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Re: Paying off the house (and car)?
Old 01-03-2005, 05:41 PM   #21
 
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Re: Paying off the house (and car)?

TH........That's a classic man! Kudos are in order!
And........................"Doody" heads? Now that you are back, let me be among the first to say "Howdy".

JG
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Re: Paying off the house (and car)?
Old 01-03-2005, 08:17 PM   #22
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Re: Paying off the house (and car)?

I tried ignorance, emotion and hostility toward anyone who disagrees with me, but it didn't return nearly as much money as being a doody head.
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Re: Paying off the house (and car)?
Old 01-04-2005, 10:58 AM   #23
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Re: Paying off the house (and car)?

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Maybe its best if we reconvene this discussion after the next 40% drop in the s&p500 when the pro mortgage crowd are all trying to sell their spleens and extra kidneys on ebay to pay the bills ;)
Well, on the LAST 40% drop we mortgaged the rental house to buy NASDAQ QQQQs in the 20s & 30s. (We picked a mortgage payment that equaled the rental's cash flow and we've since refinanced that to 5.5%.) I tend to call the bottom early & often so it took two years to make money. We've since sold at a profit, the money went up a bit in a small-cap growth ETF (IJT), and now it's up about 10% in the Dow Dividends ETF (DVY).

So on the S&P's NEXT 40% drop, we'll be the guys maxing out our shiny new zero-cost low-interest HELOC to buy stocks.

TH's advice is probably the best for the most, and it certainly involves the least volatility risk. I don't disagree with it and I'm not interested in prolonging an argument about which is "better".

But if you blissfully trust that past is prologue and if you're able to accomodate truly impressive volatility-- in both directions-- then mortgage-financed investments have a good chance for success. If you analyze/optimize all the numbers then the odds can be better than 70%. If the numbers look good and it feels right (no sleep deprivation) then you should seriously consider doing it. It's certainly easier (& less risky) than shorting individual stocks or trading options.

The mortgages are paid out of rental income or pension cashflow. Expenses are paid out of rebalancing from stocks into cash at long-term cap gains tax rates (with big deductions for previous cap losses and for mortgage interest) and we live a frugal life. I have no interest in parting with my spleen or any kidneys either.

I'm pretty sure that I'm not the doodyhead. Everyone has to choose the option that lets them sleep at night, and my sleep aids don't require prescriptions. We'll see how that changes over the next 29 years...

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Re: Paying off the house (and car)?
Old 01-04-2005, 01:23 PM   #24
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Re: Paying off the house (and car)?

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. . . *I think you know who you are. *Hint: theres only one doody head, to the best of my knowledge.
I just can't understand why you are so threatened by someone who chooses a financial strategy that is different from your own. You seem to jump in like a rabid dog to any thread where someone even mentions an alternative to paying off the mortgage. Call me doodyhead, but call me financially ahead.
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Re: Paying off the house (and car)?
Old 01-04-2005, 02:00 PM   #25
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Re: Paying off the house (and car)?

Heh,heh - there is a difference between aggressively agruing your postion and being threatened/threatening.

Alas - I vote for renting(but don't) and would probably be with Nords/Salaryguru - but,but - they don't give out Helocs to uninsurable fish camps over the water outside levee protection.

Great agruments - sort of like SWR.

Heck I even financed my 1999 Silverado at 9% - rather than sell individual stocks and was a Doodyhead all the way to the bank.
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Re: Paying off the house (and car)?
Old 01-04-2005, 02:46 PM   #26
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Re: Paying off the house (and car)?

Put me down for zero debt too. I have found it is difficult to p*ss money away when it is sunk in real estate.

Is this the "correct" approach? I'll check the rear view mirror in 15 years...meanwhile I sleep pretty well.
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Re: Paying off the house (and car)?
Old 01-04-2005, 05:22 PM   #27
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Re: Paying off the house (and car)?

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Heh,heh - there is a difference between aggressively agruing your postion and being threatened/threatening.
Amen brother Mick.

Honestly, as said before, I believe that 99.9% of people who enter into this dialog have already made up their minds and are just looking for validation. 95% of people who continue to participate in them over and over again are just restating their points. Some small percentage offer a "sure thing" set of "reasoning" that is hardly sure, but its definitely a thing.

Threatened Mr. Head (can I call you 'doody'?) aka SalaryGuru?...hardly my miniscule friend. I will simply tell the whole story that you do not tell, every time you try to tell it.

The whole story, is that if you can get a mortgage below 5% (right now, the national average is quite a bit higher than that), AND if you plan to stay in the home for the term of the mortgage, AND you dont have any cash or fixed income investments that pay less than the mortgage rate, then your approach is rational.

I should say its rational providing you consider the 30 year periods following times of excessive stock market valuation. As smarter and far more learned people than I have postulated, the last time we saw valuations like these were just prior to the 1929 crash and the 1960's-70's long sideways periods. Both fairly awful times for stocks for several decades after. But if you did manage to conjure up the stones to stay in it, after a full 30 years you would have been slightly ahead.

Getting past the 'he said, she said' (sorry SG, you're the 'she' in this argument), theres another approach besides the one I'm using that can be beneficial if you just cant shake the gambler in you.

In a zero debt situation, you have three ways to continue on your investing journey. You can maintain the same investment posture, allocating part of your monies to various stocks and bonds in 40/60, 50/50, 60/40 or whatever floats your boat. You can take the wussy approach like I did and reduce your volatility and expected returns by cutting back on stock exposure because...well...you simply dont need the money and therefore dont need to roll the dice. You could also take this third and last approach...since you dont need to make the mortgage every month, instead of some wimpout 60/40 or 70/30, take a year or two in cash and put the rest 100% in stocks. Not just your impish s&p500 either, but half in large cap value and half in small cap value. What the hell, you can take the volatility...you dont need the money every month to pay the big bills off.

By those 30 year numbers, that last strategy would not only make you more money, you can retire earlier on about 10-15% less than keeping a mortgage and maintaining a 60/40 traditional "balanced index" split. Wow...retire earlier, with less money, and less monthly volatility risk...who the heck would want that?

Run the numbers, go ahead. All the calculations to make your eyes bleed. Its all true.

But if you stay in a house 7 to 10 years like most people, you'll be getting a new mortgage 3-5 times during that 30 year spread. I'll bet you my dividend checks from next quarter that the interest rates during 2 or 3 of those periods will be in the vicinity of or higher than the 30 year return on the S&P 500.

Nords, you're one of the few exceptions I've heard real info from. You're pretty sure you arent moving for the term of the mortgage, at least not anytime soon, and if my recollection is right, you havent got a lot of low paying bonds either? Excepting the doody head, everyone that I'm aware of that has researched this and made a fact based, non-emotional decision to keep a mortgage has had little or no bonds, an honest to god anchoring feeling about never moving, still has a working spouse (spouse meaning a real person, not a handpuppet named something like, oh, say "Mrs Guru"), has a good pension coming in, or some other form of income stream.

If you're really ER'ed and living solely off your investments, do yourself a favor and drop the debt and then think about which of those three postures you want to take after that.

For what its worth though, if the s&p does do a 40% drop (higher than what I'm expecting, but I think 20-25% next year is well within reach), I'll be bleeding my bond holdings over into stocks as well, and for a full 40% I might think about tapping that HELOC as well.

Back to painting again tomorrow, followed by teaching my mother in law how to use a computer (sigh...). Perhaps I'll see you all next week. SG, try to cut down on the extra accounts you make up, and do try to spend a little more time with people rather than handpuppets and rocks. Maybe a little less time standing out in the desert staring up at the sun?
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Re: Paying off the house (and car)?
Old 01-04-2005, 05:34 PM   #28
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Re: Paying off the house (and car)?

What about this scenario:

Age: 57, Retired
Marital Status: Single

Federal government pension (indexed to inflation) $46,000

House valuation: $280,000
Annual taxes: $3000
1st Mortgate $155,000 (fixed 5.5%)
2nd Mortgage $60,000 (prime)

Rollover IRA: $150,000 (indexed equities with Vanguard)
Taxable Accounts $450,000 (indexed equites with Vanguard))
Roth IRA (Bonds with Vanguard) $10,000
ING Savings (2.25%) $12,000 - Emergency Fund

No car payments and no other debt

Should I pay off the 1st, 2nd or both mortgages?
Any suggestons for allocation?
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Re: Paying off the house (and car)?
Old 01-04-2005, 05:45 PM   #29
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Re: Paying off the house (and car)?

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Should I pay off the 1st, 2nd or both mortgages?
This is an easy one. Pay off the second, esp. if you can get the money with a re-fi.

Hang on to the first- it will look absurdly cheap not very far in the future.

And party on, Dude.

Mikey
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Re: Paying off the house (and car)?
Old 01-04-2005, 06:01 PM   #30
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Re: Paying off the house (and car)?

I agree. Dump the second, keep the first. You've got an income stream and your 'nut' would take too big a hit to pay both the first and second off.

As far as allocation, that depends. If you feel good about stock valuations (I dont), then a 70/30 or 80/20 allocation might suit you. Your pension should be paying most of your bills, so you could take a bit more volatility. If you're spending limits are within your pension payments, and you like the risk, take it.

Otherwise I'd stick with the box stock 60/40 balanced index or one of the target retirement funds at vanguard (say the 2015 one) and go fishing.
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Re: Paying off the house (and car)?
Old 01-04-2005, 07:28 PM   #31
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Re: Paying off the house (and car)?

Quote:

Amen brother Mick.

Honestly, as said before, I believe that 99.9% of people who enter into this dialog have already made up their minds and are just looking for validation. *95% of people who continue to participate in them over and over again are just restating their points. *Some small percentage offer a "sure thing" set of "reasoning" that is hardly sure, but its definitely a thing.

Threatened Mr. Head (can I call you 'doody'?) aka SalaryGuru?...hardly my miniscule friend. *I will simply tell the whole story that you do not tell, every time you try to tell it.

The whole story, is that if you can get a mortgage below 5% (right now, the national average is quite a bit higher than that), AND if you plan to stay in the home for the term of the mortgage, AND you dont have any cash or fixed income investments that pay less than the mortgage rate, then your approach is rational.

I should say its rational providing you consider the 30 year periods following times of excessive stock market valuation. *As smarter and far more learned people than I have postulated, the last time we saw valuations like these were just prior to the 1929 crash and the 1960's-70's long sideways periods. *Both fairly awful times for stocks for several decades after. *But if you did manage to conjure up the stones to stay in it, after a full 30 years you would have been slightly ahead.

Getting past the 'he said, she said' (sorry SG, you're the 'she' in this argument), theres another approach besides the one I'm using that can be beneficial if you just cant shake the gambler in you.

In a zero debt situation, you have three ways to continue on your investing journey. *You can maintain the same investment posture, allocating part of your monies to various stocks and bonds in 40/60, 50/50, 60/40 or whatever floats your boat. *You can take the wussy approach like I did and reduce your volatility and expected returns by cutting back on stock exposure because...well...you simply dont need the money and therefore dont need to roll the dice. *You could also take this third and last approach...since you dont need to make the mortgage every month, instead of some wimpout 60/40 or 70/30, take a year or two in cash and put the rest 100% in stocks. *Not just your impish s&p500 either, but half in large cap value and half in small cap value. *What the hell, you can take the volatility...you dont need the money every month to pay the big bills off.

By those 30 year numbers, that last strategy would not only make you more money, you can retire earlier on about 10-15% less than keeping a mortgage and maintaining a 60/40 traditional "balanced index" split. *Wow...retire earlier, with less money, and less monthly volatility risk...who the heck would want that?

Run the numbers, go ahead. *All the calculations to make your eyes bleed. *Its all true.

But if you stay in a house 7 to 10 years like most people, you'll be getting a new mortgage 3-5 times during that 30 year spread. *I'll bet you my dividend checks from next quarter that the interest rates during 2 or 3 of those periods will be in the vicinity of or higher than the 30 year return on the S&P 500.

Nords, you're one of the few exceptions I've heard real info from. *You're pretty sure you arent moving for the term of the mortgage, at least not anytime soon, and if my recollection is right, you havent got a lot of low paying bonds either? *Excepting the doody head, everyone that I'm aware of that has researched this and made a fact based, non-emotional decision to keep a mortgage has had little or no bonds, an honest to god anchoring feeling about never moving, still has a working spouse (spouse meaning a real person, not a handpuppet named something like, oh, say "Mrs Guru"), has a good pension coming in, or some other form of income stream.

If you're really ER'ed and living solely off your investments, do yourself a favor and drop the debt and then think about which of those three postures you want to take after that.

For what its worth though, if the s&p does do a 40% drop (higher than what I'm expecting, but I think 20-25% next year is well within reach), I'll be bleeding my bond holdings over into stocks as well, and for a full 40% I might think about tapping that HELOC as well.

Back to painting again tomorrow, followed by teaching my mother in law how to use a computer (sigh...). *Perhaps I'll see you all next week. *SG, try to cut down on the extra accounts you make up, and do try to spend a little more time with people rather than handpuppets and rocks. *Maybe a little less time standing out in the desert staring up at the sun?
Ok. I will admit that I didn't even read this most recent diatribe. Am I the only one, or are TH's mortgage postings beginning to remind others of ***** and his SWR posts?
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Re: Paying off the house (and car)?
Old 01-04-2005, 07:31 PM   #32
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Re: Paying off the house (and car)?

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Heh,heh - there is a difference between aggressively agruing your postion and being threatened/threatening.

. . .
That's true, but resorting to name calling and insults about hand puppets seems more the tactic of a threatened and frightened individual than an aggressive argument.
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Re: Paying off the house (and car)?
Old 01-05-2005, 10:27 AM   #33
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Re: Paying off the house (and car)?

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Honestly, as said before, I believe that 99.9% of people who enter into this dialog have already made up their minds and are just looking for validation.
Well, I don't need the validation as much as I need to avoid big gaping holes in my logic & calculations. I'm looking for quantitative criticism that would cause spouse & me to change our minds in the face of new facts. I'm never too proud to take advice that'll keep me from having to look for a real j-j-j-j-job.

Quote:
Nords, you're one of the few exceptions I've heard real info from. You're pretty sure you arent moving for the term of the mortgage, at least not anytime soon, and if my recollection is right, you havent got a lot of low paying bonds either? Excepting the doody head, everyone that I'm aware of that has researched this and made a fact based, non-emotional decision to keep a mortgage has had little or no bonds, an honest to god anchoring feeling about never moving, still has a working spouse, has a good pension coming in, or some other form of income stream.
Actually that's the emotional side of the rent/buy diatribe. This is the best house in the best location I've EVER had, and probably will ever have. When I gaze upon this domain I feel like a five-year-old who's been invited to stay at the grownups' party. And as much fun as it was to transfer to 19 different duty stations, we're not moving voluntarily.

Still no bonds in the retirement portfolio, although we're considering trading in a year of our 2-year cash stash for an I bond instead of a puny one-year CD.

Disclaimers-- We do have a small income stream (rental property) and a good govt pension. And my spouse continues part-time work despite my corruptive efforts to adjust her hedonic index. (I guess she's still learning to turn it off, but we both agree that's her problem.) When FIRECalc gives a 70% success rate without these factors, that makes it even more compelling. But I don't go to Vegas without practicing my card-counting & progressive-betting skills, either.

Quote:
... teaching my mother in law how to use a computer (sigh...).
Ye gods, man, haven't you been paying attention to the battle-scarred married veterans? Or do you have a masochistic deathwish that makes Odysseus look like Pollyanna? Aside from the personal struggle and the inevitable conflict, what possible good can come from teaching your MIL more ways to keep in touch with your new family? What's next for her, a broadband ISP and a webcam in your nursery?!? Phew... good luck!
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