I hate my mortgage but shouldn't pay it off

[corn18]

Corn, I am confused. You did a 20 year run (30 years ago) for a 30 year mortgage. And also, where is the 200K that you would still have if you got a mortgage? What I mean is if you had no mortgage (meaning you paid cash) then where is the 200k coming from? Both scenario's can't start with zero invested. The no mortgage scenario can have zero investing because he used his 200k to buy the house. Where is the 200k for the "got a mortgage" scenario? Maybe I'm just confused. Happens way to often. lol

The comparison is for someone who has $200,000 on day one. They either pay cash for the house and invest what would have been the house payment or they take a $200,000 mortgage and invest the $200,000.

 

[Bigdawg]

The comparison is for someone who has $200,000 on day one. They either pay cash for the house and invest what would have been the house payment or they take a $200,000 mortgage and invest the $200,000.

Thanks. For some reason that wasn't apparent to me.

The 540K I would have used to pay off my outstanding mortgage on my 800k house made 19.4% in 2020. Mortage is 2.75%

 

[corn18]

Thanks. For some reason that wasn't apparent to me.

The 540K I would have used to pay off my outstanding mortgage on my 800k house made 19.4% in 2020. Mortage is 2.75%

Same. The $510k I would have used to pay off the house in Aug 2020 has made $71,000 net of mortgage interest. In 6 months.

 

[NW-Bound]

Ran some numbers. Time period is 1971 to present. 30 year fixed rate mortgage using the rate from that year for the full term. I only have mortgage data going back to 1971, so I could only do runs from 1971 to 1990. If someone has 30 mortgage rate data going back further, I can add that easily.

Scenario 1: 30 year fixed rate mortgage of $200,000. I used the 30 year fixed rate for the starting year and kept it constant (no refinancing). I put the $200,000 into a 60/40 portfolio and used the actual nominal returns for each of the 30 year period.

Scenario 2: No mortgage. P&I payment equivalent to the first year of mortgage is invested every year for 30 years using actual nominal rates as above.

The graph below shows the difference in NW at the end of the 30 year period. Positive numbers = mortgage wins, negative numbers = no mortgage wins.

The "no mortgage" case wins big in 1980-1981. And that's because 30-year mortgage rate hit almost 17%. If you locked in that rate for 30 years, you of course lost big time.

I myself paid 14% when I bought my 1st home in April 1980. However, I refinanced when the mortgage rate dropped. In fact, I refinanced twice before selling the home in 1986. Your simulation does not address refinancing, as you stated.

 

[corn18]

Just a quick update. My severance package keeps growing so I may have more than enough cash to pay off the mortgage right away. The data still show I'm better off keeping it, but it will be hard to not pay it off when my cash balance greatly exceeds my mortgage balance. We'll see if I actually get the giant package and report back. 30 days and a wakeup.

 

[l8_apex]

Just a quick update. My severance package keeps growing so I may have more than enough cash to pay off the mortgage right away. The data still show I'm better off keeping it, but it will be hard to not pay it off when my cash balance greatly exceeds my mortgage balance. We'll see if I actually get the giant package and report back. 30 days and a wakeup.

Congrats! The best position to be in is where you have options/choices!

 

[disneysteve]

Just a quick update. My severance package keeps growing

That's a nice problem to have, but why is that? What made them change the package they had already presented to you?

 

[corn18]

That's a nice problem to have, but why is that? What made them change the package they had already presented to you?

I had not planned on getting a bonus this year, but they gave me one. They didn't have to, so that was a surprise. And they are shooting for 12 months severance pay vs. the 9 months I was planning on. That might be a stretch too far, but at least it's in the cards. I don't need any of it, but it sure is nice.

To answer the question of why, I'll just say I have friends in very high places in my megacorp.

 

[dmpi]

With the state of today's bond market I can't believe it wound not be to your advantage to sell off any bonds/fixed income you have and pay off (or at least partially pay off) your mortgage.

 

[corn18]

With the state of today's bond market I can't believe it wound not be to your advantage to sell off any bonds/fixed income you have and pay off (or at least partially pay off) your mortgage.

I should have enough cash from my severance to pay off the mortgage, so I don't need to sell anything.

And if I don't pay it off, it all goes into my 50/50 portfolio which should do much better than the 0.75% net real rate on my mortgage.

Back and forth I go.

 

[disneysteve]

I should have enough cash from my severance to pay off the mortgage, so I don't need to sell anything.

And if I don't pay it off, it all goes into my 50/50 portfolio which should do much better than the 0.75% net real rate on my mortgage.

Back and forth I go.

It really comes down to a comfort-level decision. No, it probably doesn't make sense financially to pay off the mortgage given the low rate, but if having the debt bothers you, pay it off. If you're fine carrying it, then keep it and invest. There is no "right" answer.


We paid off our mortgage 2 years ago. In hindsight, we would have been better off investing that money, but we've had no loan payments for 2 years and have been able to say we're 100% debt-free. You can't put a price tag on that.

 

[Musica40]

We paid off our house in TX in 2019. Then we moved to OH in 2020. We could have paid cash for the OH house, but decided to take a 2.75% 30 yr fixed rate mortgage on the new house. We put the cash from the TX house into the market in May 2020. That turned out to be a great move. Made $56,000 net of mortgage interest. Yeah us!

But now, as we are 57 days and a wake up from retirement, I have come to hate this mortgage. All the models say keep it. And now that the invested cash from the TX house has giant short term cap gains, it isn't as simple as just paying it off. I'll have this boat anchor until age 84.

No real action, just a rant.

No way I'd ever have a mortgage again. Aside from a car note, we are totally debt free and plan on staying that way.

 

[corn18]

No way I'd ever have a mortgage again. Aside for a car note, we are totally debt free and plan on staying that way.

Why do you have a car note?

 

[Musica40]

Why do you have a car note?

The plan is to pay it off just before we retire. We are currently waiting to complete renovations on our condo and once that is done, the car will be paid off. I know is sounds counter intuitive, but the money is there waiting for the final tally on repairs/renovations. I hate car notes as well.

 

[disneysteve]

Why do you have a car note?

With rates as low as they are, sometimes people take a low or no interest loan and opt to keep their money invested. I can understand that, though personally I'd rather not have the debt. I bought a car in September and just wrote a big check to pay in full. I'm sure I could have gotten a sweet financing deal with my 830 credit score but I didn't want to be bothered.

 

[corn18]

Well, I got the call from my boss yesterday going over the details of my severance package. It will be enough to pay off the mortgage (after taxes). Last day is this Friday. Once all that money hits my accounts, I will have to make a decision.

 

[disneysteve]

Well, I got the call from my boss yesterday going over the details of my severance package. It will be enough to pay off the mortgage (after taxes). Last day is this Friday. Once all that money hits my accounts, I will have to make a decision.

Wow! How exciting to be about to take that step. Your progress since we ‘met’ has been remarkable. I can’t wait to hear all about your post-retirement life. Congratulations!

 

[Finance Dave]

Great news! I'd let it sit in my bank account for 1 day just to stare at it lol.

 

[wrigley]

We paid off our house in TX in 2019. Then we moved to OH in 2020. We could have paid cash for the OH house, but decided to take a 2.75% 30 yr fixed rate mortgage on the new house. We put the cash from the TX house into the market in May 2020. That turned out to be a great move. Made $56,000 net of mortgage interest. Yeah us!

But now, as we are 57 days and a wake up from retirement, I have come to hate this mortgage. All the models say keep it. And now that the invested cash from the TX house has giant short term cap gains, it isn't as simple as just paying it off. I'll have this boat anchor until age 84.

No real action, just a rant.

Sorry but.....I'm still struggling with the TX to OH move. Shouldn't it be the other way around the closer you get to retirement?


Mike

 

[corn18]

Man, if inflation pops up, I could have a 0% real rate mortgage.

 

[phil1ben]

Don't know if this helps but I also had a 2.75% 10 year mortgage against my primary residence. It represented less than 2% of the value of the house and I have no other mortgages on our other homes. There were 4 years left on the mortgage. It made no logical sense to pay it off.

HOWEVER, I cannot describe the satisfaction of having no mortgage to pay each month. I obtained far more enjoyment than I expected in having no mortgages to pay.

IF YOU PAY IT OFF, MAKE SURE THE BANK ACTUALLY DISCHARGES YOUR MORTGAGE OF RECORD AND GET A COPY OF THE RECORDED SATISFACTION OR DISCHARGE.