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When to pay off the mortgage
Posted on 9/15/22 at 9:48 pm
Posted on 9/15/22 at 9:48 pm
What parameters would you look at that would tell you to use savings to pay off your mortgage?
It’s an unexpectedly complex decision.
It’s an unexpectedly complex decision.
25
Posted on 9/15/22 at 9:52 pm to Grinder
Never, unless your interest rate is retarded.
Posted on 9/15/22 at 11:10 pm to Grinder
I think the idea of paying down a percentage of the principal (very early in the amortization schedule) makes some sense in some cases.
If you pay down another 20% of the loan and then just make your monthly payments? A person who stays in the house for five or ten years will have avoided a lot of money lost in interest. To see if those differences are worthwhile you would need to enter your loan information into an amortization calculator.
Obviously this would not make sense if it came at the cost of 401k or IRA savings. And if you have a really low (2-3%) interest loan it might not be worth the opportunity costs of other investments.
If you pay down another 20% of the loan and then just make your monthly payments? A person who stays in the house for five or ten years will have avoided a lot of money lost in interest. To see if those differences are worthwhile you would need to enter your loan information into an amortization calculator.
Obviously this would not make sense if it came at the cost of 401k or IRA savings. And if you have a really low (2-3%) interest loan it might not be worth the opportunity costs of other investments.
Posted on 9/16/22 at 7:21 am to Grinder
If I was going to retire and it was the home I was going to stay in for decades, I would pay it off. I pay extra now to have the mortgage paid off on my retirement target date. Peace of mind with not having a mortgage in retirement has intrinsic value to me.
This post was edited on 9/16/22 at 7:22 am
Posted on 9/16/22 at 7:35 am to Grinder
quote:
What parameters would you look at that would tell you to use savings to pay off your mortgage? It’s an unexpectedly complex decision.
The main parameter is peace of mind. While the last year it would have been far superior to have paid off a mortgage instead of investing (losing -15 or -20% v. Paying down 3-4%), during most historical times it makes more financial sense to invest rather than pay off a mortgage. Peace of mind is a very valuable thing, though.
Posted on 9/16/22 at 7:58 am to Grinder
quote:Be careful who you ask. There are folks on the MTB that would say never pay extra and always invest what you would have used to pay extra. Then in the next breath they say the markets are in for the worst crash since 1929. Pretty straightforward right?
What parameters would you look at that would tell you to use savings to pay off your mortgage?
It’s an unexpectedly complex decision.
I have worked with dozens of clients who have decided (sometimes at my recommendation) to pay extra on their mortgage and not a single one has ever regretted it. Peace of mind that comes with no mortgage in retirement is tremendously valuable. Having equity to provide flexibility for future purchases is valuable as well.
Posted on 9/16/22 at 8:15 am to Grinder
quote:
When to pay off the mortgage
Whenever you can. What's a couple hundred extra a month anyway?
Posted on 9/16/22 at 8:18 am to Grinder
I say if you have the money pay it off today! Besides a credit card that's used for household purchases (that's paid off monthly), I owe nothing to no one. I own many properties this way. It's less paperwork and stress. For those who would argue with this and want to talk about the delta between saving the capital vs deduction on taxes vs the interest accrued on the mortgage.
I would recommend you read The Millionaire next door by Dr. Thomas Stanley. This is a survey of what the wealthy actually do - not one of them has anything good to say about debt. Additionally, the large majority of them own(ed) their house outright.
My advice is: Do what wealthy people do. Not what your broke friends are doing.
Once it's paid off, continue to pay the payment into a separate account and invest it once mkts level out.
I would recommend you read The Millionaire next door by Dr. Thomas Stanley. This is a survey of what the wealthy actually do - not one of them has anything good to say about debt. Additionally, the large majority of them own(ed) their house outright.
My advice is: Do what wealthy people do. Not what your broke friends are doing.
Once it's paid off, continue to pay the payment into a separate account and invest it once mkts level out.
Posted on 9/16/22 at 8:33 am to Grinder
In a rising interest rate, high inflation environment, why in the hell would you even consider paying off a low interest, long term debt?
Debt is one of the best hedges against inflation.
Debt is one of the best hedges against inflation.
Posted on 9/16/22 at 8:37 am to Grinder
The first third of a mortgage term is almost all interest so that’s when it makes the most sense
The question is- would it be better to take that extra payment amount and invest it in another way?
Let’s say you took that extra payment and simply bought the S&P 500 for 30 years…. You’d probably do better
The question is- would it be better to take that extra payment amount and invest it in another way?
Let’s say you took that extra payment and simply bought the S&P 500 for 30 years…. You’d probably do better
Posted on 9/16/22 at 9:18 am to Grinder
IMO, it's all a cash flow preference. As many have, and will, pointed out, a low interest rate note is a great hedge against inflation and the market routinely will beat the 3-5% most people have. However, with that said, there is a point in time that it makes sense from a cash flow perspective.
Want to lower monthly expenditures for retirement, want to go to a single income household without downsizing, hedge against huge swings in income.
For me, I am pacing mine to be paid off 3 years before I plan to retire. At that time, I want to upgrade any major item that hasn't been upgraded in the past few years (a/c, compressor, generator, appliances, roof...) so I have some piece of mind about a major hit once my regular income stops.
Want to lower monthly expenditures for retirement, want to go to a single income household without downsizing, hedge against huge swings in income.
For me, I am pacing mine to be paid off 3 years before I plan to retire. At that time, I want to upgrade any major item that hasn't been upgraded in the past few years (a/c, compressor, generator, appliances, roof...) so I have some piece of mind about a major hit once my regular income stops.
Posted on 9/16/22 at 9:26 am to Grinder
Have equivalent mortgage $ in a set of mutual funds that collectively have earned 6 to 8% over 5 to 10 year periods.
Mortgage interest rate is under 3%.
We find the 6 to 8% minus 3% = 3 to 5% spread over mortgage to be of greater value than the peace of mind value for not having a mortgage at all.
And, if for whatever reason that mindset changed, we have the option to pay it off.
This is one (of many) ways to think about mortgage payoff.
Mortgage interest rate is under 3%.
We find the 6 to 8% minus 3% = 3 to 5% spread over mortgage to be of greater value than the peace of mind value for not having a mortgage at all.
And, if for whatever reason that mindset changed, we have the option to pay it off.
This is one (of many) ways to think about mortgage payoff.
Posted on 9/16/22 at 10:40 am to Grinder
quote:
What parameters would you look at that would tell you to use savings to pay off your mortgage?
In a world of high inflation, my low interest, fixed rate mortgage is the best hedge I have in my portfolio. In the simplest terms, inflation is helping pay my mortgage off
With that said, I understand that 99.9% of the country does not understand this concept. It's not straightforward math to a typical American and it definitely isn't something that gives warm and fuzzy 'peace of mind'.
This post was edited on 9/16/22 at 10:51 am
Posted on 9/16/22 at 10:52 am to Grinder
I think it comes down to the type of person you are and your unique scenario.
I'm the type that hates having debt. I pay up on the mortgage when I can and have usually paid off my vehicles early. The only non-home debt the wife and I carry are credit cards, which we pay off every month.
All that said, if I had the excess cash right now (ie: on top of emergency fund), I would pay off my mortgage immediately.
I'm the type that hates having debt. I pay up on the mortgage when I can and have usually paid off my vehicles early. The only non-home debt the wife and I carry are credit cards, which we pay off every month.
All that said, if I had the excess cash right now (ie: on top of emergency fund), I would pay off my mortgage immediately.
Posted on 9/16/22 at 3:55 pm to Grinder
quote:
use savings to pay off your mortgage?
It would have to be some special circumstance, like having a whole bunch of money in savings and no debt other than the house.
Posted on 9/16/22 at 7:31 pm to Grinder
I don't have a mortgage now but when we move I plan to pay off my mortgage on a schedule that would match up with when I want to retire. That will probably mean paying on a 15-20 year schedule depending on when we pull the trigger.
I know I could save more money buy investing that extra or whatever but I plan to put +/- $50k in retirement accounts (roth and 401k) a year and another chunk will be in investment properties plus maxing out ibonds when it makes sense to so paying off a mortgage early won't really hurt our investing. I know I am not an OT baller making $350k but we will make more than double the median household income for the area so it is not like we are poors either. I know I can go back into my own business and make whatever I want but that is a lot of time invested and that time is worth something.
I know I could save more money buy investing that extra or whatever but I plan to put +/- $50k in retirement accounts (roth and 401k) a year and another chunk will be in investment properties plus maxing out ibonds when it makes sense to so paying off a mortgage early won't really hurt our investing. I know I am not an OT baller making $350k but we will make more than double the median household income for the area so it is not like we are poors either. I know I can go back into my own business and make whatever I want but that is a lot of time invested and that time is worth something.
Posted on 9/16/22 at 8:02 pm to Grinder
Paid mine off at 42. Best thing I ever did. Just a good feeling. That’s all I can tell ya !
Posted on 9/17/22 at 4:13 pm to Grinder
quote:
What parameters would you look at that would tell you to use savings to pay off your mortgage?
It’s an unexpectedly complex decision.
Anything 4% and up, pay off with the quickness. Still wouldn't consider doing it until 1) all tax advantaged accounts are maxed every year and 2) fat emergency fund/taxable accounts could cover a year of expenses.
Also if the freedom of not having a house note really appealed to me, I'd want to after 1 and 2 were done. Being able to travel, semi-retire, take a sabbatical etc. is way easier when your monthly nut is not inflated with a house note.
Posted on 9/19/22 at 11:40 pm to Grinder
I love the MT.
My house is paid for, and there's zero chance I would take out a loan against it to invest. The people giving out this advice often claim to have nice vehicles, kids in private school, and nice quarterly vacations.
My point is that you (us) could always invest more than we do. Whether its dining out on occasion, having nice vehicles, or taking a family beach trip, there is always an opportunity cost. If someone is so determined to invest more that they forego paying off their mortgage, or giving you that advice.....make sure to ask them what they drive and where they like to eat. Because if they don't drive a clunker and eat rice and beans, then they aren't taking their own advice.
My house is paid for, and there's zero chance I would take out a loan against it to invest. The people giving out this advice often claim to have nice vehicles, kids in private school, and nice quarterly vacations.
My point is that you (us) could always invest more than we do. Whether its dining out on occasion, having nice vehicles, or taking a family beach trip, there is always an opportunity cost. If someone is so determined to invest more that they forego paying off their mortgage, or giving you that advice.....make sure to ask them what they drive and where they like to eat. Because if they don't drive a clunker and eat rice and beans, then they aren't taking their own advice.
Posted on 9/20/22 at 5:33 am to Grinder
I paid $100 extra to principal every month and paid it off in 17 yrs.
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