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Old 10-02-2007, 10:25 PM   #21
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[quote=youbet;561762]

In the end, I believe the pros and cons of a mortgage vary from situation to situation and are usually small, if not inconsequential, and more subjective than objective. The pros and cons of either case have well known work-arounds providing at least partial mitigation.

quote]

I agree. There is no "right" answer. In our case we decided to pay ours down at a rate that will have it payed off at about the time we plan to FIRE for piece of mind and to eliminate it from our expenses. We max out our tax sheltered accounts and have money to invest in taxable so we have flexibility that others may not.

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Old 10-03-2007, 01:52 AM   #22
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I just paid mine off in prep for ER, very nice not having to worry about that mortgage payment, and gives me alot of extra cash per month to screw around with.
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Old 10-03-2007, 08:27 AM   #23
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Originally Posted by Bigritchie View Post
I just paid mine off in prep for ER, very nice not having to worry about that mortgage payment, and gives me alot of extra cash per month to screw around with.
Now that is exactly the type of statement that puzzles me, the 'gives me alot of extra cash per month' part. I don't see it.

If you had taken those pre-payments, and put them in an investment, that investment could be paying off cash. Maybe a little more or a little less, depending on all the variables previously mentioned. It could be in your emergency fund, meaning more of your other investments could be allocated to longer term (hopefully higher return) areas.

But how can it be 'a lot more'? Seems you can only say that if you totally ignore the other side of the equation, which is not a prudent thing to do, IMO.

Just to be clear - it's fine with me if you say you 'feel better' about not having a mortgage, or that it simplifies things for you, or that you did the math and it looked to provide some after-tax benefit, or you just wanted to do it. It's the 'a lot of extra cash' that I really question.

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Old 10-03-2007, 08:56 AM   #24
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ERD50,

I think the "a lot of extra cash" is just the mortgage payment not being there every month. And you're right, that's ignoring the large chunk of capital that a person had to toss at the bank to clear off the mortgage. But many people are cash-flow fixated after years of living paycheck to paycheck. (I'm not saying this is necessarily the case with Bigritchie.)

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Old 10-03-2007, 09:21 AM   #25
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Originally Posted by ERD50 View Post
Now that is exactly the type of statement that puzzles me, the 'gives me alot of extra cash per month' part. I don't see it.

If you had taken those pre-payments, and put them in an investment, that investment could be paying off cash. Maybe a little more or a little less, depending on all the variables previously mentioned. It could be in your emergency fund, meaning more of your other investments could be allocated to longer term (hopefully higher return) areas.

But how can it be 'a lot more'? Seems you can only say that if you totally ignore the other side of the equation, which is not a prudent thing to do, IMO.

Just to be clear - it's fine with me if you say you 'feel better' about not having a mortgage, or that it simplifies things for you, or that you did the math and it looked to provide some after-tax benefit, or you just wanted to do it. It's the 'a lot of extra cash' that I really question.

-ERD50
It's more of a "comfort factor" than a true financial one. Many one this board have no mortgage, while many others do.

I understand the "opportunity cost" of your premise, however, let's say someone pays off their mortgage 10 years early, and takes that "mortgage payment" of $1500 a month (example), and accelerates their investments? The numbers can work..........
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Old 10-04-2007, 12:48 PM   #26
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Originally Posted by ERD50 View Post
Now that is exactly the type of statement that puzzles me, the 'gives me alot of extra cash per month' part. I don't see it.

If you had taken those pre-payments, and put them in an investment, that investment could be paying off cash. Maybe a little more or a little less, depending on all the variables previously mentioned. It could be in your emergency fund, meaning more of your other investments could be allocated to longer term (hopefully higher return) areas.

But how can it be 'a lot more'? Seems you can only say that if you totally ignore the other side of the equation, which is not a prudent thing to do, IMO.

Just to be clear - it's fine with me if you say you 'feel better' about not having a mortgage, or that it simplifies things for you, or that you did the math and it looked to provide some after-tax benefit, or you just wanted to do it. It's the 'a lot of extra cash' that I really question.

-ERD50
By extra cash I mean I have an extra 900 dollars per month cash flow, that I would not have if I had a mortgage. And I despise being in debt. Debt to me is slavery.
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Old 10-04-2007, 01:05 PM   #27
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By extra cash I mean I have an extra 900 dollars per month cash flow, that I would not have if I had a mortgage. And I despise being in debt. Debt to me is slavery.

I think what he is saying is you really do not have an extra $900 per month cash flow... you only think you do. Yes, your monthly payments are lower, but if you had not paid off the mortgage and were earning 10% average stock market returns... then a $100,000 mortgage would throw off $833 per month to cover that $900 per month payment and you are only out $67...

So, in my bad example, you are only having an extra $67 per month to spend by paying off the mortgage... and in reality, you probably would have more money to spend if you actually had a mortgage than if you did not.



NOW, the problem I see with that is you have your investment at a risk that you might not want to have... your debt is a fixed rate (for most) and your asset is a volatile rate... so from a matching perspective you are taking a chance... I would rather not take that chance...

Now that I have paid it off, I now can put all my new money into that volatile stock, but do not have to worry about matching it with any liability. This is my reason for what I did... along with not getting a deduction (or so small it did not matter) as my itimized were to low.
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Old 10-04-2007, 01:40 PM   #28
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I think what he is saying is you really do not have an extra $900 per month cash flow... you only think you do. Yes, your monthly payments are lower, but if you had not paid off the mortgage and were earning 10% average stock market returns... then a $100,000 mortgage would throw off $833 per month to cover that $900 per month payment and you are only out $67...

So, in my bad example, you are only having an extra $67 per month to spend by paying off the mortgage... and in reality, you probably would have more money to spend if you actually had a mortgage than if you did not.



NOW, the problem I see with that is you have your investment at a risk that you might not want to have... your debt is a fixed rate (for most) and your asset is a volatile rate... so from a matching perspective you are taking a chance... I would rather not take that chance...

Now that I have paid it off, I now can put all my new money into that volatile stock, but do not have to worry about matching it with any liability. This is my reason for what I did... along with not getting a deduction (or so small it did not matter) as my itimized were to low.
I am FI already and retired at 30, and have no desire to be in debt to anyone, nor do I have the desire to debate why I paid of my mortgage early. I could care less whether people pay of their mortgage or not, does not effect me one bit. Too me debt = slavery, and I choose to live as a free man.
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Old 10-04-2007, 02:21 PM   #29
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My own reasons were purely psychological. I had a terrific 5.375 rate, so with the home mort deduction, the effective rate was great. But, by establishing that psychological 'peace' of getting the mortgage out of the way, I then felt able to place more money into investments, since with the house is paid off, I did not have to watch that money going out each month from cash flow.

Did it *actually* improve my NW? No, of course not, I took that pay-off money from near-cash equivalents. But it did let me concentrate more on investing for retirement in indexes getting better return than MM rates, and enhancing my LBYM, and notching what I considered a major milestone that eventually needed to be whacked down anyway in all of MY own personal FI/RE scenarios (but while not forcing that concept on others, of course).


I think as much ink as has been spilt on this topic, it is clear that generally being able to leverage that usually inexpensive OPM of a low-APR mortgage is a good thing.

However, many people rightly or wrongly see that as the big obstacle or albatross around their neck, so the sooner they can fling it off , the sooner the other pieces of FI/RE seem to fall into place, and for me at least, it has been an incentivizer.
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