Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 02-10-2021, 12:23 PM   #81
Full time employment: Posting here.
 
Join Date: Oct 2020
Posts: 561
Quote:
Originally Posted by troutnut1 View Post
That would be a painful and short conversation at my house:

“Honey, I mortgaged the house today to play the stock market.”
Yep, that wouldn't fly in my house, we paid the mortgage off as a high priority when we were younger. I can't get my head a mortgage in retirement - a retiree would ideally be looking at risk management, not piling on the risk. A 1970's style stagflation would hurt bonds as well as stocks - then a retired person would be paying the mortgage back from a depleted stock and depleted bond portfolio- Yikes.
Exchme is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-10-2021, 12:23 PM   #82
Recycles dryer sheets
 
Join Date: May 2015
Posts: 138
Quote:
Originally Posted by corn18 View Post
Hadn't thought about it that way. My brilliant financial mind managed to net $54k by taking a mortgage for a year. If the market tanks between now and May 2021, then I won't have any cap gains. I win either way.
Wait, how do you win if the market tanks by May? Are you really better off selling at your original basis (or at a loss), than you are selling at a $54k profit and paying short term capital gains taxes?

I guess I've never understood the hatred and uber-aversion towards capital gains taxes - if you're paying them, it's because you're coming out ahead... If I were really anxious to pay off my mortgage, I would be tempted to lock in the gains, pay off the mortgage, and leave the excess behind invested as basically "free" money.
sergio is offline   Reply With Quote
Old 02-10-2021, 12:43 PM   #83
Thinks s/he gets paid by the post
corn18's Avatar
 
Join Date: Aug 2015
Posts: 1,883
Quote:
Originally Posted by sergio View Post
Wait, how do you win if the market tanks by May? Are you really better off selling at your original basis (or at a loss), than you are selling at a $54k profit and paying short term capital gains taxes?

I guess I've never understood the hatred and uber-aversion towards capital gains taxes - if you're paying them, it's because you're coming out ahead... If I were really anxious to pay off my mortgage, I would be tempted to lock in the gains, pay off the mortgage, and leave the excess behind invested as basically "free" money.
My post was pretty nonsensical. I agree. LTCG are not a bad thing.

My current plan is to pay $203k on the mortgage this year so the mortgage ends at the end of the year I turn 69. Then I'll decide if I want to pay it off in 2022 when I can get enough out of the taxable account with 0% LTCG. I could use the Roth to pay it off this year, but that doesn't sit right with me.
__________________
Consistently sets low goals and fails to achieve them.
corn18 is offline   Reply With Quote
Old 02-10-2021, 12:58 PM   #84
Recycles dryer sheets
 
Join Date: May 2015
Posts: 138
Quote:
Originally Posted by corn18 View Post
My post was pretty nonsensical. I agree. LTCG are not a bad thing.

My current plan is to pay $203k on the mortgage this year so the mortgage ends at the end of the year I turn 69. Then I'll decide if I want to pay it off in 2022 when I can get enough out of the taxable account with 0% LTCG. I could use the Roth to pay it off this year, but that doesn't sit right with me.
Definitely do the analysis on this as well... you may come out ahead paying 15% on the gains ASAP, than paying 0% tax on the gains after the market goes down by some small amount:

For example if you invested $200k and have a $50k gain (total $250k):

1. Selling $250k now nets you $242.5k after long-term capital gains tax of 15%.
2. Suppose your $250k is worth $240k next year (a 4% decline, not unrealistic). Selling next year nets you $240k at 0% tax. If the market is down 20 or 30%, selling will almost certainly not be an option.

I really think people greatly overemphasize paying 0% capital gains... when I read this forum and another very well-known investing forum, everything seems to revolve around paying no taxes, which IMHO, isn't always the right move.

Another thing to consider is whether or not LTCG will still be treated as favorably next year as they are now, given the political shift in the US.

Good luck! I know the feeling of wanting to be free of a mortgage...
sergio is offline   Reply With Quote
Old 02-10-2021, 01:11 PM   #85
Thinks s/he gets paid by the post
corn18's Avatar
 
Join Date: Aug 2015
Posts: 1,883
Quote:
Originally Posted by sergio View Post
Definitely do the analysis on this as well... you may come out ahead paying 15% on the gains ASAP, than paying 0% tax on the gains after the market goes down by some small amount:

For example if you invested $200k and have a $50k gain (total $250k):

1. Selling $250k now nets you $242.5k after long-term capital gains tax of 15%.
2. Suppose your $250k is worth $240k next year (a 4% decline, not unrealistic). Selling next year nets you $240k at 0% tax. If the market is down 20 or 30%, selling will almost certainly not be an option.

I really think people greatly overemphasize paying 0% capital gains... when I read this forum and another very well-known investing forum, everything seems to revolve around paying no taxes, which IMHO, isn't always the right move.

Another thing to consider is whether or not LTCG will still be treated as favorably next year as they are now, given the political shift in the US.

Good luck! I know the feeling of wanting to be free of a mortgage...
I really want to avoid selling anything with capital gains this year because my income (base pay + severance) puts me in the 23.8% LTCG tax bracket.
__________________
Consistently sets low goals and fails to achieve them.
corn18 is offline   Reply With Quote
Old 02-10-2021, 01:50 PM   #86
Recycles dryer sheets
 
Join Date: May 2007
Posts: 50
Quote:
Originally Posted by CardsFan View Post
And just out of curiosity how many of those friends telling you that you are losing money are driving $50k pick-ups, with a big loan?

LOL, so true...
__________________
Todd,
Fort Lauderdale
82-T/A is offline   Reply With Quote
Old 02-19-2021, 08:13 PM   #87
Dryer sheet aficionado
 
Join Date: Jul 2015
Location: SoCal
Posts: 37
When I retired 8+ years ago, I paid off mortgages on both homes for the "peace of mind" perspective. In reflection, it was a terrible idea. If I had kept the money in the market I figure I would have had an additional $500k (not including the tax benefits). Granted, the market has been extremely good these past 8 years, who knows what the future brings ...
__________________
================
Retired in 2012 @55
Visited the world - now the USA
Broland is offline   Reply With Quote
Old 02-19-2021, 10:28 PM   #88
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Dec 2014
Location: Huntsville, AL/Helen, GA
Posts: 5,853
I don't even think about the difference between a paid for home and one that's mortgaged. As soon as I could payoff my home, I did. And fortunately, we have a lake house that's also paid for.

Without a mortgage, I don't have to borrow from myself to make the monthly payments. And no mortgage allows us to maintain a better lifestyle and travel the world.

But it's a shame that our 3 car auto insurance, boat insurance, RV insurance and two homeowners insurances are charged to our Visa account. Sometimes it's even difficult to cash flow the Visa bill in full monthly. With a house payment, it'd be impossible without hitting the IRA Rollover account.
Bamaman is offline   Reply With Quote
Old 02-20-2021, 03:26 PM   #89
Dryer sheet wannabe
 
Join Date: Oct 2020
Posts: 23
I paid off my mortgage in 9 years. I know that my interest rate vs compounding in the market was a poor choice financially, but the mental satisfaction of knowing every month my bills are close to nothing is worth far more than anything in a 401k, incidentally, I do invest a lot more now of course with no mortgage and my investments have all been great. There's something to be said about the mental factor that money just can't buy.
JoseSantiago is offline   Reply With Quote
Old 02-20-2021, 05:05 PM   #90
gone traveling
 
Join Date: Dec 2018
Posts: 1,196
Quote:
Originally Posted by ERD50 View Post
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
You have assumed wrong on your shell game idea. While paying off my mortgage in 11 years, I lived below my means and still invested in mutual funds. When I paid off my mortgage I doubled my monthly investments into my funds regardless of share price. I paid off my mortgage in 2005. I FIRE'd a few years ago. Best call I made.
Nick12 is offline   Reply With Quote
Old 02-20-2021, 05:09 PM   #91
gone traveling
 
Join Date: Dec 2018
Posts: 1,196
Quote:
Originally Posted by finnski1 View Post
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!
+1.
Nick12 is offline   Reply With Quote
Old 02-20-2021, 08:14 PM   #92
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 25,273
Quote:
Originally Posted by Nick12 View Post
You have assumed wrong on your shell game idea. While paying off my mortgage in 11 years, I lived below my means and still invested in mutual funds. When I paid off my mortgage I doubled my monthly investments into my funds regardless of share price. I paid off my mortgage in 2005. I FIRE'd a few years ago. Best call I made.
No I didn't. You are not properly accounting for the money that went into paying off the mortgage. That money would have already been in your savings if it wasn't being used to pre-pay. So when you brag that you can re-fill it faster w/o a mortgage, you would not have to re-fill it if you didn't pre-pay it.

It's up to you if you want to prepay your mortgage, but readers of the forum should not get the mistaken impression of how important it is. It isn't, especially with historically low mortgage rates.

If you want to continue this, use actual $ examples, and it will be easy to see the shell game if you are still missing it.

-ERD50
ERD50 is offline   Reply With Quote
Old 02-21-2021, 03:51 AM   #93
gone traveling
 
Join Date: Dec 2018
Posts: 1,196
Quote:
Originally Posted by ERD50 View Post
No I didn't. You are not properly accounting for the money that went into paying off the mortgage. That money would have already been in your savings if it wasn't being used to pre-pay. So when you brag that you can re-fill it faster w/o a mortgage, you would not have to re-fill it if you didn't pre-pay it.

It's up to you if you want to prepay your mortgage, but readers of the forum should not get the mistaken impression of how important it is. It isn't, especially with historically low mortgage rates.

If you want to continue this, use actual $ examples, and it will be easy to see the shell game if you are still missing it.

-ERD50
You see it in a different light which I do not agree with. Plain and simple is that if I had been paying off monthly my 30 year mortgage and not put more money into mutual funds I could not have retired when I could and have amassed what I have. You do not have to be sarcastic about me " bragging". I am just plainly stating my experience. How about let's be more cordial to each other.
Nick12 is offline   Reply With Quote
Old 02-21-2021, 08:25 AM   #94
Thinks s/he gets paid by the post
 
Join Date: Jun 2006
Posts: 1,915
Quote:
Originally Posted by braumeister View Post
I've always believed that the most important thing is to do whatever helps you to sleep soundly at night.
This!

I, frankly, sleep easier minimizing debt.
Sure, dollar-wise taking a low interest loan will probably turn out better. However, I like the added flexibility of having no debt.

Texas wind generators would likely be fine without driving equipment. But then the unexpected happens and it wasn’t fine.

Peace of mind, for me, was worth far more.
Zathras is offline   Reply With Quote
Old 02-21-2021, 10:25 AM   #95
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 25,273
Quote:
Originally Posted by Nick12 View Post
You see it in a different light which I do not agree with. Plain and simple is that if I had been paying off monthly my 30 year mortgage and not put more money into mutual funds I could not have retired when I could and have amassed what I have. You do not have to be sarcastic about me " bragging". I am just plainly stating my experience. How about let's be more cordial to each other.
I apologize if that came across as sarcastic, I didn't intend it to, it was shorthand for how it kind of sounded to me.

But I stand by that this isn't a matter of "seeing it in a different light". Numbers are numbers, and unless there is some communication gap here, it sure looks like you are not accounting for everything.

Put some real numbers to your experience, and we can see if they hold up.


Quote:
Originally Posted by Zathras View Post
This!

I, frankly, sleep easier minimizing debt.
Sure, dollar-wise taking a low interest loan will probably turn out better. However, I like the added flexibility of having no debt. ...
And as I said earlier, if that peace of mind is built upon a false premise, it really isn't helping someone.

And for the record, many of us sleep better at night knowing that our money is working for us, and the odds of us coming way out ahead (which has already happened) with these historically low rates are strongly in our favor. Even if things were not so favorable, the kind of debt I'm talking about should not cause sleepless nights, there's simply no reason for that level of anxiety within the bounds were are talking about. If you want to pass on the opportunity, that's a personal decision, and it's fine. But it often gets overstated here on this forum, and that might mislead some people.

-ERD50
ERD50 is offline   Reply With Quote
Old 02-21-2021, 12:03 PM   #96
Recycles dryer sheets
 
Join Date: Oct 2015
Location: Bozeman
Posts: 183
Quote:
Originally Posted by Nick12 View Post
You see it in a different light which I do not agree with. Plain and simple is that if I had been paying off monthly my 30 year mortgage and not put more money into mutual funds I could not have retired when I could and have amassed what I have. You do not have to be sarcastic about me " bragging". I am just plainly stating my experience. How about let's be more cordial to each other.
Nick, you've been presented with an opportunity to learn here. Nobody knows who you are. If you give some specific actual numbers, perhaps you can better understand the scenarios. This is all about opportunity cost, and it could prove to be useful to you to understand it.
l8_apex is offline   Reply With Quote
Old 02-21-2021, 12:10 PM   #97
Full time employment: Posting here.
 
Join Date: Oct 2020
Posts: 561
Using a mortgage to buy stocks is using leverage and mortgages are the lowest interest rate that ordinary people can get, so that is the cheapest form of leverage.

It usually works out to your benefit as ERD50 points out, but the reason most people don't do it is that it can go badly wrong if there is a prolonged downturn. So it is a personal risk management decision.
Exchme is offline   Reply With Quote
Mortgage or Not?
Old 02-21-2021, 01:17 PM   #98
Thinks s/he gets paid by the post
flintnational's Avatar
 
Join Date: Mar 2008
Location: Atlanta Suburb
Posts: 1,499
Mortgage or Not?

I have posted the following before. My comments only deal with portfolio risk and math. The post ignores the other important factors that matter to us individually. From a math and portfolio risk standpoint, the bottom line is this. It depends on where you get the money to pay off the mortgage or where you invest the money you could have used to pay off the mortgage. Often when this topic arises, it seems we are not comparing apples to apples. We are either increasing risk (higher dollars invested in stocks - keeping a mortgage) or reducing risk (lower dollars invested in stocks - paid off mortgage). IMO, changing portfolio risk seems to be the overlooked variable. If we hold risk even, it only matters which rate is higher, bond returns or the mortgage interest rate. And, holding risk even is essential to accurately compare two investment choices, pay off the mortgage or keep the mortgage.

Now, back to the bacon thread where I am loved by all. If I remember correctly, this post does not engender widespread love and affection.

Previous post (with edits)

If bond returns are less than your mortgage rate, and we are holding portfolio risk even, financially you are better off to liquidate bonds and pay off the mortgage. You increase your total return by the spread between the mortgage rate and the bond rate. If bonds pay more, the reverse is true and you should keep the mortgage. (This analysis ignores any tax implications of having a mortgage or selling bonds.)

With a mortgage
60/40 Asset Allocation
$600,000 Stocks
$400,000 Bonds
$1,000,000 Investable assets

$0 Home equity (100% mortgage)
$1,000,000 Net worth

Without a mortgage
100/0 Asset Allocation
$600,000 Stocks
$0 Bonds
$600,000 Investable assets

$400,000 Home equity (paid mortgage)
$1,000,000 Net worth

Where bond rates and mortgage rates are equal (say 3%), the two examples above have similar portfolio risk and return (assuming bonds and mortgages have similar risk). Some will argue the second example has a different asset allocation, 100/0 vs 60/40. But, that is only because we are not counting the paid off house in the second example. IWO, we are not comparing apples to apples. We are already counting potential home equity in the first scenario. It shows up as the $400K bond investment. Once the home equity is moved up to the investable assets in the second example, both examples have a 60/40 asset allocation. While most here do not normally include home equity in our investable assets, it needs to be included in this calculation to make a proper comparison equalizing the risk and defacto investments of both choices. IWO, example one could pay off the mortgage with his bonds or example two could mortgage his house and invest the proceeds in bonds. Both examples are the same risk and return when mortgage rates and bond returns are equal.

Finally, some are using total portfolio return compared to the mortgage rate. I believe this is a misstep. The mortgage rate should be compared to your lowest returning asset. For most this will be bonds. Money is fungible. I can hold bonds at 2% or use bonds to pay down a mortgage with a 3% interest rate. I do not have to liquidate stocks (or other high yield assets) to pay down the mortgage. Strictly from a math standpoint, it would only make sense to keep a mortgage when all of your assets have an expected return greater than the mortgage rate.

There are other reasons someone may wish to keep a mortgage or have a paid off house. The above only addresses the math calculation and the need to equate portfolio risk between the two examples allowing proper comparison. Additionally, an investor may not want to bring bonds all the way to zero since it would preclude rebalancing. Finally, the mortgage example likely provides more flexibility and liquidity. Once again, the above only considers the math and challenges the common assumption that the total portfolio return is the proper measure against the mortgage rate.
__________________
"Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees" - John Mayer
flintnational is offline   Reply With Quote
Old 02-21-2021, 02:32 PM   #99
Thinks s/he gets paid by the post
corn18's Avatar
 
Join Date: Aug 2015
Posts: 1,883
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.

__________________
Consistently sets low goals and fails to achieve them.
corn18 is offline   Reply With Quote
Old 02-21-2021, 02:49 PM   #100
Thinks s/he gets paid by the post
 
Join Date: Oct 2014
Posts: 1,219
Quote:
Originally Posted by corn18 View Post
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.

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 invested 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
__________________
-Big Dawg-FI since 9/2010. Failed ER in 2015. New target 202?.-

-"Blow that dough"-Robbie

" People say I'm lazy, dreaming my life away Well, they give me all kinds of advice designed to enlighten me When I tell them that I'm doing fine watching shadows on the wall "Don't you miss the big time, boy. You're no longer on the ball" -John Lennon-
Bigdawg is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Pay off or not to pay off? brownred FIRE and Money 16 03-13-2017 05:28 PM
Just paid off the mortgage. Putting the pay off the mortgage question to rest. FUEGO FIRE and Money 65 06-08-2015 05:08 PM
5 reasons men shouldn't blow off going to the doctor easysurfer Health and Early Retirement 43 04-29-2011 10:09 AM
What would you do - pay off student loan or pay down mortgage? bank5 FIRE and Money 27 07-27-2009 05:30 PM

» Quick Links

 
All times are GMT -6. The time now is 03:04 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.