Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 07-30-2010, 01:55 PM   #21
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
Quote:
Originally Posted by nun View Post
I didn't really want this to become a pay off mortgage thread. I'm not that interested in how much I'll have in 20 or 30 years, as long as it's enough, but in the short term reducing my expenses will allow me to retire with a bit more of an after tax cushion. If I ER and keep paying the $2500 in P&I I have today for another 5.5 years I'll be eating into my after tax money even with $2000 a month rent and 72ting $1000/month from my IRA. However, if I refinance to a 4.6% 30 year loan my P&I goes down to $770 a month. Assuming 4% annual return, $2000/ month rental income, $1000/month 72t my after tax money will actually grow.
LOL I apologize if I took thread off your topic

The shorter the time period, the less I think refinancing makes sense (that is why I suggested a timeline to figure this out). In 5 years you have the "whole" amount to invest, and would have a paid off house.

In 30 years the refi option looks better than it does over next 5-10 years. You need to give the interest rate spread time to compound to see a big difference. Over 30 years the difference was less than 90k when I ran numbers last night... and shorter time periods will favor paying mortgage down over the investing.
__________________

__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-30-2010, 02:15 PM   #22
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by jIMOh View Post
LOL I apologize if I took thread off your topic

The shorter the time period, the less I think refinancing makes sense (that is why I suggested a timeline to figure this out). In 5 years you have the "whole" amount to invest, and would have a paid off house.

In 30 years the refi option looks better than it does over next 5-10 years. You need to give the interest rate spread time to compound to see a big difference. Over 30 years the difference was less than 90k when I ran numbers last night... and shorter time periods will favor paying mortgage down over the investing.
When I ran the numbers I found that if I ER now and don't refinance I'll have to eat into my after tax principal to pay the mortgage. Granted only a small portion is interest, but I'm locking up after tax money in home equity. If I refinance to the 30 year, 4.6% option my after tax money will actually grow. Given a 4% return on my money it'll be 2039 before the early pay off option wins out
__________________

__________________
nun is offline   Reply With Quote
Old 07-30-2010, 04:27 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Refi at a lower rate often makes sense. Even if the note is longer, you can accelerate the payoff to still pay off in 5 years... Calculate the payback period for the cost of the refi and compare.


IMO - I think it is a good idea to be debt free in ER. But that is mainly due to my personal tolerance for risk.
__________________
chinaco is offline   Reply With Quote
Old 08-02-2010, 10:31 AM   #24
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by chinaco View Post
Refi at a lower rate often makes sense. Even if the note is longer, you can accelerate the payoff to still pay off in 5 years... Calculate the payback period for the cost of the refi and compare.


IMO - I think it is a good idea to be debt free in ER. But that is mainly due to my personal tolerance for risk.
My only reason to refi would be to reduce my expenses so that I can ER. Right now I'm paying $2500/month for the next 5.5 years. Compare that to paying $770/month for 30 years....sure I end up paying a lot more interest, but with 4% annual return and factoring in my rental income the reduction in monthly hoi\using costs allows me to ER now.
__________________
nun is offline   Reply With Quote
Old 08-02-2010, 10:58 AM   #25
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Quote:
Originally Posted by nun View Post
My only reason to refi would be to reduce my expenses so that I can ER. Right now I'm paying $2500/month for the next 5.5 years. Compare that to paying $770/month for 30 years....sure I end up paying a lot more interest, but with 4% annual return and factoring in my rental income the reduction in monthly hoi\using costs allows me to ER now.
Try running those two sets of numbers through FIRECalc and see what it does to the ER portfolio's survivability...

Personally we're looking at our calendar and trying to figure how to time this so that the appraisal (if necessary) and the closing get done around our travel plans.

There's also an element of "Oh, crap, we're doing this again?!?" that's holding us back from picking up the phone. While we've been dithering, the loan we seek has dropped to 4% with only a 4.22% APR. Unfortunately the bank's website doesn't list the points for that APR, but it's probably less than two. I'm going to have to sit down with a calculator or find a website that'll let me back-calculate it before we make the phone call.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 08-02-2010, 11:38 AM   #26
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by Nords View Post
Try running those two sets of numbers through FIRECalc and see what it does to the ER portfolio's survivability...

Personally we're looking at our calendar and trying to figure how to time this so that the appraisal (if necessary) and the closing get done around our travel plans.

There's also an element of "Oh, crap, we're doing this again?!?" that's holding us back from picking up the phone. While we've been dithering, the loan we seek has dropped to 4% with only a 4.22% APR. Unfortunately the bank's website doesn't list the points for that APR, but it's probably less than two. I'm going to have to sit down with a calculator or find a website that'll let me back-calculate it before we make the phone call.
Both senarios work on Friecalc, but refinancing gives me a better results for min max and average portfolio.
__________________
nun is offline   Reply With Quote
Old 08-02-2010, 12:02 PM   #27
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 314
Quote:
Originally Posted by Nords View Post
Try running those two sets of numbers through FIRECalc and see what it does to the ER portfolio's survivability...

Personally we're looking at our calendar and trying to figure how to time this so that the appraisal (if necessary) and the closing get done around our travel plans.

There's also an element of "Oh, crap, we're doing this again?!?" that's holding us back from picking up the phone. While we've been dithering, the loan we seek has dropped to 4% with only a 4.22% APR. Unfortunately the bank's website doesn't list the points for that APR, but it's probably less than two. I'm going to have to sit down with a calculator or find a website that'll let me back-calculate it before we make the phone call.
Nords,
It never gets old seeing you posting about having vacation plans, all the while you live on one of the Hawaiin Islands.

Haven't you tried the 40 year notes yet, or don't they offer them anymore?
__________________
Primary title "chief moron"
myself is offline   Reply With Quote
Old 08-02-2010, 12:48 PM   #28
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Posts: 2,056
I'm going to vote refinance. Look at it this way. Right now, if you have 5.5 years (66 months) left at $2500/mo, you're going to pay another $165,000.

If you do the refinance to the 15 year term, you do end up paying $198,000 (180 months * $1100 per month), but it's over such a long term that, accounting for inflation, you might come out ahead, as that $1100/mo will feel less and less painful as the years go by.

And especially, if doing this refinance gives you the freedom to retire, go for it! Time is the only thing they're not making any more of. Well, that and land, I guess.

And FWIW, even refinancing to the 30 year might be good. Over the course of 30 years you pay $277,200 (360 months * $770 per month), but think about it, that 770/mo is still a $330/mo savings over the $1100.

You'll also get a bigger tax writeoff with the 30 year mortgage, and the benefits of that writeoff will last longer than a 15. So take that into consideration if your financial situation allows you to benefit from the writeoff.
__________________
Andre1969 is offline   Reply With Quote
Old 08-02-2010, 07:24 PM   #29
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Quote:
Originally Posted by myself View Post
Nords,
It never gets old seeing you posting about having vacation plans, all the while you live on one of the Hawaiin Islands.
Yeah, we hear a lot of "All y'alls are from Ha-why-uh an' yer vacationin' hee-yer?!?"

It's mostly been travel with a purpose-- checking up on my aging father, college trips with our kid, mandatory family pilgrimages to Disney, hauling luggage for spouse's meetings at a non-profit.

Next month it's Rice U's "Family Weekend" to check up on our kid after her first month of college (assuming she's not on academic probation) and spouse's training session at a non-profit on the way home.

We were looking at a diving trip to the Marianas, but it's too close to the Rice weekend. We'll probably catch up with that next spring. However spouse made a totally frivolous encore trip to Bangkok with a shipmate last April.

Quote:
Originally Posted by myself View Post
Haven't you tried the 40 year notes yet, or don't they offer them anymore?
That's a prescient question. I think we're going to have to remember 40-year mortgages as "the good ol' days". They've disappeared from the websites I usually check (Territorial Savings Bank, PenFed, NFCU, USAA) but I found one. Fidelity used to offer mortgages secured by brokerage assets, but volatility produced a lot of margin calls that drove the customers nuts.

However Bankrate.com popped up a 40-year from AimLoan.com at 4.75%, and by paying points we could get down to 4.375%. That'd hammer our monthly P&I down by 15% and I'd pay it off when I'm 89 years old. I guess that effectively matches my mortgage debt to my realistic life expectancy. Tempting.

If anyone has trash to talk about AimLoan.com, we're listening.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 08-04-2010, 02:38 PM   #30
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Posts: 2,056
Is there really much advantage to bumping out a mortgage beyond 30 years, though? My HELOC currently stands at a $160K balance, and the interest rate has been 3.5% for awhile now. I only have to pay the interest, but have been rounding the payments up to the next $100 (in this case, taking it to $500 mo). I should pay it down while it's lower, but instead I had been diverting the money to investing and other things.

Two months ago I did bump it up slightly, to $600/mo.

Well, I just ran a bunch of scenarios, and presuming it stays at 3.5% (which I know it won't, but for simplicity's sake), I came up with the following:

$500/mo: paid off in 77 years, 6 mo.
$565.12/mo: 50 years
$600/mo: 43 years, 1 mo.
$619.83/mo: 40 years
$718.47/mo: 30 years
$927.94/mo: 20 years
$1,143.81/mo: 15 years.

So, not really a huge amount.

I guess with bigger mortgages it would make more of a difference, though. But say, a $500K mortgage at 4.5%, the 30 year gives you a $2533/mo payment, while the 40 year makes it $2247/mo, a savings of less than $300/mo. I guess that's enough to make a difference for some people, though.
__________________
Andre1969 is offline   Reply With Quote
Old 08-04-2010, 06:55 PM   #31
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
It's a niche product. Hawaii real estate is horribly expensive (even if Kilauea is adding dozens of acres per year), it appreciates no faster on average than the rest of the country, and I see no reason to race to the finish to become sole owner of a huge steamin' pile of dead equity. The state has a persistent stream of expats leaving each year in search of affordable family housing. The rest of us had to move in with multi-generation family, live in crappy neighborhoods, or stumble across an incredible bargain. Spouse and I chose options #2 & #3, aided by lots of sweat equity.

I'm already getting income from a life annuity with the U.S. govt, so it makes sense to me to stretch out and lower my mortgage payments as much as possible. It's as if a landlord offered a 40-year lease with no rent increases.

It might be irrelevant. Our mortgage broker couldn't get any 40-year mortgages from AimLoan.com at less than 5%, despite their website promise. 40-year loans were generally at rates of 1% higher than 30-year loans of similar points, and our P&I payment would only drop about 6%. That's a long payback.

Sigh. I'm going to have to start building a spreadsheet of interest rates between 4-5%, refi costs including zero to two points, and terms of 30 to 40 years, and then calculate the refi payback. At least it'll make me feel productive while I'm waiting for rates (or refi costs) to drop a little more.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 08-04-2010, 07:16 PM   #32
Thinks s/he gets paid by the post
 
Join Date: Jul 2004
Posts: 1,072
Quote:
Originally Posted by Nords View Post
Sigh. I'm going to have to start building a spreadsheet of interest rates between 4-5%, refi costs including zero to two points, and terms of 30 to 40 years, and then calculate the refi payback. At least it'll make me feel productive while I'm waiting for rates (or refi costs) to drop a little more.
So THAT's what you do all day if retired early ;-)

Yeah, trips to Houston in the summer and bag schlepping all over the US - sucks - just got back from a consulting gig in SoCal - place hasn't changed that much (except LAAFB - holy, moly, the 25 years since I've been there have really changed the place - and the commissary - uhhh, those people don't look like they had *anything* to do with the military - PACKED to the gills, though - so glad I don't live there anymore....) The airline system hasn't changed - still a bloody hassle wherever you go and you will undress at least twice for those TSA handlers. I won't do more than one stop anywhere from where I live - PITA.

As for refi - to me, if you end up paying less over the time of when you live in the house, it's a no-brainer, but yeah, this thread brought up the emotional versus money argument again.

Have fun on your trips - I'll wave to you all from over here :-)
__________________
Deserat aka Bridget
“We sleep soundly in our beds because rough men stand ready in the night to visit violence on those who would do us harm.” - George Orwell/Winston Churchill
deserat is offline   Reply With Quote
Old 08-04-2010, 07:24 PM   #33
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,972
I guess i'm just not smart enough to comprehend why paying extra interest is a good thing. I'm allergic to paying interest and after paying my condo off at age 30 will never again make an interest payment. I feel sick thinking that I paid $3-4K in interest on my mortgage. I can't imagine some of you who likely paid hundreds of thousands extra for your homes. But hey, what ever works for you. This works for me, I wish the best for you as well.
__________________
aaronc879 is online now   Reply With Quote
Old 08-04-2010, 11:08 PM   #34
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,911
Quote:
Originally Posted by aaronc879 View Post
I guess i'm just not smart enough to comprehend why paying extra interest is a good thing. I'm allergic to paying interest and after paying my condo off at age 30 will never again make an interest payment. I feel sick thinking that I paid $3-4K in interest on my mortgage. I can't imagine some of you who likely paid hundreds of thousands extra for your homes. But hey, what ever works for you. This works for me, I wish the best for you as well.
I couldn't agree more on this very contraversial issue. There are many valid arguments on both sides of the mortage-or-not contraversy, but one reason I am in the "pay off the mortgage" camp is my dislike of paying interest.

When I finished paying off my house in 2006, I determined that the total interest that I paid on it during those four years was $17,401.08 . If I had paid according to the original payment schedule, instead of adding extra payments and lump sums whenever I could, the total interest paid over 30 years would have been $159,478.00. So, I "gypped" Chase Mortgage out of $142,076.92 that they thought they would be getting from me though the years. What a victorious feeling to know that they didn't get it, and would never get one more penny of interest from me.
__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is online now   Reply With Quote
Old 08-05-2010, 07:57 AM   #35
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 314
Quote:
Originally Posted by W2R View Post
I couldn't agree more on this very contraversial issue. There are many valid arguments on both sides of the mortage-or-not contraversy, but one reason I am in the "pay off the mortgage" camp is my dislike of paying interest.

When I finished paying off my house in 2006, I determined that the total interest that I paid on it during those four years was $17,401.08 . If I had paid according to the original payment schedule, instead of adding extra payments and lump sums whenever I could, the total interest paid over 30 years would have been $159,478.00. So, I "gypped" Chase Mortgage out of $142,076.92 that they thought they would be getting from me though the years. What a victorious feeling to know that they didn't get it, and would never get one more penny of interest from me.
W2R, I too have been in this same mindset. Thus the reason for our 15 year note. I guess it depends upon when one wants to retire, placed against the scale of how to minimize payments.
We recently started looking to refinance our current 15 year fixed (@4.625%) + HEL (6.54%) into another 15 year fixed (@4.25% or lower). One of my credit scores is 794, but on average between me and DW, it is 780.
Anyhow, I've examined the difference between the shorter term mortgage, and 30 year mortgage, and did an NPV on the difference (placing the difference into investments). What I found out in our case was that over the newer 15 year term (which would put me at 61), there would be $200/month less than needed to pay the mortgage itself at a withdrawal rate of 4.5% from those investments, for the other 15 years of a 30 year note.
While that is placing those specific items into a vaccuum unto themselves, I do have 9% of my paycheck going into retirement funds already, next year I'll bump it to 10%. In 15 years, there will be enough in these other investment accounts to pay for utilities, food, most medical expenses, and general transportation costs. At a safe withdrawal rate of 4%/yr.
I can soooo kick myself in the butt for not having started saving a lot more when I was younger (and quite a bit dumber ).
I think if my DW started working again (she stays at home with our brood now), I'd rather her put her entire paycheck into retirement savings and maybe a little bit towards having fun. She is, after all, 7 years younger than I am.
__________________
Primary title "chief moron"
myself is offline   Reply With Quote
Old 08-05-2010, 08:18 AM   #36
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 314
Quote:
Originally Posted by W2R View Post
I couldn't agree more on this very contraversial issue. There are many valid arguments on both sides of the mortage-or-not contraversy, but one reason I am in the "pay off the mortgage" camp is my dislike of paying interest.

When I finished paying off my house in 2006, I determined that the total interest that I paid on it during those four years was $17,401.08 . If I had paid according to the original payment schedule, instead of adding extra payments and lump sums whenever I could, the total interest paid over 30 years would have been $159,478.00. So, I "gypped" Chase Mortgage out of $142,076.92 that they thought they would be getting from me though the years. What a victorious feeling to know that they didn't get it, and would never get one more penny of interest from me.
Quote:
Originally Posted by Andre1969 View Post
Is there really much advantage to bumping out a mortgage beyond 30 years, though? My HELOC currently stands at a $160K balance, and the interest rate has been 3.5% for awhile now. I only have to pay the interest, but have been rounding the payments up to the next $100 (in this case, taking it to $500 mo). I should pay it down while it's lower, but instead I had been diverting the money to investing and other things.

Two months ago I did bump it up slightly, to $600/mo.

Well, I just ran a bunch of scenarios, and presuming it stays at 3.5% (which I know it won't, but for simplicity's sake), I came up with the following:

$500/mo: paid off in 77 years, 6 mo.
$565.12/mo: 50 years
$600/mo: 43 years, 1 mo.
$619.83/mo: 40 years
$718.47/mo: 30 years
$927.94/mo: 20 years
$1,143.81/mo: 15 years.

So, not really a huge amount.

I guess with bigger mortgages it would make more of a difference, though. But say, a $500K mortgage at 4.5%, the 30 year gives you a $2533/mo payment, while the 40 year makes it $2247/mo, a savings of less than $300/mo. I guess that's enough to make a difference for some people, though.
So, you're effectively paying down about $34-$134/month off the principle?
My personal "riskometer" would just be worried about what the rate would be in another 15-20 years when you still have $140k - $150k in principle to be paid. But I guess that's why they call it "Personal Finance", eh?
__________________
Primary title "chief moron"
myself is offline   Reply With Quote
Old 08-05-2010, 08:35 AM   #37
gone traveling
 
Join Date: Apr 2009
Location: Eastern PA
Posts: 3,851
Quote:
Originally Posted by W2R View Post
I "gypped" Chase Mortgage out of $142,076.92 that they thought they would be getting from me though the years.
To make it look even better, compute what you would have had to make, in total income to pay that $142k in "foregone interest".

Depending on your personal taxing situation (local, state, federal, etc.) and assuming a total 33% tax rate (not even including SS & FICA), you would have had to "earn" almost $189k to pay that net interest amount to Chase.

How many years of income does that equate to, and did it impact your ability to retire earlier ...?
__________________
rescueme is offline   Reply With Quote
Old 08-05-2010, 11:13 AM   #38
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Posts: 2,056
Quote:
Originally Posted by myself View Post
So, you're effectively paying down about $34-$134/month off the principle?
My personal "riskometer" would just be worried about what the rate would be in another 15-20 years when you still have $140k - $150k in principle to be paid. But I guess that's why they call it "Personal Finance", eh?
Yeah, I'll confess I'm not paying down the principle much at all right now. However, looking back at my records, I haven't been doing TOO bad. I ended up maxing my HELOC out back in October 2008. That was when the market was crashing, and there was talk about banks freezing HELOCs and such. I was afraid that mine would do the same, so I pulled the money out. At that point, the interest rate was 4.75% By Feb 2009 it was down to 3.5%, where it's been ever since. The interest portion was running just over $500/mo, and paying $600/mo wasn't knocking it down much, so for 5 months, I threw $1000/mo at it, but then once I got it just below $500/mo, I went back to $600/mo.

I had it paid down to around $170K, when my car got totaled. Instead of buying a new car and getting way into debt, I bought an $8K (with tax and everything) used Buick. Raided $4K from the HELOC, plus the $2K I got for my old car, and paid cash for the other $2K.

That extra $4K added $11.67/mo to the interest. Not a lot, but it got the interest back over the $500/mo mark, and almost maxed the HELOC back out ($175K limit).

So far this year, I've made the following payments:
Jan10: $600
Feb10: $600
Mar10: $9500 (I went through a phase where I wanted to build a new house in the near future, so I figured I'd better get this debt paid down quicker)
Apr10: $5000
May10: $500
Jun10: $500
Jul10: $600 (I think this was when I first ran the numbers and saw that $500/mo would mean it would never get paid off in my lifetime)
Aug10: $600

So, I guess I've been doing better on it than what my previous post had let on.

I am thinking about ramping up to $700/mo for my September payment. I'm supposed to get a raise that kicks in on September 1, so for the October payment, I might try taking it to $800/mo.

If the interest rate starts to shoot up too much, then I'll start paying it down quicker. FWIW, the highest it went was 8.5%. If it went back to that rate, if I wanted to pay off $160K in 30 years, the monthly payment would be $1230.26. That's less than the rent on most of the crack-house apartments around here, so still pretty cheap IMO. However, with any luck, before rates shoot up that high, I will have had the good sense to refinance to something that's fixed!
__________________
Andre1969 is offline   Reply With Quote
Old 08-05-2010, 12:35 PM   #39
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by W2R View Post
I couldn't agree more on this very contraversial issue. There are many valid arguments on both sides of the mortage-or-not contraversy, but one reason I am in the "pay off the mortgage" camp is my dislike of paying interest.
While I'm working I'm very much in the "paying interest" hating camp and I've paid down my mortgage quickly over the past couple of years. However, having $150k remaining and with interest rates at 4% refinancing to a longer term would reduce my monthly expenses to a level that would allow me to ER right now. This refinance argument is really about reducing expenses and freeing up cash rather than if it will be cheaper in 15 or 30 years time.
__________________
nun is offline   Reply With Quote
Old 08-06-2010, 12:14 AM   #40
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Quote:
Originally Posted by aaronc879 View Post
I guess i'm just not smart enough to comprehend why paying extra interest is a good thing. I'm allergic to paying interest and after paying my condo off at age 30 will never again make an interest payment. I feel sick thinking that I paid $3-4K in interest on my mortgage. I can't imagine some of you who likely paid hundreds of thousands extra for your homes. But hey, what ever works for you. This works for me, I wish the best for you as well.
Quote:
Originally Posted by W2R View Post
I couldn't agree more on this very contraversial issue. There are many valid arguments on both sides of the mortage-or-not contraversy, but one reason I am in the "pay off the mortgage" camp is my dislike of paying interest.
When I finished paying off my house in 2006, I determined that the total interest that I paid on it during those four years was $17,401.08 . If I had paid according to the original payment schedule, instead of adding extra payments and lump sums whenever I could, the total interest paid over 30 years would have been $159,478.00. So, I "gypped" Chase Mortgage out of $142,076.92 that they thought they would be getting from me though the years. What a victorious feeling to know that they didn't get it, and would never get one more penny of interest from me.
Hey guys, what is this, the Dave Ramsey show? Do I talk trash about whatever assets you choose to invest in?

There are both emotional and financial aspects to investing. For example, paying off the mortgage may enable you to sleep better at night. However, favoring the emotional aspect of the decision may deprive you of a financial opportunity that arises from the ability to do math. If you do the math and decide you'd rather sleep better, then great, that's what you should do. But if you ignore the financial side because of an emotional bias and don't do the math, then you may be poorer for it.

The point is, do the math before you decide whether it's going to be an emotional or a financial decision.

I've said this before, but in case it hasn't been said enough I'll say it again: this is a niche opportunity.

In my case your tax dollars are paying my inflation-adjusted pension. My future income is the equivalent of the dividend stream from I bonds or TIPS. From an asset-allocation perspective it makes no sense to invest the rest of my ER assets in bonds, especially if those bonds are yielding less than a mortgage. It makes all kinds of statistical sense to invest my ER assets in equities that may even yield more than a mortgage rate, let alone produce more profits than the carrying costs. Over 30 years I suspect that a 4-5% mortgage invested in equities will result in more money than was borrowed. Over 40 years I'm nearly certain of it.

In another case, Hawaii real estate is a huge paradise tax. If I paid down mortgage debt as quickly as I possibly could then my ER portfolio would be significantly smaller. That smaller portfolio would be more susceptible to a series of adverse withdrawals like 2000-2002 or 2008-2009. However a larger portfolio (by virtue of carrying a mortgage) is more survivable. That's why nun got the FIRECalc results.

I don't pay interest on credit cards. I don't pay interest on car loans. But when it makes sense to borrow cheap and invest long, then I'll take all I can get.
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
refinance AGAIN?? jblack FIRE and Money 21 06-27-2010 10:41 PM
Refinance or not glinka FIRE and Money 15 10-14-2009 02:54 PM
Need Help with Refinance Numbers theHundt FIRE and Money 1 02-25-2009 08:36 AM
Should I refinance? JohnDoe FIRE and Money 12 01-16-2008 09:41 AM
Refinance? Bimmerbill Young Dreamers 1 03-27-2006 12:06 PM

 

 
All times are GMT -6. The time now is 10:58 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.