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Old 10-04-2008, 04:58 PM   #21
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Hmmm - how does the 1.2 mil plus paid off mortgage compare to 2 mil with a mortgage?

Then insert your most sensitive forefinger into belly button and read your emotional temperature.

As for me - do not take my advice - age 65, 30 yr mortgage post Katrina, I can live off portfolio yield(Target Retirement 2015) plus a few Norwegian widow stock dividends in hard times(at least I think so).

I've been entertained with market fluctuations since 1966 - I don't have nerves of steel but I have a modest faith in RTM.

heh heh heh - The Huskies are in the cellar in the Pac 10 and I've been a Saint's fan since the 70's. After the little 1965-1983 flat if I were young/accumulation phase - I'd be dollar cost averaging.
With all due respect, I don't understand what you're saying....
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Old 10-04-2008, 05:07 PM   #22
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My home was paid for UNTIL I moved to Florida...there are 2 issues that convinced me it was a good idea; the psychological impact of being COMPLETELY debt free and the guaranteed return on your investment....the mortgage rate. We are in uncharted territory with the markets now....
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Old 10-04-2008, 05:28 PM   #23
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@UltimateCheapskate, unclemick takes a while to figure out. Good guy, although he forgot the "Psst...Wellesley" line this time.

My approach:

1. Buy an affordable house: no more than 25% of gross income for a 15 year fixed mortgage payment after putting down 20%.
2. 15 year fixed rate mortgage at 4.625% courtesy of PenFed, which I am not paying down early.
3. Max out 401(k), IRA's, kids' college funds.
4. Put extra in a taxable fund that will end up serving as an emergency fund, a college fund, a mortgage payoff fund, or an ER fund, depending on how things turn out.

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Old 10-04-2008, 05:33 PM   #24
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If you think the market is about to take off and are hesitant to put more money into the mortgage, then shift your fixed income allocations into equities and put your cash flow into your mortgage.

Best of both worlds.

Of course, if you're too chickenshit to put your bonds into equities, then maybe you want to rethink those good feelings about the market.

Most people fear volatility because they have monthly obligations to meet. If you dont have as much obligation, you have less concerns about the volatility.

To answer Unclemicks question in an oblique manner, a portfolio with a mortgage invested 50/50 or 60/40 is beaten consistently by an 80/20 portfolio with no mortgage and the mortgage amount subtracted from the portfolio...the $2M/800k mortgage example is a little extreme though
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Old 10-04-2008, 05:48 PM   #25
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If you think the market is about to take off and are hesitant to put more money into the mortgage, then shift your fixed income allocations into equities and put your cash flow into your mortgage.

Best of both worlds.

Of course, if you're too chickenshit to put your bonds into equities, then maybe you want to rethink those good feelings about the market.

Most people fear volatility because they have monthly obligations to meet. If you dont have as much obligation, you have less concerns about the volatility.

To answer Unclemicks question in an oblique manner, a portfolio with a mortgage invested 50/50 or 60/40 is beaten consistently by an 80/20 portfolio with no mortgage and the mortgage amount subtracted from the portfolio...the $2M/800k mortgage example is a little extreme though
Golly, it's all still way too complicated for me.

All I know for sure is that I don't owe anyone anything, and - trust me - I closed the door tightly behind me (not a simple task in it's own right, BTW, though no one talks about that these days), so no one can take away anything we have.

Could it be that the simplest ways are the best, not based just on - like I said before - how well you're sleeping at night, but based on actual results over time?
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Old 10-04-2008, 05:52 PM   #26
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Sorry, I'm just too used to slugging it out with folks who pour bags of apples and oranges on the table and then apply a 6 page spreadsheet to prove that the apples are better than the oranges.

I like both.

I also like simple certainties and birds in the hand.
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Old 10-04-2008, 05:55 PM   #27
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Originally Posted by cute fuzzy bunny View Post
Sorry, I'm just too used to slugging it out with folks who pour bags of apples and oranges on the table and then apply a 6 page spreadsheet to prove that the apples are better than the oranges.

I like both.

I also like simple certainties and birds in the hand.
No need to apologize. I'm just a little slow, cheap, and happy.
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Old 10-04-2008, 05:58 PM   #28
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(snip)
All I know for sure is that I don't owe anyone anything, and - trust me - I closed the door tightly behind me (not a simple task in it's own right, BTW, though no one talks about that these days), so no one can take away anything we have. (snip)
How did you do that, Cheapskate?
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Old 10-04-2008, 06:13 PM   #29
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I have always been in the habit of paying a little extra on my mortgage each month, but now I wonder. I think I am on track to ER in 4 years or so. My plan is to sell my current house, put some of the equity into my nest egg, and use the rest to pay cash for a new place. The house would probably sell now for $25 or 30K less than it was appraised for two years ago, and I wonder what house prices will do over the next few years (actually prices for land and building materials as I want to build it myself).

I am trying to wrap my brain around whether it makes more sense to continue to pay a little extra on the mortgage or stop doing that and put more into savings. Unless the contribution limits go up, such additional savings would have to go into a taxable account since I am already maxing my Roth IRA and tax deferred savings plan at work. If I increase my equity in the house, that's tax free money (proceeds of sale will be under the capital gains ceiling). But if I pay extra and house prices continue to fall, where does that leave me? Is there any way to get a real answer to this, or is it just a
"go with your gut" decision?
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Old 10-04-2008, 07:33 PM   #30
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With all due respect, I don't understand what you're saying....
Don't feel bad - often I don't understand what I'm saying either.

Other than to hint that there is a mixture of the rational(aka numerial analysis) and emotional(assessment of Mr Market going forward) and coverage of retirement expenses(budget) that is often summed up by the 'sleep at night' statement/factor.

There - you see I have further confused myself by trying to explain it more clearly.

Handgenade wise I have a vague idea what I'm talking about.

heh heh heh - yep I forgot Pssst - Wellesley. .

P.S. I hate to say this but I think I understand CFB's explanation of my explanation better than my own! Hmmmm?
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Old 10-04-2008, 07:41 PM   #31
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I'm with the "pay off the mortgage" crowd. It's a very secure feeling knowing that payment isn't looming every month.
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Old 10-04-2008, 09:31 PM   #32
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I think I understand CFB's explanation of my explanation better than my own! Hmmmm?
Had I thrown in a "Psssttt...Wellesley!" you might have passed it by thinking it was your own!

And I would have been honored.
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Old 10-04-2008, 11:10 PM   #33
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Yep, we used to have a guy that posted here who was a fanatic about having a mortgage and arbing it in the stock market.
The other thing that goes wrong with this argument is comparing the mortgage to stock market returns. No risk adjustment. How has everyone felt about their equity investments over the last 2 years? Anyone feel the urge to change something or bail out? How about in 2000-2003?
Thing is, a mortgage arb since 1999 went badly when using equities. Whats stupider is that most people paid more in mortgage interest than they got from their cash and fixed income investments during the same period. You loaned money out for less interest than the money you borrowed.
So even adjusted for risk, it was a loser and compared with comparable risk investments, it was still a loser.
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I a normal market I'd say it's close to a wash. In this market I'd say DCA now and pay off the mortgage later. I'm keeping my mortgage.
Well, I'm no fanatic, but I'm in Animorph's camp and I have the data to back it up.

Covering a mortgage without losing your ass(ets).

Short story-- 5.44% after-tax APY on a 5.375% mortgage after four years of payments.
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Old 10-05-2008, 07:44 AM   #34
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i faced this very same decision back in 1999. i had been saving up for a new car. when i had enough, i realized i could take that $ and pay off our mortgage balance with no prepayment penalty. of course, anyone i asked said to invest it in the then tech bubbling stock market.
3 doors: new car? pay off mortgage? invest it?
i picked door #2, pay off mortgage and never regretted it. what a feeling of freedom! i then took the extra cash freed up and invested it thru DCA.
i also waited a few years (02) and bought a used car.
maybe a combo of both would work for you. pay off a big chunk of mortgage balance and invest some. it all depends on your cash flow and j*b stability situtations.
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Old 10-05-2008, 09:08 AM   #35
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Short story-- 5.44% after-tax APY on a 5.375% mortgage after four years of payments.
Yeah but you're doing it a little bit differently than 99% of the people who attempt it, and you just might have the investing discipline to stick with it, while I suspect many dont.

Covering a mortgage without losing your ass(ets).

Investing the mortgage balance 100% in small cap value, having no bonds or other fixed income, and cola adjusted pensions that can cover the mortgage payments and then some. As I mentioned in the linked posts, you've got the knobs set to 11. Most people arent going to turn them much past 6 or 7.

Plus I was originally talking about a different nut.
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Old 10-05-2008, 09:20 AM   #36
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I have a goal of retiring in 5-8 years. I do have significantly extra cash flow just from living below our means. I can use it to pay off our mortgage in as quickly as 3 years vs dollar cost average into the market, where we have invested approx 1.2 million already. We need about 2 million for me to retire. I'm looking for opinions as to which may be the best strategy in light of the current economic situation. Thanks ahead of time.
Another consideration for paying off the mortgage early: How secure is your income surplus over the next 8 years? One may have a significant extra cash flow now but...

I paid off my house 3 years before ER in 2002. Never regreted it, and boy it shure feels good now!
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Old 10-05-2008, 10:47 AM   #37
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I have a goal of retiring in 5-8 years. I do have significantly extra cash flow just from living below our means. I can use it to pay off our mortgage in as quickly as 3 years vs dollar cost average into the market, where we have invested approx 1.2 million already. We need about 2 million for me to retire. I'm looking for opinions as to which may be the best strategy in light of the current economic situation. Thanks ahead of time.
(Emphasis added.)

Just a parenthetical comment: On debates such as these, I think there is a bias towards setting courses of action based on what has worked well in the recent past.

I once wondered what people in general recommended as the maximum percentage of a portfolio to hold in their employer's stock. At the time, I was approaching 10% of my portfolio in my employer's stock, and was wondering when other people would recommend I diversify.

I found several interesting things: First, every recommendation I found was wishy-washy and was not objective enough to be a useful measuring stick. Second, the percentage recommended pre-Enron was averaging 10-20%; post-Enron it dropped to 5-10%. Third, very few looked at the question objectively over the long haul (such as Nords has above).

I think the same thing applies here. People who have done well recently by paying off their houses are now glad about their choice -- and rightfully so -- and are commenting in this thread about how great it is. Personally, I have been playing the "get a low fixed rate mortgage and invest the rest" arbitrage game and plan to continue to do so. It has not worked out well for me over the past year or two but I expect that over the next five to ten years it will work out to my advantage. I am banking on the future being roughly like the past.

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Old 10-05-2008, 11:01 AM   #38
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Well, I'm no fanatic, but I'm in Animorph's camp and I have the data to back it up.

Covering a mortgage without losing your ass(ets).

Short story-- 5.44% after-tax APY on a 5.375% mortgage after four years of payments.
I wasn't going to argue this particular religious POV, but I'm glad a well respected forum member made the point.

Just like with many other situations that wouldn't make sense for your average Joe off the street, there are many people on this forum who have the self discipline and knowledge to make an informed decision regarding carrying/arbing a mortgage. In my case it's just a matter of diversifying so I don't have too large a portion of my money tied up in an illiquid form. I can pay the mortgage off at any time, the tax break helps, and by cautious investing I also increase my probability of not outliving my portfolio by carrying the mortgage.

I think paying off a mortgage is a great move for most, but I do see times when carrying one makes a lot of sense too.
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Old 10-05-2008, 11:18 AM   #39
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Firecalc has the answer

Just do a firecalc analysis of the 2 scenarios for your case. Larger portfolio with higher expenses, or smaller portfolio with lower expenses. In our case the answer was clear -- pay it off.

Also, in this market, a 100% guaranteed 6% return is pretty hard to resist.
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Old 10-05-2008, 11:43 AM   #40
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Just do a firecalc analysis of the 2 scenarios for your case. Larger portfolio with higher expenses, or smaller portfolio with lower expenses. In our case the answer was clear -- pay it off.

Also, in this market, a 100% guaranteed 6% return is pretty hard to resist.
FWIW, we did the following.

1. Never had any debt whatsover except a mortgage. That meant no car for 1st 18 months of marriage (but this was England in 1976 where public transport was a viable alternative). Have always had a "car" account where we pay ourselves a car note.

2. Once we were maxing out 401(k)s and IRAs in the mid 90's and had extra cash we set out a payment schedule to pay down principal at a rate to match mortgage paid off when first of kids went to college in 1999.

3. College years were over end of 2006 so all the extra cash now going into ER stash at the 40/50/10 allocation we are now at for our retirement years.

It feels good to have no debt at all, kids left home and working. I won't argue the financial options as for us it mostly a feel good thing
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