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Old 01-25-2014, 12:05 PM   #61
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It's always entertaining to read the pro and con opinions relating to mortgages.
So many folks are so strongly attached to one view or the other!

The fact is, at today's low interest rates, it's unlikely to matter whether someone pays off a mortgage early or not in terms of the road to FIRE given that either scenario is handled prudently.

It's hard to understand why there are such strong feelings one way or the other when the results of either path have similar outcomes over the long term. Again, assuming either scenario is handled prudently.

People typically assume if one thing goes wrong, they can recover. They rarely think through the consequences if more than one thing goes wrong. Many learned the hard way in the last financial crisis. My SIL bought a home in 2006 using a mortgage with a low down payment because they wanted to keep their investments in stocks. We bought a home nearby for cash. When the financial crisis hit the value of their home dropped in half and my SIL's DH lost his job. The stock market also crashed and they were forced to sell at market lows to pay the mortgage and other living expenses. Their son also required hospitalization, but fortunately they still had insurance through my SIL's job. The money eventually ran out and they lost their home.
I'm not saying people should liquidate savings to pay a mortgage, but it should be a priority to keep the mortgage balance as low as possible and to pay it off ahead of schedule. Being able to sleep at might is worth a fortune.
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Old 01-25-2014, 01:13 PM   #62
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I love how the mortgage topic really brings out the diversity in the group! I personally choose to invest rather that pay down the mortgage (with significant cash reserves as mentioned above.) With the tax deduction I know I have come out ahead over time. But that is just one personal situation.

I think the answer for someone in their 20's is could well be different. The best place for extra cash may be dictated more by psychology that by rate of return. Will buying down the mortgage make the money seems more "locked up" and less tempting to tap for near term splurges or "lifestyle creep?" Will the psychological advantage of owning the home make you more comfortable taking measured risks in other decisions?

I'm just impressed that you are thinking this clearly at your age! Stay disciplined an you will be ok either way.
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Old 01-25-2014, 02:12 PM   #63
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Originally Posted by youbet View Post
It's always entertaining to read the pro and con opinions relating to mortgages.
So many folks are so strongly attached to one view or the other!

The fact is, at today's low interest rates, it's unlikely to matter whether someone pays off a mortgage early or not in terms of the road to FIRE given that either scenario is handled prudently.

It's hard to understand why there are such strong feelings one way or the other when the results of either path have similar outcomes over the long term. Again, assuming either scenario is handled prudently.
The proponents of either approach will probably argue with your assertion that they produce similar results.

IMHO those that favor paying off the mortgage are pessimists and those that want to keep a mortgage and invest the money are optimists. Still, I could never choose between the two as I often flip between pessimism and optimism and so split my money between the two approaches.
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Old 01-25-2014, 02:55 PM   #64
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IMHO those that favor paying off the mortgage are pessimists and those that want to keep a mortgage and invest the money are optimists. Still, I could never choose between the two as I often flip between pessimism and optimism and so split my money between the two approaches.
I think this is true. Guess I'm all sunshine!!
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Old 01-25-2014, 04:32 PM   #65
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The proponents of either approach will probably argue with your assertion that they produce similar results.

IMHO those that favor paying off the mortgage are pessimists and those that want to keep a mortgage and invest the money are optimists. Still, I could never choose between the two as I often flip between pessimism and optimism and so split my money between the two approaches.

I don't think it's as simple as putting a label on someone. Preparing for the volatility that is likely because of the excessive debt our government and the Fed have taken on and the financial repression of keeping interest rates below inflation rates is in my opinion wise planning.
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Old 01-25-2014, 04:35 PM   #66
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Originally Posted by youbet View Post
It's always entertaining to read the pro and con opinions relating to mortgages.
So many folks are so strongly attached to one view or the other!

The fact is, at today's low interest rates, it's unlikely to matter whether someone pays off a mortgage early or not in terms of the road to FIRE given that either scenario is handled prudently.

It's hard to understand why there are such strong feelings one way or the other when the results of either path have similar outcomes over the long term. Again, assuming either scenario is handled prudently.
I think there is a lot of knowledge in such discussions. For example, the interest payments on a 30-year, $150K loan, at 4.5% is $123K. We borrowed only 100K to live in palatial splendor, and it was swell to ditch that payment.

Can't say I'm strongly attached to the point of view, but I feel we achieved something major. The timing is important, and for us it is a tremendous thing to just have a tax payment now. And the tax payment has ballooned to nearly 200% of what it was in '95.

If your salaries are increasing, then the continued payments are no problem, and you probably have transitioned to higher tax bracket, so the interest write-off is more valuable.

I'm glad we paid off sooner than later. And I'm happy that others pay off on time.
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Old 01-25-2014, 11:24 PM   #67
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Great wisdom well said
Discussing leverage, Warren Buffett once said "if you're smart you don't need it, and if you're dumb you shouldn't be using it."
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Old 01-26-2014, 12:36 AM   #68
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We just went through this and decided to pay ours off last week.

We had refinanced a couple of times but each time we went for a 30-year mortgage, and with the plan to invest the difference between a 15- and 30-year mortgage payment into an Index fund. (We were tempted to take the 15-year but thought we'd risk market payback.) Took us longer than we thought, but we still managed to pay off a 30-year mortgage in ~20 years.

We have adequate liquidity or we probably wouldn't have considered this.
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...I recently refinanced from a 15 year mortgage to a low rate 30 year mortgage. I've basically been investing the difference in payments. I think of those investments as my mortgage payoff fund, but it also serves as an emergency fund. So I really don't have to make the mortgage payoff decision for several years when that account is larger than the balance of my mortgage. I like the flexibility.

The only thing I'd add, is that this method does require discipline. At this point, I COULD decide that those funds are now useful for going and buying a new car that I don't need. I think some folks make extra payments for that exact reason....it's permanent "savings" that they can no longer (easily) get their hands on that money.
Just another dryer sheet. But we agree, and decided for ONCE, we would not get greedy and instead take the money and run. And after the past few days, we're thinking it was a good decision. (Although, hmmm, maybe we could be grabbing up some good buys now....oh, here we go again, too late, done deal.)
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Old 01-27-2014, 10:23 AM   #69
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Personally I would rather have the banks 250 some thousand dollars at 3.375%. Seeing that sure I could pay it off, but why. The real cost is less than 3% after itemizing on 1040. My investments yield at least as much even if there is no growth.
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Old 01-27-2014, 10:56 AM   #70
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I feel we achieved something major.
That's great target. I'm glad paying off your mortgage made you feel so good! We all need that kind of emotional uplift in our lives from time to time.

I (long ago) paid my 30 yr mortgage off about 18 yrs into it. When mortgage interest rates fell significantly below what I was paying, I knew I either had to refi or pay it off. No sense paying over current market rates.....

At the time, I was well positioned to pay it off and refi'ing looked like a bit of a hassle, so I just paid it off. But, unlike your situation, it didn't seem like a big deal then or now. My investments were performing OK and the mortgage payment was small potatoes. So, yawn, I paid it off and moved on.

I still stick by my original statement that having a low interest mortgage or having no mortgage, both cases handled prudently, seem to perform about the same in terms of reaching FIRE. All the interesting examples posters have given have implied unusual circumstances and/or behaviors far outside the bounds of "prudent."

I am surprised to hear how many folks have "trouble sleeping at night" from holding a low interest mortgage that is a low percentage of their total worth. But, no doubt, if someone has emotional issues with holding prudent debt, by all means pay it off and get a good night's sleep! Either way, it will matter little on your road to FIRE. It seems to be the emotion, rather than the numbers, that gets everyone worked up.
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Old 01-27-2014, 11:11 AM   #71
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The proponents of either approach will probably argue with your assertion that they produce similar results.
Of course! That's why they're "fans" of whatever approach they're espousing. I'm just surprised by the level of support given to either methodology. It reminds me of Bears vs Packers games!
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Old 01-27-2014, 11:27 AM   #72
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Personally I would rather have the banks 250 some thousand dollars at 3.375%. Seeing that sure I could pay it off, but why. The real cost is less than 3% after itemizing on 1040. My investments yield at least as much even if there is no growth.

It's obviously a personal decision as long as you're aware of the risks. The next financial crisis may not happen for 10-15 years or it may happen next year. Nobody knows when, but it will happen at some point. A rise of 2% in interest rates will take 15% off the value of a 10 year bond and inflation is higher that what the bonds are paying. The stock market could take a major hit at the same time. Would you be forced to liquidate investments while they are down to pay the mortgage? The worst case would be if we ended up like Japan where the stock market remained stagnant for more than a decade. The Fed has trillions on its balance sheet that will eventually force inflation to rise that could hit bonds pretty hard. Now, I'm not saying to not invest in equities, but suggesting it may not be wise risking a home if a mortgage can be paid off. OTOH if you have the cash to pay off the mortgage, and still have income to live on, go for it. I just saw too many people hurt in the last crisis leveraging when they shouldn't have.
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Old 02-01-2014, 08:34 AM   #73
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...and the advantage is you don't entirely miss a stock market rally or participate in a crash. You get the safety of a guaranteed return and if things work out great for your investments you can still use them to pay off the mortgage. If the market crashes you can console yourself with you're lower mortgage principal.

Saying one approach is better than the other just gets us back to the same old pay off vs invest argument. Either one depends on circumstances and an unknown future, so hedge your bets and back both horses. I'm a strong advocate of averageness.
This spurred an idea for me. I've been of the mindset that my next house will be a cash purchase and zero debt. But following the notion of a 4% fixed return by paying mortgage down mixed with investing...maybe the rate at which one invests/pays down should be = one's AA.
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Old 02-01-2014, 09:29 AM   #74
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Congrats on not having any debt besides your mortgage. That is almost unprecedented these days for someone your age.

Everybody's circumstances are different. We were in your exact same shoes at your age (almost 30 years ago) and chose to pay down our mortgage based on our own circumstances and the economic circumstances at the time:

We had no debt besides our mortgage (never have)
Mortgage interest rates were historically on the high side
We had $25K in a taxable account earning high interest
DH was banking vacation (personal UE insurance)
We both were maxing out our 401ks

It took 10 years of extra payments to pay off that mortgage. We used the same strategy to pay off the mortgage on the next home we purchased as well.

DH retired last spring at age 56. We are on our third home which we purchased 8 years ago specifically with retirement in mind. Our mortgage is large but the interest rate is historically low so we're keeping the mortgage as a hedge against inflation.

As you can see, we've been on both sides of the payoff your mortgage vs not pay off your mortgage fence. I'm the last person that I thought would have a mortgage in retirement, but right now we think it makes the most sense to keep it.
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