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Old 12-01-2014, 07:16 AM   #41
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A compromise suggestion, as this worked for me: My $0.02:

We always strived to make an extra principal payment each month, just set it and forget it, as soon as we could afford to do so in ~1995. We did this with a 30 yr mortgage in Silicon Valley and here in PA. We refinanced to a 15 yr mortgage in 2003, took out some extra cash for a pool and turned out basement into a music studio and home theater. Even paid extra when times were lean (I lost my job due to a bully boss in 2004, underemployed for 3 years after that until I found my niche). Early this year, looking at mortgage interest deduction vs no house payment--would have paid off 3/2015 (with early payoff principal and interest and extra principal ~$2100/mo). Early this year we realized we would benefit from taking money just sitting in a treasury account to pay it off. So we did. It makes such a difference in our monthly budget not to have >$2K taken out for the house.

I would balance the negative cash flow vs the mortgage interest tax deduction in making your decision. With more cash on hand I would have paid it off in 2013. Paying down extra principal ~$200/mo over many years made a big difference for us--saved a lot of interest. That is a compromise worth considering too.

If you are a high earner, making extra principal payments each month will cut substantially into your interest rate in a rather painless way.
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Old 12-01-2014, 07:50 AM   #42
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Quote:
Originally Posted by EastWest Gal View Post
A compromise suggestion, as this worked for me: My $0.02:]
I would balance the negative cash flow vs the mortgage interest tax deduction in making your decision. With more cash on hand I would have paid it off in 2013. Paying down extra principal ~$200/mo over many years made a big difference for us--saved a lot of interest. That is a compromise worth considering too.
Wondering if others have considered this, we have other deductions that total about $8K, then state taxes of over $9K, so any mortgage interest even in later years would qualify for deduction. I expect that we will continue to itemize even after FIRE.

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Originally Posted by EastWest Gal View Post
A compromise suggestion, as this worked for me: My $0.02:]
If you are a high earner, making extra principal payments each month will cut substantially into your interest rate in a rather painless way.
My thinking is say I have $200/mo to do something with. What is the best use of that spot of money? It would depend upon your personal situation and your personal concerns. From a purely financial point of view, paying on a 4% loan vs an equity investment that should return 6-8% equity would win. You place a higher value on the peace of mind than I do cause your situation and personal situation is different than mine. I just suggest that those considering the choice consider the options.

BTW when I was paying an earlier mortgage many years ago with slightly high rates, I added extra to every payment also. We had paid down our last home to about $70K before we moved and sold it. Certainly that big pile of $$ we received was enhanced by the extra payments.
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Old 12-01-2014, 08:42 AM   #43
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That's actually our plan to pay extra principal, for now. Not FIRE'd yet, but anticipating it at some indeterminate point in the future (0-5years from now). Till then, OMY. Refinanced last month, which improved monthly cash flow by about $400, ignoring taxes. That was the last major expense which wasn't already addressed before I started working again.

Anyway, once the remaining principal is low enough or the savings are high enough, we'll most likely pay it off at that time - if we don't end up selling the house and downsizing instead.
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Old 12-01-2014, 09:13 AM   #44
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If you are a high earner, making extra principal payments each month will cut substantially into your interest rate in a rather painless way.
This is what I've been doing. I refinanced several years ago and just kept making the prior payment amount on the mortgage. I view this as further diversifying my portfolio. Sure, I might make an extra 2% on this money and I may also make 3% by converting all of my bonds into stocks. I choose to do neither since I feel it lowers our overall risk profile.
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Old 12-01-2014, 10:07 AM   #45
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To add a psychological/emotional aspect to the conversation, this is my post from a few years back, it might add some flavor (or maybe nothing) to the discussion:

I am my father's son.

Today I made the final payment on my mortgage, paid it off early, very early. Had a 15 year mortgage and paid it off in 11 years.

I can calculate a number of ways that carrying cheap debt is a reasonable way to proceed. But my Dad survived the Depression, it had a profound effect on him and I guess on me. My Grandfather had a coal distribution business in Chicago from about 1905 and was doing well. The coal company provided the coal on credit and the retail customers of my Grandfather were expected to pay him in 30 days. The depression hit and the customers could not pay him and he could not pay the coal company. He was always a good businessman, worked hard, did not cheat or live high and he got wiped out. Like a lot of other people.
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My father NEVER borrowed money in his life. He saved up and bought a fixer upper house for cash in 1964. Always had old used cars. Never had much money but was never in debt. It worked for him. I have had a few loans in my life for vehicles and paid them off early. Now the mortgage is gone. I have older cars all paid for. No credit card debt, no car debt, no house debt, none, nada, nine, naght, zero, and it feels good.

Now in college I realized that having a fixed attitude about debt is missing part of the financial picture. A lot of people who borrowed money after WWII and leveraged themselves into suburban houses did well for themselves. Some of my uncles did well that way but most didn't. Anyone who bought gold before 1974 must have done well when the dollar was taken off the gold standard. But all that was too speculative for my Dad. I do think there is more to finance then his simple system (don't borrow money and save 10% of what you make) but only if a person really studies finance and has the disclipine to systematically invest.

He had a good life: worked as a truck driver, was never in debt, fought in WWII, raised his 5 kids who all went to college and when he retired had about a 100% replacement of his modest working income. He died over ten years ago and I still miss him. But when I paid the mortgage off it sort of felt like he was there.
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Old 12-01-2014, 10:10 AM   #46
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In 2008 we went the other way. We had about eight years to go on a 15 year mortgage and were offered a really sweetheart deal to refi. So we went for a 30 year at an even lower rate. We make an extra principal payment that puts us back on the schedule we were on. But if tough times come all I have to make is a very small payment (the the taxes) to stay in my house. Tough times have not come and we will will be paid off in a few more years. For my money the insurance policy at the bank's cost seemed worth it.
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Old 12-01-2014, 10:27 AM   #47
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Quote:
Originally Posted by yakers View Post
...I am my father's son. ....But my Dad survived the Depression, it had a profound effect on him and I guess on me. .....
My father NEVER borrowed money in his life. ....
Similar story here, but not quite as extreme. My dad disliked debt and would pay it off as quickly as possible. However, while he was quite successful financially, later in life he said that one of his regrets was not using leverage as advantageously as he could have. That has caused me to try to use leverage prudently and we have had not debt for many years other than our mortgage which can be paid off anytime we want with a few clicks of the mouse.
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Old 12-01-2014, 11:13 AM   #48
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I paid off the remaining balance of my mortgage in September 04' with 9 years remaining at 4.75%. I made a few attempts to calculate whether I came out ahead or behind by paying it off. It makes a huge difference on what hypothetical investment choices were made and what buying and selling decisions were made during the Great Recession.


Based on my assumptions, I came out slightly ahead paying off my mortgage. One important note, I was laid off just after the bottom of the market in March 09'. Would I have stayed the course or panicked and sold. I will never know, but at the time I was sure glad I paid off the mortgage.
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Old 12-01-2014, 11:46 AM   #49
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For me, the answer to this question becomes one of my own psychological makeup. I did not consciously sculpt my retirement during my work life, but maybe subconsciously, I did. Maybe subconsciously I was constructing a very simple retirement. After we retired, we sold our house and used the equity to buy a nice, recently built bank owned house. So, in effect, we paid off our mortgage. There are good points to be made on both sides of this issue, but for me, it was a matter of constructing the simplest retirement environment. This also contributes to our stress-free lifestyle. We are very happy with this.
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Old 12-01-2014, 01:50 PM   #50
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I know that some here have mentioned paying extra for higher interest rates... I am sure there are many here who remember the high rates of the 70s... I was 'lucky' and qualified for a low rate of 13.5% when I bought my first house...

I paid extra every month... a few years later did a refi down to 9%.... then later got it down somewhere around 7%.... (not sure exactly, just guessing the rates)....

To me these rates deserve to be paid quickly... and if I had one that high I would.... but there is no way I am going to pay off a 3ish% rate early... I have set the payment up in my checking account to pay automatically... I do not have to do a thing... (well, I guess I need to make sure there is money in the account )...
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