Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 05-08-2012, 11:27 AM   #21
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 5,739
Send a message via Skype™ to kcowan
I believe in debt-free. It is always possible to make an investment loan if conditions ever get good again. Meanwhile, you minimize taxes and avoid AMT.
__________________

__________________
For the fun of it...Keith
kcowan 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!

To add some real numbers ...
Old 05-08-2012, 01:55 PM   #22
Recycles dryer sheets
 
Join Date: Apr 2012
Posts: 149
To add some real numbers ...

I just happened to be looking at this exact issue, since I've been making triple principle payments every month in order to pay down a newly refinanced 15-year mortgage to pay it off in about 5-years (Which is when I want to retire). I have a $300K, 15-year at 3%.

So, I started to question if it would be better to invest the money that is now going to extra principle payments. I set up an Excel program to calculate the growth of said investment for various average yearly RORs (3%-12%). I also added in the difference in taxes due to the mortgage interest payments. I made the assumption that at retirement (5-years) I would either have paid my mortgage off through accelerating the payments, or I would use the funds gained from investing to payoff the mortgage so that I didn't have to worry about it after retirement.

Results at 5 years:
If the investment ROR averages 5% over five years, I'd have an additional $18K from making investments vice paying down the mortgage. At an average 8% ROR over five years, that number would be $38K. At 10% it would be $53K. That said, if the average ROR is only 3% then the number is about $6K.

The difference in taxes by investing vice paying down was about $5.4K over 5 years (advantage to keeping mortgage and investing the "extra")

Frankly, I still don't know which way I want to go.
Dan
__________________

__________________
Steelart99 is offline   Reply With Quote
Old 05-08-2012, 03:06 PM   #23
Full time employment: Posting here.
 
Join Date: Jan 2011
Location: Just North of Boston
Posts: 522
Quote:
Originally Posted by Steelart99 View Post
Results at 5 years:
If the investment ROR averages 5% over five years, I'd have an additional $18K from making investments vice paying down the mortgage. At an average 8% ROR over five years, that number would be $38K. At 10% it would be $53K. That said, if the average ROR is only 3% then the number is about $6K.
Don't forget to run the numbers with -3%, -5% and -10%....
__________________
ChiliPepr is offline   Reply With Quote
Old 05-08-2012, 03:12 PM   #24
Recycles dryer sheets
 
Join Date: Apr 2012
Posts: 149
Even as a total newbie, I could run those numbers in my head!
__________________
Steelart99 is offline   Reply With Quote
Old 05-14-2012, 09:54 PM   #25
Recycles dryer sheets
 
Join Date: Dec 2011
Posts: 77
recent article on this topic from Forbes...Suze and Ramsey against Edelman
Why You Might Never Want to Pay Your Mortgage Off - Forbes
__________________
web_diva is offline   Reply With Quote
Old 05-14-2012, 11:21 PM   #26
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,468
Quote:
Originally Posted by Steelart99 View Post
I just happened to be looking at this exact issue, since I've been making triple principle payments every month in order to pay down a newly refinanced 15-year mortgage to pay it off in about 5-years (Which is when I want to retire). I have a $300K, 15-year at 3%.

So, I started to question if it would be better to invest the money that is now going to extra principle payments. I set up an Excel program to calculate the growth of said investment for various average yearly RORs (3%-12%). I also added in the difference in taxes due to the mortgage interest payments. I made the assumption that at retirement (5-years) I would either have paid my mortgage off through accelerating the payments, or I would use the funds gained from investing to payoff the mortgage so that I didn't have to worry about it after retirement.

Results at 5 years:
If the investment ROR averages 5% over five years, I'd have an additional $18K from making investments vice paying down the mortgage. At an average 8% ROR over five years, that number would be $38K. At 10% it would be $53K. That said, if the average ROR is only 3% then the number is about $6K.

The difference in taxes by investing vice paying down was about $5.4K over 5 years (advantage to keeping mortgage and investing the "extra")

Frankly, I still don't know which way I want to go.
Dan
Why wasn't it a push at 3% since that is your mortgage rate if you earn 3% that is taxable and pay 3% that is tax deductible? Might have to do with compounding of the investment earnings given your 5 year time horizon?
__________________
pb4uski is online now   Reply With Quote
Old 05-15-2012, 08:58 AM   #27
Recycles dryer sheets
 
Join Date: Apr 2012
Posts: 149
With 3% invested in stocks, while still paying the mortgage off over the 15 year note, I would be paying more interest on the mortgage each year and thus gettting a "greater" tax writeoff. If I pay down the mortgage faster, the mortgage interest paid yearly becomse less and the resultant tax writeoff is less.

As I noted "The difference in taxes by investing vice paying down was about $5.4K over 5 years (advantage to keeping mortgage and investing the "extra") ". That is the primary driver.
__________________
Steelart99 is offline   Reply With Quote
Old 05-22-2012, 06:07 PM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,384
I never thought I would do this, but I went to "the dark side" and decided to refi my mortgage and extended it to a 30 year and reduce my interest rate by 1.25%. My first plan was to just pay it down faster, then I thought refi to a lower 15 year. Now I have done a total 180 and just decided to cut my payment and save/hoard more cash instead. I have just always thought of needing to pay things off, but now Im thinking I can easily make my mortgage payment for the rest of my life, so I should focus on increasing cash reserves for other financial issues that may come down the road. In about 5 years, I could probably just pay it off, but I like the idea of having more cash at my disposal. I wrote this because usually this is a philosophical thing and everyone is usually set in their way one way or the other. I have read so many discussions on this matter through the years I actually changed my mind on the matter. I would rather have my cash in the bank than in my house, even if Im losing a little on interest spread between CDs and the loan rate.
__________________
Mulligan is offline   Reply With Quote
Old 05-23-2012, 09:01 AM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
kcowan's Avatar
 
Join Date: Jul 2006
Location: Pacific latitude 20/49
Posts: 5,739
Send a message via Skype™ to kcowan
Quote:
Originally Posted by Mulligan View Post
I would rather have my cash in the bank than in my house, even if Im losing a little on interest spread between CDs and the loan rate.
Do you have a budget for paying that spread now and as it grows?
__________________
For the fun of it...Keith
kcowan is offline   Reply With Quote
Old 05-23-2012, 09:53 AM   #30
Full time employment: Posting here.
 
Join Date: Jan 2011
Location: Just North of Boston
Posts: 522
Quote:
Originally Posted by Mulligan View Post
I wrote this because usually this is a philosophical thing and everyone is usually set in their way one way or the other. I have read so many discussions on this matter through the years I actually changed my mind on the matter. I would rather have my cash in the bank than in my house, even if Im losing a little on interest spread between CDs and the loan rate.
I always go back and forth... do a want a 15 yr 3.125%, a 30 yr 3.625, or to pay off the mortgage?

Right now I am leaning towards getting the 30 year mortgage and pay at the 15 year rate until yields are greater than 3%.

Quote:
Originally Posted by kcowan View Post
Do you have a budget for paying that spread now and as it grows?
The only way the spread would grow is if rates on CD go down (can they go negative? ) or taking out a floating rate loan, which in my case I would not do.
__________________
ChiliPepr is offline   Reply With Quote
Old 05-23-2012, 09:59 AM   #31
Thinks s/he gets paid by the post
DFW_M5's Avatar
 
Join Date: Sep 2003
Posts: 4,982
To me it would depend on whether I could be comfortable with my after-tax cash flow in retirement holding a big mortgage. Personally, I prefer the debt free approach to living.
__________________
DFW_M5 is offline   Reply With Quote
Old 05-23-2012, 11:46 AM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Mulligan's Avatar
 
Join Date: May 2009
Posts: 7,384
Quote:
Originally Posted by kcowan
Do you have a budget for paying that spread now and as it grows?
Being fortunate enough to have a nice pension with a 2% annual COLA, I consider myself monthly cash flow " rich" (relative term) and net worth "poor" ( that is not relative). I have over $1000 left over each month, so I changed my mind by reading the many threads we have had and decided to refinance out to 30 yrs., and reduce the interest rate from 5% to 3.75% and build my cash stash. In fact, I just did it this morning at the mortgage company. I could have been more aggressive to get a better deal, but I hate paperwork and they already had my info from my mortgage. I just drove up and gave them my W2 and bank statements, signed a few forms, and they will come to my house to sign closing papers, took maybe 10 minutes, plus a 5 minute phone call yesterday. As a useless side note he told me my credit score was 815. I never knew what it ever was. Hopefully I never will need to know again.
__________________

__________________
Mulligan 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


 

 
All times are GMT -6. The time now is 10:09 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.