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re: Pay off house vs invest.
Posted on 5/3/23 at 1:52 pm to notsince98
Posted on 5/3/23 at 1:52 pm to notsince98
Decade old truck here and plan to drive it another 10 years or so if it allows. Only have 110k on it and don't drive much so it's very possible. I'm with you on the vehicle argument but I personally do agree with math for the most part here. The OP being sub 3.0 percent really isn't the best mathematical decision. I'd hope that laying out all the math here where you maximize every dollar changes his comfort of sleep at night.
1
Posted on 5/3/23 at 1:58 pm to MrJimBeam
Vehicle isn't the only example.
Everyone would take some level of a paycut to work less but that value will vary by person. Hell, I'd be willing to take something like a 30% paycut if I could work 25% less time. By just the simple numbers, that is a terrible financial choice for myself but I would be happier with that setup for sure.
Everyone would take some level of a paycut to work less but that value will vary by person. Hell, I'd be willing to take something like a 30% paycut if I could work 25% less time. By just the simple numbers, that is a terrible financial choice for myself but I would be happier with that setup for sure.
This post was edited on 5/3/23 at 1:59 pm
Posted on 5/3/23 at 2:29 pm to notsince98
There is literally no scenario in which paying off a $300k mortgage at 2.875% is better than taking that $300k and making 5% interest on it. The peace of mind should be knowing you have that $300k sitting there in which you can pay off the mortgage at ANY TIME if needed AND that $300k is currently making more money than your mortgage interest. Throw in the fact that in addition to being able to pay off the mortgage at ANY TIME if you had the $300k cash, you also have $300k in liquid assets that you could use for any other major emergency. Talk about ultimate peace of mind. Now if money market or savings rates drop below 2.875%, you would have a tiny (but still wrong) argument. However in today's market, your peace of mind argument is wrong and there is no scenario in which it is correct.
This post was edited on 5/3/23 at 2:30 pm
Posted on 5/3/23 at 2:54 pm to TigerTatorTots
a 5% interest rate would be a net rate of 3.9%.
If 2.875% is your low threshold, the real world interest rate would need to stay above 3.7%.
This assumes a minimum marginal tax rate of 22% which may be low given the amount of $ being discussed. If marginal rates go up from 22%, it just gets worse.
If 2.875% is your low threshold, the real world interest rate would need to stay above 3.7%.
This assumes a minimum marginal tax rate of 22% which may be low given the amount of $ being discussed. If marginal rates go up from 22%, it just gets worse.
This post was edited on 5/3/23 at 2:55 pm
Posted on 5/3/23 at 3:23 pm to Spasweezy
I’m in a similar debate with myself. It’s a head v heart thing. I would love to not owe money on my house, but I have the same rate and it’s too low to justify paying it off. Especially since my note is well below my means.
I’m putting the cash in various high yield savings accounts while I save to build my next house. Of all places, Ford has a demand deposit account paying 5% (fluctuates weekly, but has been high for a while). It’s not insured so I don’t have everything in there, but $50k at that rate is $200/mo.
The way I finally closed the loop in my brain is I looked at how much interest I would pay over the next two years (least amount of time until I build) which gave me how much I would save if I paid it off against how much interest income I would receive on high-yields at an average of 4.75% after a tax rate of 32%. The numbers actually came out very close with only a slight amount of interest over the interest saved, but I valued having the liquid funds more than the saved interest since my note is much less than what I can afford.
I’m putting the cash in various high yield savings accounts while I save to build my next house. Of all places, Ford has a demand deposit account paying 5% (fluctuates weekly, but has been high for a while). It’s not insured so I don’t have everything in there, but $50k at that rate is $200/mo.
The way I finally closed the loop in my brain is I looked at how much interest I would pay over the next two years (least amount of time until I build) which gave me how much I would save if I paid it off against how much interest income I would receive on high-yields at an average of 4.75% after a tax rate of 32%. The numbers actually came out very close with only a slight amount of interest over the interest saved, but I valued having the liquid funds more than the saved interest since my note is much less than what I can afford.
Posted on 5/3/23 at 3:36 pm to Spasweezy
Pay the house off. You can make more cash by then investing the payment in a 500 mutual fund
Posted on 5/3/23 at 3:59 pm to Spasweezy
A friend of mine (he's 50) paid off his mortgage 10 years early. He saved up a bit of money (around $50K) and used the money for the down payment of a 2nd home (this was about 8 years ago when homes were cheaper) . He rented his old house and lives in his 2nd home. He gets a nice rental check of $2500 a month, free to do what he wants with it. That's what I call smart and wise with his money and I wish I had that money discipline myself.
Posted on 5/3/23 at 4:05 pm to AUCE05
quote:No. If a higher return and more “cash” is the goal, paying it off early is about the worst option (besides wasting it).
You can make more cash by then investing the payment in a 500 mutual fund
Posted on 5/3/23 at 4:18 pm to buckeye_vol
Not really. But you do you
Posted on 5/3/23 at 4:58 pm to AUCE05
quote:Wat?
Pay the house off. You can make more cash by then investing the payment in a 500 mutual fund
What return do you anticipate getting in the "500 mutual fund"
Do $300,000 x (that return rate, compounded) x X number of years
Then do whatever the mortgage payment is deposited monthly x (that return rate, compounded) x X number of years
First calculation will come out hundreds of thousands of dollars ahead in returns.
This post was edited on 5/3/23 at 5:00 pm
Posted on 5/3/23 at 5:13 pm to Spasweezy
I'm just here to point out that BabyTac has become the best troll on this website.
His shite goes incredibly unnoticed by many legitimate posters across many boards.
His shite goes incredibly unnoticed by many legitimate posters across many boards.
Posted on 5/4/23 at 8:18 am to castorinho
quote:
2.87% should give you great peace of mind
ikr
Posted on 5/4/23 at 12:44 pm to Spasweezy
Thanks for all of the input y’all. I’m not paying house off. Not sure exactly what I’m going to do, but will be figuring that out after running a few different scenarios. F-350 Kang Ranch financed for 144 months?!? Only kidding. Retirement accounts will be maxed by EOY already so ill most likely just do high yield savings and/or money market accounts for now. Thanks again.
This post was edited on 5/4/23 at 12:46 pm
Posted on 5/4/23 at 1:17 pm to Spasweezy
Good luck to you. The high yield accounts alone will out perform paying off the mortgage in the short term if you're still on the fence next year. Just remember that your sub 3 percent mortgage is your best hedge against inflation right now. Regardless, you will have the money ready if you ever do decide to pay it off for whatever reason. 
Posted on 5/4/23 at 3:55 pm to AUCE05
quote:Yes really. Based on the information provided by the OP, with a 2.875% mortgage and a little over 300k left on about 26 years. Let's just assume it's 302k and 26 years. That's a monthly mortgage of $1375.48 for 312 months.
Not really. But you do you
Now let's say he has $1,000 extra per month to put either towards the principal to pay off early. If he were to put it towards the mortgage, he would pay it off in about 152 months (160 months early). Once it's paid off, if puts the entire $2375.48 towards investing he would have the following amount at various annualized rates of return:
7%--$618,077
8%--$665,240
9%--$715,441
10%-$769,814
If instead, he paid the mortgage off in the full 312 months, and just put the $1,000 towards investing it, he would have the following amounts:
7%--$855,042
8%--$1,000,540
9%--$1,173,764
10%-$1,380,116
So the net gain for not paying it off early is:
7%--$236,965
8%--$335,300
9%--$458,323
10%-$610,302
So even with a 7% return not paying it off early, results in $85,235 more than a 10% return if paid off early (and that somehow assumes he wouldn't get that 10% return on the former, which wouldn't make sense).
By all means, please explain how one could get a better return (in a shorter amount of time where there is more risk than 26 years), paying it off early, instead of investing it.
This post was edited on 5/4/23 at 3:59 pm
Posted on 5/4/23 at 4:07 pm to buckeye_vol
quote:Hint: he can't.
By all means, please explain how one could get a better return (in a shorter amount of time where there is more risk than 26 years), paying it off early, instead of investing it.
Posted on 5/4/23 at 5:57 pm to MrJimBeam
quote:
There are a ton of guaranteed options right now better than that.
What are some of these?
Posted on 5/8/23 at 10:06 am to Spasweezy
This is a topic I've been thinking about for a while.
Mortgage rate is 3.25%. Payment is based on a 30 year amortization, but note will expire in 10 years with balloon payment on the end.
I've been paying enough every month so that at the end of the 10 years, the balance will be zero. Balance on the note right now is around $310,000.
I almost have enough in liquid ETF funds to pay off completely. Should I drain ETF's and payoff or just keep investing?
Thanks
Mortgage rate is 3.25%. Payment is based on a 30 year amortization, but note will expire in 10 years with balloon payment on the end.
I've been paying enough every month so that at the end of the 10 years, the balance will be zero. Balance on the note right now is around $310,000.
I almost have enough in liquid ETF funds to pay off completely. Should I drain ETF's and payoff or just keep investing?
Thanks
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