Mortgage and my mind

[W2R]

Back to the original topic - -

Dallas27, no matter what you decide, I wanted to congratulate you on being able to pay off your mortgage, or not.

The nice thing about being in that position, is that you don't have to listen to what anybody else thinks! This is YOUR decision and yours alone. I am pretty sure that deep in your heart, you know what decision is right for you. My suggestion is to just ignore what all of us say, even me, and follow your gut feeling on this.

That said, IN MY CASE I am so glad I paid off my mortgage! Whether this means I end up paying more money, or not, for me this was the right decision and it adds to my peace of mind and happiness each and every day. With all the financial doom'n'gloom stories out there, having a paid off house has made my daily life a lot less stressful. Some people want a Corvette, others like me want a paid off house.

BTW, my favorite video game (Animal Crossing) centers around one's character paying off a mortgage and additional mortgages for remodeling, in the game. I still love paying off the mortgage(s) in that game.

 

[kgtest]

Market growth is like a tree in the amazon, payind down mortgage interest is like a tree in the desert. Water the tree in the desert and it won't grow as fast as if you water that trree in the amazon.

The grass is greenest where you water it the most. Trees tallest where the water is plentiful. At the end of the day its a tax problem now vs later. Mortgage might save you on an interest deduction, but then you are paying interest soo.

Markets will save you on interest, but don't provide a place to stay. What is your risk of default? If that is little to zero, then I'd say market is your answer. But not all the cash, keep enough for 3months COL and then split 25/75 to the mortgage / market.

 

[RetireBy90]

Some people want a Corvette, others like me want a paid off house.

I want both

 

[W2R]

I want both

 

[45th Birthday]

I am intellectually convinced that carrying mortgage debt in retirement is a good thing provided the rate is low. At one end of the spectrum, one would try to find a very long term mortgage that doesn't amortize (balloon payment). However, in reality that doesn't exist, and you are at risk that when the balloon payment is due you might not be able to refinance on attractive terms or have to liquidate investments at an inopportune time.

I ended up with two mortgages on our two houses totaling about 1/3 of conservative value. Could have paid cash for both houses with no problem. Both about 3.2%. One was originally a 15-year amortization with about 11 years left and will be paid off when I am 68. The other was a 10/3 ARM with no amortization and a balloon payment. I've paid down about one-third of that one in a few big chunks, and have set automatic principal payments to fully pay it off by the time the balloon is due, in about eight years.

Is this a completely rational approach? No, but when I hold my thumb out and close one eye, it seems about right. Good enough for me.

 

[Perryinva]

I agree with all those that basically said one side says “brains say debt bad...pay off” while the oher side is “be serious, they are giving you discounted money, take it!” causes a conflict that takes some discipline to stay with. If a mortage is less than 25% of fixed incomes, and there is plenty of discretionary income, then take the money and go and live. BETTER to die with debt and lots OF USEFUL AND USED liquidity than leave a paid off house, after you die, IMHO.

 

[hesperus]

If someone decides to pay off the mortgage, I really think it should be all or nothing.

-ERD50

+1 Put it to bed. Being debt free is worth every penny

 

[daylatedollarshort]

I am not really concerned about debt if the spread on what I am paying out and what I am earning looks good. If I could borrow borrow $100 billion dollars at zero interest I would take the loan, invest the money in CDs and Treasuries and sleep like a baby.

 

[hesperus]

If I could borrow borrow $100 billion dollars at zero interest I would take the loan, invest the money in CDs and Treasuries and sleep like a baby.

let me know where you secure those terms, and I'll sleep like a baby too

 

[james22]

Market growth is like a tree in the amazon, payind down mortgage interest is like a tree in the desert. Water the tree in the desert and it won't grow as fast as if you water that trree in the amazon.

Valuation matters, yeah?

Market growth *today* might be more like a tree in a flower pot.

 

[Scuba]

This sure does seem to be stuck pretty deeply in our minds! Now that I think of it, I can recall from when I was starting out, reading that over the life of a mortgage, you end up paying as much in interest as principal (or something like that). So that made me think paying off a mortgage (or paying cash to begin with), had to be a far, far better way to go.

Later, as I got a better understanding of inflation, and the time-value of money, I began to see it wasn't so one-sided. And then I saw that a historically low interests rate mortgage had a very strong bias to the positive. At other times, probably a good bet, but not such clear odds.

But in your case, if you've just got enough cash to pay it off, I'd suggest you take a good look at your liquidity. You can end up in a bad place if something happens, and most of your money is tied up in a house, and not liquid. Once you have plenty of liquidity, it's more of a 6 of one, half dozen story, but don't underestimate the value of adequate liquidity.

I sleep better with a mortgage and plenty liquidity, than I do w/o a mortgage and with very limited liquidity. Tell that to the lurking lizard!

-ERD50

My point of view exactly! Hard to get your cash out of a home in a down market. I like being liquid and am perfectly ok with our 3.375% fixed rate 30 year mortgage. Our payment is lower than rent would be on a decent 1 BR apartment.

 

[UnrealizedPotential]

I remember when I got my first mortgage in 1999, the going interest rate was 8%. I didn't care, I was just happy I could afford the payments. I refinanced a few times over the years before I finally sold my place. I put some extra money toward the mortgage over the years. I debated about that in my mind endlessly it seemed.



I was too young to know it, a teenager, but during the 80's the rates were in the teens. Wow! That makes my 8% look good. I think I eventually settled for a rate that was around 4.62%, something like that. If I had to do it all over again, I am not sure I would do anything different. What am I saying? It's not easy to decide to pay off the mortgage , even if you know you can.



​

 

[brucethebroker]

I, also, have wrestled with this one...
some interesting thoughts:
1. In your state, is a paid off home vulnerable to lawsuits?
2. In an interest rising environment, how soon will your mortgage rate be replaced by the interest paid on CD's or other "safe" investments?
3. Does putting a large sum of cash into paying off a mortgage reduce your opportunities for other investments requiring large sums of cash?
4. If your pay off is $200k, will you really sleep better moving that cash into home equity? Really?
5. Don't confuse a mortgage with housing expense. You will still have to pay property taxes and insurance on the home. You may be saving less than you think.
6. Per #5, you still have annual or semi-annual tax bills and insurance bills to pay. Still a hassle of writing checks-maybe only 2-3 vs. 12, but still....

When we bought our home, the year we semi-retired, I could not believe the banks were crazy enough to loan 30 year money to a sixty something couple. And at a 3% type mortgage. Are you kidding me? Hahahaha! (And CD's were only paying under 1% at the time-but still a great deal!)

 

[brucethebroker]

BTW, the new tax code has me rethinking many financial "truisms" . Now that it makes more sense to take the standard deduction (for lower income retirees), some things that I never considered are becoming more interesting. For example, with the possible loss of home interest deductions (by taking the standard deduction), it would make sense to replace a mortgage on a personal home, with one on paid off rental properties. Rental property interest is still fully deductible.

 

[HighOnLife]

I wonder at what rate it is better to pay it off. Quotes yesterday were 5.5%.

 

[Huston55]

BTW, the new tax code has me rethinking many financial "truisms" . Now that it makes more sense to take the standard deduction (for lower income retirees), some things that I never considered are becoming more interesting. For example, with the possible loss of home interest deductions (by taking the standard deduction), it would make sense to replace a mortgage on a personal home, with one on paid off rental properties. Rental property interest is still fully deductible.

Both good thoughts worthy of further analysis based on your particulars.

Interestingly, a lot of people don’t think about the ‘true’ deductibility of home mtge interest. It is the value of deduction beyond what one would get otherwise (standard deduction). The same is true for rental mtge interest, which is valuable for any income left over from other expenses + depreciation. So, in both cases, the tax benefit is at the margins, not from the first dollar.

 

[UnrealizedPotential]

I don't know the rate that it would have to be to pay off the mortgage. I was thinking like in the 80's when the interest rate was in the teens, would people pay off their mortgage? Not very likely. Although to me on paper it would certainly make sense. Paying a mortgage that has an interest rate in the teens is probably all most will be able to afford. No extra money to put towards the mortgage.


What about 8%? Well, it gets interesting. Could someone beat that return in the stock market? I think it's about a wash. Let's say the average stock return is 10%, 8% return with 2% to cover inflation. I am not seeing the advantage.


How about 4%? Well, some will think they can beat that in other Real Estate investments or stocks, and they probably can. Not an easy question, I don't think.

 

[audreyh1]

Both good thoughts worthy of further analysis based on your particulars.

Interestingly, a lot of people don’t think about the ‘true’ deductibility of home mtge interest. It is the value of deduction beyond what one would get otherwise (standard deduction). The same is true for rental mtge interest, which is valuable for any income left over from other expenses + depreciation. So, in both cases, the tax benefit is at the margins, not from the first dollar.

Right. For us once the loan was somewhat long in the tooth, our annual interest payments were too low to itemize, so we were getting no mortgage interest deduction benefit.

 

[ERD50]

... Could this mean that the debate about keeping a newer mortgage is becoming less viable because of rising rates?

Well of course. Was that a rhetorical question? The interest rate was always part of the debate.

There is no definitive answer, because we don't know what future market returns and inflation will bring. We can only look to the past, and see that a low rate mortgage has good odds of providing a benefit. The higher the rate, the worse the odds become. It's a continuum, it's not binary. The recent historically low rates just looked like something that I'd be kicking myself for not taking advantage of, if I were to look back in 20 years. But we never know.

I wouldn't take the bet on a large % of my portfolio, but as part of an overall plan, I did choose to bet on a low rate mortgage.

And someone who chooses not to take that bet won't be hurt by it, they may have just lost some opportunity. But that's OK too, we each choose which bets we want to take. I just take exception to poor arguments made on either side. We ought to look at it undistorted.


ooops, is the post I quoted gone? Oh well, similar to other posts, so I'll let it stand

-ERD50

 

[ripper1]

I have generally avoided car loans over the years, but when 0% was being offered, I took it!

Well, you know the dealers still make their money. Less is offered for your old car and new car not discounted as much

 

[Machine99]

I decided not to worry about making extra payments because I know this is not the house I want to retire in. If I knew I was going to retire here, I might have more motivation to pay off early.

 

[targatom2019]

I am 49 and will retire next summer. I have not had a mortgage over 19 years and having no mortgage allows me to take more risk on my investments. I was able to max out my 401K, max out me and wife's Roth Ira the last 19 years and have a sizable brokerage account.

 

[jazz4cash]

I wonder at what rate it is better to pay it off. Quotes yesterday were 5.5%.

What is that quote for? Looks unreasonably high.

 

[daylatedollarshort]

Well, you know the dealers still make their money. Less is offered for your old car and new car not discounted as much

Not always. Sometimes the car price is the same if you take the 0% deal or not. I've asked.

 

[flintnational]

Studied econ/finance, and know darn well paying off a low rate mortgage is non-optimal, and I am sitting with enough free cash for the first time in my life to be able to kill the mortgage and can’t shake the motivation to pay it off. Damn my reptile brain or whatever is doing that to me...!

What do you consider optimal in this situation? What is important to you? Yes, the optimal finance decision is to keep a low rate mortgage.

Posting on this forum is not an optimal (financial definition) use of my time. But, nevertheless, here I am. So, we routinely do things that are not optimal by one definition or the other. But they meet some definition of optimal. IMO, its okay to pay it off or not. Just make sure your decision is meeting the goals you establish from thoughtful analysis. Once again, whats important to you?

FWIW, while we were w*rking, we always kept a mortgage and a near 100% stock and real estate AA. At that point in our life our goal was to optimize return.