Paying down mortgage early?

[jumpstart]

Originally Posted by MasterBlaster

Jumpstart:

Again.... High yield bonds are not risk-equivalent to paying down the mortgage. Apples and Oranges.

A lot of people like to talk about risk from only one side, when there are usually two sides. You're speaking about the risk of volatility; volatility being greater with corporate/high-yield bonds. I tend to reflect more often on the risk of missing out on making the best of a given situation (meaning, not earning as much as I could have with a given pile of cash over a 30-year period).

Overall, the two-sided coin of "risk" tends to null itself out, unless we're talking about a short-time frame so I don't see the point of even discussing it. But we're not; we're talking about 30 years.

Now if you think you're one of the types to freak out and sell at bottoms, go to cash until a market peaks, then invest again, wash and repeat...... then, yeah, pay off the mortgage

For beginners/novices, one could do much worse than paying off any debt; Ala Dave Ramsey. I'd probably give different advise depending on my audience.

...........

Oh yeah, one other tip; If you're a married man, find something else to invest in rather than paying off the mortage.

[MasterBlaster]

No I was referring to the risk of default on the high yield bonds not their volatility.

We can all find an investment that will pay better than a mortgage rate. The question then becomes how much extra risk do I need to take on. You are right, if you don't quite grasp that risk concept then there is nothing to discuss.

[jumpstart]

Originally Posted by MasterBlaster

No I was referring to the risk of default on the high yield bonds not their volatility.

I'm not near advanced enough to buy junk bonds in the individual market. Buy these through a mutual fund so that the occasional default is absorbed by the fund and will probably go unnoticed.

We can all find an investment that will pay better than a mortgage rate. The question then becomes how much extra risk do I need to take on. You are right, if you don't quite grasp that risk concept then there is nothing to discuss.

I don't want to get too hung up on junk bonds; I just threw that out as an example; besides don't invest 160K in these unless you have 2M plus! A diversified hybrid bond fund (having investment grade, junk, maybe zeros, etc) would probably be a better choice.

[MasterBlaster]

Jumpstart

Eureka - You have found "The Sure Thing", now go mortgage your parents house to buy it.

[jumpstart]

Originally Posted by MasterBlaster

Jumpstart

Eureka - You have found "The Sure Thing", now go mortgage your parents house to buy it.

Its nice to see we can discuss this in a mature way.

[MasterBlaster]

Jumpstart:

Well, you just aren't getting it.

[jumpstart]

Originally Posted by MasterBlaster

Jumpstart:

Well, you just aren't getting it.

Whatever you say, Chief

[cute fuzzy bunny]

Come on fellas, if we're going to have a squabble lets at least put some content into it. It looks like you guys are about to devolve into "oh yeah?" and "sez you!"

Junk bonds have plenty of default risk to go with the volatility risk, and I wouldnt consider them a very good investment choice to eke out a percent or two. In fact, the junk market sucks right now and I'd need to see at least 4-5% to start biting.

In any case, I doubt Joe Investor is socking his bond money into tax deferred high yield corporates. He's probably plunking his 20-30%, like the book says, into plain old treasuries or a broad bond fund. And paying 5-6% to the bank while getting 5% return on the bonds.

And I dont think its 4% due to the tax savings. Half of the "tax savings" gets wiped out by itemizing vs the standard deduction, for the average family.

[Webzter]

I'm stuck in a house with no appreciable equity (we're trying to sell right now, we'll be lucky if we walk away net what we paid for it 6 years ago).

I am 20% in bond funds (tax-advantaged accounts, mostly treasuries, the junk bond fund didn't have a compelling enough spread over the high-grade fund).

However, I am also aggressively paying down the house. The 33-35% tax break on $800 a month in interest just doesn't seem worth it. I'd rather have the flexability when it comes time to sell or refi to choose which way to go with this stupid thing. I see much better write-offs, and feel better, with my charitable stuff.

Paying down / off the house to me, is more about flexability and psychology than anything. You're not as panicked if you need to sell in a down market and, if you do work your way down to no mortgage payment, then you have options if you hit a downturn. Sure, you will make more if you invested the money over a given time period, but, personally, I'd rather owe less on a house.

different strokes....

[Want2retire]

Happiness may be a snuggly puppy, or it may be a baby's coo, but it is also the joy of living in a paid off house that is completely, totally, entirely, irrevocably mine.

Priceless.

Which is not to say that that's the only value; I think often (though not always) it is financially beneficial as well.

[jumpstart]

Originally Posted by cute fuzzy bunny

In any case, I doubt Joe Investor is socking his bond money into tax deferred high yield corporates. He's probably plunking his 20-30%, like the book says, into plain old treasuries or a broad bond fund. And paying 5-6% to the bank while getting 5% return on the bonds.

And I dont think its 4% due to the tax savings. Half of the "tax savings" gets wiped out by itemizing vs the standard deduction, for the average family.

Are we talking about Joe Investors or us? Again, I already said in my own words for Mr. Joe Investor, I recommend paying down the mortgage if retirement accounts are maxed, one has a modest emergency fund, and maybe a car fund. In essence, he and I agreed.

Also, I don't see the point in generalizing about itemizing vs standard deduction. If you (or someone else) can't itemize, don't subtract the percent for "your" situation. For me, with everything else I'm already fully past the standard deduction so anything above and beyond that is a full tax write-off for me. Since I'm in a 31% marginal tax bracket, then that's a 31% "refund" on all the interest paid.

So what's obviously apparent here is the optimum solution is just going to depend on the person, their circumstances, and their investment abilities and knowledge.

If you are as gifted an investor as you claim to be CFB, then the choice would be really easy for you; keep the low interest loan.

[SteveR]

[quote=Nords;541573
...I just wish more posters would take the time to read the old mortgage threads before bringing it up again. This has to be one of the top 10 ER questions, not far behind "Whaddya DO all day?!?"

Moderators, how 'bout adding one of the gazillions of mortgage threads to the "Best of the Boards" forum?[/quote]

Agreed. Some of us have re-read the older posts on mortgages and find that to be of much value as a "Best of the Boards" many of the posts would have to be edited out to keep the topic on track and to get rid of the, er ah, less than on topic discussions.

As Nords stated above, the best way to find relevent information on the board is to Search for it in the variety of past threads on the subject. Some of the older members of this board have some deep scars from the battles from some of these threads and don't really want to open up old wounds or to rehash the same stale discussions. New members are strongly encouraged to use the Seach tool to look for discussions on a variety of topics before starting a new thread. This will give newer members the history of some of these topics before they post and receive a not so welcome response.

Thanks

[maddythebeagle]

Originally Posted by jumpstart

If you are as gifted an investor as you claim to be CFB, then the choice would be really easy for you; keep the low interest loan.

If you are really interested in interacting on these boards, maybe a little about you in the "HI, I am" section to get to know folks a bit, but I guess the choice is clear, you want to just stalk...

[Webzter]

Originally Posted by jumpstart

If you are as gifted an investor as you claim to be CFB, then the choice would be really easy for you; keep the low interest loan.

Well, I haven't gone back and read CFB's old claims to fame.... but all I know of his "gifted investing" so far is his statement that he was lucky enough to sell his options while they were worth something. I don't think self-ascribing to luck really denotes any feeling of being gifted.

[cute fuzzy bunny]

Originally Posted by maddythebeagle

If you are really interested in interacting on these boards, maybe a little about you in the "HI, I am" section to get to know folks a bit, but I guess the choice is clear, you want to just stalk...

Nobody jumps out of the gate and hits zero to jerk this quickly unless its someone who decided to change user names. Or just a jerk.

Fer crying out loud, he professes his admiration for a stock picker and doesnt even spell his name right...

In any case, its a record low number of posts to hit my ignore list. Nothing of value anyhow.

As far as gifted investing and luck...well...I havent had a losing year since 1987. Owned properties that made money, diversified holdings, didnt concentrate too much in the company stock, got the hell out of overinflated markets, shifted from overpriced to underpriced sectors.

This stuff is all in the books.

Where it gets funny is looking between the pages. Paying a bank 5 or 6% to get part of a crappy deduction while concurrently investing money at 4.5% is stupid. Especially when you've got a long investing horizon and you're still working.

[jumpstart]

Originally Posted by maddythebeagle

If you are really interested in interacting on these boards, maybe a little about you in the "HI, I am" section to get to know folks a bit, but I guess the choice is clear, you want to just stalk...

Thanks for the friendly comment and suggestion. That sounds like a wonderful idea; post some personal information on a board that was immediately hostile to me.

[jumpstart]

Originally Posted by cute fuzzy bunny

Nobody jumps out of the gate and hits zero to jerk this quickly unless its someone who decided to change user names. Or just a jerk.

Fer crying out loud, he professes his admiration for a stock picker and doesnt even spell his name right...

In any case, its a record low number of posts to hit my ignore list. Nothing of value anyhow.

Thanks for your nice comment as well. You guys really set the bar for friendliness to new members.

[jumpstart]

Originally Posted by Webzter

Well, I haven't gone back and read CFB's old claims to fame.... but all I know of his "gifted investing" so far is his statement that he was lucky enough to sell his options while they were worth something. I don't think self-ascribing to luck really denotes any feeling of being gifted.

I can tell already that humility is not a strength of CFBs, so I was open to the possibility that he really is that gifted of an investor.

[bssc]

Hi

I locked this because I think that the discussion has run its course.