Pay off the mortgage or set it and forget it, what would you do?

[jkern]

I'd be interested if you could give us some specific numbers on this.

I did the calculations about 8 years ago now. I don't have them readily available. You are correct that I only came out slightly ahead and there would have been many options with respect to refinancing.

I didn't pay off the mortgage with the intent of having a greater ROI vs investing. I was mostly wanting the intangible feeling of having it paid off.

 

[ERD50]

I'd be interested if you could give us some specific numbers on this.

I did the calculations about 8 years ago now. I don't have them readily available. You are correct that I only came out slightly ahead and there would have been many options with respect to refinancing.

I didn't pay off the mortgage with the intent of having a greater ROI vs investing. I was mostly wanting the intangible feeling of having it paid off.

Thanks, I just wanted to make sure my calculations weren't too far off. That previous "clap-clap" responder must have thought this was some kind of gold mine strike.

I fully respect that if someone really doesn't want to take that small long term risk that a portfolio may under-perform a pay-off, then a pay-off is what they should do. But I guess I just don't get the weight of this "intangible feeling of having it paid off". Unless you had a very large mortgage relative to total net worth (which is maybe an indication of another problem, and in that case, a pay-off could lead to liquidity problems), I just fail to see why it would bring such a feeling of relief. As I see it, it just kind of deserves a "meh - it's what I decided to do, six of one, half-dozen of another."

Maybe instead of "intangible", we should say "Irrational"? And I don't mean that in a critical way, I'm just really trying to analyze the situation - in literal terms, I see no rational reasons for feeling (as some have said) having a weight lifted off their shoulders, or similar metaphor. Similar to a fear of flying - it is irrational in some ways, as it is safer than driving, but if flying scares you to the point of ruining the trip, maybe driving is the right choice for that person. But we can still say it (the fear of flying vs driving) is irrational.

-ERD50

 

[Nick12]

Some like me like to have a piece of mind paying off a mortgage in that I don't owe anyone anything . No one has to understand how I feel.

 

[FIREarly]

Some like me like to have a piece of mind paying off a mortgage in that I don't owe anyone anything . No one has to understand how I feel.

How about the piece of mind if you pay off my mortgage?

It'll help DW and me retire earlier! Teamwork

 

[jkern]

Thanks, I just wanted to make sure my calculations weren't too far off. That previous "clap-clap" responder must have thought this was some kind of gold mine strike.

I fully respect that if someone really doesn't want to take that small long term risk that a portfolio may under-perform a pay-off, then a pay-off is what they should do. But I guess I just don't get the weight of this "intangible feeling of having it paid off". Unless you had a very large mortgage relative to total net worth (which is maybe an indication of another problem, and in that case, a pay-off could lead to liquidity problems), I just fail to see why it would bring such a feeling of relief. As I see it, it just kind of deserves a "meh - it's what I decided to do, six of one, half-dozen of another."

Maybe instead of "intangible", we should say "Irrational"? And I don't mean that in a critical way, I'm just really trying to analyze the situation - in literal terms, I see no rational reasons for feeling (as some have said) having a weight lifted off their shoulders, or similar metaphor. Similar to a fear of flying - it is irrational in some ways, as it is safer than driving, but if flying scares you to the point of ruining the trip, maybe driving is the right choice for that person. But we can still say it (the fear of flying vs driving) is irrational.

-ERD50

I suppose one could call the feeling irrational, but I'll stick with intangible. I don't need any possible gain I might get from not paying off the mortgage, so I'm perfectly content to be mortgage free.

Of course there is alway Human Behavior Risk. Not everyone will perform like a computer algorithm. It's possible that some people would panic and sell if they experience a 50% to 60% haircut. My first guess is that it's easier to stay the course during the accumulation phase when one is still working vs the withdrawal phase.

 

[Romer]

I fully respect that if someone really doesn't want to take that small long term risk that a portfolio may under-perform a pay-off, then a pay-off is what they should do. But I guess I just don't get the weight of this "intangible feeling of having it paid off

Not everyone has the same priorities. I paid off my mortgage when using the money for investments would have been better. I had no fear that the market would underperform.

I felt that being mortgage free was something I had to do before I could retire

I understand the logical and rationale thing to do would have been to not pay it off

I felt free once it was paid off. Debt free

Then I also bought a lot of toys the last few years preparing to retire, one was importing a new camper from Australia because it was far superior (in my opinion) than anything built here for going off the beaten path. The smart and rational thing would have been to invest that. Along with the money I spent to restore a 47 year old car and a few other things

I have no regrets and would do it again. I have no words that would adequately describe the intangible feeling, but I had it as well

Not trying to start a food fight, wanted to share another perspective on the topic

 

[Nick12]

How about the piece of mind if you pay off my mortgage?

It'll help DW and me retire earlier! Teamwork

Teamwork makes the dream work!

 

[harley]

I love the idea of paying off a mortgage. I get the warm fuzzy feeling every time I pay off a mortgage. Mostly because I'm refinancing it into a new one at a lower rate, extending the arbitrage out farther each time. It makes me sleep so well at night.

 

[WhenIsItTime]

I love the idea of paying off a mortgage. I get the warm fuzzy feeling every time I pay off a mortgage. Mostly because I'm refinancing it into a new one at a lower rate, extending the arbitrage out farther each time. It makes me sleep so well at night.

Different strokes for different folks. I got a nice feeling when I paid off my mortgage and realized there would be no more paperwork, payments, or lien holders to deal with. I prefer independence.

 

[Markola]

“Judy, Here’s what’s behind Door Number 1!”

Definitely, pay off the mortgage, so that you have zero debt and no longer have that payment ‘hanging over you.’


“Behind Door Number Two!”

Definitely, keep your low interest mortgage to allow your larger investment portfolio to compound at higher rates than your mortgage rate.

“Door Number Three!”

Do what what’s right for you.

 

[bobandsherry]

“Judy, Here’s what’s behind Door Number 1!”

Definitely, pay off the mortgage, so that you have zero debt and no longer have that payment ‘hanging over you.’


“Behind Door Number Two!”

Definitely, keep your low interest mortgage to allow your larger investment portfolio to compound.

“Door Number Three!”

Do what what’s right for you.

Lol, I resemble that remark.

With nearly 70 messages, to summarize the responses:
1. Go ahead and pay off your mortgage
2. Go ahead and keep your mortgage, invest the funds and pocket a hopeful spread (arbitrage)

Do what makes you happy - no right or wrong answer, actual results won't be known until 10-30 years down the road.

Nothing has changed in the 40 messages since that posting. LMAO [emoji1787]

 

[Nick12]

“Judy, Here’s what’s behind Door Number 1!”

Definitely, pay off the mortgage, so that you have zero debt and no longer have that payment ‘hanging over you.’


“Behind Door Number Two!”

Definitely, keep your low interest mortgage to allow your larger investment portfolio to compound at higher rates than your mortgage rate.

“Door Number Three!”

Do what what’s right for you.

Exactly make your decision and own it however just ignore the critics that will come out to critic your decision.

 

[FLJim]

We are ordering a Manufactured home in Idaho. From what I know, interest rates for those are a little higher, although I don't have any quotes yet. One CU did tell me 3.5%. I haven't checked with the lenders who normally deal with these types of loans yet. Next on my list of things to do. 2.75% would certainly change the picture.

Yes, interest rates on trailer homes are higher, because they always go down in value, and the lenders need protection against loss of equity.

 

[remoter]

Just an idea, and this may have been mentioned previously: I don’t think you need to choose between paying off the house completely or sticking with a 30 year mortgage. You may be better off splitting the difference and opting to refinance with ~$200k down and a 15 year mortgage. This would lower your interest rate, so you’d save a good chunk of money on interest, and you’d keep half of your funds liquid for other investments.

 

[rayvt]

Just an idea, and this may have been mentioned previously: I don’t think you need to choose between paying off the house completely or sticking with a 30 year mortgage. You may be better off splitting the difference and opting to refinance with ~$200k down and a 15 year mortgage. This would lower your interest rate, so you’d save a good chunk of money on interest, and you’d keep half of your funds liquid for other investments.

The risk with any mortgage is getting foreclosed on if you don't make the monthly payments. From that standpoint, a 15 year mortgage is riskier, because your required payment is higher. They don't let you make a smaller payment if you can't come up with the entire nut.

Keep your money out of the house unless & until you can pay it off entirely.

 

[harley]

The risk with any mortgage is getting foreclosed on if you don't make the monthly payments. From that standpoint, a 15 year mortgage is riskier, because your required payment is higher. They don't let you make a smaller payment if you can't come up with the entire nut.

Keep your money out of the house unless & until you can pay it off entirely.

But this (and many of the other mortgage) thread(s) are basically about having a mortgage because you have the money available to pay it off. It's arbitrage. So there's no risk of foreclosure.

 

[ChrisC]

Not everyone has the same priorities. I paid off my mortgage when using the money for investments would have been better. I had no fear that the market would underperform.

I felt that being mortgage free was something I had to do before I could retire

I understand the logical and rationale thing to do would have been to not pay it off

I felt free once it was paid off. Debt free

Then I also bought a lot of toys the last few years preparing to retire, one was importing a new camper from Australia because it was far superior (in my opinion) than anything built here for going off the beaten path. The smart and rational thing would have been to invest that. Along with the money I spent to restore a 47 year old car and a few other things

I have no regrets and would do it again. I have no words that would adequately describe the intangible feeling, but I had it as well

Not trying to start a food fight, wanted to share another perspective on the topic

I do think it's a question of priorities and sentiment. We paid off the remaining balance of a small mortgage on a primary residence when we were working. But since then we've had mortgages the last 15 years, which includes 8 years into retirement. Current mortgage, which was the result of a refinancing is at 2.75/15 years and we have 10 years remaining. We have enough cash (CDs, savings and money market accounts) at a blended and lower interest rate than our mortgage so from a financial standpoint it does makes sense to pay off the mortgage, though we do value having stupid amounts of cash to write out checks for ridiculous gifts to each other or family members.

We'll likely sell investment real estate (debt free, btw) next year, and it's likely that a small portion of the sale proceeds will be used to pay off the mortgage on our home as well as purchase a family vacation home on a cash basis. My priorities here are to make life simple for ourselves and for the eventual handoffs to our heirs.

I think we have "enough" and some things just, in the total scheme of your priorities once you have enough, become less exacting and compelling: I don't feel driven to squeeze every ounce of financial juice out of the orange. On the other hand, I don't believe in flushing money down the toilet, so I wouldn't pay off the mortgage if it did financial harm to me or was a matter of real, calculable financial detriment. But at this stage of my life -- when I do have the financial ability to pay off the mortgage without doing grievance harm to me -- it seems more of a mental nuisance to me to have the mortgage (though I recognize that I'll still have property taxes and insurance, but those are once a year thing payments). And nuisance, in general, during my senior citizen years has become less tolerable.

 

[Markola]

But this (and many of the other mortgage) thread(s) are basically about having a mortgage because you have the money available to pay it off. It's arbitrage. So there's no risk of foreclosure.

That’s how I view my new 30 year, 3.6% mortgage - as an arbitrage play. I can be invested over “here”, taking the chance that I’ll earn a 7-8% historically-average return for a portfolio like mine over the next 30 years and enjoying the difference, or over “there”, effectively earning a for-certain 3.6%. I’m more comfortable over “here”, and the calculators agree, but YMMV.

Or I’ll pay it off someday if I sell or just want to.

 

[ChrisC]

That’s how I view my new 30 year, 3.6% mortgage - as an arbitrage play. I can be invested over “here”, taking the chance that I’ll earn a 7-8% historically-average return for a portfolio like mine over the next 30 years and enjoying the difference, or over “there”, effectively earning a for-certain 3.6%. I’m more comfortable over “here”, and the calculators agree, but YMMV.

Or I’ll pay it off someday if I sell or just want to.

Doesn't the arbitrage play require you to match your 30 year, 3.6% mortgage (which seems a bit high these days) against similar risk, fixed income assets (like Bonds, CDs, etc) in your "investment portolio"?

Otherwise, this is not really arbitrage but just leveraging debt to invest in equities, in which case it's similar to borrowing, at low interest rates, to invest in equities which aren't riskless like using a margin loan to buy stock. It raises the gadfly retort against leveraging a mortgage: would you take out a mortgage against a fully paid house (or take a HELOC) to buy securities (though some might do that fully aware of the risks they're taking).

 

[FLJim]

Doesn't the arbitrage play require you to match your 30 year, 3.6% mortgage (which seems a bit high these days) against similar risk, fixed income assets (like Bonds, CDs, etc) in your "investment portolio"?

Otherwise, this is not really arbitrage but just leveraging debt to invest in equities, in which case it's similar to borrowing, at low interest rates, to invest in equities which aren't riskless like using a margin loan to buy stock. It raises the gadfly retort against leveraging a mortgage: would you take out a mortgage against a fully paid house (or take a HELOC) to buy securities (though some might do that fully aware of the risks they're taking).

"Arbitrage and leveraging mortgage debt" reminds me of the guy who tells you that every time he leaves the casino, "he won".

 

[daylatedollarshort]

"Arbitrage and leveraging mortgage debt" reminds me of the guy who tells you that every time he leaves the casino, "he won".

Having an under 3% mortgage offset by TIPS returning inflation (currently ~5%) + 2% seems like a good idea to me, but YMMV.

 

[ERD50]

"Arbitrage and leveraging mortgage debt" reminds me of the guy who tells you that every time he leaves the casino, "he won".

Your memory is playing tricks on you then.

There's no comparison to a gambler. If anything, it's just the opposite, with the odds historically being very much in favor of the mortgage holder at these low interest rates (the mortgage holder is more like the house than they are the gambler).

Again, pay it off if you want, your call. But a false statement is still a false statement, and doesn't defend your position (other reasons may, but not that one).

-ERD50

 

[Aerides]

The risk with any mortgage is getting foreclosed on if you don't make the monthly payments. From that standpoint, a 15 year mortgage is riskier, because your required payment is higher. They don't let you make a smaller payment if you can't come up with the entire nut.

Keep your money out of the house unless & until you can pay it off entirely.

For someone who is squeaking by or still in the savings/earning mode without a large emergency fund or accessible saving...ok, sure, stick with the 30.

But for the vast majority here, and for 100% of those for whom paying in full is an option, then a 15 year is a good middle ground if the rates are worth the bother of the refi.

The risk is about zero for this population.

 

[daylatedollarshort]

The risk with any mortgage is getting foreclosed on if you don't make the monthly payments. From that standpoint, a 15 year mortgage is riskier, because your required payment is higher. They don't let you make a smaller payment if you can't come up with the entire nut.

Keep your money out of the house unless & until you can pay it off entirely.

You can get foreclosed on if you don't make your property tax payments. In some states, you can lose your fully paid off home in a lawsuit. Some asset protection lawyers recommend stripping the equity out of your home as a form of asset protection.

We have our mortgage payments set up on auto-pay. In my list of things to worry about in my life, getting foreclosed on because the auto-pay doesn't go through on time one month doesn't break the top 100. As others have posted, in this forum most who have mortgages have the money to pay them off and aren't worried about losing the house due to lack of funds.

 

[rayvt]

But this (and many of the other mortgage) thread(s) are basically about having a mortgage because you have the money available to pay it off. It's arbitrage. So there's no risk of foreclosure.

BINGO!

Sleep well at night = knowing you can pay off the mortgage any time you want, with one call to your stockbroker.