Helping spouse understand my brilliance

[Castaspey]

If a title like that doesn't get a thread opened, nothing will.


My wife and I were blind pig lucky about 6 years ago when we bought our current house and got a 15 year mortgage at 2 5/8%. (Do you remember the days of 10 and 12% mortgages?) Current balance on it is about $140K. Now that we are on the verge of retirement (like this month,) DW says we should pay that mortgage off.


But in late 2018, when interests rates were the highest they had been in some time, I bought a portfolio of A3/BBB+ corporate bonds in well-established companies (Southwest Airlines, Valero, Banc One etc.) with a total value equal to about 75% of the outstanding balance on the mortgage and a weighted average interest rate of about 4.6% and the bonds all mature right about when the mortgage ends. I specifically set this up as a "mortgage offset". We pay about $3650 interest on the mortgage annually (and going down) and the bond portfolio is yielding $6450. Seems like a no brainer to me; I only wish I had bought more bonds at the time.



But she still says/feels we should pay off the mortgage. So I am not sure my thread is asking a specific question so much as illustrating the difference between the math "right answer" and the emotional "right answer."

 

[Scrapr]

you got me....to open this up

the short answer. If you have the $$$ pay it off.

the longer answer. For your wife. I know it's not optimal. However making your wife happy is "better" optimal. I held off for several years with WoScrapr. Our numbers were not as wide as your spread. One of her last wishes was to pay off the house. So we wired the money about 2 weeks before she passed. I will say it is a nice feeling not to have a mortgage payment

 

[rk911]

i'd pay it off. with no debt all things become possible.

 

[pb4uski]

Do you have other lower yielding investments that could be redeemed to pay off the mortgage? That way you can both win... sell the lower yielding investments and use the proceeds to pay off the mortgage and keep the corporate bond portfolio.

 

[njhowie]

I'm going to say don't pay it off - go with the math on this one.

Your intent of having the bonds was to cover the mortgage interest. You're in a good place with the interest the bonds are spewing off to cover the mortgage interest and more. With interest rates potentially heading even lower, those bonds are even more valuable as the interest payments will continue. The mortgage rate is fixed, the interest payments are fixed. Additionally, the 2 5/8 mortgage was a brilliant move, whether by luck or otherwise. You still cannot borrow money at that rate. Keep it. Leave well enough alone and you'll get the cash when the bonds all mature.

Your net interest spread is about 2% - you're being paid to have the mortgage+bonds.

Your brilliance will be in sitting down with spouse and going through the numbers so she sees it the way you do.

 

[Sunset]

OP - how much income from the bonds is left after paying taxes at your marginal rate ?

 

[clobber]

I propose a 3rd option. Instead of bonds, put the money in a good S&P 500 fund so that you are making $10000 (instead of the $6450).

My point is, you're probably not comfortable with that level of risk for this purpose. It could be the same with your wife on the Bonds vs. pay off the mortgage. Even with math, maybe she is not comfortable with it.

 

[target2019]

I'd adjust my strategy and pay additional principal each month. Everyone wins.

 

[Ronstar]

I've learned from experience that it is impossible for my spouse to understand my brilliance. I get the "deer in the headlights" look several times a week when I explain something to her. So my advice to OP is to stick with the "emotional" plan. It will work better for you in the long run.

 

[Red Badger]

Happy wife-happy life. Nothing else to discuss.

 

[Badger]

I'd adjust my strategy and pay additional principal each month. Everyone wins.

+1
Once we were about half way into our 30 yr mortgage and the interest would not help with itemizing on our taxes we started paying an extra payment each month on the principle. It took a little adjustment on our budget but we were paid off in about 5yrs instead of 15 to become debt free without touching any savings. Felt really good.


Cheers!

 

[Winemaker]

We just refinanced the house at 3.375% for 15 years; we paid off the outstanding 30 year mortgages on 2 rentals, 5% and 4.25%. Saved us $975/ month in out of pocket expenses. We did have 4 vacancies this year, we average .7/year. Rents increased $225/month. I say, let the mortgage ride.

 

[DrRoy]

Seems to me that your cash flow is better to keep the bonds and pay the mortgage.

 

[target2019]

+1
Once we were about half way into our 30 yr mortgage and the interest would not help with itemizing on our taxes we started paying an extra payment each month on the principle. It took a little adjustment on our budget but we were paid off in about 5yrs instead of 15 to become debt free without touching any savings. Felt really good.


Cheers!

Our experience was like that.

 

[Maenad]

Congrats on the catchy title!

Have you asked your wife why she wants to pay off the mortgage? Like, specifically what she's worried about? Is she worried about a sudden large expense that draws down your retirement funds too early and makes it hard to pay the mortgage? Worried about the stock market dropping 40%? If there's a specific fear, you can discuss together all of the ways that fear could be assuaged, the pros and cons of each. Take your time, write it all out. (All of this is assuming that the pure math-driven argument won't work.)

Take her fears seriously - believe me, when a husband pooh-poohs his wife's fears, she's a lot more likely to think he's reckless and doesn't know what the hell he's doing. Treat her fears with respect and she'll know you're serious about this. It's the "seek first to understand, then be understood" tactic.

You could also have a few sessions together with a therapist. It's not that something is wrong in your marriage, but a neutral third party who's specialty is helping partners navigate disagreement? That's someone that could help you resolve this in a way you're both happy with. And a few hundred dollars for that is less than the thousands a suboptimal decision will cost you, or the inestimably high cost of an unhappy spouse.

 

[EastWest Gal]

I'd adjust my strategy and pay additional principal each month. Everyone wins.

I agree with this one.

A small extra principal payment each month can significantly shorten the time you have a mortgage and total interest payments. At some point you'll become eager to pay the mortgage off too.

Do not dismiss the emotional component of being debt free. You might be financially brilliant, but we are human beings and not robots. Also, by being invested in being right, your are telling your wife, that she is wrong. I learned the hard way that being right is really bad for your relationship. Your wife's concerns need to be recognized.

 

[jazz4cash]

I've learned from experience that it is impossible for my spouse to understand my brilliance. I get the "deer in the headlights" look several times a week when I explain something to her. So my advice to OP is to stick with the "emotional" plan. It will work better for you in the long run.

Same analysis, different conclusion. DW's emotional reaction would've kept OP out of those bonds to begin with. I avoid the "deer in the headlights' response by not explaining things. I would set things up using autopay so DW never sees any evidence of a mortgage and let your brilliant offset plan do it's job!

 

[JustCurious]

Happy wife-happy life. Nothing else to discuss.

What about happy husband-happy life? Shouldn't that result in nothing else to discuss?

 

[Andre1969]

I'm going to go with don't pay it off. 2.625% just seems like too good of a deal to pass up. And, even though you get less and less of a tax write off as time goes by, you're also paying less and less interest. So, in my mind at least, you're taking money from something that has the potential to earn more money, and sinking it into something static...home equity. Sure, there's value in having a paid off house, but you don't really make your home work for you, unless you cash out equity, sell it at a profit, or rent it out.

In the end, though, it's all about what makes you happy. And there's definitely peace-of-mind in having a paid off house. I'm tempted sometimes, to start paying my mortgage down. But then, I ran some numbers, and it didn't seem worth it. For instance, if I threw an extra $10K at it right now, it would get it paid off about 14 months earlier, and save about $20K overall, in interest.

But, then I started thinking. $20K in 29 years is probably roughly the equivalent of $10K today, factoring in inflation. It won't reduce my monthly payment any. I could have more fun with the $10K now than I would with the extra $2221 per month for 14 months, in 29 years. Plus, I'm only 49 now. The extra $10K now would mean the mortgage is paid off when I'm 78, instead of 79. I could be dead by then!

 

[FANOFJESUS]

If you pay off the mortgage then you do not need to go out and make this money you are talking about.

 

[BoodaGazelle]

I know there can always be a technical analysis that may show a dollar/cost advantage to some type of debt, but one of the main reasons I was able to FIRE was that I have been debt-free since about age 45 (now 63). I say “pay if off”.

 

[mountainsoft]

Do you remember the days of 10 and 12% mortgages?

Yeah, the mortgage our first home was 11%. Thankfully, we paid it off in eight years.

Current balance on it is about $140K. Now that we are on the verge of retirement (like this month,) DW says we should pay that mortgage off.

I agree with most others here, pay it off if you are able to. Getting rid of all debt is freeing, regardless if the numbers look good on paper.

 

[jollystomper]

ISo I am not sure my thread is asking a specific question so much as illustrating the difference between the math "right answer" and the emotional "right answer."

Sometimes in life one must strike a balance between math/logic and emotion to find happiness in relationships . My approach would be to at least pay the mortgage down faster. I also have a situation where I have not paid off our mortage with a low interest rate since when we refinanced our rate was also low and I have gotten better returns on that money. My wife is fine with that. But I am now more leaning towards paying it off to simplify our finances and give her one less thing to deal with should I die before she does.

 

[ckelly78z]

Having a mortgage will always be that Asterisks to living free, and achieving F.I.R.E.

Many people do it, but I chose a long time ago to make paying of the mortgage a big priority (5 years debt free now).

 

[Chuckanut]

Use the $2800 to do something wife enjoys. "Honey on our next trip to Hawaii we are getting the fancy suite instead of the usual room for two thanks to the extra $2800 we have from not paying off the mortgage early." Maybe it will work.