Just paid down a big chunk of mortgage...but why does it feel wrong?

[ERD50]

Quote:

Originally Posted by flyingaway Mortgage should be considered as a negative safe investment. How could you find a safe investment with a guaranteed annual return of 4.99%?

My view on this is, is it really necessary to compare to the 'guaranteed safe' rate? IOW, if the rest of your money is at a 60/40 AA for example, then why not invest this the same?

And if you feel you must be strict in keeping this apples-apples, then you must also feel that no one should have a dime invested until they have paid off the mortgage. But would that be prudent?

-ERD50

[kgtest]

you need a place to live that's a fact.

You are paying 4.99% interest on a loan...fact.
Current markets being somewhat sideways, lucky if you return 4%.

You are basically taking money that MIGHT ROI 4% in the market, and instead putting it into your own mortgage interest bucket that will guarantee paying yourself the 4.99% interest.

Just shifting buckets...and some tax liabilities is all. I am doing the same thing, I just dialed back my 401k to get rid of this damn PMI.

[COcheesehead]

Would you pay 100% cash for a house today?

[Closet_Gamer]

Quote:

Originally Posted by MichaelB +2 Even more difficult to get that rate of return, guaranteed, zero default risk, and after tax.

This.

Once it's paid off you'll have cash each month and be asking yourself where else you can find a 4.99% guaranteed return.

My suggestion would be to pound the mortgage into the ground reasonably quickly. Maybe not overnight but in a few bite sized chunks timed with bonus payments or perhaps selling under water equities where you can harvest the tax loss and flip the remaining principle onto the mortgage.

I would not incur capital gains or other penalties to pay off the mortgage.

A simple way to advance the ball would be to point that $20k/yr dividend fire hose at the mortgage in addition to your regular payments.

All told, it's nice to have high class financial problems.

[dallas27]

Any simple spreadsheet cash flow analysis should prove that paying a mortgage early is suboptimal over any long timeline. Mortgage rates of interest are lower than they should be in the market because of FHA, the interest is tax deductable, and inflation devalues the balance. You have put the banks in a position high risk (interest, inflation) and you have none, almost for free, and paying off early "frees" you from this situation. You are being subsidized for god sakes.

Humans may not like math, but that doesn't make math wrong.




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[ERD50]

If someone has decided to pay off the mortgage, I don't understand the rational of making larger payments along the way. Wouldn't it be better to save up the balance, and do it all at once?

I doubt you knock off much interest with the interim payments, you hurt your cash flow in the process, and the money you put in is locked up. Having it invested keeps it liquid, and then, wham!, you're done.

-ERD50

[2HOTinPHX]

Quote:

Originally Posted by ERD50 Having it invested keeps it liquid, and then, wham!, you're done. -ERD50

If you are gonna keep it invested why would you ever want pay the house off...just keep it invested... what about RISK of a market down turn just when you decide to pay it off....

[COcheesehead]

I worry about sticking a bunch into something that it is hard to get back out of. Liquid = options.

[Texas Proud]

Quote:

Originally Posted by JDPascale If you are gonna keep it invested why would you ever want pay the house off...just keep it invested... what about RISK of a market down turn just when you decide to pay it off....

Who said you need to risk it

There are very safe investments that can be made... no risk of losing principal... not a great return right now, but no risk at all....

[mpeirce]

Quote:

Originally Posted by ERD50 If someone has decided to pay off the mortgage, I don't understand the rational of making larger payments along the way. -ERD50

It's not math, it's psychology. I know people who have convinced themselves it good to pay extra on their mortgage, but if they had extra funds sitting in an account would definitely spend it.

Out of sight out of mind.

[jazz4cash]

I have a vague idea of the area you live in. I think you should shop around for a better mortgage lender. Your property should qualify with a tiny LTV even with no house on the property. You definitely need to get rid of the loan you have. I am looking to do a refi at around 3.0 for 30 yrs at Andrews FCU. NASA FCU has good rates also.

[Andre1969]

Hey guys, figured I'd give an update on my mortgage situation. Now that it's over and done with, I feel a lot better about making that $10,000 payment. I think I was just going through a bit of "buyer's remorse" right after making the decision...sort of like the feeling you might get after buying a new car. I remember one of my friends buying a new Cadillac a few years back, and afterwards joking that the buyer's remorse was so bad that he should've been put on suicide watch!

Anyway, I think I'm going to forge ahead with my original plan, where I pay $2000 during a down month, $3000 during an up month, and $10000 in a month where my investable assets hit a new $10M threshold.

I know the month has just begun, but as of right now, it looks like September might be a $3K month. If I can get 1.3% out of the market this month, it'll be another $10-K'er

[Andre1969]

I figured I'd give an update on my progress here, since it's been about 5 months since I made that $10,000 payment on my mortgage. At the time, I still owed about $141K, and the mortgage was scheduled to be paid off in May of 2024.

Well, I made a $4K payment in September, $2K in October, $2K in November, $2K in December, and then $10K for this month (January). The required minimum is $1847.

Now, the outstanding balance is down to $123,845.04, and if I do $2K per month from here on out, it'll be paid off in January 2023...so just six more years!

I'll admit, I did have a small wave of "buyer's remorse" after I did this second $10K payment, but now that it's a done deal, I'm over it. I've been re-thinking my strategy though, of paying extra on it as my net worth hits new thresholds. I made that $10K payment because I popped the $1,130,000 threshold, and that was my plan. But, now I think I might just make one more $10K payment, but do it when the time feels "right". And after that, just stick to $2000 per month. Now that I'm down to 6 years, it just feels like it'll get paid off soon enough, regardless.

[UnrealizedPotential]

Paying off the mortgage is a kind of depends issue. I know in California it could make a lot of sense if you are sitting on a lot of equity and have the means to pay the rest of the mortgage down. Why? Well, the first 250k profit for a single person is tax free. If its more than that it might be 15%, too lazy to look it up now. But it's still a very good deal IF you walk away with a lot of profit. Some states might not be as good of a deal. Just my two cents . Of course paying down the mortgage assumes you are selling the house, condo, etc, and cashing out. Otherwise I am not sure it makes sense.

[ChiliPepr]

Quote:

Originally Posted by UnrealizedPotential Paying off the mortgage is a kind of depends issue. I know in California it could make a lot of sense if you are sitting on a lot of equity and have the means to pay the rest of the mortgage down. Why? Well, the first 250k profit for a single person is tax free. If its more than that it might be 15%, too lazy to look it up now. But it's still a very good deal IF you walk away with a lot of profit. Some states might not be as good of a deal. Just my two cents . Of course paying down the mortgage assumes you are selling the house, condo, etc, and cashing out. Otherwise I am not sure it makes sense.

Not sure I understand what you are saying here... Paying down the mortgage does not affect the profit on a sale in any way.

[UnrealizedPotential]

Quote:

Originally Posted by ChiliPepr Not sure I understand what you are saying here... Paying down the mortgage does not affect the profit on a sale in any way.

Not during the selling process no, but say for two years paying off the mortgage prior to selling the house, it most certainly does make a difference. The more you pay down a mortgage, the more equity you gain. The more equity you gain , the more you can walk away with.

[GrayHare]

Quote:

Originally Posted by UnrealizedPotential Not during the selling process no, but say for two years paying off the mortgage prior to selling the house, it most certainly does make a difference. The more you pay down a mortgage, the more equity you gain. The more equity you gain , the more you can walk away with.

Perhaps California has different rules, but typically even if you have $0 equity in a house, when you sell it the profit (or loss) is all yours.

[RunningBum]

Quote:

Originally Posted by UnrealizedPotential Not during the selling process no, but say for two years paying off the mortgage prior to selling the house, it most certainly does make a difference. The more you pay down a mortgage, the more equity you gain. The more equity you gain , the more you can walk away with.

Still makes no sense. You've just been paying yourself.

[UnrealizedPotential]

Quote:

Originally Posted by GrayHare Perhaps California has different rules, but typically even if you have $0 equity in a house, when you sell it the profit (or loss) is all yours.

How can it be otherwise?

[UnrealizedPotential]

Quote:

Originally Posted by RunningBum Still makes no sense. You've just been paying yourself.

Please explain how getting more equity is not helping me make money when I sell? I am not trying to argue. Just trying to understand.