I hate my mortgage but shouldn't pay it off

[GoodLife59]

I paid my mortgage off early once the tax rules changed and there was no longer any advantage to itemize. Timing was about a year prior to retirement. Plowed the free cash into my emergency fund. 50 days after my retirement date we went into the first COVID lockdown. COVID has been a pain. But we’ve stayed healthy and not having a mortgage payment has been a huge source of peace of mind. All the best.

 

[Murph]

We paid off our house in TX in 2019. Then we moved to OH in 2020. We could have paid cash for the OH house, but decided to take a 2.75% 30 yr fixed rate mortgage on the new house. We put the cash from the TX house into the market in May 2020. That turned out to be a great move. Made $56,000 net of mortgage interest. Yeah us!

But now, as we are 57 days and a wake up from retirement, I have come to hate this mortgage. All the models say keep it. And now that the invested cash from the TX house has giant short term cap gains, it isn't as simple as just paying it off. I'll have this boat anchor until age 84.

No real action, just a rant.

I don't think I will ever understand why a person with the means to pay cash for a house (or anything else) would opt for a loan instead (younger folks building a credit history being the exception). Why give away ANY percentage of your money to someone else?

 

[RunningBum]

I don't think I will ever understand why a person with the means to pay cash for a house (or anything else) would opt for a loan instead

If you've read through this thread and others like it and still don't understand, I don't think you ever will either. That doesn't make it wrong for people to take on a mortgage.

 

[corn18]

I don't think I will ever understand why a person with the means to pay cash for a house (or anything else) would opt for a loan instead (younger folks building a credit history being the exception). Why give away ANY percentage of your money to someone else?

I have 67,806 reasons why I did it. I got lucky by leveraging my house into my 60/40 portfolio, but the odds were in my favor. I need 0.75% real from my 60/40 portfolio over the next 30 years to breakeven on the mortgage. If you think the odds of that happening are low, then you should pay off your mortgage.

 

[rayvt]

I don't think I will ever understand why a person with the means to pay cash for a house (or anything else) would opt for a loan instead (younger folks building a credit history being the exception). Why give away ANY percentage of your money to someone else?

Pretty much for the same reason that AT&T, Amazon, Microsoft, etc. borrow money by floating long-term bonds.

Because -- over the long run -- your money that is invested earns more than what the loan costs.

 

[tizod]

Banks only lend when you dont need it

I have not seen this comment, but I say keep the mortage. Banks don't give you money if you need it. You can invest it for virtually no gain/loss, but possibly gain (as you have). But the future is unknown and I have seen situations where you do need money after retirement and banks wont give it. Sock it away wisely and give it back when it wont matter.

If your savings account can pay it off tomorrow, why the "pressure" of a mortage exists I;ll never know...

 

[Exchme]

Well the mortgage can be thought of as a loan to let you buy stocks. That would be extremely risky as markets do not always go up, but it at least would be a logically consistent bet.

The suggestions that are not consistent are the ones to have a mixed stock/bond portfolio - bonds are paying 1% (and could go down in value if inflation kicks up) and you are paying 2.75% to get that. So if you have no cash/bonds and want to have an all stock leveraged portfolio - you are logically consistent and may you have good luck! But if, like most retirees, you want to hold a substantial amount of bonds, having a mortgage is working against you. You cannot get a risk free 2.75% return anywhere else right now and paying off that mortgage gives you that opportunity.

The cost of paying off the mortgage is flexibility, if you don't have enough assets to do it, then keep working until you do, but personally I would never carry a mortgage into retirement.

 

[youbet]

I went against the grain and payed mine off when I was in my thirties. I had everyone tell me I was losing money, but I work construction and I love the peace of mine it brings me if things every get bad for me.

I don't understand how this helped your peace of mind. With no mortgage, you don't have to worry about that if you're out of work. With a mortgage, but the money you would have used to pay it off conservatively invested, you don't have to worry about paying the mortgage if you're out of work.

Either way, no mortgage problem.

 

[troutnut1]

Well the mortgage can be thought of as a loan to let you buy stocks. That would be extremely risky as markets do not always go up, but it at least would be a logically consistent bet.

That would be a painful and short conversation at my house:

“Honey, I mortgaged the house today to play the stock market.”

 

[finnski1]

That would be a painful and short conversation at my house:

“Honey, I mortgaged the house today to play the stock market.”

Good point. Wouldn't go over well here either.

 

[Bigdawg]

That would be a painful and short conversation at my house:

“Honey, I mortgaged the house today to play the stock market.”

This would be a painful and short conversation at my house:

"Honey, I took 80% of our investable and paid off the mortgage." "But dear, didn't you just tell me our investments were up almost 20% in 2020?" "Yes honey. I did tell you that." "Then why in the h### did you give up an almost 20% to pay off a 2.75% loan?" "Because ER.org told me too."

 

[cat4ever]

Well the mortgage can be thought of as a loan to let you buy stocks. That would be extremely risky as markets do not always go up, but it at least would be a logically consistent bet.

Depending on your situation that may be a good way to look at it. But say for arguments sake you are coasting along with mortgage payments staying right at or a little above the top of the 12% tax bracket and/or just under the AGI required for a 25K ACA subsidy? Are you going to take a 22%+ hit with an IRA withdrawal to pay off your mortgage, plus a one time 25K hit by forgoing your subsidy when you could continue to coast along paying taxes at the 12% for years to come? While this may be the extreme case, most of us are somewhere in the middle, so where is the cutoff point?

 

[RunningBum]

Well the mortgage can be thought of as a loan to let you buy stocks.

In more cases, it's a loan to let you hold stocks. That's mostly a psychological difference, but there is a tax difference as well.

That would be a painful and short conversation at my house:

“Honey, I mortgaged the house today to play the stock market.”

Most of us here don't "play" the stock market.

 

[troutnut1]

This would be a painful and short conversation at my house:

"Honey, I took 80% of our investable and paid off the mortgage." "But dear, didn't you just tell me our investments were up almost 20% in 2020?" "Yes honey. I did tell you that." "Then why in the h### did you give up an almost 20% to pay off a 2.75% loan?" "Because ER.org told me too."

That was my first wife. She was in the mortgage business. She mortgaged the rental property too. The she R U N N O F T like Mrs. Hoggwallop in the movie “Oh Brother” It was 1983. (True story)

I did better the second time.

 

[thefist]

In more cases, it's a loan to let you hold stocks. That's mostly a psychological difference, but there is a tax difference as well.

Bingo! There is no replacement for time. A mortgage allows you to pay off the house slowly AND buy/hold stocks. You need to start early saving for retirement.

 

[Jakob]

No visible mortgage

DW is retired, me (62 y.o.) still working. I like my job as an Occupational Therapist and I feel I’m giving value to my clients. We sold our last home built a townhome and took out a mortgage. Our mortgage rate is 2.6%. We have several investments that cover our mortgage and gives us interest income. Our financial firm cuts a check once a month to our bank account and the mortgage is automatically deducted. No stress for us and a win-win.

 

[corn18]

Paying off the mortgage appeals to me because I don't need any savings after SS kicks in @ 70. My COLA pension + SS covers all of our expenses. If I carry the mortgage to 84, that isn't the case. The mental aspect of needing no savings after is very appealing.

 

[Jakob]

Do what makes you happy, it is your choice. I grew up in a modest home. The fact that I can pay my mortgage off and continue to make money on my investments makes me happy. These are our glory days, enjoy them to your fullest. Wishing you the best, Bruce

 

[Skitso999]

Maybe isolate enough dough to pay off the mortgage in a separate account then, like bada bing, invest it at 60/40 or whatever the rest of your portfolio’s AA is. Have the payments withdrawn from that separate account. Pretend it’s not there and don’t look at it for ten years or more. Your future self might then start to actually enjoy seeing your separate account balance eventually outpacing the mortgage balance.

Excellent idea! You'll have a lot more "utility" with a ready supply of money, available any time you need it, rather than having your money stuck in a house. You'd have to mortgage it again to get the money out of that thing (the house), or perhaps you'd even be forced to sell it. You're making a decision to put your money to work in a more efficient way, by having it in the market.

 

[ychuck46]

Was never about the rate

Or anything else from a financial standpoint. We have owned three primary homes in our lives. The first we were in only about eight years and since we were young and starting out it wasn't paid off completely by the time we moved. The second was a nice upgrade in all areas and I paid it off after going from a 30 year mortgage to a 20 to a 15 (money was easy back then, and the lenders did the 20 and 15 with no fees). I paid off the 15 year early. Our third and current home was a big upgrade for us but since I was doing well we paid it off after only six months.

It was never about the financial aspect of whether a mortgage was worth it or not. It was strictly peace of mind knowing that the roof over our heads was totally paid for. Now taxes are a subject for another post.

 

[Andre1969]

I think it's just human nature to hate your mortgage. Every once in awhile, I get the urge to pay it down more quickly, just for the peace of mind. I hate thinking about it, every time it comes around. All ~$2460 of it.

I keep thinking about how nice it would be to get rid of that payment, as it's a pretty big chunk. I think the human brain is just wired to look at small numbers differently from big ones, though. On one hand, it feels like a big number, but then when I compare it to my total net worth, suddenly it seems inconsequential.

Then, there's the fact that that number will never, 100%, go away completely, because it includes taxes and insurance. If I was mortgage free though, I'd pay the taxes and insurance once per year, and then forget about it. But, would still average out to around $520/mo, so the principal/interest part of the mortgage is around $1940.

Just this morning, I was thinking about if I hit a certain threshold, maybe I'd pay down 1/4 of the mortgage, just to get a jump start. But, I'd take an income tax hit if I did that. And that money wouldn't be working for me anymore, earning interest, dividends, appreciation, etc. And then, even if my mortgage was only 3/4 the original size, the monthly payment is going to be the same, unless I refinance.

Then, there's the effects of inflation. While I don't like that $1940/mo principal/interest payment, it will stay the same for the next 29 1/2 years (I bought the house about 2 1/2 years ago, but refinanced last year). Nobody can predict what inflation will do in the future, but if the past is any indication, it took roughly 30 years for prices to double. And around 20 years for prices to rise 50%. So if we take the same route, in 20 years, it should be somewhat like having a ~$1300/mo mortgage in today's dollars. And by the time I make the last payment, it should hurt about as much as a ~$960/mo payment would, now.

So, in my case at least, I think the best thing to do is nothing at all. The peace of mind of a paid off house would be nice, but I've had mortgages and/or HELOCs in my life since 1994 now. I was mortgage-free for about 7 months in 2018. I had paid off my old house at the beginning of the year, and bought a new place in September. I guess the biggest factor in paying off a mortgage, is how important is that free-and-clear peace of mind worth to you?

 

[pb4uski]

We paid off our house in TX in 2019. Then we moved to OH in 2020. We could have paid cash for the OH house, but decided to take a 2.75% 30 yr fixed rate mortgage on the new house. We put the cash from the TX house into the market in May 2020. That turned out to be a great move. Made $56,000 net of mortgage interest. Yeah us!

But now, as we are 57 days and a wake up from retirement, I have come to hate this mortgage. All the models say keep it. And now that the invested cash from the TX house has giant short term cap gains, it isn't as simple as just paying it off. I'll have this boat anchor until age 84.

No real action, just a rant.

I didn't read all the responses... just responding to the OP. If you change your AA along with paying off your mortgage then it makes more sense. Paying off your mortgage is then like buying a 2.75% long-term bond. But you're right... if you pay off your mortgage and keep your current AA then paying off you mortgage doesn't make sense because in the long run a 60/40 portfolio is likely to earn more than 2.75%..

So for example, let's say you have $1m that is 60/40 and a $200k mortgage. So your portfolio would be $600k stock and $400k bonds. If you pay off the mortgage and then rebalance to 75/25 then paying of the mortgage makes more sense than if you payoff and stay at 60/40.

For a few years prior to 2019, my AA was 60/35/5. The 5 in cash had declined to earning 1.7% and my mortgage was costing me 3.375%. Since I had my mortgage payment son autopay, I was indifferent to having a mortgage or not. I decided to use the 5 in cash to pay off the mortgage and revised my AA target to 65/35 ((60/95)/(35/95)/0 but rounded to the nearest 5%). I think it was a good decision.

 

[slagle]

I think it's just human nature to hate your mortgage. Every once in awhile, I get the urge to pay it down more quickly, just for the peace of mind. I hate thinking about it, every time it comes around. All ~$2460 of it.

I keep thinking about how nice it would be to get rid of that payment, as it's a pretty big chunk. I think the human brain is just wired to look at small numbers differently from big ones, though. On one hand, it feels like a big number, but then when I compare it to my total net worth, suddenly it seems inconsequential.

Then, there's the fact that that number will never, 100%, go away completely, because it includes taxes and insurance. If I was mortgage free though, I'd pay the taxes and insurance once per year, and then forget about it. But, would still average out to around $520/mo, so the principal/interest part of the mortgage is around $1940.

Just this morning, I was thinking about if I hit a certain threshold, maybe I'd pay down 1/4 of the mortgage, just to get a jump start. But, I'd take an income tax hit if I did that. And that money wouldn't be working for me anymore, earning interest, dividends, appreciation, etc. And then, even if my mortgage was only 3/4 the original size, the monthly payment is going to be the same, unless I refinance.

Then, there's the effects of inflation. While I don't like that $1940/mo principal/interest payment, it will stay the same for the next 29 1/2 years (I bought the house about 2 1/2 years ago, but refinanced last year). Nobody can predict what inflation will do in the future, but if the past is any indication, it took roughly 30 years for prices to double. And around 20 years for prices to rise 50%. So if we take the same route, in 20 years, it should be somewhat like having a ~$1300/mo mortgage in today's dollars. And by the time I make the last payment, it should hurt about as much as a ~$960/mo payment would, now.

So, in my case at least, I think the best thing to do is nothing at all. The peace of mind of a paid off house would be nice, but I've had mortgages and/or HELOCs in my life since 1994 now. I was mortgage-free for about 7 months in 2018. I had paid off my old house at the beginning of the year, and bought a new place in September. I guess the biggest factor in paying off a mortgage, is how important is that free-and-clear peace of mind worth to you?

This is a great way to think about the long-term payments of a mortgage, re: inflation.



I personally paid off my home a couple years ago, and I am in my 30's. It was a great feeling, and still is, but I can't ignore the stats of the market since then. In hindsight, particularly for someone a few decades off of retirement (most likely), it seems to be wiser to invest vs pay off the mortgage over the long term. Tax deductions, etc. also factor.



I'm planning to move to (another) HCOL/VHCOL location in the next 2 years, and will be in the mortgage "game" again, but not planning to pay it down quickly. Perhaps make a few early-payments to lessen the monthly amount. Overall, the house is generally considered an "unproductive" asset, so the incentive is to put money into something like stocks/bonds.


All that said, it truly is whatever makes you sleep well. Feeling free of a mortgage is something many people strive for, but don't achieve at a relatively younger age. I don't believe it makes sense from a numbers perspective, but it is so liberating.

 

[Al in Ohio]

At the time you made the decision to get the mortgage, why on earth didn’t you get an even lower rate 15 year mortgage since you certainly could afford the higher monthly payments?

 

[corn18]

At the time you made the decision to get the mortgage, why on earth didn’t you get an even lower rate 15 year mortgage since you certainly could afford the higher monthly payments?

Not really sure. I figured if I was going to leverage, I was going all in. ENTJ type of thing to do, I guess.