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Old 07-12-2019, 05:51 AM   #21
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Hello. I've read many articles online about this topic but none of them seem to be current with today's market trends/forecasts. I understand the math says best to invest in stock market vs low interest mortgage rates but just curious if that still applies with the expected 'correction' coming this year or next. My mortgage rate is 3.875 and have $40K left on mortgage. I'm invested in index and mutual funds with Fidelity. I'm not so much looking to pay off mortgage in full but when have extra couple/few hundred dollars each month, would you invest or pay down principle? Currently I do hybrid with little to both areas. I'm 57 yrs old, have about 340K in retirement. Hope to retire in about 3 years. Thanks so much to the wonderful folks on this site.
It may help to find out where you are in the amortization schedule. That way you can time the payoff date to be exactly what you want/need to be successful at 60.

If we still had a mortgage (paid off years ago) additional principal payments, would be made monthly. Maybe we would pay ahead 1 or 2 months. I don't think we would lump sum pay off, but do something hybrid as you are doing.
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Old 07-12-2019, 06:32 AM   #22
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I posted the following on the other "pay off the mortgage thread."

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General comments on the topic. Not specific to the OP.

I get the "keep the mortgage and leave the money invested" position. When I was working, I kept a mortgage. But, at that time I was invested 100% in stocks and real estate, no bonds. Both assets had an expected return greater than the mortgage interest rate. In this scenario, investing the mortgage proceeds makes sense.

However, with today's low bond yields (assuming you hold bonds), if your expected bond yield is lower than your mortgage interest rate, it makes sense to reduce your bond holdings and pay off the mortgage. It would make sense all the way down to zero bonds remaining in the portfolio. Obviously this example ignores any tax implications associated with selling bonds and it is only looking at portfolio efficiency.

IWO, why hold a mortgage at 3% and bonds that are yielding less than 3%?
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Old 07-12-2019, 08:47 AM   #23
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It really is all about the numbers, and of course risk tolerance. In my case, the return on investments these past years has been far greater than my mortgage rate. So if you are earning 10% on money costing 4% you are making money by holding a mortgage. Even after all tax considerations...

The “I don’t want to leave my wife mortgage payments” is laudable but if you leave her disposable assets to pay it off or income to pay the mortgage what is the difference really? Just a perception issue of what makes us feel more secure....
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Old 07-12-2019, 08:56 AM   #24
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I dont know whats right for you; all I can tell you is what I did. Ive invested for years, each month bought dividend stocks. Never had a lot to invest, but some is better than none. I also added $100 a month to my mortgage payment. My rate was 4%, but it still cut off a lot of interest.

When I got close to retiring (last December...yay me!!) I had to think long and hard of how I wanted to go into retirement. I had close to $50,000 left on my mortgage. I decided life would be a lot easier for me without a mortgage payment, so I cashed in some stock and paid off the mortgage. It was like I gave myself a raise, plus I saved over $10,000 in interest paid. Stocks are still going up, dividends are going up, Im still investing a little bit each month, and Im mortgage free. Had I to do it over again, Id do it in a skinny minute.
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Old 07-12-2019, 03:02 PM   #25
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We have about 365k left on our mortgage and about 25 yrs of payments. In August we start paying down for the first time. Goal is to knock 5 years from the payoff date. Right now there is a 50/50 chance that we will sell and move to a condo within next 5 to 10 years. At 3.25 % I do not intend to pay off just don't want a mortgage when I'm in my 80s.
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Old 07-13-2019, 07:34 AM   #26
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My idea is likely way off to the extreme side and is likely not what most will do.

Our home ownership experience over 30 years has been a mixed bag. Most like a dichotomy. We have had a lifetime of family fun in the houses we have owned. The value is priceless. But...

Financially speaking it has been an unmitigated disaster for most of the time. The first house we owned, we broke even. All others we have lost money on. The most recent one that we owned from 2002 to 2019 best captures the “unmitigated “ perfectly. Ironically in about the same time frame I have done extraordinarily well investing. I have learned some lessons. So here goes my conclusion,

Pay off our mortgage out of our estate, following the second death.

Rationale?

- put money into growing asset versus a declining one. Home ownership firmly belongs in the greater fool theory type. I have been the greater fool in each of our 4.
- Debt as a percentage of net worth most important; some absolute dollar amount isn’t.
- Interest rates are historically low. Let the bank own most of my house for as long as possible
- We live in a higher cost locale and the number of buyers for higher priced homes is forever declining.
- Any lack of sleep for me is based on slow but guaranteed mediocrity.
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Old 07-13-2019, 07:56 AM   #27
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If your experience below is over 30 years then you most likely owned in areas experiencing flat or declining economic or population growth. Or you just had incredibly bad luck or purchased poorly. Absent the bubble, price growth pretty much fixed everyone’s housing returns as decent over 30 years

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My idea is likely way off to the extreme side and is likely not what most will do.

Our home ownership experience over 30 years has been a mixed bag. Most like a dichotomy. We have had a lifetime of family fun in the houses we have owned. The value is priceless. But...

Financially speaking it has been an unmitigated disaster for most of the time. The first house we owned, we broke even. All others we have lost money on. The most recent one that we owned from 2002 to 2019 best captures the “unmitigated “ perfectly. Ironically in about the same time frame I have done extraordinarily well investing. I have learned some lessons. So here goes my conclusion,

Pay off our mortgage out of our estate, following the second death.

Rationale?

- put money into growing asset versus a declining one. Home ownership firmly belongs in the greater fool theory type. I have been the greater fool in each of our 4.
- Debt as a percentage of net worth most important; some absolute dollar amount isn’t.
- Interest rates are historically low. Let the bank own most of my house for as long as possible
- We live in a higher cost locale and the number of buyers for higher priced homes is forever declining.
- Any lack of sleep for me is based on slow but guaranteed mediocrity.
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Old 07-13-2019, 08:11 AM   #28
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... The first house we owned, we broke even. All others we have lost money on. ....
Pay off our mortgage out of our estate, following the second death.

Rationale?

- put money into growing asset versus a declining one. ...
While I agree that one should seriously consider keeping a mortgage and investing the difference if they have a good rate, the reasoning you site above is not valid.

The house value goes up/down independent of whether you have a mortgage or not. So it does not enter into the equation.

The equation is, can I reasonably expect my investments, at my desired AA, to outperform a mortgage over the long term? In most cases, that is a yes for periods over ~ 10 years. No guarantee, but in some cases it is a far better bet than most opportunities that we have available to us.

A more extreme example is that sometimes a car company offers a 1% loan. Well, that car will depreciate quite a bit by the end of that loan term. But I would take a 1% loan in a heartbeat (assuming no other strings). The car would depreciate anyway, so why give up this opportunity? Makes no sense that I can see.

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Old 07-13-2019, 08:32 AM   #29
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While I agree that one should seriously consider keeping a mortgage and investing the difference if they have a good rate, the reasoning you site above is not valid.

The house value goes up/down independent of whether you have a mortgage or not. So it does not enter into the equation.

The equation ...

-ERD50
Look, I am dealing with my personal learning over 30 years. Not reading a statistic published somewhere. And I meet homeowners around me all the time.

Yes, I understand that me owning a mortgage is independent of the home value. Same is true of stocks and other assets. When I mentioned that I had done extraordinarily well in investing, this understanding has been at the core of it.

No, house value has not, does not / will likely not go up. For me, in my locale and in the kind of home I am living in. There is a depression in this kind of home market. Unlike 1929 or 2008, it is not a headline but a slow but sure mind numbing one.
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Old 07-13-2019, 09:03 AM   #30
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Originally Posted by ERD50 View Post
While I agree that one should seriously consider keeping a mortgage and investing the difference if they have a good rate, the reasoning you site above is not valid.

The house value goes up/down independent of whether you have a mortgage or not. So it does not enter into the equation.

The equation ...

-ERD50
Look, I am dealing with my personal learning over 30 years. Not reading a statistic published somewhere. And I meet homeowners around me all the time.

Yes, I understand that me owning a mortgage is independent of the home value. Same is true of stocks and other assets. When I mentioned that I had done extraordinarily well in investing, this understanding has been at the core of it.

No, house value has not, does not / will likely not go up. For me, in my locale and in the kind of home I am living in. There is a depression in this kind of home market. Unlike 1929 or 2008, it is not a headline but a slow but sure mind numbing one.
You lost me. What does your response have to do with a mortgage payoff/investment decision?

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Old 07-13-2019, 11:11 AM   #31
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One item in haven’t seen mentioned in this thread increase in the standard deduction in the latest tax changes. Since that occurred I wasn’t able to deduct my mortgage interest and SALT so I used to discount my mortgage rate by the deduction it provided for us. Simple example a 4% loan in the 25% tax bracket was effectively a 3% loan.
Anyway we made a goal to pay ours off before retirement which made sense for our situation and no regrets.
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Old 07-13-2019, 11:28 AM   #32
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No, house value has not, does not / will likely not go up. For me, in my locale and in the kind of home I am living in. There is a depression in this kind of home market. Unlike 1929 or 2008, it is not a headline but a slow but sure mind numbing one.
What locale is this?

In my locale, I've been fortunate enough to buy low and sell much, much higher each time.
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Old 07-13-2019, 11:37 AM   #33
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What locale is this?

In my locale, I've been fortunate enough to buy low and sell much, much higher each time.
Chicago suburb. Mine has been unfortunately sell for less.
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Old 07-13-2019, 04:57 PM   #34
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My idea is likely way off to the extreme side and is likely not what most will do.

Our home ownership experience over 30 years has been a mixed bag. Most like a dichotomy. We have had a lifetime of family fun in the houses we have owned. The value is priceless. But...

Financially speaking it has been an unmitigated disaster for most of the time. The first house we owned, we broke even. All others we have lost money on. The most recent one that we owned from 2002 to 2019 best captures the “unmitigated “ perfectly. Ironically in about the same time frame I have done extraordinarily well investing. I have learned some lessons. So here goes my conclusion,

Pay off our mortgage out of our estate, following the second death.

Rationale?

- put money into growing asset versus a declining one. Home ownership firmly belongs in the greater fool theory type. I have been the greater fool in each of our 4.
- Debt as a percentage of net worth most important; some absolute dollar amount isn’t.
- Interest rates are historically low. Let the bank own most of my house for as long as possible
- We live in a higher cost locale and the number of buyers for higher priced homes is forever declining.
- Any lack of sleep for me is based on slow but guaranteed mediocrity.
Even if you just broke even or even "lost" money you have to measure including the free rent and lifestlye value IMHO.

Also, just to be clear, when you pay dow a mortgage you are not investing in the underlying real estate. You already did that when you agreed to the purchase price. Instead you are investing in a synthetic bond with a coupon equal to the interest rate.

Looking at it as a bond alternative is I think quite valid. If you are not getting a tax deduction for your your interest, then it takes on more similarity to a synthetic muni bond since you do not lose tax benefits through paydown/payoff.

Of course, you should have adequate emergency cash in place before making the illiquid synthetic bond investment. If you have significant home equity, a standby HELOC is a good idea, IMHO.

Results may vary, contents may have settled, objects in the review mirror, etc.
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Old 07-13-2019, 11:21 PM   #35
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You only owe 40K so the interest is probably small, either way should be fine. I owe $235K, principal is about $2,600 and interest is $875 Monthly with about 7 years left. I will pay mine off in January as I retired this year. I still would owe about 65K in interest so paying off would save me that amount, if I tried to make 65K in 6-7 years with 235k might be a stretch, and that would be just to break even..
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Old 07-15-2019, 09:47 AM   #36
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A mortgage acts as a negative on your total amount of bonds in your AA. So if you are 50/50 AA, say 1M Stocks and 1M Bonds, but you have a 500K mortgage, your actual AA is really 1M stocks and 500K bonds or 66/33.

Combine this with the fact that (most) people don't get the full value of the interest deduction anymore (new tax law) and you need to compare the after tax rates of returns on all of this.

Personally I would avoid the comparison w/ stock returns as it is not apples to apples, and instead compare to bond returns and look at your adjusted AA w/ the mortgage reducing it. View your liquidity now, and for ER until you can access tax deferred and make a decision.

Slightly different view than many, but hope this helps

This view makes a lot of sense to me. I've never thought it made sense to carry a mortgage while you own bonds yielding less than the mortgage rate ( once you take all of the tax implications into account ).
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Old 07-15-2019, 10:04 AM   #37
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This view makes a lot of sense to me. I've never thought it made sense to carry a mortgage while you own bonds yielding less than the mortgage rate ( once you take all of the tax implications into account ).
I don't think it makes sense to compare the mortgage rate to either bonds or stocks alone. Compare to your overall AA. Anything else is needlessly compartmentalizing. Your return is your total return of your entire portfolio.

Personally, I don't worry too much about a shift in AA, FIRECalc shows success rates to be pretty insensitive to AA, so I don't bother to adjust my AA when considering mortgage vs pay-off. Olus, my mortgage is a pretty small % of my portfolio, and that's probably the case for most considering a pay-off. But if you want to adjust your AA, IMO you should compare the pay-off vs your total portfolio return, before-aft.

edit/add: Another way to look at this - I don't hold fixed income because of a mortgage or not. I hold fixed to provide a buffer against a market downturn, so I could draw from fixed in a downturn, and/or have some dry-powder for re-balancing.

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Old 07-15-2019, 10:15 AM   #38
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I don't think it makes sense to compare the mortgage rate to either bonds or stocks alone. Compare to your overall AA. Anything else is needlessly compartmentalizing. Your return is your total return of your entire portfolio.
Agreed!
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Old 07-15-2019, 10:43 AM   #39
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I don’t mind having a mortgage. Pay it like like a utility bill. Meanwhile, portfolio keeps increasing (and easily beating the 2.95% mortgage rate). I’m sticking with the formula.
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Old 07-15-2019, 10:50 AM   #40
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In the end, if you want to, fine. If you don't want to, fine. I don't see either decision making or breaking a retirement here.
+1

Completely agree. For some reason, this pay off the mortgage or not question comes up rather frequently with the implication that it really matters. Unless your loan rate is high or you're plagued with that "I can't sleep at night knowing I have debt" syndrome, I agree that it really doesn't matter very much. Yawn........
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