Why can I not stop thinking about paying off my mortgage?!?!

[FLSUnFIRE]

It's cheap money and "by the numbers" at such a low interest rate the answer is keep the mortgage. But, we are human and not robots so there are other factors at play. There isn't an absolute right answer; consider everyone's input and make the best decision for yourself.



I bought my FIRE home with cash in 2019 (liquidating some taxable investments to do so). To maximize my NW, probably not ideal but it also reduces my needed cash flow enabling me to keep my taxes lower. Having lower cashflow needs definitely made it easier for me to jump than having a mortgage -even if the money was "in the bank". For the most part, I am happy with my decision but some days I think, "man if I left all my money in the market ...." Then again, 2020-2022 could have played out differently and I'd have had a reduced investment pool and a mortgage to pay... and a job!

 

[rwdflynavy]

We refinanced last year at 2.25% as well. No chance I'm paying it off early. We've got about $320K and a very reasonable monthly payment.

 

[Aerides]

Corn, your situation is "exhibit A" of mortgages to NOT pay off.

Almost any other makes some sense, yours, doesn't. Be very happy with that rate and find something else to bother you.

 

[street]

We own five homes with no mortgages. I’m happy with our finances because we despise debt. The math may tell you to keep the mortgage, but only you can know what your gut says.

I agree the math may tell you one thing but I also dislike debt also. It is always interesting when the professionals talk about retirement. One of the top tips is don't be in debt. I also know not everyone has to be debt free to retire because of what they are worth. I just don't care for debt and it has saved my a lot of money not having debt. I also will say there is nothing wrong with having a loan etc. in retirement it works out fine for most.

 

[athena53]

Perhaps the most important part of this thread on retirement, is the matter of protecting one's assets... and even more important, thinking ahead to protect the assets of a spouse, when health requires extraordinary expenses.

Some scary stories there for those who are planning for Medicaid to pay for LTC.

This seems to be a bad time to pull assets out of investments and throw them at the mortgage. (Caution: I've called the bottom of the market several times this year. I've been wrong.) And, if you needed the cash in the future and took out a new mortgage you would NOT get 2.5%.

I'm in a similar quandary but with smaller numbers. The $100K mortgage I took out in 2015 (15 years, 3%) is down under $60K. I can itemize so there's a bit of a tax benefit, and I don't have to worry about the scenario with one spouse in LTC because I'm single. I'm SO tempted to pay it off just for the novelty of living in a paid-off house but the rational part of me knows it's not a good decision.

 

[Midpack]

I totally don't regret paying off our mortgage - but the circumstances were different.

Exactly, we paid off our 30y mortgage in 15 years - but interest rates were quite a bit higher over 5%+ IIRC. My first mortgage in the late 70's was a 9% ARM! It's not the same decision with the terms the OP has.

 

[Phroig]

Our rate was around 6.75%, so we paid it off as soon as we could. I viewed that as purchasing a bond with a 6.75 yield. Our bond funds were yielding less, so we decided to liquidate the funds and put that money towards the mortgage. That put a big dent in the principal. Of course, yields continued to drop, and we missed out on some of the appreciation in bond funds.

 

[Walt34]

I totally don't regret paying off our mortgage - but the circumstances were different.

Same here, and the interest rate was way more than the OP's.

With that rate I'd put it on autopay and forget about it.

 

[jollystomper]

At that interest rate, I would not rush to pay it off. You could consider treating it logically like a 15 year mortgage and make the extra payments to pay of off faster. But in my view, until you have the cash to pay off whatever balance is left - as to not have to deal with any tax related issues - do not pay it off. That is the approach I do, YMMV (apologies for stealing Koolau's tag abbreviation ).

 

[ivinsfan]

That's why my model says it is stupid to pay it off. Assuming 2.74% inflation for the next 29 years, my final monthly payment is equivalent to $912 in today's dollars vs. $1920 today. If inflation is higher, that delta gets bigger.

And I am also earning 2.84% on my stable value / CD ladder in my 401k which is all of my fixed income.

Can you articulate what is making you consider this? The economy ? The market?

 

[target2019]

Just a rant because I really should not pay off my mortgage. But I so want to. ARRRRRGGGGHHHHH!!!!!

56, retired, 30 year 2.25% fixed rate mortgage with 29 years left. $492k balance. Would take all my taxable account to pay it off, so would have to do it over 3-5 years so I can get it all out @ 0% LTCG.

My model says it would be the dumbest thing ever.

That's why my model says it is stupid to pay it off. Assuming 2.74% inflation for the next 29 years, my final monthly payment is equivalent to $912 in today's dollars vs. $1920 today. If inflation is higher, that delta gets bigger.

And I am also earning 2.84% on my stable value / CD ladder in my 401k which is all of my fixed income.

Just a rant, I get it. If it is truly a 100% great decision to keep the mortgage as long as possible, than why does this bother you, or at least rub you the wrong way for a moment?

So many discussions tend to go to a yes/no good/bad model. But if you choose to take some action, perhaps it will make some sense. For example, if I had a long term debt, I would feel like I beat the bank on some level by paying off the debt sooner. Does it have to be paid off now, in 10 years, in 20 years? In your case it is clearly part of your strategy, so a complete payoff is out of the question. But if you make one extra principal payment this year, you will have a tactical move that can be changed at any time in the future. Pay more, pay less, pay extra or not-at-all to suit your mood.

YMMV, of course.

 

[pjigar]

You will never get almost free money like that again.

I would go as far as: You will never get [-]almost[/-] free money like that again. Real inflation has never been lower than your mortgage rate ever in the past. Don't pay off please!

 

[athena53]

But if you make one extra principal payment this year, you will have a tactical move that can be changed at any time in the future. Pay more, pay less, pay extra or not-at-all to suit your mood.

I did that on my mortgage on my last house. Bought in 2003 with a 15-year mortgage, refinanced in 2010 which started the clock ticking again. I still wanted to pay it off by 2018 so kept making the same payment as the original mortgage. I stopped that when I ER'd in 2014 but it made a nice dent in the principal. I've been able to get mortgages without escrow accounts (finally!) and the extra payment has always been properly applied to reduce the principal.

On this one I'm thinking of looking at where I am at each year-end and adding a principal payment if I feel like it.

 

[latexman]

Just a rant because I really should not pay off my mortgage. But I so want to. ARRRRRGGGGHHHHH!!!!!

56, retired, 30 year 2.25% fixed rate mortgage with 29 years left. $492k balance. Would take all my taxable account to pay it off, so would have to do it over 3-5 years so I can get it all out @ 0% LTCG.

My model says it would be the dumbest thing ever.

What would your model say about an option on the other end of the risk spectrum, keep the mortgage and take out a margin loan and invest that? It probably looks doubly as good as keeping the mortgage, right?

Most financial models I've seen do not include risk, and we end up being the risk arbitrator. As often said here, how well can you sleep at night taking that risk/decision?

I hope to have a similar decision about the EOY, when my 3 siblings and I should close on the sale of the family farm to a developer. Cha-ching! I can use my proceeds to become debt free and have $'s left to invest, remain a debtor, or take out a big margin loan for investment. I think that's the full spectrum of the options I may have before me. Currently, we have a mortgage on our home in NC, a mortgage on our FL condo, and two car loans. All are low rates.

When the time comes, DW and I have some decisions to make. These $'s if and when it happens, is a windfall for us. Oh yes, we realize the deal could go South. I hope not, but . . . without it, our plan is secure. With it, our retirement quality goes up a few notches.

I suspect we'll go somewhere in between the options listed. Paying off the car loans, as they are small, have the highest interest rates, and are just a blip on the radar really, is a no-brainer. But not the FL condo, I sleep better at night knowing the bank has about 80% of the risk in case a Category 6 hurricane goes through it. Us humans just keep pumping CO2 into our air and deforesting. The NC mortgage will probably get the most discussion before we decide on that one. There's no urgency though, even after we close on the farm. And, the margin loan? No, not I!

 

[old medic]

I'm looking forward to getting a mortgage to pay off early....

 

[RunningBum]

Since you are really bothered by having a mortgage, you should sell your house, and buy something much cheaper you can pay cash for. Maybe it'll be a trailer home or an old house badly in need of repairs, but think how great it will be to not have a mortgage!

Or why buy another house at all? Just rent an apartment! You'll be surrounded by like-minded people, and you'll know how happy they are from the celebration parties they hold that you'll hear through your thin adjoining wall.

These ideas don't sound so good? Maybe having a mortgage isn't so bad after all!

One other perspective. I assume you have a tIRA or similar tax deferred account? You realize you have a tax liability on that, don't you? Does that bother you as well? It's not the same thing, but it's not so different either. You might be able to find a way to retire that deferred tax liability within a few years, but it's probably a bad idea, just like making yourself cash poor to pay off a low interest mortgage is probably a bad idea.

 

[old medic]

you should sell your house, and buy something much cheaper you can pay cash for. Maybe it'll be a trailer home or an old house badly in need of repairs, but think how great it will be to not have a mortgage!

I resemble that remark...

 

[corn18]

Since you are really bothered by having a mortgage, you should sell your house, and buy something much cheaper you can pay cash for. Maybe it'll be a trailer home or an old house badly in need of repairs, but think how great it will be to not have a mortgage!

Or why buy another house at all? Just rent an apartment! You'll be surrounded by like-minded people, and you'll know how happy they are from the celebration parties they hold that you'll hear through your thin adjoining wall.

These ideas don't sound so good? Maybe having a mortgage isn't so bad after all!

One other perspective. I assume you have a tIRA or similar tax deferred account? You realize you have a tax liability on that, don't you? Does that bother you as well? It's not the same thing, but it's not so different either. You might be able to find a way to retire that deferred tax liability within a few years, but it's probably a bad idea, just like making yourself cash poor to pay off a low interest mortgage is probably a bad idea.

I could pay cash for this house. I sold a paid off house to buy this house. I know how it feels to have a paid off mortgage.

 

[Romer]

I understand the feeling of need to pay off your house. That was one of my tenants to retiring. BUT I was in a different situation. I had 5 years left on a 15 year with a $120K balance. The stock market was at its peak (who knew). Interest rates on CDs and bond return were low. I paid mine off at the end of 2020. The argument is I could have made more not paying it off and investing it. I only used 5.6% of my liquid balance. I wouldn't have used more than 10% (gut feel) as you have to have money to make money

As always, things in hindsight are always clearer and I made the right call. That $100K "earned" ( really mitigated) 2.75% and would have lost about 20% if I had kept the stocks I sold to pay it off.

For me, it was timing, low use of existing funds that made this a good call. I would not do it with what you have posted. Like others suggested, develop an earlier pay off schedule that doesn't stress your finances like making a payment every 4 weeks which provides one extra payment a year

 

[tulak]

I have a 30 year fixed at 2.75%. Refinanced last year and I’ll never pay it off. My only regret is that at some point I’ll move and lose that rate.

The mortgage does help me feel better about inflation.

 

[DrRoy]

When you can earn more on your money than the interest on a loan, don’t pay it off.

 

[Bamaman]

We are fortunate to have two homes without mortgages--one of which is an hour away on a beautiful lake. It was inherited.

It's the lack of any mortgage that allows our quality of life to be so high than our meager ss/ss/small pension monthly income allows without substantial IRA withdrawals.

This is our first RMD year, and it's nice to have nothing to do with the withdrawal another than reinvesting it. Sure beats making mortgage payments.

 

[daylatedollarshort]

I ran my numbers from my previous post through a compound interest calculator. The results were: If you save $10,000.00 per year your savings may grow to $487,947.08 after 28 years. This includes a starting balance of $20,000.00 and a 3% annual rate of return.

 

[Mulligan]

We refinanced last year at 2.25% as well. No chance I'm paying it off early. We've got about $320K and a very reasonable monthly payment.

I refinanced last year at 2.75%. If I was a higher net worth person, I would still probably just have paid it off and been done with it. But the note payment only represents about 15% of my net monthly pension and it is cola’d so it is less painful for me to pay it monthly instead of knocking a big hole in my stash.

 

[jeffd]

I wonder how many people that lost their homes in 07 -08 wished they would have paid off their mortgage.

My grand parents lived through the depression,they paid off the house, my parents did the same. It seems it's what people used to do, try to carry very little if not no debt.

I did the same, paid it off in 2019 paid off car in early 2020 and retired debt free,probably not financially smart. I have one credit card that gets paid off
every month.

In order to keep my house out of the goverments hands it costs me about
$ 600.00 month, so right or wrong I feel good. I personlly don't want to use my home like an ATM or an investment tool and just use it for what it is, a place to live. Like I said,not for everyone but it woks for me