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Old 02-21-2021, 02:52 PM   #101
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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.
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Old 02-21-2021, 02:54 PM   #102
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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%
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Old 02-21-2021, 02:56 PM   #103
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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.
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Old 02-21-2021, 03:01 PM   #104
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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.
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