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Mortgage and my mind
Old 06-24-2018, 08:55 PM   #1
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Mortgage and my mind

Studied econ/finance, and know darn well paying off a low rate mortgage is non-optimal, and I am sitting with enough free cash for the first time in my life to be able to kill the mortgage and canít shake the motivation to pay it off. Damn my reptile brain or whatever is doing that to me...!
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Old 06-24-2018, 09:10 PM   #2
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This sure does seem to be stuck pretty deeply in our minds! Now that I think of it, I can recall from when I was starting out, reading that over the life of a mortgage, you end up paying as much in interest as principal (or something like that). So that made me think paying off a mortgage (or paying cash to begin with), had to be a far, far better way to go.

Later, as I got a better understanding of inflation, and the time-value of money, I began to see it wasn't so one-sided. And then I saw that a historically low interests rate mortgage had a very strong bias to the positive. At other times, probably a good bet, but not such clear odds.

But in your case, if you've just got enough cash to pay it off, I'd suggest you take a good look at your liquidity. You can end up in a bad place if something happens, and most of your money is tied up in a house, and not liquid. Once you have plenty of liquidity, it's more of a 6 of one, half dozen story, but don't underestimate the value of adequate liquidity.

I sleep better with a mortgage and plenty liquidity, than I do w/o a mortgage and with very limited liquidity. Tell that to the lurking lizard!

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Old 06-24-2018, 09:10 PM   #3
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Old 06-24-2018, 09:12 PM   #4
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Studied econ/finance, and know darn well paying off a low rate mortgage is non-optimal
You get to decide if you want to do what you know is optimal or not.
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Old 06-24-2018, 09:14 PM   #5
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How about invest half the free cash, keep a quarter for expenses and use the other quarter to pay down the mortgage?
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Old 06-24-2018, 09:39 PM   #6
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How about invest half the free cash, keep a quarter for expenses and use the other quarter to pay down the mortgage?
If someone decides to pay off the mortgage, I really think it should be all or nothing.

If you make a partial payoff, you've lost liquidity and still have a mortgage payment to make. Sure, fewer of them, and less to interest, but that doesn't help if you end up needing the liquidity now.

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Old 06-24-2018, 09:49 PM   #7
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It will help the OP placate his reptile brain, build investments and still keep liquidity.
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Old 06-24-2018, 09:52 PM   #8
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Why not just make an extra principal payment each month and cut the remaining mortgage length of time in half? Plus, you pay less in total interest on the loan.
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Old 06-24-2018, 10:09 PM   #9
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I just don't like having monthly payments to pay in ER.

I would rather think about more important topics, like what bait the catfish are eating this week on my trotlines.

It's hard enough trying to keep up with utility bills and the incoming paperwork on investments, etc. I never knew that retirement is just another job. To me, paid for real estate is one less thing to think about and an Ace in the Hole.
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Old 06-24-2018, 10:11 PM   #10
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Well, if this post from 2014 is still relatively accurate (meaning youíre now 40/48 yo DINKs w/ a mtge <1yrs salary @ a rate of 2-7/8%), then you should clearly not pay it off.

Hi, Schizo saver from IT

If youíre still 100% equities and that makes you anxious, change your AA. But, once youíve set aside an adequate emergency fund, you donít need that much cash, and the guaranteed 2-7/8% return (less after taxes) you get by paying off the mtge is not your friend....and, neither is your amygdala.
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Old 06-24-2018, 10:29 PM   #11
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I just don't like having monthly payments to pay in ER.

I would rather think about more important topics, like what bait the catfish are eating this week on my trotlines.

It's hard enough trying to keep up with utility bills and the incoming paperwork on investments, etc. I never knew that retirement is just another job. To me, paid for real estate is one less thing to think about and an Ace in the Hole.
Oh come on! My mortgage is auto-deducted from my checking account. Nothing to think about, no time spent on it.

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Old 06-25-2018, 06:10 AM   #12
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Old 06-25-2018, 06:29 AM   #13
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Originally Posted by dallas27 View Post
Studied econ/finance, and know darn well paying off a low rate mortgage is non-optimal, and I am sitting with enough free cash for the first time in my life to be able to kill the mortgage and canít shake the motivation to pay it off. Damn my reptile brain or whatever is doing that to me...!
I still have a mortgage and will FIRE in 2 months and 5 days. I'll carry the mortgage till the full 30 years are gone. At 3.75%, and 22% paid by tax man, it turns out to cost us only 3%.

I also have the nagging in back of my mind that I should make extra principal or whatever to pay off early. I think the reason we are tempted to pay off early in whatever manner is rooted in lessons from 1900's when rates and inflation were not what they are today. Back when I purchased my first house prevailing wisdom was push a bit on how much you spend, because with inflation your mortgage payment would be easier in 5 or 6 years. In 10 years it would be easy. For many say 50 or older we formed our money rules when inflation and interest rates were high. For anyone over say 35, the great recession will impact decisions for a lifetime. Remember how your parents or grandparents were impacted by the depression ? Those times will tend to stay with you for a lifetime. If it makes you careful, that is a good thing IMHO. But realize where your reptile brain leaned lessons. Good to keep in mind but we don't live there today.
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Old 06-25-2018, 07:23 AM   #14
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Happiness is a state of mind. If you believe that eliminating the mortgage and being completely debt free will bring you happiness, then do it. Whether it makes the most sense financially is almost irrelevant. Some of the folks recommending against it own a $50,000 auto when a $15,000 one will do fine - because it brings them happiness. Some will spend their discretionary income in almost foolish ways - but if it brings them happiness, there is value for that individual. Paying down/off a debt is never a bad thing to do. Think of it - owning all your belongings outright and being debt free - what a concept. You could do plenty worse.

Payoff of the mortgage is a guaranteed return on investment. Others may try to say otherwise, but having the mortgage is no different than borrowing against an asset to use the funds for something else.

We paid off our mortgage 8 years ago and life has been stress free ever since. Cash flow increased significantly and investment/savings was turbocharged going forward. The payoff amount was built up in savings again in a relatively short time afterwards.

If you (and your spouse) believe it's right for you, then you should do it.
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Mortgage and my mind
Old 06-25-2018, 07:38 AM   #15
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Mortgage and my mind

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Originally Posted by njhowie View Post
If you (and your spouse) believe it's right for you, then you should do it.

+1. This is an eternal debate on the Forum and each string seems to end up with, ďDo what feels right for you.Ē Ever since reading Dave Ramsey 20 years ago, Iíve generally thought of a paid off mortgage as one of the standard benchmarks along the way to FIRE and have assumed weíd eliminate it as soon as we could. I liked the way he described the feeling of walking across your paid off grass to your paid off house, or something like that. However, lately Iíve been spending a lot of time with the Personal Capital Retirement Planner, which lets one play with all kinds of scenarios easily. Having six figures of our liquid assets switch to the House bucket to pay off the mortgage early in FIRE rather than left to compound in the Stocks/Bonds bucket seems pretty clearly to be a sub optimal idea financially for us, so Iím evolving my thinking, though the emotional appeal is still there. YMMV.
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Old 06-25-2018, 08:43 AM   #16
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We paid off the mortgage right before I retired. I had made additional annual principal payments for many years, using a fixed amount from my annual bonus. So the remaining balance was only 6% of our portfolio. But the payments were still 20% of expenses with 9 years to go. So continuing that mortgage into ER was not a desirable option. I thought about refinancing for 30 years at a lower rate to keep the payoff invested and payments low. But DW liked the idea of paying it off. Plus, running both scenarios in FIRECalc and other models made no discernible difference in success rates or spending capacity. So we just paid it off for simplicity and to avoid the closing costs to refinance.
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Old 06-25-2018, 08:51 AM   #17
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I will say that I was in the pay off the mortgage camp almost all of my life... but after 2008 when rates came down to such a low level I changed my mind...


I also ran the numbers based on a different thread and am up over $86K by NOT paying it off since 2010 when I bought the house...


Last, I have my bill pay set up for automatic payment so I do not have to input anything to pay it... to me it is more like investing in a 401(k) plan for me, automatic and I am making money... this easily gets me out of my life's 'training' that debt is bad...
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Old 06-25-2018, 09:49 AM   #18
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Originally Posted by njhowie View Post
Happiness is a state of mind. If you believe that eliminating the mortgage and being completely debt free will bring you happiness, then do it. Whether it makes the most sense financially is almost irrelevant. Some of the folks recommending against it own a $50,000 auto when a $15,000 one will do fine - because it brings them happiness.
....
Yes, but I guess what makes me scratch my head about this, is that it seems to me that most of the reasons that people give for why no mortgage makes them feel good are based on false premises.

It doesn't mean you can never lose your home, in many cases it's the exact opposite. The liquidity will pay years and years of not only the mortgage, but property tax, utilities, maintenance, etc. It isn't time consuming to pay the bill each month, just use auto-pay/deduct.

And while I won't buy an expensive car, it's a hobby for some. I have hobbies that I spend money on that others would not understand. I'm a little pressed to see a mortgage payoff on the same level as a hobby that someone enjoys.


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Originally Posted by njhowie View Post
...
Paying down/off a debt is never a bad thing to do. ...
Never say never. Even on this forum, I recall at least one person who took their liquidity down to very low levels for that 'good feeling' of not having a mortgage. They were one mini-crisis away from being stuck in a bad situation.


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... Payoff of the mortgage is a guaranteed return on investment. Others may try to say otherwise, but having the mortgage is no different than borrowing against an asset to use the funds for something else.
...
While that might be true, it's not really very meaningful. It takes a bit to explain, and I've typed (more than) enough on this subject, so I'll leave it at that.


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Originally Posted by njhowie View Post
... We paid off our mortgage 8 years ago and life has been stress free ever since. . ...
And my mortgage has been stress free for me. And I've made a lot of money, and accepted the risk that I might lose a little, not enough to get stressed about.

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... Cash flow increased significantly and investment/savings was turbocharged going forward. The payoff amount was built up in savings again in a relatively short time afterwards. ...
This strikes me as a really twisted rationalization! One that I've heard before. So you are saying (I'll use real numbers for simplicity), "Hey, after I depleted my savings by $100,000, I was able to rebuild it since I no longer was paying ~ $10,000 a year in mortgage payments, so in about 10 years (not counting market returns and inflation), I'll be back where I was - yeah!"

Really, you can save faster now, but you had to give up $100,000 from savings to do it? That's a good thing? You don't see the contradiction in that?

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If you (and your spouse) believe it's right for you, then you should do it.
Certainly. But isn't it best to make an informed decision?

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Old 06-25-2018, 10:10 AM   #19
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Originally Posted by dallas27 View Post
Studied econ/finance, and know darn well paying off a low rate mortgage is non-optimal, and I am sitting with enough free cash for the first time in my life to be able to kill the mortgage and canít shake the motivation to pay it off. Damn my reptile brain or whatever is doing that to me...!

I agree with others here that you should write down a rational analysis and stick with that. In our case I compare a 60/40 portfolio return to a fixed 3 3/8% mortgage. I believe over any reasonable period of years that the 60/40 will win easily.


Regarding that lizard brain, I consulted several (blue bellied) lizards in our area and not one is paying off a mortgage.
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Old 06-25-2018, 10:12 AM   #20
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I took the maximum conforming mortgage amount in a 30 year refinance at 3.125 percent in 2012. Am I ever paying that off early? No way!
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