Pay off house or dump it in the market?

[Penny6]

We are looking at paying off our house by April 2019, 59K left(original plan). We are 32&36 we said if there was a drop in the market we would revisit. The house is our only debt. We fully fund 1 retirement 18.5k company puts additional 20k/yr, 2 backdoor roths 11k, 500mo to 529, and 500mo to brokerage account. All of these are automatic we currently put 3k/mo on the house. We have about 5mos emergency/cash funds on hand. The 59k- pay would be coming from my husbands yearly bonus and company stock sell off leaving our cash reserve intact.

Option 1: Complete original plan payoff house then up the monthly Brokerage contributions all other contributions are not affected.

Option: 2 load up 401k to max in these first few months of the year while the market is down paying only original house payment and funding additional $2100 into brokerage. Essentially funneling about 53k to brokerage +19k to 401k within Q1 of the year. The company continues contributions over the year.

 

[targatom2019]

I was able to take more investment risks after my house was paid off.

 

[nuisance]

Changing your strategy because you perceive the market as being a good value today is market timing. To some that's a dirty word, but you're picking between two good options here.

Because in general market returns are higher than home loans, the numbers answer is to do what you're doing: invest in the market and pay the house of slowly. Personally our house is paid off because it just feels good.

 

[Bamaman]

You're doing great at your age. But I would not be cashing in any stocks just to payoff the house. Just keep on paying it down with retained earnings from jobs.

We knew my job was not going to last into normal retirement age, and we had a long term plan to payoff the real estate--2 houses. I just don't want to have to chase around my bank accounts to come up with the cash flow to pay house payments. I prefer for my retirement years to be fiscally on cruise control.

 

[thumbs]

I would definitely pay off the house this April. Once the mortgage is done, that will free up lots of cash to invest in the market. April is very soon... its not like the market will double between now and then.

 

[Sunset]

Go with Option 1.
The reason is you have no way of knowing that the market is as low as it can go. It could go a lot lower sometime in the future. It's not like it dropped 50% currently it's only down about 15%.

 

[ERD50]

I would definitely pay off the house this April. Once the mortgage is done, that will free up lots of cash to invest in the market. ... .

I keep seeing this as a reason to pre-pay a mortgage. Are you serious? It does not make any sense at all, does it?

The money was already invested in the market. To prepay, and then use the cash flow to invest only delays the investment.

If you are serious, please explain what I'm missing here. Maybe I'm losing my mind.

-ERD50

 

[street]

I would definitely pay off the house this April. Once the mortgage is done, that will free up lots of cash to invest in the market. April is very soon... its not like the market will double between now and then.

I would do the same and did. This option isn't very popular but worked for me, had no home payments for 25 years and did a lot of investing with those would be home payments over that time period.

I also knew I was staying in this home for the very long haul. I gained a lot of equity in my home and saved a ton on interest to the lender. I hate paying interest, period.

 

[joeea]

We are looking at paying off our house by April 2019, 59K left(original plan).

Why?

Is the thought of a mortgage keeping you up at night?
Do you have an unusually high mortgage rate for some reason?

 

[youbet]

Why?

Is the thought of a mortgage keeping you up at night?
Do you have an unusually high mortgage rate for some reason?

+1

Many of the "It feels soooo good to pay off the mortgage" types readily admit that the "good feeling" brought about by eliminating debt, rather than what the numbers say, is their prime reason for doing an early payoff. And, hell, that's a very legitimate reason. I do lots of things that cost me money just because doing them makes me feel good. But, it never bothered me to carry a mortgage or I would have just paid cash for our modest house in the first place.

I'd say to OP, if having the mortgage gives you negative feelings and you'll be happier without it, go ahead and pay it off. If it doesn't really bother you to have a mortgage, keep it. Whether increasing your equity AA now or paying off the mortgage and slowly building your equity AA over the years turns out to be the better move from an investment return standpoint, only time will tell. try not to have market timing be an important factor in the decision.

 

[thumbs]

I keep seeing this as a reason to pre-pay a mortgage. Are you serious? It does not make any sense at all, does it?

The money was already invested in the market. To prepay, and then use the cash flow to invest only delays the investment.

If you are serious, please explain what I'm missing here. Maybe I'm losing my mind.

-ERD50

Ahhh... I missed the part about the company stock sell off to fund it. I read it as coming from all earned income ($3k per month additional pay down plus money from the bonus).

My thoughts were that paying off $59,000 in debt in 4 months vs a couple years made good sense seeing as it would free up a lot of cash flow to do with whatever they want. Which in their case, seems to be investing.

Either way they are golden.

 

[Markola]

+1

Many of the "It feels soooo good to pay off the mortgage" types readily admit that the "good feeling" brought about by eliminating debt, rather than what the numbers say, is their prime reason for doing an early payoff. And, hell, that's a very legitimate reason. I do lots of things that cost me money just because doing them makes me feel good. But, it never bothered me to carry a mortgage or I would have just paid cash for our modest house in the first place.

I'd say to OP, if having the mortgage gives you negative feelings and you'll be happier without it, go ahead and pay it off. If it doesn't really bother you to have a mortgage, keep it. Whether increasing your equity AA now or paying off the mortgage and slowly building your equity AA over the years turns out to be the better move from an investment return standpoint, only time will tell. try not to have market timing be an important factor in the decision.

+1. That’s really the crux of it.

 

[bushpilot]

I would pay off the house. Doesn't matter what the speculative numbers might say, I'd pay it anyway.

 

[38Chevy454]

Pay off mortgage or not is a long discussed topic on here. There is no exact right answer as you have asked. The biggest issue I see is the market timing aspect, it could go down or up. Is your crystal ball clear enough to be on the correct side of the market move(s)?


I am with the pay off feels good, and especially with the new tax laws, I am no longer in a position where the mortgage deduction would help me.

 

[retired1]

If mortgage rate is low (<3.5%) then paying off house may not be the best option. I've ~60K left and I keep chipping at my mortgage with double the monthly P&I payments. That seems to keep bringing Principal balance down much faster. With my rate of 3.30% I don't feel hurried up to pay off mortgage. Having said that I don't want mortgage over my head come retirement time

 

[joeea]

Having said that I don't want mortgage over my head come retirement time

Why?

What happens at retirement time for you that would cause you to want to suddenly hurry up and pay off a mortgage with an extremely low rate of 3.30% ?

 

[ERD50]

Originally Posted by retired1
Having said that I don't want mortgage over my head come retirement time

Why?

What happens at retirement time for you that would cause you to want to suddenly hurry up and pay off a mortgage with an extremely low rate of 3.30% ?

I want to know too. I must be doing it wrong. Here I was all ready to sleep well tonight, and now I'm worried! What's going to happen to that mortgage 'over my head'?

I just checked, and all the screws holding my mortgage are tight and torqued properly. I don't think it will fall down on my head tonight. Am I wrong?


OK, I don't care if someone want to prepay their mortgage or not, do what you want, in most cases it isn't a big deal. But some of the 'reasons' are just beyond me.

-ERD50

 

[retired1]

Why?

What happens at retirement time for you that would cause you to want to suddenly hurry up and pay off a mortgage with an extremely low rate of 3.30% ?

Very simple. It makes me very happy when I owe nothing to nobody. Zero debt makes me happy

 

[Lienlord]

This is a timely topic for me, as I was just sorting through a box of old files and came across the payoff letter from my mortgage company sent in 2007. It brought back memories of sending that last payment after several years of attacking the mortgage with every bit of spare change we could scrape together each month. We'd paid off our other debts, so rolled the debt snowball into the mortgage. We were so happy and celebrated with our young (at the time) sons this huge milestone.
Once that was done, we started investing that debt snowball (plus our old mortgage payment) into mutual funds for the next several years. This investment was the basis for later purchasing our first rental property, which then grew to over 20. We then branched out into apartments, commercial, and syndications. We are now (modest) millionaires, and will FIRE next year at age 55. Whether we would have done all that with a mortgage I can't say. But it provided a huge psychological lift to us that let us "bet the farm" with investments and take calculated risks we might not have otherwise. So I say pay that sucker off and set yourself free!

 

[joeea]

Very simple. It makes me very happy when I owe nothing to nobody. Zero debt makes me happy

Makes sense. Lots of people give up money for happiness.

But if that's the case, why on earth would you wait for retirement to be happy? Why haven't you already paid it off?

 

[Penny6]

Very simple. It makes me very happy when I owe nothing to nobody. Zero debt makes me happy

This idea is very inviting, probably the biggest tug along with financial freedom to invest and a little less risk hanging over our heads as life with 3 children carries on.

 

[Penny6]

This is a timely topic for me, as I was just sorting through a box of old files and came across the payoff letter from my mortgage company sent in 2007. It brought back memories of sending that last payment after several years of attacking the mortgage with every bit of spare change we could scrape together each month. We'd paid off our other debts, so rolled the debt snowball into the mortgage. We were so happy and celebrated with our young (at the time) sons this huge milestone.
Once that was done, we started investing that debt snowball (plus our old mortgage payment) into mutual funds for the next several years. This investment was the basis for later purchasing our first rental property, which then grew to over 20. We then branched out into apartments, commercial, and syndications. We are now (modest) millionaires, and will FIRE next year at age 55. Whether we would have done all that with a mortgage I can't say. But it provided a huge psychological lift to us that let us "bet the farm" with investments and take calculated risks we might not have otherwise. So I say pay that sucker off and set yourself free!

This is encouraging and inspiring. I hope the house payoff will be the basis of many future financial wins for our family as well. The truth is the least it will do is give us more options for our future endeavors.

 

[Penny6]

I keep seeing this as a reason to pre-pay a mortgage. Are you serious? It does not make any sense at all, does it?

The money was already invested in the market. To prepay, and then use the cash flow to invest only delays the investment.

If you are serious, please explain what I'm missing here. Maybe I'm losing my mind.

-ERD50

The "invested" stock be sold one portion is from a stock purchase which he contributes to during the year and gets a 15% gain/ discount on the lower price of the yr. Second sell off is a 3yr payoff of a part of his bonus package (stock options from 3yrs ago) which has according to some amazing formula he will be receiving 150% of the original valuation. It isn't from long term investments. We will be paying the house off! The cashflow and options generated by doing it in the now outweighs a future intangible gain. We will just be upping the contributions with the 3000mo after payoff and continue riding the wave.

 

[Luck_Club]

I want to know too. I must be doing it wrong. Here I was all ready to sleep well tonight, and now I'm worried! What's going to happen to that mortgage 'over my head'?

I just checked, and all the screws holding my mortgage are tight and torqued properly. I don't think it will fall down on my head tonight. Am I wrong?


OK, I don't care if someone want to prepay their mortgage or not, do what you want, in most cases it isn't a big deal. But some of the 'reasons' are just beyond me.

-ERD50

CASH FLOW

Mortgage of $12,000 per year requires earnings of $15,000, if you can show me how $59,000 can generate that every year I'm all ears....

Who knows it may cost you your healthcare subsidy having to pull that extra $15K out of your portfolio.

 

[pb4uski]

Very simple. It makes me very happy when I owe nothing to nobody. Zero debt makes me happy

What makes me happy is earning more than 3.375% and paying 3.375%. Over the last 8 years since I refinanced, I am ahead $37k. Not chump change.