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Started By
Message
Paying off home mortgage vs investing
Posted on 10/24/17 at 6:50 am
Posted on 10/24/17 at 6:50 am
I imagine this is a well discussed topic here, so sorry if I'm beating a dead horse asking this question.
My partner and I have over 50% of our incomes as discretionary.
We have no debt except our house mortgage.
We have maxed out on retirement accounts.
I believe firmly that our 30 year mortgage at about a 3.2% rate is essentially free money thanks to the government.
I have never lost money long term in the stockmarket. I've averaged 12% annual returns in my lifetime.
My partner believes we need to dump at least some of our excess income into paying down the mortgage.
We argue about it -- I say that for every year we pay $50,000 extra on the mortgage, we're losing about $4500 in stock market gains. Partner's argument rests in the high total cost of the interest over time, which I call sticker shock.
The only three arguments I can find for paying the mortgage down is you own the house, you eliminate debt, and the stockmarket returns are no guarantee. Considerable positives, but I play the averages, and I feel like if I pay off a 3% loan quicker than I have to it means I'm burning money.
What are your thoughts?
My partner and I have over 50% of our incomes as discretionary.
We have no debt except our house mortgage.
We have maxed out on retirement accounts.
I believe firmly that our 30 year mortgage at about a 3.2% rate is essentially free money thanks to the government.
I have never lost money long term in the stockmarket. I've averaged 12% annual returns in my lifetime.
My partner believes we need to dump at least some of our excess income into paying down the mortgage.
We argue about it -- I say that for every year we pay $50,000 extra on the mortgage, we're losing about $4500 in stock market gains. Partner's argument rests in the high total cost of the interest over time, which I call sticker shock.
The only three arguments I can find for paying the mortgage down is you own the house, you eliminate debt, and the stockmarket returns are no guarantee. Considerable positives, but I play the averages, and I feel like if I pay off a 3% loan quicker than I have to it means I'm burning money.
What are your thoughts?
15
Posted on 10/24/17 at 6:55 am to LSUgal1988
what is the balance of the mortgage?
paying off the home decreases risk, investing gives you the opportunity for higher return. It boils down to your risk tolerance, which is something that you and your partner need to figure out. You know what the math says.
paying off the home decreases risk, investing gives you the opportunity for higher return. It boils down to your risk tolerance, which is something that you and your partner need to figure out. You know what the math says.
Posted on 10/24/17 at 6:56 am to LSUgal1988
Peace of mind is the best investment you can make. And as with any partnership, compromise leads to more healthy relationships.
Posted on 10/24/17 at 7:36 am to JamalSanders
I understand the math on both sides of argument, but we are selling our rental property and paying off our primary home mortgage next fall. We will invest the extra money we have left over in retirememt accounts and daughters 529 plan. No, it may not be the best plan for some people but i really hate writing a big check every month.
Posted on 10/24/17 at 11:12 am to LSUgal1988
I have regretted most decisions I have made in my lifetime where I placed the value of emotion over logic.
I believe you are correct in your assessment that 3.2% is essentially free money. This is herd for non finance minded people to understand but is essential in making your argument.
I believe you are correct in your assessment that 3.2% is essentially free money. This is herd for non finance minded people to understand but is essential in making your argument.
Posted on 10/24/17 at 11:21 am to anc
quote:
I believe you are correct in your assessment that 3.2% is essentially free money. This is herd for non finance minded people to understand but is essential in making your argument.
You're right, but free cash flow is also part of the equation here. Bottom line is there isn't really a wrong answer, it's personal preference. Having cash on hand by not having a note may be worth more to people than the additional return by keeping the note. We make all these calculation assuming a "rational customer/consumer/ect, but the fact is emotion plays a big part in this too.
Posted on 10/24/17 at 12:32 pm to LSUgal1988
Why not do a combination of both? Simply decide how much of the discretionary income y'all would like to put towards these items. Increase principal payments to the mortgage and you invest the invest portion to your 12% returns portfolio.
Posted on 10/24/17 at 12:34 pm to LSUgal1988
The real question is will you ever actually pay off your house? If the answer is yes, there is nothing wrong with investing the money.
But how many people carry a mortgage and little to no savings/ investments into their "retirement" years of 60+? Far far too many.
The main reason to push hard as hell to pay off your house, is to concentrate on one thing at a time with a focus. I hate to say it and I"m not a disciple, but I agree with Dave Ramsey there. For the average person, save your 15% and then pay off your house. Then once your house is paid off, invest with all your effort.
Another way to look at it, is what is the worst case scenario for each?
But how many people carry a mortgage and little to no savings/ investments into their "retirement" years of 60+? Far far too many.
The main reason to push hard as hell to pay off your house, is to concentrate on one thing at a time with a focus. I hate to say it and I"m not a disciple, but I agree with Dave Ramsey there. For the average person, save your 15% and then pay off your house. Then once your house is paid off, invest with all your effort.
Another way to look at it, is what is the worst case scenario for each?
Posted on 10/24/17 at 12:36 pm to LSUgal1988
"I feel like if I pay off a 3% loan quicker than I have to it means I'm burning money."
I'm holding hands with you!
But maybe you could continue stocks and additional payments to mortgage as a compromise.
I'm holding hands with you!
But maybe you could continue stocks and additional payments to mortgage as a compromise.
Posted on 10/24/17 at 1:02 pm to LSUgal1988
We bought our first home in 2004 for 135000 and paid it off in 7 years. Made double payments each month then an extra one at end of December every year with husbands bonus. Didn't realize what a great decision that was at the time, but damn glad I did it.
In 2011 we upgraded to a bigger, nicer home and rent the starter home for 1200 a month. That extra income is real nice!
I can't think of a better investment
In 2011 we upgraded to a bigger, nicer home and rent the starter home for 1200 a month. That extra income is real nice!
I can't think of a better investment
Posted on 10/24/17 at 1:38 pm to CorkSoaker
quote:i can think of several
I can't think of a better investment
Posted on 10/24/17 at 2:19 pm to CorkSoaker
quote:
I can't think of a better investment
135000 invested in 2011 in VTX (Vanguard Total Stock Market) would be $270,216 today.
That's $1878 a month without the hassle of being a landlord.
Another 15 years of average returns and you are a millionaire. In 15 years you'll have an old house that might be worth $150k that is in serious need of repairs because its been a rental for so long.
This post was edited on 10/24/17 at 2:22 pm
Posted on 10/24/17 at 2:24 pm to LSUgal1988
quote:
I've averaged 12% annual returns in my lifetime.
Posted on 10/24/17 at 2:33 pm to anc
Not apples to apples.
Posted on 10/24/17 at 3:08 pm to anc
Plus, consider if you would have been buying stocks low all during 2008 and 2009 instead of making extra payments.
Posted on 10/24/17 at 3:24 pm to iknowmorethanyou
Finally!
Posted on 10/24/17 at 3:58 pm to anc
I didn't pay 135000 cash for our first home at 23 years old. We had to get a mortgage.
As a full time employee and full time student, I did not have the knowledge or the confidence to bet any amount of money in the stock market, besides making out our 401k. Quite frankly, many years later, I still wouldn't know how to really invest in the market besides making out 401 k, saving into ira, and education 529 plans.
Also, we don't have to worry with landlord stuff. Our next door neighbor has a housing rental company and does it for free. He doesn't want riff raff living next to him so it's a win win.
As a full time employee and full time student, I did not have the knowledge or the confidence to bet any amount of money in the stock market, besides making out our 401k. Quite frankly, many years later, I still wouldn't know how to really invest in the market besides making out 401 k, saving into ira, and education 529 plans.
Also, we don't have to worry with landlord stuff. Our next door neighbor has a housing rental company and does it for free. He doesn't want riff raff living next to him so it's a win win.
Posted on 10/24/17 at 3:58 pm to jimbeam
quote:
Plus, consider if you would have been buying stocks low all during 2008 and 2009 instead of making extra payments.
Just think if she would have invested in the perfect penny stock since 2008 she'd be worth $10 mil. Hell, just imagine if she would of leveraged herself with that stock on Margin!
Lol, corksoaker I agree that was a very good and sound investment. Very very few get rich quick, doing something like living under means, paying things off as fast as possible, and investing as much as you can in reasonable stock and bond markets is a great way to become wealthy over time.
Posted on 10/24/17 at 4:03 pm to baldona
Just pointing out that there are and were historically better investments than paying off a mortgage early (As common as the stock market). Not sure how this is arguable.
This post was edited on 10/24/17 at 4:04 pm
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