proceeds into something really risky, generally speaking you should be able to use it to generate income to cover both mortgage interest AND some other expenses for quite a while. Like if, say, you put it in a bond ladder, even at a lower interest rate than your mortgage, you could sell bonds over time to pay both the mortgage interest and other expenses. This would likely be sustainable for many years.

If you instead lock into using that capital just to cover mortgage interest, you may not be able to cover your other expenses in the assumed sort of income crisis.
I think the various scenarios are different enough that its hard to say...but we probably agree that paying down is more risky than holding more EF and in a some scenarios paying off may not give you the longest duration before you're forced out of your home anyway vs having that money in "safe" assets like CDs, iBonds, etc.

For one thing, my existing mortgage isn't negatively impacted by higher inflation...but iBonds is going up so I think I'm safer. But if I thought LTT was "safe" then not so much...
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Re: Anyone regret paying off mortgage early?

Post by nigel_ht »

NiceUnparticularMan wrote: Mon May 16, 2022 2:03 pm
nigel_ht wrote: Mon May 16, 2022 1:40 pm
Apathizer wrote: Sat May 14, 2022 12:51 pm
queso wrote: Sat May 14, 2022 12:43 pmI'm prob an outlier, but am holding a 15 year mortgage at 2% and a 3 year auto loan at 2.1%. We're usually cash people, but for me it came down to the rate. I just wasn't willing to part with cash when they were offering 2% rates.
The mortgage I understand, but not the car. A house is much more likely to appreciate while in the long-term a car invariably depreciates. Holding a loan on a depreciating asset doesn't make sense.
At a low enough interest rate you can make money on a car loan. At 0% it's a no brainer. 2.1% it is still a no brainer if I can buy an iBond with the difference...9.62%...
Yeah, the fact the asset is depreciating really makes no difference to the sort of borrower we are discussing.

In fact, it is kinda hard for me to understand why anyone would even think it does in the first place. But my best guess is this sentiment is spilling over from an entirely different situation, one in which the borrower needs the car loan just to afford the car, and does not therefore invest all the proceeds of the loan, but instead has to pay it back out of future wages.

THAT is potentially risky. Although potentially also worth doing. Like, if you need a car for a better job and need a car loan to get a decent car, that might still be a good idea.

But we are not talking about that here. We are talking about people who COULD pay cash for the car, but decide to carry a car loan anyway, and invest the proceeds.

And for those people, the fact the car is depreciating is not really an issue at all.
Yah, the primary risk is you didn't invest it and went to Tahiti instead or sunk it all into ARKK...or for that matter VXUS...
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

nigel_ht wrote: Mon May 16, 2022 1:40 pm
Apathizer wrote: Sat May 14, 2022 12:51 pm
queso wrote: Sat May 14, 2022 12:43 pmI'm prob an outlier, but am holding a 15 year mortgage at 2% and a 3 year auto loan at 2.1%. We're usually cash people, but for me it came down to the rate. I just wasn't willing to part with cash when they were offering 2% rates.
The mortgage I understand, but not the car. A house is much more likely to appreciate while in the long-term a car invariably depreciates. Holding a loan on a depreciating asset doesn't make sense.
At a low enough interest rate you can make money on a car loan. At 0% it's a no brainer. 2.1% it is still a no brainer if I can buy an iBond with the difference...9.62%...
You can make money on all sorts of loans with the spread available these days. I’m charging my grocery store purchases on a 0% credit card (that’s the rate for 15 months and I’m earning 5% cash back on the grocery purchases as well). I just ate a chicken sandwich for lunch and, by doing so, lowered the value of that asset to zero. I will pay for the sandwich sometime in 2023. I’m planning to open another credit card soon which offers a 0% rate for 18 months (and gives 5% cash back on rotating categories). I’ll buy all sorts of deprecating items on that card and pay for those things when the time comes a year and a half later.

To me, it is sweeter to pay off the debt with dollars that are not worth as much later on than it would be to be debt free. Those who feel differently might choose to take a different path. As for me, I’m loading up on debt. I do wish I could borrow way more at these rates and that the terms were longer than 18 months or thereabouts. I suppose that’s just being greedy, though, and I should simply be thankful.
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Re: Anyone regret paying off mortgage early?

Post by HootingSloth »

NiceUnparticularMan wrote: Mon May 16, 2022 12:56 pm
HootingSloth wrote: Mon May 16, 2022 12:39 pm
NiceUnparticularMan wrote: Mon May 16, 2022 12:21 pm
HootingSloth wrote: Fri May 13, 2022 1:22 pmBut, 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.
So my point about consistent accounting is if you are going to compare buying a bond ladder versus paying off a mortgage over time, and you want to use net worth as your measure of comparison, you need to account for the net worth of each alternative the same way.

So if your bond accounting involves some sort of variable discounting of the future bond payments to present value based on changes in market interest rates, your mortgage accounting should ALSO involve the same sort of variable discounting of the future saved mortgage payments to present value based on changes in market interest rates, PLUS some adjustment for lack of liquidity.

If you instead choose to keep things "simple" by just assuming your mortgage payoff was always just worth what it cost you, then you could do the same thing with bond ladder too. It cost you $100,000, so that is what is worth forever.

But again, if you are instead going to do the complicated thing with the bond ladder and keep adjusting its worth to you based on ever-changing market interest rates, you then must do the same thing with your mortgage payoff . . . at least you must if you want to compare them meaningfully.

And yes, that is a bit "odd" in the sense I don't know of any people who actually do that. But the original poster to whom I was responding wanted to compare how paying off a mortgage was doing against investing in bonds recently, and answering that question properly would require such an analysis, odd as it may be.
Thanks. Based on Walkure's comments upthread, it seems like the difference between these two approaches might be viewed in terms of a different choice for the appropriate discount rate for determining the present value of the mortgage liability. If you assume a discount rate equal to the mortgage interest rate (or, perhaps, you instead assume that you already have the resources in full to pay off the mortgage immediately and there is no prepayment penalty), then the present value of the mortgage liability is always equal to the current balance of the mortgage. This seems to be the standard approach that most individuals (or, say, U.S. GAAP accounting) takes when they are valuing this liability on a balance sheet. Instead, you might assume a discount rate equal to the market interest rate on a matching bond. This seems like a more reasonable discount rate to use in deciding whether or not to prepay because it compares against the closest alternative use of the funds, which I think is related to your points about using consistent accounting in making this kind of decision. If you use this discount rate, it does also seem you have to make other assumptions about the timing of your payments, e.g. that you really would otherwise pay off the mortgage exactly according to its schedule and not refinance or sell before the term, or perhaps make other calculations about option value. You could do all of these kinds of calculations, and other attempts to quantify the benefits of liquidity, etc., and it probably would be needed if you were super interested in "optimizing" this decision from a purely financial point of view.

I am not an optimizer, so I will stick with the dumbed-down version for the purposes I use it for (basically I use it for tracking the fixed income part of my asset allocation given that I have already decided to make prepayments--not in deciding whether or not to prepay), but it is nice to understand how and why it differs from what an alternative, careful approach might say.
That seems right to me.

By the way, I actually don't think anyone should spend a lot of time worrying about this issue, because to my knowledge very few, if any, people have actually used mortgage proceeds to buy a matching nominal bond ladder. That is because normally a nominal bond ladder like that is not a form of investment any of us would choose. Because in real terms, that is a risky form of investment.

And so at least most of us choose to the invest the mortgage proceeds the way we would normally invest, which then is inherently an apples to oranges comparison.

But of course that does raise the bar a bit on the mortgage payoff alternative. Like, if that is not normally a form of investment you would choose, why are you choosing it now?

And there are possible answers to that question. Maybe it is at a really high rate versus market rates, or at least once you account for taxes. That would explain why you might choose paying off a mortgage when you would not usually just buy a nominal bond ladder otherwise.

But that is the right way to think of the question--assuming you would not normally choose a nominal bond ladder as your preferred form of investment, are the returns on your mortgage payoff so high that they overcome your normal preference for other forms of investment?
In my case, if I did not prepay the mortgage the entire amount of the prepayment would go into VWIUX (Vanguard Intermediate Term Tax-Exempt Fund). I only prepay with money that my spreadsheet directs towards the fixed income portion of my asset allocation and if I am underweight stocks, then the money goes into stocks rather than the mortgage. Given that I will very likely sell this house, and pay off the mortgage, in something approximating the duration of that fund, I am actually relatively close to the apples-to-apples comparison.
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Re: Anyone regret paying off mortgage early?

Post by bluebolt »

Apathizer wrote: Sun May 15, 2022 11:30 pm To me investing strategy is about maximizing the likelihood of a positive outcome and minimizing the likelihood of a negative one. Investing with leverage is the antithesis of this. It might work really well if the market skyrockets, but it can be disastrous if it plummets.
You are reducing the variance of certain scenarios, but you are neither maximizing the likelihood of a positive (financial) outcome or minimizing the likelihood of a negative one.
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Re: Anyone regret paying off mortgage early?

Post by dboeger1 »

I have not yet made any extra mortgage payments, so I can't really answer OP's original question, but I will say that I didn't expect my thoughts on spending and saving to change so dramatically upon buying a house. Prior to buying a house, the path forward was clear and obvious, if I wanted to keep living in this VHCOL area, I had to just keep saving and eventually buy a house. Once we did that, it just seemed like there were no more concrete immediate-term goals left. Sure, there's retirement, but at 30, even FIRE is quite some time into the future. Meanwhile, the things we would like to spend on don't really move the needle all that much. Sure, we could scrimp and save like we always had, but longevity risk and general unpredictability due to our long time horizon greatly overshadows any difference made by avoiding Starbucks and avocado toast. Even if we went full bore and cut expenses to the bone, I'm not sure we could comfortably quit work just because 30 is too young to have enough certainty to never work again. So now we find ourselves in this middle band phase where money is not that much of an issue, but we kind of need to keep working just to reduce our time horizon to even just FIRE community standards, which are already crazy by most metrics.

As a result, we've gotten much more comfortable increasing our spending. We're still saving most of our income, maxing out tax-advantaged accounts, doing mega backdoor Roth, buying I-bonds, etc. However, we kind of just came to the realization that ordering water vs. a smoothie when we go out to eat at a restaurant is going to have almost no impact on our long-term retirement prospects, because the $5 or whatever it costs isn't really a factor in reaching our retirement goals, it's mostly just that we need to keep working until at least about 40 to get to a point where we can comfortably say our expenses are covered. Obviously, we can't go buying any big boats or anything like that without sacrificing FIRE, but we are a family of simple taste, so our discretionary spending is pretty modest.

What does this have to do with a discussion about early mortgage payments? Well, I think perhaps more important than the financial costs, a 30-year fixed-rate mortgage just builds in a lot of margin for lifestyle spending over the "messy middle". Our payments are very affordable, we can comfortably enjoy eating out, taking our daughter to nice places, going on vacation, etc., and if we ever got in a difficult situation due to job loss or whatever, we could very easily cut expenses or withdraw from our bond allocation. I actually just posted something very similar in another topic, but in a nutshell, more than most other purchases or loans, a 30-year mortgage amortizes a fixed cost in today's dollars over an entire 30 years in exchange for front-loading much of life's pleasures, without necessarily sacrificing long-term financial security. When you think of it in those terms, it's amazing that so many discussions like this one that focus on opportunity cost even exist. I'm a Boglehead, so obviously I thought about all of these things prior to buying a home, but after the fact, all of that has just faded into the background, and I'm enjoying our modestly increased spending while continuing to invest the difference. It's a rather pleasant state of affairs, and I honestly don't feel a whole lot of pressure to pay it off early or invest every penny currently going to discretionary spending, even if that technically means we're borrowing to pay for lifestyle. That phrase just doesn't phase me the way it used to as a once-upon-a-time Dave Ramsey fanboy.
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Re: Anyone regret paying off mortgage early?

Post by AerialWombat »

corn18 wrote: Mon May 16, 2022 9:33 am I can tell you the wrong thing to do is buying a house every time the military moves you. They pay no transaction costs and when you have to move every 2-3 years, that adds up quick.
I wish I had purchased a home with each PCS move, and kept it as a rental upon moving. This would have put me 15+ years ahead of doing the same thing anyway to build my rental property portfolio. Still extremely grateful that I was able to use VA loans to buy my first two rentals with 100% VA financing, though.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
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Re: Anyone regret paying off mortgage early?

Post by barberakb »

AerialWombat wrote: Mon May 16, 2022 5:11 pm
corn18 wrote: Mon May 16, 2022 9:33 am I can tell you the wrong thing to do is buying a house every time the military moves you. They pay no transaction costs and when you have to move every 2-3 years, that adds up quick.
I wish I had purchased a home with each PCS move, and kept it as a rental upon moving. This would have put me 15+ years ahead of doing the same thing anyway to build my rental property portfolio. Still extremely grateful that I was able to use VA loans to buy my first two rentals with 100% VA financing, though.
Ha, I did this and it was the best move I could make. I am gonna be sitting pretty when my houses are paid off in retirement...
Using a VA loan you can also roll closing costs into the loan.
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Re: Anyone regret paying off mortgage early?

Post by You Know What I Mean »

corn18 wrote: Mon May 16, 2022 9:33 am I can tell you the wrong thing to do is buying a house every time the military moves you. They pay no transaction costs and when you have to move every 2-3 years, that adds up quick.
+1. Don't ask me how I know.
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

nigel_ht wrote: Mon May 16, 2022 1:36 pm
Apathizer wrote: Mon May 16, 2022 1:10 pm
NiceUnparticularMan wrote: Mon May 16, 2022 12:07 pm
Apathizer wrote: Mon May 16, 2022 11:56 am Something doesn't serve as an investment until you sell
I mean, technically you could say a residence you own is a durable consumption good versus an investment per se. They are similar in that you pay a certain amount up front and then get a return over time, but it is true that with durable consumption goods, a lot the return is in the form of the use you get out of it, with the possible addition of a resale return as well.

And as with other durable consumption goods, including cars, appliances, and so on, you can compare the lifecycle costs between owning and leasing. And typically that depends on a variety of things, including whether you want to further invest in customizing the good, how quickly you might want to turn over to an entirely new version of that good, available financing terms, and so on.
Exactly. I'm being generous referring to a home as an investment when it's really a consumer product. It's that rare consumer product this likely appreciates, so can serve somewhat as an investment, but that's not its inherent value.
I can generate income/positive cashflow by renting a room in a house I own.

You generally can't generate positive cash flow when renting unless you have a really sweet deal and often that's going to be under the table for in some rent controlled place.
True, but that introduces a whole other set of potential complications. It means you're mortgaging more home than you need and still have all the responsibilities and maintenance of a house. And of course dealing with renters is another set of complications as well.

So yes while renting a room in your home can lower overall expenses, it's still more complicated than just renting what you need and having other investments instead of owning your home.
Last edited by Apathizer on Mon May 16, 2022 8:46 pm, edited 3 times in total.
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

nigel_ht wrote: Mon May 16, 2022 1:40 pm
Apathizer wrote: Sat May 14, 2022 12:51 pm
queso wrote: Sat May 14, 2022 12:43 pmI'm prob an outlier, but am holding a 15 year mortgage at 2% and a 3 year auto loan at 2.1%. We're usually cash people, but for me it came down to the rate. I just wasn't willing to part with cash when they were offering 2% rates.
The mortgage I understand, but not the car. A house is much more likely to appreciate while in the long-term a car invariably depreciates. Holding a loan on a depreciating asset doesn't make sense.
At a low enough interest rate you can make money on a car loan. At 0% it's a no brainer. 2.1% it is still a no brainer if I can buy an iBond with the difference...9.62%...
Do you really make any money on a car loan considering the massive depreciation of the car itself? That seems really dubious to me and what is the duration of the I bond with a 9.62% return? If it's 10+ years or something that's an awfully long time to tie up money, and I doubt it will entirely compensate for the car depreciation.
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

NiceUnparticularMan wrote: Mon May 16, 2022 1:48 pm
Apathizer wrote: Mon May 16, 2022 1:10 pm I'm being generous referring to a home as an investment when it's really a consumer product. It's that rare consumer product this likely appreciates, so can serve somewhat as an investment, but that's not its inherent value.
Personally, I am dubious about the expecting the structure itself to appreciate over long run, at least in real terms.

The component that might appreciate is the land rights (or share in land rights, when you are talking about condos in multi-unit buildings and such). That itself is a complex topic, but it is a little more plausible that well-located land would appreciate with time.
Yes I should have specified. I meant the entire property, home and land. You're right buildings almost never appreciate. Since they gradually deteriorate like any other physical object they actually are more likely to depreciate. Land is what is more likely to appreciate not the structure.
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AnEngineer
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Re: Anyone regret paying off mortgage early?

Post by AnEngineer »

Apathizer wrote: Mon May 16, 2022 7:42 pm
nigel_ht wrote: Mon May 16, 2022 1:40 pm
Apathizer wrote: Sat May 14, 2022 12:51 pm
queso wrote: Sat May 14, 2022 12:43 pmI'm prob an outlier, but am holding a 15 year mortgage at 2% and a 3 year auto loan at 2.1%. We're usually cash people, but for me it came down to the rate. I just wasn't willing to part with cash when they were offering 2% rates.
The mortgage I understand, but not the car. A house is much more likely to appreciate while in the long-term a car invariably depreciates. Holding a loan on a depreciating asset doesn't make sense.
At a low enough interest rate you can make money on a car loan. At 0% it's a no brainer. 2.1% it is still a no brainer if I can buy an iBond with the difference...9.62%...
Do you really make any money on a car loan considering the massive depreciation of the car itself? That seems really dubious to me and what is the duration of the I bond with a 9.62% return? If it's 10+ years or something that's an awfully long time to tie up money, and I doubt it will entirely compensate for the car depreciation.
If you're able to buy it outright, the loan is effectively decoupled from the car. It's just a vehicle to borrow money with favorable terms. Think of it as an alternative to using margin.
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

HootingSloth wrote: Mon May 16, 2022 3:37 pm In my case, if I did not prepay the mortgage the entire amount of the prepayment would go into VWIUX (Vanguard Intermediate Term Tax-Exempt Fund). I only prepay with money that my spreadsheet directs towards the fixed income portion of my asset allocation and if I am underweight stocks, then the money goes into stocks rather than the mortgage. Given that I will very likely sell this house, and pay off the mortgage, in something approximating the duration of that fund, I am actually relatively close to the apples-to-apples comparison.
Relatively close, perhaps, but I note you are not planning to actually buy a bond ladder, but instead a rolling bond fund.
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

Apathizer wrote: Mon May 16, 2022 7:42 pm Do you really make any money on a car loan considering the massive depreciation of the car itself? That seems really dubious to me
Again, the car is not the relevant investment.

The relevant investment is what you do with the loan proceeds, aka the cash you didn't just hand to the car seller.

The car's depreciation is only relevant to the lender to the extent it is devaluing their security interest.

To the borrower, it has nothing to do with the financial benefits of the loan.
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

AnEngineer wrote: Mon May 16, 2022 7:49 pm If you're able to buy it outright, the loan is effectively decoupled from the car. It's just a vehicle to borrow money with favorable terms. Think of it as an alternative to using margin.
Yeah, in these cases you are just getting a lower rate on the loan because you are using the car as a security interest for the loan. Again, the car's depreciation is therefore an issue for the lender, not the borrower.

Purchasing the car is a good (or bad) idea independent of all that. Again, this is a sort of question that comes up frequently, whether to lease or buy durable consumer goods. And it just depends. And the depreciation is part of the calculation, but that is independent from the loan versus out-of-pocket calculation.
Tdubs
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Re: Anyone regret paying off mortgage early?

Post by Tdubs »

Given the market performance since I paid it last year, no regret yet. I'll report back in a couple years.
aklanche
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Re: Anyone regret paying off mortgage early?

Post by aklanche »

Apathizer wrote: Mon May 16, 2022 8:50 am
aklanche wrote: Sun May 15, 2022 11:43 pm
Apathizer wrote: Sun May 15, 2022 11:30 pm
snackdog wrote: Sun May 15, 2022 11:13 pm We paid off a low rate mortgage on a second house in 2019. Then the market shot up. And now we sold the house in question. We should have kept the mortgage. We probably lost $100,000 vs investing $200k in VTSAX. :shock:
But you only know that afterwards and it was predetermined. As I mentioned previously, I got lucky selling most of my taxable investments earlier this year to pay off most of my mortgage a few weeks prior to a massive drop. While I knew this could happen I didn't expect it, but just got lucky.

To me investing strategy is about maximizing the likelihood of a positive outcome and minimizing the likelihood of a negative one. Investing with leverage is the antithesis of this. It might work really well if the market skyrockets, but it can be disastrous if it plummets.
From what I read most are not advocating investing the money that they could use to pay off their mortgage completely and putting it into the market. Rather they are parking in low/no risk things like HYSA, TIPS, iBonds and benefiting from the interest difference on what those accounts are making in interest vs. what one is paying in interest on the mortgage. These are KNOWN returns just like the known return of paying off the mortgage. This isn't like investing in the market for unknown returns.

For myself I am earning $12K a annually in interest from using such accounts while only paying $6K annual in interest on my mortgage. Why would I want to pull the money out and lock it up in my house right now? If things change and the rates fall to where I can't make the same as what I pay in the mortgage each month sure then its time to reconsider but why be in a rush to pay it off other than "it just feels good", which I get for some it does and thats important. For me I like knowing I have half a decade of total life expenses (including the mortgage) in no/low risk accounts earning more than what my mortgage is costing me. And should I lose my employment I don't have to go tapping my taxable account in a down market for a long time either. A mortgage makes up a small portion of our monthly budget so using all the funds to just pay off one line item doesn't make sense. Even if I was making the same amount of interest from the money as what I was paying on my mortgage (after taxes of course) I wouldn't put that money into the house to never be used again unless I HELOC at an even higher rate or sell.
So you don't know if you'll ever sell? That's the only practical financial reason to buy a house in the first place. If you never sell, you might as well save yourself the trouble of homeownership and just rent. If you do intend to sell, paying off the mortgage sooner means you reap more proceeds upon sale.

You're also forgetting about potential home deprecation. I don't know if this will happen, but it can, and paying interesting on a depreciating asset is double jeopardy.
I will likely sell my home at some point sure, but I'm not sure how that factors into why or why not I should take the money I have to payoff the balance of my loan that is currently making me an average of 5.3% and use that to payoff my mortgage at 2.75%?

As for depreciating wouldn't the extra money I'm making on the interest arbitrage over my mortgage help soften the blow of the deprecation? I'd much rather be in this position making these same payments year after year (for the next 15 years) with money that is worth less and less as time goeson, on the depreciating liability (my house) while keeping my cash liquid for other uses if needed than have my cash locked up in the house that's depreciating. Why in this instance having the mortgage paid off on the depreciating house is better than earning more money elsewhere with a mortgage still on a depreciating house?

I realize you stated that playing the game of using CDs, buying iBonds, and HYSAs is too much extra work for minimal gain. For me an extra $6K year in the difference between what I'm making in interest and what I'm paying in mortgage interest worth it for me. Its hands off now that I took the time to create the accounts. All totally less than 2 hours to setup the accounts and make it happen and the money is still very liquid if I need it as an added bonus.

Yes I still have to deal with watching that mortgage payment leave my bank account every month but it's an easy pill to swallow when I see the interest payments each month come rolling in for my cash working for me in low risk places to put it. Like I said I wouldn't use this money to put it into the stock market as I like the OPTION to pay off my house if it no longer makes sense to carry the mortgage but for now I am making a conscious decision to not employ that option. Who knows going forward but the idea of locking up money in liability like my house when its being borrowed a such a low rate that is easily beat elsewhere and likely will only be easier to beat coming up with more fed rate hikes comes it just doesn't make sense. However, if I was in a situation like yourself with a 4% mortgage and absolutely couldn't find low risk places to put my cash to earn at least the interest payment on the mortgage then yeah I might consider paying it off. I just like options I guess. :)
NiceUnparticularMan
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Re: Anyone regret paying off mortgage early?

Post by NiceUnparticularMan »

aklanche wrote: Tue May 17, 2022 12:40 am
Apathizer wrote: Mon May 16, 2022 8:50 am
aklanche wrote: Sun May 15, 2022 11:43 pm
Apathizer wrote: Sun May 15, 2022 11:30 pm
snackdog wrote: Sun May 15, 2022 11:13 pm We paid off a low rate mortgage on a second house in 2019. Then the market shot up. And now we sold the house in question. We should have kept the mortgage. We probably lost $100,000 vs investing $200k in VTSAX. :shock:
But you only know that afterwards and it was predetermined. As I mentioned previously, I got lucky selling most of my taxable investments earlier this year to pay off most of my mortgage a few weeks prior to a massive drop. While I knew this could happen I didn't expect it, but just got lucky.

To me investing strategy is about maximizing the likelihood of a positive outcome and minimizing the likelihood of a negative one. Investing with leverage is the antithesis of this. It might work really well if the market skyrockets, but it can be disastrous if it plummets.
From what I read most are not advocating investing the money that they could use to pay off their mortgage completely and putting it into the market. Rather they are parking in low/no risk things like HYSA, TIPS, iBonds and benefiting from the interest difference on what those accounts are making in interest vs. what one is paying in interest on the mortgage. These are KNOWN returns just like the known return of paying off the mortgage. This isn't like investing in the market for unknown returns.

For myself I am earning $12K a annually in interest from using such accounts while only paying $6K annual in interest on my mortgage. Why would I want to pull the money out and lock it up in my house right now? If things change and the rates fall to where I can't make the same as what I pay in the mortgage each month sure then its time to reconsider but why be in a rush to pay it off other than "it just feels good", which I get for some it does and thats important. For me I like knowing I have half a decade of total life expenses (including the mortgage) in no/low risk accounts earning more than what my mortgage is costing me. And should I lose my employment I don't have to go tapping my taxable account in a down market for a long time either. A mortgage makes up a small portion of our monthly budget so using all the funds to just pay off one line item doesn't make sense. Even if I was making the same amount of interest from the money as what I was paying on my mortgage (after taxes of course) I wouldn't put that money into the house to never be used again unless I HELOC at an even higher rate or sell.
So you don't know if you'll ever sell? That's the only practical financial reason to buy a house in the first place. If you never sell, you might as well save yourself the trouble of homeownership and just rent. If you do intend to sell, paying off the mortgage sooner means you reap more proceeds upon sale.

You're also forgetting about potential home deprecation. I don't know if this will happen, but it can, and paying interesting on a depreciating asset is double jeopardy.
I will likely sell my home at some point sure, but I'm not sure how that factors into why or why not I should take the money I have to payoff the balance of my loan that is currently making me an average of 5.3% and use that to payoff my mortgage at 2.75%?

As for depreciating wouldn't the extra money I'm making on the interest arbitrage over my mortgage help soften the blow of the deprecation? I'd much rather be in this position making these same payments year after year (for the next 15 years) with money that is worth less and less as time goeson, on the depreciating liability (my house) while keeping my cash liquid for other uses if needed than have my cash locked up in the house that's depreciating. Why in this instance having the mortgage paid off on the depreciating house is better than earning more money elsewhere with a mortgage still on a depreciating house?

I realize you stated that playing the game of using CDs, buying iBonds, and HYSAs is too much extra work for minimal gain. For me an extra $6K year in the difference between what I'm making in interest and what I'm paying in mortgage interest worth it for me. Its hands off now that I took the time to create the accounts. All totally less than 2 hours to setup the accounts and make it happen and the money is still very liquid if I need it as an added bonus.

Yes I still have to deal with watching that mortgage payment leave my bank account every month but it's an easy pill to swallow when I see the interest payments each month come rolling in for my cash working for me in low risk places to put it. Like I said I wouldn't use this money to put it into the stock market as I like the OPTION to pay off my house if it no longer makes sense to carry the mortgage but for now I am making a conscious decision to not employ that option. Who knows going forward but the idea of locking up money in liability like my house when its being borrowed a such a low rate that is easily beat elsewhere and likely will only be easier to beat coming up with more fed rate hikes comes it just doesn't make sense. However, if I was in a situation like yourself with a 4% mortgage and absolutely couldn't find low risk places to put my cash to earn at least the interest payment on the mortgage then yeah I might consider paying it off. I just like options I guess. :)
You are correct that there are likely diversification/risk benefits to not having so much of your savings in the form of home equity.

As we briefly discussed above, the structure itself is likely a depreciating asset, the land rights are maybe not. But, land is a risky investment and specifically subject to speculative boom and bust cycles. We saw a dramatic one back in the 2000s, but there was also one in the late 1980s, and so on. In the 2000s boom and bust, national Case-Shiller lost about 35% real peak to trough, and did not fully recover back to 0% real for around 15 years. In the late 1980s, it was only about 14% real loss peak to trough, but it still took over 11 years to get back to 0% real. And of course while some markets did better, some did much worse.

OK, so a fairly standard 60/40 portfolio got about 7.43% real in the more recent 15 year period and about 11.43% real in that earlier 11 years. Of course you have to net out mortgage interest costs. That is tricky because mortgage interest rates were dropping, and you could potentially refinance. Roughly speaking, though, you should have been able to average around 4.2% on a mortgage in the more recent period, for about 3.25% real on net, and under 8% on the mortgage in the earlier period, so around 3.5% real on net.

The point is just that a 60/40 (or similar) net of mortgage might or might not do better than home equity over any given long period. But in long periods were net home equity might do poorly, the fact a 60/40 net of mortgage might do better is a type of diversification benefit.
investnoob
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Re: Anyone regret paying off mortgage early?

Post by investnoob »

carminered2019 wrote: Mon May 16, 2022 2:46 pm I paid off my mortgage in my early 30's so I could take more investment risks with greater return with no regret.
This is partly why I was aggressive on paying my mortgage over 15 instead of 25 years.
I was contributing to a generous defined benefit pension plan.
I was pre-paying my mortgage.
The small amount left (around 10-15% of income) went all to equity index funds.

If I didn't have at least one of those conditions first, I probably would not have been so aggressive in my investing.

I guess its mental accounting. I do that a lot. I will make decisions around fixed outlays around simplification more than just math.
I guess that's one of the themes of this thread. Hard to argue which one is the best decision when it is so personal. And if you boil it down to just math, there are so many variables that no two situations are alike, making it impossible to even compare.
Apathizer
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Re: Anyone regret paying off mortgage early?

Post by Apathizer »

aklanche wrote: Tue May 17, 2022 12:40 am
Apathizer wrote: Mon May 16, 2022 8:50 am
aklanche wrote: Sun May 15, 2022 11:43 pm
Apathizer wrote: Sun May 15, 2022 11:30 pm
snackdog wrote: Sun May 15, 2022 11:13 pm We paid off a low rate mortgage on a second house in 2019. Then the market shot up. And now we sold the house in question. We should have kept the mortgage. We probably lost $100,000 vs investing $200k in VTSAX. :shock:
But you only know that afterwards and it was predetermined. As I mentioned previously, I got lucky selling most of my taxable investments earlier this year to pay off most of my mortgage a few weeks prior to a massive drop. While I knew this could happen I didn't expect it, but just got lucky.

To me investing strategy is about maximizing the likelihood of a positive outcome and minimizing the likelihood of a negative one. Investing with leverage is the antithesis of this. It might work really well if the market skyrockets, but it can be disastrous if it plummets.
From what I read most are not advocating investing the money that they could use to pay off their mortgage completely and putting it into the market. Rather they are parking in low/no risk things like HYSA, TIPS, iBonds and benefiting from the interest difference on what those accounts are making in interest vs. what one is paying in interest on the mortgage. These are KNOWN returns just like the known return of paying off the mortgage. This isn't like investing in the market for unknown returns.

For myself I am earning $12K a annually in interest from using such accounts while only paying $6K annual in interest on my mortgage. Why would I want to pull the money out and lock it up in my house right now? If things change and the rates fall to where I can't make the same as what I pay in the mortgage each month sure then its time to reconsider but why be in a rush to pay it off other than "it just feels good", which I get for some it does and thats important. For me I like knowing I have half a decade of total life expenses (including the mortgage) in no/low risk accounts earning more than what my mortgage is costing me. And should I lose my employment I don't have to go tapping my taxable account in a down market for a long time either. A mortgage makes up a small portion of our monthly budget so using all the funds to just pay off one line item doesn't make sense. Even if I was making the same amount of interest from the money as what I was paying on my mortgage (after taxes of course) I wouldn't put that money into the house to never be used again unless I HELOC at an even higher rate or sell.
So you don't know if you'll ever sell? That's the only practical financial reason to buy a house in the first place. If you never sell, you might as well save yourself the trouble of homeownership and just rent. If you do intend to sell, paying off the mortgage sooner means you reap more proceeds upon sale.

You're also forgetting about potential home deprecation. I don't know if this will happen, but it can, and paying interesting on a depreciating asset is double jeopardy.
I will likely sell my home at some point sure, but I'm not sure how that factors into why or why not I should take the money I have to payoff the balance of my loan that is currently making me an average of 5.3% and use that to payoff my mortgage at 2.75%?
What exactly are you investing in that is and will continue to generate those returns? Global stocks and bonds are all down over that past few months, so I'm curious. Is that net interest you're paying on the loan? How do you know this will continue?
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AnEngineer
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Re: Anyone regret paying off mortgage early?

Post by AnEngineer »

investnoob wrote: Tue May 17, 2022 8:14 am...Hard to argue which one is the best decision when it is so personal. And if you boil it down to just math, there are so many variables that no two situations are alike, making it impossible to even compare.
I see it as the exact opposite: it's easy to argue because it's so personal.

If there were no feelings involved then you could just boil it down to math, which might be different for everyone, but in principle I think everyone would agree that you do it when the numbers make sense and don't otherwise. But on top of that you have to layer the fact that everyone values things like being debt free differently. That doesn't mean you can't boil that down to a number, though. For everyone who has or has had a mortgage that number is even finite, because otherwise they wouldn't have gotten the mortgage in the first place.
Harmanic
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Re: Anyone regret paying off mortgage early?

Post by Harmanic »

I had an ARM for 20 years and it worked out great as it kept being reset at lower rates, not to mention that the ARM was between 1 and 2 percent lower than a fixed rate. When COVID hit and savings rates went to zero, I decided to pay it off using my emergency fund. I know that is not what an emergency fund is for, but I was getting nearly 3% before COVID and 0.5% on savings after COVID. Now that rates are going up again, I feel like I dodged a bullet.

If I had bought my house when COVID hit, I would have definitely chosen a 30 year fixed at under 3%.

When I bought, my ARM was 7.25% and fixed rates were around 9%. When I paid it off, my ARM rate was 2.75%.
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Walkure
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Re: Anyone regret paying off mortgage early?

Post by Walkure »

Admiral wrote: Mon May 16, 2022 11:10 am
Apathizer wrote: Mon May 16, 2022 9:02 am
Tom_T wrote: Mon May 16, 2022 8:52 am
59Gibson wrote: Mon May 16, 2022 7:45 am
CloseEnough wrote: Mon May 16, 2022 6:20 am Does anyone regret reading this entire thread? I don't, because I have not. An executive summary would be helpful. But I can guess some of the comments and responses.
Haha..BH Executive Summaries should be a thing w/ threads over a few pages
Here's the summary: Some people don't regret paying off the mortgage early; one person said he does; others who haven't paid it off said they don't plan to do so early. There you are!
Since only one says they regret it, I think it's fair to say most don't. Whether paying it off early makes sense depends on a number of complex, highly variable, and oft unpredictable factors.
That's what's known as selection bias. Regret is an emotion or a psychological condition that most people attempt to avoid, and therefore are not going to report it (even if true).

What's relevant for this thread is what is financially optimal, not what causes the least amount of regret.
No, what's relevant for the thread is whether anyone regrets doing something which, in hindsight, was demonstrably suboptimal. Whether the apparent absence of such regret (possibly due, as you noted, to selection bias) is relevant for anyone facing a similar decision going forward is anyone's guess.
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