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Old 08-09-2009, 09:24 PM   #101
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Note: 99% of forum members are wanna-be economists.


The remaining 1% are true economists by training.


And talk about economists, Truman once said "Get me a one-handed economist."


It was because they kept telling him "On one hand, blah blah blah, and on the other hand, blah blah blah..."
On the one hand, I am glad that I paid off my mortgage. On the other hand, I don't think you can go wrong whether you do that, or invest. Either way you are a thousand miles ahead of most people.

See? I'm one of those 99% that NW-Bound was talking about. And to think, I haven't ever taken a class in Economics.
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Old 08-09-2009, 09:25 PM   #102
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See how you cannot tell a wannabe economist from a trained one?
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Old 08-09-2009, 10:15 PM   #103
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I'm not looking for "Uh huh". I'm suggesting that theres now way to definitively decide between investing everything and keeping the mortgage, or using "too" much of your liquidity to pay off the mortgage are because the complexity of the problem prevents a definitive answer. So do both. Decide how much liquidity to need and plough the rest into the mortgage, and put 50% of any gains into the mortgage too.
This seems totally reasonable to me. Since it appears to be pretty much six-of-one, half-dozen-of-the-other for most people, splitting the difference is a reasonable approach. IMO.



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On the one hand, I am glad that I paid off my mortgage. On the other hand, I don't think you can go wrong whether you do that, or invest. Either way you are a thousand miles ahead of most people.
I feel as if I have found inner peace . I totally agree with that sentiment.

( no 'cheers' emoticon in the list?) - Oh well, a sparkling water with a twist for you (or whatever your celebratory beverage is), I may break open my 2006 Vintage Ale to celebrate. Cheers!

-ERD50
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Old 08-10-2009, 07:56 AM   #104
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On the one hand, I am glad that I paid off my mortgage. On the other hand, I don't think you can go wrong whether you do that, or invest. Either way you are a thousand miles ahead of most people.
True. The bottom line, IMO, is that the key for most of us to building wealth is to consistently earn more than you spend and to use the difference (excess cash flow) productively. Both investing and debt reduction are productive uses of excess cash flow, and both will likely serve you very well in the long run.

In the end, the decision one makes with respect to using extra cash flow -- whether to invest it or pay down a mortgage with it -- is far less critical than the decision to live below your means and use the rest to bolster the balance sheet and increase net worth one way or the other.
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Old 08-10-2009, 09:17 AM   #105
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the key for most of us to building wealth is to consistently earn more than you spend and to use the difference (excess cash flow) productively. Both investing and debt reduction are productive uses of excess cash flow, and both will likely serve you very well in the long run.

In the end, the decision one makes with respect to using extra cash flow -- whether to invest it or pay down a mortgage with it -- is far less critical than the decision to live below your means and use the rest to bolster the balance sheet and increase net worth one way or the other.
Well said.
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Old 08-10-2009, 03:42 PM   #106
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But what I find interesting is your feeling that using your investments to pay on your mortgage would be using "deflated" money. If you believe that your investment money is really deflated, than all the more reason to pay as little as you can on your mortgage (or even get a bigger one) and pile any extra cash into investments before they "reflate." Or am I missing something?
I am piling a lot of cash into investments. Quite a bit, actually. Its just that the eBay stuff, the spouse and I have an agreement on: use it for her projects around the house, or pay down the mortgage. Its our compromise, because she gets the warm fuzzies paying down the mortgage faster, while it does nothing for me. That's why I said it was a compromise. I'd rather throw it all into investments, she'd rather play it safer and throw it at the mortgage.

I just noticed a typo in my previous post. I didn't mean we pay an exta 2.04% yearly, but rather, a extra 2.04 payments yearly.

Hope this clarifies my position, as it did admittedly leave doubt.
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Old 08-10-2009, 03:45 PM   #107
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To paraphrase a line from Dave Ramsey. 100% of people in home foreclosure had a mortgage.
Yeah, but while a clever thing to say, he also tends to give less than optimal advice about where to put money.
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Old 08-10-2009, 03:48 PM   #108
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Yeah, but while a clever thing to say, he also tends to give less than optimal advice about where to put money.
You mean you haven't been averaging 12% in the stock market?
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"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

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Old 08-10-2009, 08:03 PM   #109
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Just remember that Joe Domininguez didn't give such great investment advice either, but he's still one of my heroes, too, Ziggy.
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Old 08-11-2009, 12:06 AM   #110
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I suspect that most folks who read this forum are baby-boomers and for us, houses and mortgages were an ugly surprise. I bought my first house in 1981, and I can remember the saying then was "you aren't buying a house, you are buying a mortgage". Interest rates were rising so rapidly that folks really feared being locked out of the market forever.
real interest rates.gif
Too many game-changing economic events have happened during our working lives. The Federal Reserve changed their economic strategy twice: we went from a stable interest rate strategy to Friedmanesque monetarism, then abandoned monetarism for whatever it is that we have now. We toyed with wage and price controls, then abandoned the gold standard in 1973. It only takes a look at the inflation rate and interest rate to see that it hasn't been a smooth ride.
prime and inflation.gif
So we are a bit techy about mortgages? Do tell.
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Old 08-11-2009, 11:17 AM   #111
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I suspect that most folks who read this forum are baby-boomers and for us, houses and mortgages were an ugly surprise. I bought my first house in 1981, and I can remember the saying then was "you aren't buying a house, you are buying a mortgage". Interest rates were rising so rapidly that folks really feared being locked out of the market forever.
When we refinanced for 5.5% my FIL pulled out his 1964 mortgage on his first home-- the same rate. Of course his was typewritten on a single piece of heavy fill-in-the-blanks 5"x8" cardstock and ours was a bit bulkier. His mortgage payment was $88/month on a $17K home and ours... wasn't. But other than those differences, at the time we couldn't believe that we were getting the lowest rates in 40 years.

Five years later we nailed down 4.5%. I'm running out of superlatives.
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Old 08-11-2009, 01:33 PM   #112
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When we refinanced for 5.5% my FIL pulled out his 1964 mortgage on his first home-- the same rate. Of course his was typewritten on a single piece of heavy fill-in-the-blanks 5"x8" cardstock and ours was a bit bulkier. His mortgage payment was $88/month on a $17K home and ours... wasn't. But other than those differences, at the time we couldn't believe that we were getting the lowest rates in 40 years.

Five years later we nailed down 4.5%. I'm running out of superlatives.
I can't complain either, 4.5% over 15 years. Bought the house for $330k in 1997, peaked at $650k in early 2006, sank to $500k in Jan 2009, now at $550k
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Old 08-11-2009, 03:56 PM   #113
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Well I've have some nice gains in yrs past and never took them out to pay down anything, for a couple of reasons

1. My debts would force me to Work more and Live With-in my means while saving for retirement and There is Always Places for $ in a Family Home if the wife knows it there.

2. Our savings is for entirely our retirement, not to make our lives easier or allow us to rest on our laurels along the way, but end up short come retirement time

However, there have been And probably will be in the future, I may find some extra $ laying around to gamble on a Short Term investment I'm confident about and take that profit $ to pay down debts, or for something else..
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Old 08-12-2009, 11:03 AM   #114
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1. My debts would force me to Work more ...
Funny -- I agree with you, and yet have the complete opposite reaction to debt.

I don't like feeling like I'm forced to work more because of debt. Whether it's actually true or not is another matter, but carrying debt at least makes me feel more like I'm forced to work more.
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Old 08-14-2009, 09:26 PM   #115
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Put me in the "Debt Free Just Feels Good" column. Mortgage paid off, baby.
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Old 08-14-2009, 10:53 PM   #116
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My aim has always been debt free mortgage paid and then work for 2 more years just to build up funds for whatever. I'm already in the work for 2 more years stage and I can tell you it is so liberating. I don't feel tied down in my job or fear of being fired. Of course, looking back, there were opportunity costs of tying up too much funds in the house and not being able to invest more but I think peace of mind for me was most important.
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Old 08-16-2009, 09:20 AM   #117
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Hi--
For waht it is worth, the Wall Street Journal published an article on holding a mortgage into retirement---seemd sort of relevant to this discussion. Thought you might want to see it. Link: Retiring? Pay Off Your Mortgage - WSJ.com
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Old 08-16-2009, 10:07 AM   #118
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ERD50, here is my driver.

Now, we are talking about a period 20 to 10 years ago, but...

I bought a place in NYC in 1989. Small mortgage, but large for me. (I was right on the line for approval, I was told later - I don't make big bucks.)

About a year later, started to send in extra payment when I could. After that, I started to regularly pay down the mortgage.

Why?

a) I don't like my things owning me, and that is how I relate to this kind of debt. Why am I going to work? To pay the mortage and maintenance. Hmmmm - don't like that.

b) Even then I had the idea (since executed) of changing careers. I didn't know the details, but I knew I would eventually do something different. A low monthly nut meant flexibility and freedom. Paying off the mortgage let me go to grad school in NYC with a cost of living of about $1,100 a month total, while living in my own place in a nice area.

c) W2R's simplification - Mortgage is gone. I don't think about it. I don't budget for it. I don't write checks for it. Gone, gone, gone.

ta,
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Old 08-17-2009, 12:36 AM   #119
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Good questions, here's what I make of the FIRECALC runs I've done - I seem to get the best results by maintaining my AA with the added mortgage money.

As I alluded to earlier, "safe from volatility" doesn't correlate with "safe from eating dog food when I'm 90". A portfolio of 100% CDs might be "safe from volatility", but FIRECALC says you are much more likely to FAIL than with a 75/25 Eq/Fixed portfolio. So, in the only way that really matters to me, a 75/25 is safer than a 0/100.

I used to agree with the camp that said for apples-apples you need to invest the mortgage money in "safe" investments. But if I use FIRECALC for my measure of safety, it says stick with your AA %. Yes, that *sounds* more "risky", but if it provides a higher success rate, I would say it is less risky. If drawing on that on hard times was an overall negative, surely FIRECALC would report a higher failure rate in those cases. But it does not with my numbers.

Unless you just don't give any credence to FIRECALC, but I think it is a really wonderful tool (tool, not predictor, not an absolute) for perspective.

Remember, you boosted your fixed by 25% of the mortgage amount too. And rebalancing means a little bit more getting shifted from EQ to Fixed in good times. I think it is the combination of all those that makes the difference.

Perspective: Remember that my runs have shown it to be a *slight* advantage to hold the debt. So slight, it isn't worth 1/10,000 of the words we have added to this topic. Do it or don't do it - no biggie. But as long as so many people keep giving the impression that this is a key element to FIRE success, I'm going to keep commenting that people should run the numbers for themselves before they get too excited. Better to put your energies on other things. Paying down mortgage debt or not just isn't going to make/break a retirement from what I have seen. No reason to think it will/won't, unless you have run the numbers for your case and see differently.

-ERD50
your argument is based on complete faith in FIRECalc as a predictive tool. well what if the future is different than the past (as evidenced by this decade). the nice thing about mortgage (or any debt) repayment is you have a locked in rate of return on your money which doesnt depend on history repeating AND you have a lower expense requirement for future living (not to mention a F&C place to live).

your post implies that an investor either doesnt give FIRECalc any credence or believes it entirely. have you noticed how many people on here are no longer comfortable with a 4% "SWR" and are shooting for something 3% or less. looks like there are some people who dont have your complete faith in FIRECalc. well i think there is middle ground. i dont think it is the binary choice you make it out to be. i think it is prudent to "ensure" a minimal retired lifestyle (where the absense of debt is of great value) and then go more risky for the discresionary spending on top of that. and FIRECalc is surely a useful tool for determining how much you can WD in this higher risk environment.
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Old 08-19-2009, 09:00 AM   #120
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your argument is based on...
mews & jdw-fire - thanks for the comments - I didn't want it to appear that I was ignoring you, but I am going to be mostly away from the computer for at least a few more days. If you look over my (numerous) posts on the subject, I'm sure you'll find that my replies to those questions/comments have been covered before.

If after that, you would like a direct/specific reply, let me know and I'll give it some time next week.


Thanks, - ERD50
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