- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Coaching Changes
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Started By
Message
re: Pay off house vs invest.
Posted on 5/3/23 at 6:35 am to Grinder
Posted on 5/3/23 at 6:35 am to Grinder
quote:
I’ve never heard someone say they wish they still had their mortgage
That’s because rates have basically declined for the entirety of most peoples adult lives.
The current situation is uncharted waters. Having money market accounts that are yielding almost double the mortgage rate for some people is unprecedented.
quote:
If you had a fully paid off house, would you take out a $300K HELOC at 3% and put that money in a MMF? That’s the same scenario worked in reverse.
That’s not the same scenario at all. A HELOC is almost certainly going to have a floating rate, and may have some level of origination fees and other costs associated with it.
The OP has a fixed rate mortgage already. Money market rates are well above that mortgage rate. He can essentially beat the bank at their own game for the at least the next 6-12 months in those funds. He could also take the payments due in 12, 24, 36, … months and put them in CDs that are all yielding higher than 3%. Again, guaranteed better financial results.
This conversation 18 months ago was a little different in the sense that guaranteed better performance wasn’t as readily available. Now it is.
This post was edited on 5/3/23 at 6:36 am
2
Posted on 5/3/23 at 6:47 am to slackster
My current 360 savings account with capital one is 3.75. It’s insane that a regular savings account makes 1 percent more than what my mortgage costs. (I refinanced at 2.75 and will not pay off my 25 years left).
Posted on 5/3/23 at 6:51 am to MrJimBeam
quote:
My current 360 savings account with capital one is 3.75. It’s insane that a regular savings account makes 1 percent more than what my mortgage costs.
Yes. It is.
I’ve always believed sub 5% mortgages should be kept for a myriad of reasons, but most of those reasons were hypothetical and/or based on historical norms, but not typically guaranteed.
That is no longer the case today. Guaranteed better returns are easily accessible. Paying of a mortgage with a lower rate simply cannot be defended from any financial literacy standpoint today.
Posted on 5/3/23 at 7:29 am to Spasweezy
quote:
I lose a nice interest deduction
With the standard deduction being so damn high mortgage interest benefits very few people.
Posted on 5/3/23 at 7:31 am to slackster
quote:
That’s not the same scenario at all. A HELOC is almost certainly going to have a floating rate, and may have some level of origination fees and other costs associated with it.
Ok. You’re someone that likes to argue about things that are of little importance. I get it. Here, I’ll change the scenario for you.
You have a fully paid off house, and you decide to take out a mortgage on it, and you pull $300K out of it at 3%. You’ll invest this $300K, possibly in a MMF, and pay it against the mortgage.
You do realize you have to pay taxes on the gains. Depends on your own tax situation, but it could work out close to a wash.
I’m personally dealing with a similar situation, and would prefer to rid myself of a $4K per month mortgage payment.
Posted on 5/3/23 at 7:40 am to Spasweezy
quote:
2.875/ ~26 years left
wow. from a investor who likes stuff paid off and i paid off my house 12 years ago....but i had a high interest rate and was not worth closing costs, etc to refi so i paid it off plus i owed nowhere near what you do.
keep the mortgage. be patient. the peace of mind is great but.......just get other things paid off, keep the house note for now and INVEST.
and whenever you do plan on paying it off use velocity banking to do it. do NOT send extra principal to the bank from your checking account or credit card. use a HELOC or PLOC. watch this and learn how it works.
LINK
This post was edited on 5/3/23 at 8:07 am
Posted on 5/3/23 at 7:53 am to Grinder
I get not wanting a house note. My mortgage is 2.875. I'm getting almost 5% on my short term treasury notes, that is state tax exempt.
I am in the camp of, if I lost my job tomorrow, would I want to continue paying a low interest house note and have 300k+ of liquidity that can get me more than through the tough times, or pay off my mortgage but have liquidity issues a few months down the road. Me personally, I like having the money there and readily available in case of emergency. To each their own, but right now, paying off a low interest mortgage is not something I'm even remotely interested in
I am in the camp of, if I lost my job tomorrow, would I want to continue paying a low interest house note and have 300k+ of liquidity that can get me more than through the tough times, or pay off my mortgage but have liquidity issues a few months down the road. Me personally, I like having the money there and readily available in case of emergency. To each their own, but right now, paying off a low interest mortgage is not something I'm even remotely interested in
Posted on 5/3/23 at 8:12 am to Spasweezy
Depends on where you are in your payment stage
Early payments are mostly interest- best to pay off then
Later payments- mostly principal.
Count up how much you have paid into your house with the payments. If it’s more than it’s worth then pay it off.
You have to be disciplined with that future money though. Don’t just go buying junk. Invest it.
Early payments are mostly interest- best to pay off then
Later payments- mostly principal.
Count up how much you have paid into your house with the payments. If it’s more than it’s worth then pay it off.
You have to be disciplined with that future money though. Don’t just go buying junk. Invest it.
Posted on 5/3/23 at 8:25 am to slackster
quote:
I’ll never understand this argument from an unemotional standpoint. If you got laid off, having $300k in cash and a peanuts mortgage rate would be a lot more valuable than having $300k in equity in a home, particularly in this rate environment.
Telling people only to do what the math says is an overly emotional response that ignores reality and "value" that varying things hold.
Posted on 5/3/23 at 8:43 am to notsince98
quote:
Telling people only to do what the math says is an overly emotional response that ignores reality and "value" that varying things hold.
Math is emotional? Who knew.
People are free to do what they want, but they should make an educated decision, even if it’s against the math.
As I said earlier, if you got laid off and had $300k in a mmkt earning 4.5% and a $300k mortgage balance at 2.875%, paying the mortgage off would be an objectively bad financial decision. If you have a different opinion, I’d love to hear it.
Posted on 5/3/23 at 8:47 am to slackster
quote:
Math is emotional? Who knew.
People are free to do what they want, but they should make an educated decision, even if it’s against the math.
The thought that the math is always the correct choice is an emotional response. Math is nothing but a tool that can help but should not be used to dictate.
quote:
As I said earlier, if you got laid off and had $300k in a mmkt earning 4.5% and a $300k mortgage balance at 2.875%, paying the mortgage off would be an objectively bad financial decision. If you have a different opinion, I’d love to hear it.
You completely ignore the value of other options in this scenario. The math is flawed.
Posted on 5/3/23 at 9:03 am to Spasweezy
quote:
The peace of mind would be nice.
2.87% should give you great peace of mind
Posted on 5/3/23 at 9:21 am to Grinder
quote:
Ok. You’re someone that likes to argue about things that are of little importance. I get it.
A) Yeah, that’s a reasonable assessment.
B) However, this is a terrible example of that flaw. A new HELOC and an existing 30 yr fixed rate mortgage are two totally different products with respect to this conversation.
quote:
You have a fully paid off house, and you decide to take out a mortgage on it, and you pull $300K out of it at 3%. You’ll invest this $300K, possibly in a MMF, and pay it against the mortgage. You do realize you have to pay taxes on the gains. Depends on your own tax situation, but it could work out close to a wash. I’m personally dealing with a similar situation, and would prefer to rid myself of a $4K per month mortgage payment.
If you’re in a similar situation with a $4k mortgage note and a 3% or lower rate, you must be looking at an initial loan balance of $950k or more. If you’re at 3% or so, you can’t be much more than 3 years into this mortgage, so I’ll assume the balance is still around $900k. You’re also very likely to have enough interest to take the interest deduction (4th year of a mortgage that size at that rate is still over $25k/yr in interest), which “helps” the decision to not pay it off.
Regardless, as long as you’re in the 24% or lower tax bracket, something like FZCXX at a 4.6% yield makes sense (would net 3.13% or so). Tax brackets higher than that should consider FZEXX or something similar, which is a municipal money market fund with a yield of 3.15% or so.
Also, for those in the 24% or lower bracket, try laddering 1-3yr CDs. Take your $50k in payments for next year and buy a 1-yr CD at 5.1%. Throw another $50k into a 2-yr at 4.85%, and a third at 4.65% for 3 yrs. Throw the other $750k into FZCXX and clip your extra $100 or so after taxes each month if/until the math no longer makes sense.
Posted on 5/3/23 at 9:25 am to notsince98
quote:
You completely ignore the value of other options in this scenario. The math is flawed.
What are those values?
If someone looks me in the face and says “I know this will cost/lose me money, and I know I cannot get it back out for anywhere close to 2.875% if I need it, but it will hep me to sleep better at night,” then I’m fine.
Posted on 5/3/23 at 10:35 am to Grinder
quote:uhh yea- #1 if I could get a 3% HELOC (btw you can’t) and #2- if I could get a risk free savings or money market interest rate of 5%, then yes I would take out the maximum value possible and arb a free 2% for doing literally no work, and having the added benefit of liquid cash in case there’s an unexpected emergency. Your home mortgage isn’t changing in price. You can pay it off at any time if you have that stack of cash sitting making more interest than the mortgage rate is charging
you had a fully paid off house, would you take out a $300K HELOC at 3% and put that money in a MMF?
Posted on 5/3/23 at 12:04 pm to slackster
quote:
What are those values?
If someone looks me in the face and says “I know this will cost/lose me money, and I know I cannot get it back out for anywhere close to 2.875% if I need it, but it will hep me to sleep better at night,” then I’m fine.
Everyone has to take the time to find those values for those options but they are options with very real value. They exist with every financial decision but quite often are completely ignored on this board.
Posted on 5/3/23 at 12:21 pm to notsince98
quote:
Everyone has to take the time to find those values for those options but they are options with very real value. They exist with every financial decision but quite often are completely ignored on this board.
I’m not intentionally ignoring those values, but I think you have to do the “math” first, and then decide if it’s worth it. For example, if not paying off your home at current rates puts $1,500 in your pocket each year, you can decide that’s not worth it, which is fine. However, it’s simply financially irresponsible to call it a peace of mind decision without doing the math first. Is $3000/yr worth it? $6,000? That’s how you can figure out the “value” of having no mortgage, IMO.
This post was edited on 5/3/23 at 12:22 pm
Posted on 5/3/23 at 12:31 pm to slackster
quote:
I’m not intentionally ignoring those values, but I think you have to do the “math” first, and then decide if it’s worth it. For example, if not paying off your home at current rates puts $1,500 in your pocket each year, you can decide that’s not worth it, which is fine. However, it’s simply financially irresponsible to call it a peace of mind decision without doing the math first. Is $3000/yr worth it? $6,000? That’s how you can figure out the “value” of having no mortgage, IMO.
but the "math" requires the correct value to be placed on "peace of mind." After assigning the value to peace of mind, if the math shows that peace of mind is the better financial decision, then it is a better financial decision and not just an emotional one.
I guarantee you that you make "terrible financial decisions" all the time by using the non-emotional form of financial math and ignore the real value of your options. Everyone here does. Nobody on this board makes the best "financial" choice every time.
This post was edited on 5/3/23 at 12:33 pm
Posted on 5/3/23 at 1:19 pm to notsince98
So many idiots. Good luck slack. Using peace of mind in the math equation. Lol!
Posted on 5/3/23 at 1:48 pm to tigeralum06
quote:
So many idiots. Good luck slack. Using peace of mind in the math equation. Lol!
Lets take yourself as an example.
Do you drive a 2000 Honda Civic with 250k+ miles on it?
Page 3 of 4
Popular
Back to top
Follow TigerDroppings for LSU Football News