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Old 02-02-2021, 07:05 PM   #21
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My first question on this is always: Right now, if you had no mortgage, would you mortgage the house to invest in the market? Because that is basically what you are doing.

That said, it depends on how much the mortgage is and what are the payments. If you have a large amount of cash earning less than 1%, maybe put some of that towards it.

Despite the fact that we (the FIRE community) LOVE to discuss the topic, paying off the mortgage is a very personal decision.

Full disclosure: We (DW and I) always had the attitude that all the money from a sale went into the next house, keeping the mortgage low. When the last house was paid off, we sold for a tidy profit, bought the current townhome/condo, and invested the rest.
+1.
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Old 02-02-2021, 07:49 PM   #22
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I go back and forth with my love/hate relationship with my mortgage but I think it makes the most sense for me to pay it off within the next 5-7 years before I retire. If I don't need enough income to make the payments, I can probably have low enough income that will qualify me for ACA subsidies and low taxes. Along with piece of mind, that is a significant benefit that should alleviate market FOMO.
Depending on how much you owe on the mortgage and the monthly payment, it might make more sense to build up a stash of liquid money in a "safe" taxable account and use that for living expenses once you're on ACA, so you can keep your income low enough for subsidies. Obviously, none of that money would count as income, except a small amount of interest on it.
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Old 02-02-2021, 07:52 PM   #23
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Depending on how much you owe on the mortgage and the monthly payment, it might make more sense to build up a stash of liquid money in a "safe" taxable account and use that for living expenses once you're on ACA, so you can keep your income low enough for subsidies. Obviously, none of that money would count as income, except a small amount of interest on it.
I am blessed with Tricare for Life, so I pay $50 / month for healthcare for my wife and me until 65. Then Tricare becomes a free supplement to Medicare.
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Old 02-02-2021, 07:56 PM   #24
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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 portfolioís AA is. Have the payments withdrawn from that separate account. Pretend itís not there and donít 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.
This is a great idea! Except I will just do the accounting in my spreadsheet. Pretty easy to do since I know exactly what I bought with the money I would have used to pay cash for the house.
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Old 02-02-2021, 10:36 PM   #25
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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 portfolioís AA is. Have the payments withdrawn from that separate account. Pretend itís not there and donít 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.
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This is a great idea! Except I will just do the accounting in my spreadsheet. Pretty easy to do since I know exactly what I bought with the money I would have used to pay cash for the house.
You could google "defeasance" for pleasure!
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Old 02-03-2021, 12:04 AM   #26
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That's what my model screams at me every day: DO NOT PAY OFF YOUR MORTGAGE, YOU IDIOT! And if inflation ever gets above 2.75%, my mortgage is free.
+1

Historic opportunity with rates so low to pay as slowly as they will allow you to.
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Old 02-03-2021, 03:54 AM   #27
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I paid off my 30 year mortgage at year 11. After that for the next 13 years I poured more money monthly into my index funds. It was the best financial call I have ever made.
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Old 02-03-2021, 07:57 AM   #28
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You could google "defeasance" for pleasure!


Thanks for the new word!

https://www.investopedia.com/terms/d/defeasance.asp
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Old 02-03-2021, 08:12 AM   #29
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I've always believed that the most important thing is to do whatever helps you to sleep soundly at night.
But I don't think that is good advice at all if the sound sleep is built on a poor understanding of the issue.

If some one "hates" borrowing money at 30 year fixed historically low rates, I don't think they understand the issue. After they understand the issue, they may still decide to take a pass, but if "hate" is involved, there's something clogging rational thinking.

Financial interest (and most others) are best served with rational thinking. If something emotional is creeping in, figure it out. Often, fear is overcome once we understand and confront that fear.

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Old 02-03-2021, 08:21 AM   #30
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I paid off my 30 year mortgage at year 11. After that for the next 13 years I poured more money monthly into my index funds. It was the best financial call I have ever made.
Do you not see the shell game you (and others have) played on yourself here?

You poured money into your index funds with the increased cash flow after paying off the mortgage. But, where did the money come from to pay off the mortgage? You depleted something to pay it off, you ignore that, then talk about the advantage of refilling it.

If you didn't deplete it, you would not have to refill it! The mortgage pay off didn't appear out of thin air!

What year and what rate did you pay off your mortgage? A 60/40 fund has nearly tripled in the past 13 years ($100,000 goes to $279,483 - no guarantee of course, but historically investments have outpaced these low mortgage rates over any 20 or 30 year period).

https://bit.ly/2YCQXKe <<< link to 60/40 returns since 2007

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Old 02-03-2021, 08:27 AM   #31
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Do you not see the shell game you (and others have) played on yourself here?

You poured money into your index funds with the increased cash flow after paying off the mortgage. But, where did the money come from to pay off the mortgage? You depleted something to pay it off, you ignore that, then talk about the advantage of refilling it.

If you didn't deplete it, you would not have to refill it! The mortgage pay off didn't appear out of thin air!

What year and what rate did you pay off your mortgage? A 60/40 fund has nearly tripled in the past 13 years ($100,000 goes to $279,483 - no guarantee of course, but historically investments have outpaced these low mortgage rates over any 20 or 30 year period).

https://bit.ly/2YCQXKe <<< link to 60/40 returns since 2007

-ERD50

Yes and the extra paid to pay it down in the 11 years would have compounded for an even longer time since 1996 or so. Yes there were a few bad periods in there between 1996 and 2007 but still!
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Old 02-03-2021, 09:54 AM   #32
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But I don't think that is good advice at all if the sound sleep is built on a poor understanding of the issue.

If some one "hates" borrowing money at 30 year fixed historically low rates, I don't think they understand the issue. After they understand the issue, they may still decide to take a pass, but if "hate" is involved, there's something clogging rational thinking.

Financial interest (and most others) are best served with rational thinking. If something emotional is creeping in, figure it out. Often, fear is overcome once we understand and confront that fear.

-ERD50
Great post. For me, it's the simplicity of my model. One less line in the expense category. Nothing more complicated than that.

The rational argument is fairly straight forward.

My 2.75% mortgage is actually a nominal rate. The real rate on the mortgage is 2.75% - inflation. Let's assume inflation is 2% over the next 30 years. So the real rate is 0.75%. All I have to do is make more than 0.75% over the next 30 years to beat the mortgage. Is that possible? Here's the 30 year average total real return for a 60/40 portfolio since 1871:



I'd say my odds are pretty good that I will beat 0.75% average over a 30 year period. And if inflation goes above 2.75%, the mortgage is free.

I did do some playing around with my historical model, and if you can pay off your mortgage right before a bear market, you can win that way. The perfect world is to take the mortgage right after a market crash and pay it off right before a market crash. I got lucky on the first one.

This is all rational and makes good sense to me.

But back to the hate. Maybe that is too strong of a word. Irritated, maybe. More like wanting to fit in with the ER crowd who generally don't like debt.
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Old 02-03-2021, 09:59 AM   #33
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Then thereís the scenario where you get sued and your after tax investments, that arenít protected from a lawsuit, are wiped out. Yet, your house in many states is protected. Do you want to owe a mortgage then?
I know, unlikely. But owning my home outright helps me sleep better at night.
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Old 02-03-2021, 12:42 PM   #34
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I paid off my 30 year mortgage at year 11. After that for the next 13 years I poured more money monthly into my index funds. It was the best financial call I have ever made.
+1
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Old 02-03-2021, 01:31 PM   #35
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I don't think paying my mortgage off early or not will make a noticeable difference in my financial life but leaving a paid off home to my heirs rather than a mortgaged home will make life easier for them so I will pay mine off early(currently planning on age 49).
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Old 02-05-2021, 11:11 AM   #36
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If I don't need enough income to make the payments, I can probably have low enough income that will qualify me for ACA subsidies and low taxes.
I don't quite follow the reasoning here. Why couldn't you use the big lump of already taxed money that you'll need to pay off the mortgage to lower your income needs (or increase roth conversions) instead? I would think that would be more effective in reducing needed income and effective tax rate each year than eliminating your measly (by comparison) monthly mortgage interest payment.

e.g. Paying a 2.75% rate over 30 years to keep a larger share of money in the 12% or lower bracket would seem to me to make sense. Or it could allow you to do much larger Roth conversions up to the top of the 22% bracket, which would be a win as well I would think. Or is my reasoning flawed (I'm not a spreadsheet guy). And that's not even bringing possible extra investment gains, which can be tenuous, into the picture.
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Old 02-05-2021, 11:50 AM   #37
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I paid off my 30 year mortgage at year 11. After that for the next 13 years I poured more money monthly into my index funds. It was the best financial call I have ever made.
+1
Could either if you please show the arithmetic on this? Account balances before/after the payoff?

I just don't see it as anything other than a shell game. How can it possibly be the "best financial call you have ever made" (assuming you' have made at least one reasonably good call)?

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Old 02-05-2021, 12:35 PM   #38
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I've always believed that the most important thing is to do whatever helps you to sleep soundly at night.
+1
Go ahead and pay it off if you want to! Nobody here is going to dictate that you MUST carry a mortgage. Almost all of the models and analysis you find online are based on historical economic conditions, that is on assumptions that the future will be like the past, which may or may not pan out. Who knows what the market will do next? Not me, for sure.

Whenever I read about scary current events, I am so glad my mortgage is paid off. I know that many of these articles are clickbait. Fear sells. Still, it is comforting to know that no matter what I can stay right here in my Dream Home, my safe refuge. If I had to I'd pay quite a bit for this situation, for sleep-at-night reasons.
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Old 02-05-2021, 12:49 PM   #39
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I've always believed that the most important thing is to do whatever helps you to sleep soundly at night.
Plus I bought a house ( 12 years into ER) post Katrina with a big mortgage and 7 years later sold for a 25% loss. Nevermind that Mr Market covered my loss via my retirement portfolio - aka doing the math for the mortgage amount minus the credit.

Heh heh heh - So I earned extra credits toward my Curmudgeon Certificate winning about loss and picked up a wonderful DW with house. Grin.
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Old 02-05-2021, 01:35 PM   #40
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I don't quite follow the reasoning here. Why couldn't you use the big lump of already taxed money that you'll need to pay off the mortgage to lower your income needs (or increase roth conversions) instead? I would think that would be more effective in reducing needed income and effective tax rate each year than eliminating your measly (by comparison) monthly mortgage interest payment.

e.g. Paying a 2.75% rate over 30 years to keep a larger share of money in the 12% or lower bracket would seem to me to make sense. Or it could allow you to do much larger Roth conversions up to the top of the 22% bracket, which would be a win as well I would think. Or is my reasoning flawed (I'm not a spreadsheet guy). And that's not even bringing possible extra investment gains, which can be tenuous, into the picture.
I'm not quite following. I don't know the intricacies of Covered California yet but I believe I'll need to be under $80k/year in income to qualify for subsidiaries. My mortgage is about $25k/year. Taxes, hoa and insurance is another $20k/year. So that would leave 35k of income left for everything else which would not be enough unless I give up travel, however travel is the main draw of early retirement.

Also, while long term performance will likely exceed my mortgage rate, short term performance is less certain. I think I would feel more comfortable in retirement without any debt obligations.
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