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12-15-2018, 09:41 AM
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#1
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Confused about dryer sheets
Join Date: Mar 2018
Posts: 3
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Pay off house?
I am at a crossroad on whether to pay off our primary house. DW and I have a rental property that we own free and clear that generates $1000 per month after tax cash flow. Our current P&I payment on our primary house is $2000. If we sell the rental, we would have enough cash after the capital gains and depreciation recapture to pay off our primary house. Looking for thoughts from others who have been in a similar situation.
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12-15-2018, 09:46 AM
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#2
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gone traveling
Join Date: Dec 2015
Location: Berkeley, Denver, CO, USA
Posts: 1,406
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Do you want the financial answer or the psychological one?
I, being financially foolish, took $50K out my Roth IRA in 2011 so we would own our house with no mortgage.
It felt good then. And, now.
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12-15-2018, 09:54 AM
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#3
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Recycles dryer sheets
Join Date: Oct 2013
Posts: 116
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Well, having a rental paying $1000 a month is beneficial. Did you plan on owning the rental initially? If this was part of your investment plan then stick with it if not and being a landlord is not for you then sell.
We planed on having a rental for investment purposes. We paid off the home first and then the rental.
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12-15-2018, 10:08 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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What is your mortgage interest rate? How much of the P&I is principal?
It seems to me as if you are confusing two decisions into one. One decision is whether or not to pay off the mortgage? Another is whether or not to sell or keep the rental?
And if the pay off the mortgage question is yes, then the follow on question is where are the funds to pay off the mortgage going to come from? Or if the decision is to sell the rental then the question is what to do with the proceeds?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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12-15-2018, 10:25 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,183
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Completely agree you are looking at 2 separate decisions.
The "pay off the house" decision is generally considered to be a toss up. There's a certainty in the savings of not paying x% interest, and what you'd invest the money in if you kept the mortgage, and whether you'd take on more or less investment risk a mortgage. And there's a comfort in having the debt gone that some people appreciate. Others might enjoy the leverage, and not depleting their savings.
Given that it's more or less a toss up, I wouldn't sell the rental just so you can pay off the mortgage. If you want to sell the rental anyway for other reasons, then you can consider whether you'd rather invest the money, or pay off the house.
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12-15-2018, 10:28 AM
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#6
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Recycles dryer sheets
Join Date: Oct 2015
Location: Bozeman
Posts: 194
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Welcome to the forum. A couple of things: 1- there isn't enough info here to give you a quality answer, and 2- I understand why you're linking these two actions, but I'd suggest that you separate them as you move through your decision process.
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12-15-2018, 11:05 AM
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#8
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gone traveling
Join Date: Oct 2018
Posts: 309
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My knee-jerk answer is Yes, however it would be helpful to get more information.
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12-15-2018, 12:53 PM
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#9
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Confused about dryer sheets
Join Date: Mar 2018
Posts: 3
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You are right, it is two separate decisions. I should have thought this through a little better before posting. That’s what I love about this forum.
We are leaning towards selling the rental. We expect to yield $350,000 after paying taxes, which is close to what we owe on our primary house. Our current interest rate is 4.25%. The breakdown of principal/interest is $600/$1400 per month. Our primary house is the only debt that we have. We have 7 years left until we retire at age 59.
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12-15-2018, 01:05 PM
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#10
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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If you don't pay off the mortgage then what would happen to that money... presumably you would invest it rather than fritter it away... what would it be invested in? Will those investments be expected to yield more than 4.25% over the remaining term of your mortgage? What is the range of likely yields?
That can help you quantify the decision financially. The you have to use your gut to decide what is most comfortable for you... some people are really bothered having a mortgage.... others it doesn't bother a stitch.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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12-15-2018, 01:46 PM
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#11
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Confused about dryer sheets
Join Date: Mar 2018
Posts: 3
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We would invest it in individual stocks from the list of Dividend Kings
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12-15-2018, 01:58 PM
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#12
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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In that case it is very likely that over the remaining term of the mortgage that the investments will yield more than 4.25%.. so the smart financial move would be to keep the mortgage. Now the gut comes into play.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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12-15-2018, 03:09 PM
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#13
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Dec 2014
Location: Huntsville, AL/Helen, GA
Posts: 6,002
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Quote:
Originally Posted by Leifowitz
You are right, it is two separate decisions. I should have thought this through a little better before posting. That’s what I love about this forum.
We are leaning towards selling the rental. We expect to yield $350,000 after paying taxes, which is close to what we owe on our primary house. Our current interest rate is 4.25%. The breakdown of principal/interest is $600/$1400 per month. Our primary house is the only debt that we have. We have 7 years left until we retire at age 59.
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There are a number of angles here. If you were retired or about to retire, I'd tell you to sell the rental. But what's the chance that it'll continue to appreciate in value in the future? If the rental home is in a hot retail home market and you have a good tenant, you might be better to hold on to it another 5 years.
One of our ace in the holes for ER was to have home(s) that were paid for. I honestly just don't like making payments, etc. And if I had a rental house, I'd just not like to deal with maintenance and bookkeeping if I was retired. But if there's more money with keeping it a little longer, don't yet sell.
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12-16-2018, 11:31 AM
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#14
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Full time employment: Posting here.
Join Date: Feb 2018
Location: An Un-Organized Township of Maine
Posts: 801
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I would keep the rental and use it's $1,000/month income to make extra principal-only payments on your home mortgage.
__________________
Retired at 42 and I have been enjoying retirement for 18 years [so far].
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12-16-2018, 01:33 PM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,668
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Paying off my mortgage 8 years early (15 yr mtg) was one of the smartest long-term financial matters that I have ever done. Almost a no-brainer.
__________________
Part-Owner of Texas
Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx
In dire need of: faster horses, younger woman, older whiskey, more money.
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12-16-2018, 02:59 PM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
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I would say that it is the opposite for us. When I retired in 2012 I chose not to pay off the mortgage... I refinanced in Jan 2012 just before I retired... mainly to reduce our interest rate from 4.375% to 3.375%. Just the other day I ran a Portfolio Visualizer analysis that started with a portfolio equal to our mortgage in January 2012 with monthly fixed withdrawals equal to our monthly payments. That portion of our portfolio, after paying ~7 years of payments is $100k more than our mortgage balance... so I am way ahead...IOW, that's $100k that I wouldn't have if I had used that money to pay off my mortgage 7 years ago instead of refinancing.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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12-17-2018, 11:08 AM
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#17
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Thinks s/he gets paid by the post
Join Date: Jun 2016
Posts: 4,655
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Quote:
Originally Posted by pb4uski
I would say that it is the opposite for us. When I retired in 2012 I chose not to pay off the mortgage... I refinanced in Jan 2012 just before I retired... mainly to reduce our interest rate from 4.375% to 3.375%. Just the other day I ran a Portfolio Visualizer analysis that started with a portfolio equal to our mortgage in January 2012 with monthly fixed withdrawals equal to our monthly payments. That portion of our portfolio, after paying ~7 years of payments is $100k more than our mortgage balance... so I am way ahead...IOW, that's $100k that I wouldn't have if I had used that money to pay off my mortgage 7 years ago instead of refinancing.
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We similarly refinanced our mortgage to 3.375% about 5 years ago. We have no intention of paying it off early. We like earning higher returns on our money and also like the liquidity.
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12-17-2018, 12:24 PM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Sep 2005
Location: Northern IL
Posts: 26,806
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Quote:
Originally Posted by pb4uski
I would say that it is the opposite for us. When I retired in 2012 I chose not to pay off the mortgage... I refinanced in Jan 2012 just before I retired... mainly to reduce our interest rate from 4.375% to 3.375%. Just the other day I ran a Portfolio Visualizer analysis that started with a portfolio equal to our mortgage in January 2012 with monthly fixed withdrawals equal to our monthly payments. That portion of our portfolio, after paying ~7 years of payments is $100k more than our mortgage balance... so I am way ahead...IOW, that's $100k that I wouldn't have if I had used that money to pay off my mortgage 7 years ago instead of refinancing.
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Thanks - I had not thought of using Portfolio Analyzer for this! Now that's using your brain!
I entered my numbers, and I'm $53,680 ahead on my 2003 $124,000 re-fi, using a 70/30 AA on index funds. Probably better in real life, as I actually did re-balance at what was close to the 2008 lows (didn't know/predict that at the time, just decided to re-balance at that point). That feels pretty good!
OK, so how can anyone in this thread claim it is "almost a no-brainer" to do an early pay-off? Sure, a gain is not guaranteed, but if you can secure a low interest rate, it is a pretty safe bet over a 15-30 year time period.
Quote:
Originally Posted by Leifowitz
We would invest it in individual stocks from the list of Dividend Kings
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- Why?
-ERD50
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12-17-2018, 12:28 PM
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#19
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Thinks s/he gets paid by the post
Join Date: Aug 2013
Location: North
Posts: 4,023
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For me it's two questions. 1. Can I afford the expense of the mortgage while FIREd ? and 2. Would I rather have the money compounding in the market at a variable rate usually > 4% or would I rather pay myself a straight 4% and put it towards the note?
So far I've tried to take split 50/50 annually with 50% of our expendable "investable" income towards the mortgage and the other half into the market.
So far that plan should work for us. YMMV.
__________________
Time > $$$ ~ 100% equities ~ FIRE @2031
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12-17-2018, 12:41 PM
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#20
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gone traveling
Join Date: Aug 2006
Posts: 994
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.
Don't do like a guy I know.
He sold his debt-free rental house then quickly squandered the money.
Now he has no rental income and is having problems paying his mortgage.
.
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