Continue to Invest or Pay Down Mortgage Question

[cooch96]

I am not a very funny person, so bear that in mind but this is my feeble attempt at humor:

Guy-With-Mortgage during a bull market: "I'm so brilliant! I am making a fortune investing the extra money!!!"

Guy-With-Mortgage during a bear market: "I'm ruined. I wonder if I should sell everything, move to Mexico, or go back to work."

Guy-With-Paid-Off-Home during a bull market: "I may not have a fortune but it's wonderful to sleep as well as I do."

Guy-With-Paid-Off-Home during a bear market: "What's all the fuss about? Sure, I'm doing some belt tightening but it's wonderful to sleep as well as I do."

OK, I tried. If that wasn't very funny, then feel sorry for my poor brother who put up with my weird jokes for decades.

Funny enough for a smile, at least. And true to boot!

 

[Texas Proud]

As I recall, people had their HELOCs frozen, they could not tap them when needed. They still had equity I think, it is just that the banks were not providing loans.





In the case where someone pre-pays the mortgage, has little free cash, and is depending on that HELOC. There are people on this forum that have reported doing that - pre-pay the mortgage and retain very little liquidity.

I guess we'd need to search out threads from 2008-2009 for examples of frozen HELOCs, but that's my memory of it.

-ERD50

Memory is not bad... I had HELOC on a paid off house and was told I could not draw on it for awhile... not that I needed any money...

 

[SecondCor521]

Memory is not bad... I had HELOC on a paid off house and was told I could not draw on it for awhile... not that I needed any money...

Me as well.

 

[hotwired]

I won't comment on the pool because you didn't ask for comments on that. (My pet peeve is when people comment on sh*t you didn't ask them to)

But here's my take on ONE aspect of "pay down mortgage or invest". Now you don't mention your "mix". I will assume you have about a 70-30 stock bond mix. My style is to think in terms of "quintiles". In other words, where is stock market valuation NOW vs. historical standards? bottom 20%? (cheap?) or top 20% (expensive, and we're currently there). When it's the bottom TWO quintiles I would pick the market. In the top two, I pick the mortgage. I'd rather "invest" in paying down a guaranteed 4.625% vs. investing in a market that is near the top of its historical CAPE (Schiller PE) ratio.

 

[hiramlemon30]

I agree with hotwired. Where we seem to be in the cycle, I would rather have the guaranteed return (even if not great) and peace of mind of paying off the mortgage.

 

[SmallCityDave]

I agree with hotwired. Where we seem to be in the cycle, I would rather have the guaranteed return (even if not great) and peace of mind of paying off the mortgage.

Agreed! If you look at the statistics all the people that are foreclosed on have mortgages

 

[dsp0725]

Hi everyone... I'm revisiting this topic.



We currently owe $281,432 on our mortgage @ 4.625%. If we were to sell, I'd expect to get $420k for the house.



My wife and I were looking at how much we've spent on mortgage insurance and interest, and it's adding up quite a bit!



Do you think I should refinance or just start paying this off super fast? We've got about $90k liquid cash right now, wondering if I should drop a good amount into the mortgage.


I apprecaite everyone's help!

 

[Aerides]

What refi % and fees are you looking at so we can compare?

 

[RunningBum]

You should be able to get PMI dropped with ~30% equity. Ask your mortgage company what it takes.

As far as the interest goes, have you been making more in investments than the interest rate? If so, you're good. It's a trade off, pay interest in the remaining mortage, while investing the mortgage amount. Or pay off the mortgage, and you've no longer got that $280K invested.

 

[SecondCor521]

You used to be able to get a new appraisal (you'd pay for this but around here they're only several hundred dollars), give it to your current mortgage company, and if the LTV was below 78% then they would have to drop PMI. This would be a lower-cost method than refinancing if your goal is just to get rid of PMI.

Whether to refinance or not probably depends on whether you think you'll live there long enough to recoup the refinancing costs. The simplistic math is cost of refinance / monthly after-tax savings, where monthly after-tax savings = mortgage balance * (old interest rate - new interest rate) * marginal income tax bracket.

It also depends on the things that I laid out in post #2 on this thread, plus whatever everyone else added after that.

 

[Earl E Retyre]

I am not a very funny person, so bear that in mind but this is my feeble attempt at humor:

Guy-With-Mortgage during a bull market: "I'm so brilliant! I am making a fortune investing the extra money!!!"

Guy-With-Mortgage during a bear market: "I'm ruined. I wonder if I should sell everything, move to Mexico, or go back to work."

Guy-With-Paid-Off-Home during a bull market: "I may not have a fortune but it's wonderful to sleep as well as I do."

Guy-With-Paid-Off-Home during a bear market: "What's all the fuss about? Sure, I'm doing some belt tightening but it's wonderful to sleep as well as I do."

OK, I tried. If that wasn't very funny, then feel sorry for my poor brother who put up with my weird jokes for decades.

I find this post amusing and appreciate the humor. I can also relate to it. I am also in the camp of sleeping well at night knowing I have zero debt. I sleep even better knowing that my fixed investments are enough to cover all my necessary expenses. Then I take any excess and invest in the market. In a bull market, I am fat, dumb and happy. In a bear market, I am able to sleep knowing the market can tank as much as it wants and eventually it will turn around but it does not bother me how long that takes.

 

[RunningBum]

Yeah, what has changed since the last discussion?

I would want some liquidity rather than tying up all my money in the house. I would also be investing at least some of that $90K rather than keeping it in cash.

Back in November you had $103K cash. 5 months later you're down to $90K. What happened to $13K? Did you invest some of it, or are you spending more than you are making, or what?

 

[braumeister]

I am also in the camp of sleeping well at night knowing I have zero debt.

Yep. Those of us in the "pay off the mortgage ASAP and never have any debt" camp aren't bothered a bit by those who present arguments (most of them probably valid) for the other side. We sleep well.

 

[RunningBum]

Do you think those who fully have the means to pay off the mortgage but choose to invest it instead have any trouble sleeping?

OP isn't able to pay off the mortgage in full, btw.

 

[Earl E Retyre]

Yep. Those of us in the "pay off the mortgage ASAP and never have any debt" camp aren't bothered a bit by those who present arguments (most of them probably valid) for the other side. We sleep well.

Agreed and this is one thing I love about this forum. There are different points of view and different ways folks choose to handle their own personal situations. No right or wrong and no one knows for sure what the future holds. [Most] folks are very respectful in stating their opinions and do not state theirs as a matter of fact. Although, occasionally people do. It helps me a lot to see the varying perspectives - and, it is always nice to occasionally see that some people agree with mine.

 

[pb4uski]

...I am also in the camp of sleeping well at night knowing I have zero debt. ...

I sleep well at night knowing that I can pay off my mortgage with a few clicks of the mouse at any time of my choosing.

In the meantime, since I last refinanced in January 2012, I am over $100k ahead of the game as my portfolio returns have far exceeded my 3.375% mortgage interest.

 

[albireo13]

Forget the pool. This will hurt when you decide to sell the house down the road.
About 50% of buyers do not want a pool so, right away you have thrown away half of your potential buyer's market when you try to sell.

I put in a pool in our old house 20 yrs ago. It was a different situation ... my wife had just passed away and I had 3 young kids. With her modest life insurance, I could afford it and it brought some joy and fun into my kids' lives. For that reason it was worth it.

Selling the house later became difficult because a lot of people were turned off by a pool.