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21JumpStreet
Texas Tech Fan
Member since Jul 2012
11341 posts

re: Does it ever make sense to pay off your home mortgage early?
quote:

If they tell me to hit the road, I know I have a roof over my head for my wife (sorry no pics) and two kids.



Definitely underrated. Worst comes to worst and you lose your job, you can probably afford to keep up with home ownership costs even on minimum wage.


lsu13lsu
Member since Jan 2008
7599 posts

re: Does it ever make sense to pay off your home mortgage early?
Yes. For me, I invest better knowing I personally owe no one a thing. I have "freedom" to make riskier plays that I wouldn't if I was fearful of losing my house or car.

Also, it makes going to work much easier. I cannot tell you how much better it feels to go to my job now that I don't have to be there. I could quit my job today and go mow yards and pay my bills. I could flip burgers at mcdonalds. When you have to go to work to pay Notes it just makes it more of a job.

It is different for everyone. The above is purely my personal feelings.


buckeye_vol
Ohio State Fan
Member since Jul 2014
32453 posts
 Online 

re: Does it ever make sense to pay off your home mortgage early?
quote:

Worst comes to worst and you lose your job, you can probably afford to keep up with home ownership costs even on minimum wage.
The more I think about this, I think that there is actually considerably more risk in a financial hardship if one puts it towards the debt as opposed to investing it instead. Regardless, I've posted my concerns a couple times with no response, so maybe I'm off base, but I think that people are missing some really obvious risks of this approach so I'm going to go over them again.

1. Unless a loan can be recast or someone refinances, until its paid off, it doesn't matter how much extra has been put towards principal, the payments are still fixed. Any hardship during that time, and you're payments are the same regardless.

2. Unless someone takes out something like a HELOC or loan, which seems counterproductive to the purpose of paying off debt, there is no access to all of that extra equity unless one sells the home, which is not an especially quick process if its an emergency. Liquidity risk is a major risk, and it's actually a major factor behind the housing crash.

3. This could vary greatly, but compared to all other non-discretionary spending home payments may not represent all that much, and the less it represents, the less risk paying it off eliminates.

4. From a cash-flow perspective, unless the loan would go well into retirement, the impact of the loan on one's cash-flow is likely to be far greater early on so the early payments are occurring when that's at a greater risk, and the payoff occurs when its at lesser risk.

If you instead invested that amount, you would have the following benefits:



1. Can get a considerably higher rate of return than the interest rate.

2. Can take on as much (e.g., margin trading cryptocurrency) or as little (short-term treasuries; cash; savings) risk as one desires.

3. Can allocate across various investments and risk levels as needed and it can change as needed.

4. Most important you have access to liquidity, for whatever reason, whether you access it or not.

In the case of a financial hardship, compared to attempting to pay off the loan early, this is especially beneficial in that time before it was paid off (e.g., when payments are the same regardless).

And even compared to the time when the debt would have been paid off early, where a minimum wage job might be enough, the invested/saved amount available would likely be worth hundreds of thousands dollars. So even with that extra home payment amount, I think it would be easier to get by for quite a long time with hundreds of thousands available.

In fact, at the point that the loan would be paid off earlier, you would likely have more than enough set automatic payments from the investment account to pay off the loan, as if it doesn't even exist, and still have a fair share left over if necessary.


jimbeam
USA Fan
University of LSU
Member since Oct 2011
59253 posts
 Online 

re: Does it ever make sense to pay off your home mortgage early?
Exactly. It’s not like if you lose your job you can’t use those $s to pay the note in the interim


Thecoz
Member since Dec 2018
348 posts

re: Does it ever make sense to pay off your home mortgage early?
i paid my 30 year off in about 11years.
i paid extra each month to knock the time frame from 30 to 15 . And i got laid off in my early 40s .
Got a years salary severance and started with a new company 4 days after leaving old one....... but it puts a feeling in you that you will never forget..... i used the severance to pay off the house...
best money move???? probably not
best quality of life move??? probably so
i was one income and had a wife and kids depending on me.... and yes oil industry ....
so not a real dependable environment ;(

a good nights sleep us NOT over rated!


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42
buckeye_vol
Ohio State Fan
Member since Jul 2014
32453 posts
 Online 

re: Does it ever make sense to pay off your home mortgage early?
quote:

For me, I invest better knowing I personally owe no one a thing. I have "freedom" to make riskier plays that I wouldn't if I was fearful of losing my house or car.

Unfortunately after buying a home, I've learned that this freedom is an illusion, since you always owe the government for the right to live in that home, and while I don't have an HOA, apparently they can even be OWED before a lender.

At least the lender shares some of the risk, and has an incentive to make sure you don't lose your home, and has to abide by regulations to help prevent default. In addition, there is always the opportunity to refinance and lower the payments, whereas those property taxes aren't going to go down.
quote:

I could quit my job today and go mow yards and pay my bills. I could flip burgers at mcdonalds.
Even if I got rid of all my debt payments, between all of the insurances (health, home, car, life), utilities, childcare, groceries, taxes, and all other necessary expenses, I wouldn't be able to pay my bills on a minimum wage job, I guess maybe unless the government covered it.


NC_Tigah
LSU Fan
Carolinas
Member since Sep 2003
96495 posts

re: Does it ever make sense to pay off your home mortgage early?
quote:

For this year I will roughly pay $2400 in interest on my loan. All I have to do to off-set the cost is make more than 2400 in my brokerage account and it would be worth it.
Actually with the mortgage interest deduction factored, it is even more favorable than that.


lsu13lsu
Member since Jan 2008
7599 posts

re: Does it ever make sense to pay off your home mortgage early?
I am not arguing with you. This topic is purely psychological in my opinion. Everyone should do what is best for them. Investing is primarily an emotional exercise. Everyone should do whatever makes them the most comfortable and then that will give them success.

I gave my opinion and reasoning.


lsu13lsu
Member since Jan 2008
7599 posts

re: Does it ever make sense to pay off your home mortgage early?
quote:

Actually with the mortgage interest deduction factored, it is even more favorable than that.


New Trump law could impact that. $2,400 isn't a lot.


Thecoz
Member since Dec 2018
348 posts

re: Does it ever make sense to pay off your home mortgage early?
Yup..
my pool was a stupid financial investment but I like it in the summer.
Don’t worry!!!!
Be happy !!!!!


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buckeye_vol
Ohio State Fan
Member since Jul 2014
32453 posts
 Online 

re: Does it ever make sense to pay off your home mortgage early?
quote:

Exactly. It’s not like if you lose your job you can’t use those $s to pay the note in the interim
Yeah. If I wanted to pay my loan off in 15 years, I would have had to put $665 towards the principal every month. If I instead invested that in an 80/20 fund, which has a historical return of about 9%, I would have about $245,000 invested at 15 years.

I could then move $145,000 of that into an account targeting a 6% return, and pay off the rest of my loan as if it never existed and was already paid off, and I still would have $100,000 available for any other needs (or for more gains).

I can't fault anyone for wanting to get out of debt, but I think people are underrating the risk of putting it all toward getting out of low interest, long-term debt compared to the alternatives. And it's not just about sacrificing return for peace of mind, it's sacrificing liquidity, returns, cash flows, and flexibility.


NC_Tigah
LSU Fan
Carolinas
Member since Sep 2003
96495 posts

re: Does it ever make sense to pay off your home mortgage early?
quote:

New Trump law could impact that
How so?

Bottomline: Ramsey assumes folks are fiscally undisciplined. He assumes money is burning a hole in their pocket. His thesis is people will blow money on stupid stuff -- money which could otherwise have gone to paying down debt on a home mortgage.

Most posters on this board do not fit Ramsey's assumptions. More often than not for MT posters, in a 3.5% FRM world, with concomitant mortgage deduction tax advantages, along with surging markets, paying off a mortgage is dubious advice.


buckeye_vol
Ohio State Fan
Member since Jul 2014
32453 posts
 Online 

re: Does it ever make sense to pay off your home mortgage early?
quote:

How so?
I assumed he meant that under the tax law changes, it’s less likely someone will itemize and use the deduction and even if they do, with lower tax rates there is less to “save” on taxes.


NC_Tigah
LSU Fan
Carolinas
Member since Sep 2003
96495 posts

re: Does it ever make sense to pay off your home mortgage early?
quote:

I can't fault anyone for wanting to get out of debt
Especially in other categories. As post-tax loan rates increase, debt elimination should be prioritized.


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NC_Tigah
LSU Fan
Carolinas
Member since Sep 2003
96495 posts

re: Does it ever make sense to pay off your home mortgage early?
quote:

less likely someone will itemize and use the deduction and even if they do, with lower tax rates there is less to “save” on taxes.
Ah, that makes sense.


Dawgfanman
LSU Fan
Member since Jun 2015
8642 posts

re: Does it ever make sense to pay off your home mortgage early?
Does anyone consider the time value of money here? A dollar today isn’t a dollar in 30 years..but your house payment is the same.


buckeye_vol
Ohio State Fan
Member since Jul 2014
32453 posts
 Online 

re: Does it ever make sense to pay off your home mortgage early?
quote:

A dollar today isn’t a dollar in 30 years..but your house payment is the same.
Are you saying that the inflation-adjusted cost of a fixed home payment will be much less 24 years from now, than it is today? Because if so, that is a good point, and relates to my issue of cash flow, as the costs on them are much higher early on, especially since income may even grow faster than inflation so the difference is even greater.



lynxcat
Rutgers Fan
Member since Jan 2008
21051 posts

re: Does it ever make sense to pay off your home mortgage early?
quote:

buckeye_vol


One of the best posts I’ve seen on this board on this topic. Preach on!

In short, there is basically no logical way paying off a mortgage early makes sense. Paying it off early is an emotional response that is irrational.
This post was edited on 2/12 at 6:24 pm


21JumpStreet
Texas Tech Fan
Member since Jul 2012
11341 posts

re: Does it ever make sense to pay off your home mortgage early?
That was a good post. Definitely something to think about more. That inflation point also makes a good point


JoseVargasTX
LSU Fan
Rockwall, tx
Member since Sep 2011
621 posts

re: Does it ever make sense to pay off your home mortgage early?
We built in the last year and ended up spending about $1.3 million. We paid for it in cash.

No closing costs for the construction loan. No closing costs on the lot.

Our experience in 11 years of marriage is that we spend about four years in a place and build another one.

During those four years, the interest paid is a huge number. We have been in a very hot housing market and since moving into our house at the end of August, I’d say we could sell for $1.6 tomorrow.

I’m happy with our investment.


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