re: Mortgage principal paydown

quote:

---

Keep in mind that you are now on the aggressive side of the amortization curve. The overall majority of your monthly payment is now going straight to principal vs the other way around in the beginning of your mortgage. Will be even more after the principal reduction.

---

Yeah

The best time to pay down a mortgage is the beginning when the interest amount is high.

Paying it down at the end of the term is paying mostly principal so it doesn’t make as much sense

quote:

---

With I-bonds at 9%, you could make a risk-free $1800 on that $20k in one year,

---

wouldnt it be more than that? i thought the interest was accrued monthly? so 9.62% each month for 6 months on 15k(max allowed per year) is 8k+ for 6 months

yeah....reading it back it does sound insane because it would be insane. i went look it up and have a better understanding now.

quote:

---

5 year plan to retire at 60 and cannot get here soon enough

---

I'm 49 and no way I'm wishing for time to go faster for the retirement age (or 60 for that matter). I rather stay working than getting old. Aging sucks.

Just paid off my home last month. Feels good. No debt whatsoever gives a sense of peace and freedom for sure.

Yes Ibonds would be a better investment but doesn’t give you the same psychological sensation.

Can’t go wrong either way.

In the meantime, you can probably some money with Bi-Saver/Bi-Weekly payment plan. Check if your mortgage company offers.

quote:

---

Math will usually tell you to invest and not pay down a mortgage.

Psychology and peace of mind say pay down the mortgage.

I’m 63 and I retired at 61 with no mortgage. It was worth it to pay off for me. Debt hangs over you when you are not bringing in an income.

---

The math is usually very, very rosy and doesn't take into account transaction fees, risk, etc.

There's no better feeling than paying off a mortgage. I did it in my mid 30s. It brings peace of mind. What's that worth?

Are my portfolios less because I didn't follow the math? Maybe they are. I paid it off in 07, right before the crash, so maybe not. But I'm now able to plow over half my income into 401k/savings/after tax investments and have done that pretty much since paying off the house. Zillow says it's worth almost 500k, fwiw.

quote:

---

Math will usually tell you to invest and not pay down a mortgage.

Psychology and peace of mind say pay down the mortgage.

---

I've seen this things said, almost word for word, many times and it bothers me for a few reasons. Note that this is not to single you out or anything, as this is so common, and I don't think you're doing it for any nefarious reasons or anything.

First of all, as a psychologist, it's just nonsense to say that "psychology says anything" about any particular person. It's not only subjective and not only specific to an individual and the individual's situation, it's dependent on what information is provided and how it's presented. And both paying extra down on a mortgage principal and investing it instead has benefits and risks/drawbacks. And without an accurate and comprehensive understanding of their options, then the psychology may be telling them to choose something that is not what it would tell them to choose with accurate/complete information. And that's something that can easily be manipulated by others.

So if I could tell someone about the potential liquidity risks of paying down a mortgage, especially while making fixed payments, that is only accessible quickly through borrowing at a higher interest rate. And I could even provide examples where that risk would be especially consequential. And then I can downplay or ignore the market risks of the alternative. Now all of a sudden a person who wants peace of mind, could very well decide paying down the mortgage does not provide that peace of mind.

Similarly, it's possible to do something similar with the math, and you can see it firsthand in the whole life policy discussion, although the posters are not near as bad as what you can find on google from an insurance salesman. It's easy to deceptively cherry-pick numbers, that makes the math look better. But you don't even have to cherry pick numbers, since you can just present the difference in annual rates, but leave out any information on how those rates are calculated/compounded and how that impacts their function and the implications over the long term, and the rates won't seem that different, even in the investment is higher.

But the reality, is that an amortized loan at any given APR, is calculated differently than an investment with the same APY as the APR due to compounding. For example, a 15 year loan with a 3% rate, will have monthly payments of $1726.45 resulting in paying $60,761 in interest. On the other hand, if you instead invested $1726.45 monthly a 3% compounding rate, you'll have $391,554 after 15 years, $80,793 in interest. So the same rate with the same amount paid/invested monthly results in a $20,032 more (32% higher) in interest earned than the interest paid.

Of course, this is just an example, but it shows that even equal interest rates may not be equal, depending on the calculation, and with compounding, even a few percentage points different, which will not seem like much in a given year, will end up a lot over the long term. But without that information, the psychology would again basing decision on incomplete information.

Finally though, since there are benefits and drawbacks to both, it bothers me that people seem to consider it an either/or proposition. If you have an extra $1,000 a month, you can put some towards the mortgage and some towards investing, and get the benefits of both and minimize the risks of both as well. And that can vary too, as situations dictate and/or goals change.

In other words, the math is objective, but the future is uncertain with potential benefits and risks. Providing accurate and comprehensive information about all options, as well as a range of scenarios with the math, is what people deserve to allow the psychology to make the decision best for them. So it's a pet peeve that it's presented in such absolute terms with limited information.

A few years shy of 55 but have a plan in place to go part time at 55 if so desired. Health insurance is what will keep me working beyond that.

Thought about throwing payments at the mortgage to have it paid off in ~ 2 years but then analyzed it. I'm at 13 years left on a 15 year mortgage at 2%. I believe over the next 2 years my investments are going to return >2%, especially with the FED continuing to raise interest rates so I'd be losing the earnings opportunity.

I've decided to stay status quo on the mortgage payment for now.