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When to pay off the mortgage
Posted on 9/15/22 at 9:48 pm
Posted on 9/15/22 at 9:48 pm
What parameters would you look at that would tell you to use savings to pay off your mortgage?
It’s an unexpectedly complex decision.
It’s an unexpectedly complex decision.
25
Posted on 9/15/22 at 9:52 pm to Grinder
Never, unless your interest rate is retarded.
Posted on 9/15/22 at 11:10 pm to Grinder
I think the idea of paying down a percentage of the principal (very early in the amortization schedule) makes some sense in some cases.
If you pay down another 20% of the loan and then just make your monthly payments? A person who stays in the house for five or ten years will have avoided a lot of money lost in interest. To see if those differences are worthwhile you would need to enter your loan information into an amortization calculator.
Obviously this would not make sense if it came at the cost of 401k or IRA savings. And if you have a really low (2-3%) interest loan it might not be worth the opportunity costs of other investments.
If you pay down another 20% of the loan and then just make your monthly payments? A person who stays in the house for five or ten years will have avoided a lot of money lost in interest. To see if those differences are worthwhile you would need to enter your loan information into an amortization calculator.
Obviously this would not make sense if it came at the cost of 401k or IRA savings. And if you have a really low (2-3%) interest loan it might not be worth the opportunity costs of other investments.
Posted on 9/16/22 at 7:21 am to Grinder
If I was going to retire and it was the home I was going to stay in for decades, I would pay it off. I pay extra now to have the mortgage paid off on my retirement target date. Peace of mind with not having a mortgage in retirement has intrinsic value to me.
This post was edited on 9/16/22 at 7:22 am
Posted on 9/16/22 at 7:35 am to Grinder
quote:
What parameters would you look at that would tell you to use savings to pay off your mortgage? It’s an unexpectedly complex decision.
The main parameter is peace of mind. While the last year it would have been far superior to have paid off a mortgage instead of investing (losing -15 or -20% v. Paying down 3-4%), during most historical times it makes more financial sense to invest rather than pay off a mortgage. Peace of mind is a very valuable thing, though.
Posted on 9/16/22 at 7:58 am to Grinder
quote:Be careful who you ask. There are folks on the MTB that would say never pay extra and always invest what you would have used to pay extra. Then in the next breath they say the markets are in for the worst crash since 1929. Pretty straightforward right?
What parameters would you look at that would tell you to use savings to pay off your mortgage?
It’s an unexpectedly complex decision.
I have worked with dozens of clients who have decided (sometimes at my recommendation) to pay extra on their mortgage and not a single one has ever regretted it. Peace of mind that comes with no mortgage in retirement is tremendously valuable. Having equity to provide flexibility for future purchases is valuable as well.
Posted on 9/16/22 at 8:15 am to Grinder
quote:
When to pay off the mortgage
Whenever you can. What's a couple hundred extra a month anyway?
Posted on 9/16/22 at 8:18 am to Grinder
I say if you have the money pay it off today! Besides a credit card that's used for household purchases (that's paid off monthly), I owe nothing to no one. I own many properties this way. It's less paperwork and stress. For those who would argue with this and want to talk about the delta between saving the capital vs deduction on taxes vs the interest accrued on the mortgage.
I would recommend you read The Millionaire next door by Dr. Thomas Stanley. This is a survey of what the wealthy actually do - not one of them has anything good to say about debt. Additionally, the large majority of them own(ed) their house outright.
My advice is: Do what wealthy people do. Not what your broke friends are doing.
Once it's paid off, continue to pay the payment into a separate account and invest it once mkts level out.
I would recommend you read The Millionaire next door by Dr. Thomas Stanley. This is a survey of what the wealthy actually do - not one of them has anything good to say about debt. Additionally, the large majority of them own(ed) their house outright.
My advice is: Do what wealthy people do. Not what your broke friends are doing.
Once it's paid off, continue to pay the payment into a separate account and invest it once mkts level out.
Posted on 9/16/22 at 8:24 am to Niner
Great answer, but still not correct. The correct answer is when your wife tells you too.
Posted on 9/16/22 at 8:26 am to 21JumpStreet
quote:
Never, unless your interest rate is retarded
For anyone that took advantage of the insane low rates during the pandemic, you’d be a fool to pay down your mortgage any earlier than scheduled.
Posted on 9/16/22 at 8:29 am to Niner
quote:At the end of the day, being secure in my home and property and reduced monthly budget going forward has a value. Hope to have mine paid off in 5-7 years.
I have worked with dozens of clients who have decided (sometimes at my recommendation) to pay extra on their mortgage and not a single one has ever regretted it. Peace of mind that comes with no mortgage in retirement is tremendously valuable. Having equity to provide flexibility for future purchases is valuable as well.
Posted on 9/16/22 at 8:33 am to Grinder
In a rising interest rate, high inflation environment, why in the hell would you even consider paying off a low interest, long term debt?
Debt is one of the best hedges against inflation.
Debt is one of the best hedges against inflation.
Posted on 9/16/22 at 8:34 am to UpstairsComputer
I can get behind that too. After all, she is all-knowing. Just ask her!
Posted on 9/16/22 at 8:35 am to Realityintheface
quote:
If I was going to retire and it was the home I was going to stay in for decades, I would pay it off. I pay extra now to have the mortgage paid off on my retirement target date. Peace of mind with not having a mortgage in retirement has intrinsic value to me.
I'm with you. While I have a low interest rate, I put a certain amount extra that pays off the house when my daughter turns 18. I can technically retire then too but if I'm still enjoying the work then I'll continue. It may not technically be maximizing the dollar the most, but like you said, targeted goals along with peace of mind.
Posted on 9/16/22 at 8:37 am to Grinder
The first third of a mortgage term is almost all interest so that’s when it makes the most sense
The question is- would it be better to take that extra payment amount and invest it in another way?
Let’s say you took that extra payment and simply bought the S&P 500 for 30 years…. You’d probably do better
The question is- would it be better to take that extra payment amount and invest it in another way?
Let’s say you took that extra payment and simply bought the S&P 500 for 30 years…. You’d probably do better
Posted on 9/16/22 at 8:42 am to SlidellCajun
quote:
You’d probably do better
probably, but maybe not.
Ours is paid off. Not having the note is glorious. So much more room for activities.
Posted on 9/16/22 at 8:44 am to 21JumpStreet
quote:
Never, unless your interest rate is retarded.
I didn't have a choice. My balance hit zero and I wasn't going to refinance. I really enjoy having my house paid off. I feel like I kinda own it now
Posted on 9/16/22 at 8:45 am to iAmBatman
[quote]LINK ]
Interesting perspective!
According to the usdebtclock(.org), the US currently owes $30 Trillion. Many consider this long-term debt. What is your view on this? In your view are we properly hedged against inflation yet?
Interesting perspective!
According to the usdebtclock(.org), the US currently owes $30 Trillion. Many consider this long-term debt. What is your view on this? In your view are we properly hedged against inflation yet?
This post was edited on 9/16/22 at 8:49 am
Posted on 9/16/22 at 8:58 am to iAmBatman
quote:
Debt is one of the best hedges against inflation
I'm going to assume he isn't paying it off within the next year.
Posted on 9/16/22 at 9:08 am to Trader82
Government debt is not the same as personal debt.
Log back into your other account if you want to be taken seriously.
Alters are soft af
Log back into your other account if you want to be taken seriously.
Alters are soft af
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