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re: Best way to payoff mortgage early?
Posted on 2/10/17 at 2:16 pm to cstev12
Posted on 2/10/17 at 2:16 pm to cstev12
quote:
Quicker I pay it off the quicker I can use the monthly payments to invest. I'd rather be getting paid interest then paying it.
You need to learn about the time value of money. Investing the difference instead of paying principal will ALWAYS be the best course of action.
Just realize paying down principal is an emotional decision, not a logical one, and investing will make sense. Fear of a mortgage is a Depression era mindset that shouldn't exist today.
You'd be much happier in 30 years when you will have more than enough to pay off the mortgage in your brokerage account from investing the difference.
This post was edited on 2/10/17 at 2:25 pm
3
Posted on 2/10/17 at 2:32 pm to GoIrish02
quote:
You need to learn about the time value of money. Investing the difference instead of paying principal will ALWAYS be the best course of action.
No such thing as always when it comes to finances.
Posted on 2/10/17 at 2:43 pm to Cold Cous Cous
quote:
No such thing as always when it comes to finances.
Well reasoned response to my post and the OP's original question.
You're right, my post is only true for the last eighty years or so, where every major asset class has and will return more than the cost of a mortgage, not to mention preserve liquidity. No, you would rather encourage people to make emotional decisions about money instead of logical ones that will actually make them wealthier and financially stable.
This post was edited on 2/10/17 at 2:46 pm
Posted on 2/10/17 at 2:52 pm to GoIrish02
Thank you for the hissy fit. If you will read my last response I actually agreed with you, specifically pointing out the value of liquidity, and saying:
Nonetheless, there's a reason financial institutions are required to give not/not/may disclosures, rather than tell people what the markets ALWAYS do.
quote:
That being said, I agree with everyone else saying what's the rush?
Nonetheless, there's a reason financial institutions are required to give not/not/may disclosures, rather than tell people what the markets ALWAYS do.
Posted on 2/10/17 at 3:27 pm to Cold Cous Cous
quote:
No such thing as always when it comes to finances.
there is a psychological benefit to paying off your mortgage for some people, including me. i know i'd do better (I'm at 2.75 %) investing the additional principal payments but i like the feeling of knowing that mortgage is being reduced as fast as i can. to me, it's akin to financing an emergency fund in that i know that if my house is paid for, me and my wife can weather a financial storm. Maybe it's the curse of the self-employed, but i like the price of this kind of peace of mind.
Posted on 2/12/17 at 9:44 am to SFVtiger
Here is what I did. Paid $250 extra principle each month and put $250 a month in mutual funds. Every raise or wind fall was equally distributed. after loan was paid off I continued to make the entire house payment into the mutual funds. Did the same with several rent houses. Nothing like the freedom of being debt free! 
Posted on 2/12/17 at 11:01 am to sstig
A fellow at the bank that handled my mortgage printed off a big amortization report on tractor-feed paper (yes, it was long ago) that broke down every one of my 360 monthly payments into principal and interest.
The early payments were almost all interest, with just a few dollars going to principal.
He suggested that when you make a payment, add the principal component of the next payment (or 2 or 3) and check those off.
I did that, and it was very satisfying to add a relatively small amount and check off those extra payments.
We paid it off in 13 years. It was one of the greatest gifts I ever gave myself.
Some folks are content to always have a mortgage, but I have a strong (though perhaps irrational) desire to be totally debt free.
If everyone got one of those amortization charts when he started a mortgage, so you can see the results, they might be more motivated to add some extra principal to payments.
The early payments were almost all interest, with just a few dollars going to principal.
He suggested that when you make a payment, add the principal component of the next payment (or 2 or 3) and check those off.
I did that, and it was very satisfying to add a relatively small amount and check off those extra payments.
We paid it off in 13 years. It was one of the greatest gifts I ever gave myself.
Some folks are content to always have a mortgage, but I have a strong (though perhaps irrational) desire to be totally debt free.
If everyone got one of those amortization charts when he started a mortgage, so you can see the results, they might be more motivated to add some extra principal to payments.
Posted on 2/12/17 at 11:30 am to cstev12
Get a 15 year instead of 30.
Posted on 2/12/17 at 12:10 pm to Croacka
quote:
Keep in mind that with the Tax benefits of interest, your effective rate is closer to 3%
Is that a fact?
Posted on 2/12/17 at 12:33 pm to GoIrish02
quote:
You need to learn about the time value of money. Investing the difference instead of paying principal will ALWAYS be the best course of action.
This is simply bad advice. What are you investing in? What are you already investing in?
quote:
You'd be much happier in 30 years when you will have more than enough to pay off the mortgage in your brokerage account from investing the difference.
Unless your balance is not the amount of your mortgage, or whatever else you might want to pay for, because of short term fluctuations in the market.
Also, your mindset will definitely be different in terms of investing if you invested without a mortgage for 30 years.
To each his own, it's not like it's a horrible idea to keep your mortgage, if you can be disciplined enough to invest otherwise. I just find it interesting that so many seem to think the opposite is true. It's all about risk tolerance which is a very personal metric. It's always a given in textbooks, but that simply isn't real life.
Posted on 2/12/17 at 1:18 pm to Weekend Warrior79
(no message)
Posted on 2/12/17 at 1:49 pm to Saint5446
It's all about how fast you can do it. If your knocking 7-10 years off your mortgage, I think it makes sense. Assuming it's a 15 year.
Posted on 2/12/17 at 3:18 pm to bawbarn
"there is a psychological benefit to paying off your mortgage for some people, including me. i know i'd do better (I'm at 2.75 %).investing the additional principal payments but i like the feeling of knowing that mortgage is being reduced as fast as i can
------
You will not get to Financial Heaven if you pay off a 2.75% mortgage earlier than required!
------
You will not get to Financial Heaven if you pay off a 2.75% mortgage earlier than required!
This post was edited on 2/13/17 at 8:39 am
Posted on 2/12/17 at 6:53 pm to cstev12
quote:
Best way to payoff mortgage early
Click the "Banks hate it when you do this" link
Posted on 2/12/17 at 7:39 pm to OceanMan
quote:
quote:
Keep in mind that with the Tax benefits of interest, your effective rate is closer to 3%
Is that a fact?
If he's itemizing deductions, yes it is a fact depending on his tax bracket. At the 25% bracket it's around 2.9%.
I'll go further than that and note that if you're ever in the fortunate position to have a 2% loan you should *never* pay it off. Why? Because that's the long-term rate of inflation. A 2% loan is free money.
Posted on 2/12/17 at 7:51 pm to Dawgfanman
quote:
Get a 15 year instead of 30.
Don't do this. Get 30 yr for the flexibility and payoff early.
Posted on 2/13/17 at 6:29 am to cstev12
quote:
Currently, 5 years into a 30 year fixed at 3.875%.
I've seen it said here already, but everything I have read says it is better to invest whatever you would be putting in to pay off early.
At the end of the 30yrs the compound interest you make on that extra money far exceeds the 3.875% you are currently paying.
Posted on 2/13/17 at 9:33 am to foshizzle
quote:
if he's itemizing deductions, yes it is a fact depending on his tax bracket. At the 25% bracket it's around 2.9%.
So in their words, it's only a fact if very broad and specific assumptions are made.
The tax benefits of mortgage interest are way overblown.
Posted on 2/13/17 at 9:48 am to Lsut81
quote:
At the end of the 30yrs the compound interest you make on that extra money far exceeds the 3.875% you are currently paying.
Another good point on compound vs simple interest. You always borrow at simple interest, and you returns from investing always are compound interest.
This mathematical fact of compounding makes it even easier for your return from investing to exceed your fixed borrowing cost. Time invested is the most critical factor, waiting 15-20 years to start investing is literally millions squandered. Your mortgage will never pay quarterly dividends, the amount owed will only go down and early principal is gone forever.
Investing allows you to capture price appreciation, dividends and earnings. Don't equate saving interest with making money. Historically, the returns required to make this invest/payoff decision are easy to achieve.
This post was edited on 2/13/17 at 9:49 am
Posted on 2/13/17 at 10:26 am to cstev12
For me I want that mortgage out of there no matter how good the interest rate is. It is a guaranteed return to not pay others interest. Don't fall into the prediction that some investments have beaten my mortgage rate and therefore going forward it will be the same. Also, what if you lose your job? It is absolutely freeing to buy a reasonable house in a good area and pay it off and stay there a long time.
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