Just paid off the mortgage. Putting the pay off the mortgage question to rest.

[hnzw_rui]

Sooooo... now you can bank the money to replace the money that you already had banked and used to pre-pay the mortgage?

Do I sense a bit(!) of... circular rationalization?

-ERD50

Well, you do avoid paying interest so instead of part of the payment going to principal and part going to interest, you get to bank the whole thing.

 

[ERD50]

Well, you do avoid paying interest so instead of part of the payment going to principal and part going to interest, you get to bank the whole thing.

True, but also consider the earning potential of the money that isn't locked up in house equity.

And once again, I'm not saying there is a right/wrong to this (in most cases) - I just have an aversion to lop-sided viewpoints.

-ERD50

 

[eta2020]

Exactly the same for me. When it came time to pay the mortgage, but... but... I didn't have to pay anything, now what was I to do with all this money

I can invest it very aggressively now that I do not have to worry about mortgage payment.

By the way for us early on mortgage interest was not 100% deductible on taxes so we payed it off 4-5 years after buying house. That was long long long time ago

Why would you buy something on the margin if you do not have to?

 

[PhrugalPhan]

I can invest it very aggressively now that I do not have to worry about mortgage payment.

Oh trust me, me too. It was 3 years ago, and since then I have been able to max out my 457 plan (I actually had been for a few years prior), and start a brokerage account. In three years I have gone from $0 to over $40k in the brokerage while yearly maxing out the Roth and the 457 account (w/catch-up). Not bad when you consider I don't even make 6 digits (yet).

 

[Bestwifeever]

We just consider our paid-off mortgage to be a move of some assets into a real estate allocation.

 

[tulak]

Fuego, congrats on paying off the mortgage. I think you found a situation where it makes a lot of sense.

I'm a bit skeptical on the claim that you'll be saving a lot more by not having a mortgage. I ran the numbers in my case and I would be saving about 15% more per year if my mortgage was paid off. Not a small amount, but not very large either.

I think I'll keep my mortgage for now, unless, like the OP, I happen to have enough cash on hand, it's earning less than my mortgage rate, and paying off the mortgage doesn't affect my cash flow.

 

[Lakewood90712]

I've been trying to raise cash for 2017 living expenses and a limit order finally executed today. Then I realized I would have that cash sitting in my money market account earning 1% before tax while I am paying 1.99% interest on my mortgage.

I spent 5 minutes thinking about it and a 6th minute transferring the money to Penfed.

Done.

I figure I won't need the cash I raised till 2017 anyway. Might as well be "earning" me 1.99% tax free by paying off the mortgage.

Good show .

I hope you feel as elated and free as I did once I paid mine off. Funny, my NW seemed to increase exponentially after I got rid of the mortgage

Congratulations!

The peace of mind after paying off a mortgage is under- rated. You don't realize it until it happens.

Paid off my mine at 38. Goes against conventional thinking, but early retirement with good net worth is also un-conventional.

I currently put idle cash in 5 yr cd's paying 2.25% with a 6 mo penalty for early withdrawal . I will gladly pay that penalty if and when a real good price in real estate or equities comes along.

" You get rich by having 10 million sitting in the bank until real good deal comes along " - Charles Munger

 

[FUEGO]

Ok, pretty funny follow up. I tried to pay it off as close as possible but I left a $38.00 balance on the account that'll get paid by auto-payment July 5th. I just mentioned this fact to DW.

Her response is golden: "Oh, I must have missed something. You paid off the mortgage? I remember you mentioned something about it but I wasn't paying attention."

Classic. As I recall she got up in the middle of my few minutes of thinking about paying off the mortgage and began tidying up the room so I guess she was ignoring me and giving me the "uh huh honey of course" responses. Busted.

 

[PatrickA5]

Ok, pretty funny follow up. I tried to pay it off as close as possible but I left a $38.00 balance on the account that'll get paid by auto-payment July 5th. I just mentioned this fact to DW.

Her response is golden: "Oh, I must have missed something. You paid off the mortgage? I remember you mentioned something about it but I wasn't paying attention."

Classic. As I recall she got up in the middle of my few minutes of thinking about paying off the mortgage and began tidying up the room so I guess she was ignoring me and giving me the "uh huh honey of course" responses. Busted.

Funny. I spent years working out ways to get rid of our mortgage. Extra principal payment, bi-weekly payments, refinance shorter term, etc. Finally, got it done. Made a big deal about it to DW. Six months later she asked me how much we're paying on our mortgage each month.

 

[rayvt]

Oh trust me, me too. It was 3 years ago, and since then I have been able to max out my 457 plan (I actually had been for a few years prior), and start a brokerage account. In three years I have gone from $0 to over $40k in the brokerage while yearly maxing out the Roth and the 457 account (w/catch-up). Not bad when you consider I don't even make 6 digits (yet).

I had a buddy at work who put all his extra money toward paying off their house so that they could get rid of that mortgage payment and be able to put all that extra money into investments & retirement accounts.

When I retired at 58, he asked how I could do it so early. By putting my extra money into growing stocks instead of pouring it into the mortgage, duh!

I'm still retired, and he is still working, hoping that his accounts will grow enough before he gets caught in a layoff. His wife has peace of mind that the house is paid off. My wife, OTOH, is just wanting to stay home this summer instead of going on another world cruise.

 

[samclem]

As I recall she got up in the middle of my few minutes of thinking about paying off the mortgage and began tidying up the room so I guess she was ignoring me and giving me the "uh huh honey of course" responses. Busted.

Maybe she also forgot that you told her about the boat you are buying with the mortgage payment money. Hey, it's worth a try.

 

[PatrickA5]

I had a buddy at work who put all his extra money toward paying off their house so that they could get rid of that mortgage payment and be able to put all that extra money into investments & retirement accounts.

When I retired at 58, he asked how I could do it so early. By putting my extra money into growing stocks instead of pouring it into the mortgage, duh!

I'm still retired, and he is still working, hoping that his accounts will grow enough before he gets caught in a layoff. His wife has peace of mind that the house is paid off. My wife, OTOH, is just wanting to stay home this summer instead of going on another world cruise.

All depends on the timing.

When I was making extra principal payments, all of my friends thought I was stupid. You should be putting that money in the stock market! My boss even took out a HELOC and invested it all. Suggested I do the same. Nobody could lose! The year was 2000. If the stock had ".com" somewhere in the name, it was a sure thing and would double at a moments notice. Until it didn't.

I had my house paid off in 2001. My friends lost most of their money day-trading and still had big mortgages. I was debt-free and used the "extra" money buying boring old mutual funds. Semi-retired at 50.

Like I said it all depends on the timing. Sometimes paying of a mortgage ends up (in hindsight) being a bad choice. Sometimes not. Maybe we both got lucky?

 

[eta2020]

I had a buddy at work who put all his extra money toward paying off their house so that they could get rid of that mortgage payment and be able to put all that extra money into investments & retirement accounts.

When I retired at 58, he asked how I could do it so early. By putting my extra money into growing stocks instead of pouring it into the mortgage, duh!

Your buddy made mistake of buying too expensive house for his income. One should be able to pay off house in 3-4 years IMO after putting 20% down. (while maxing out 401k)

Then you have 20 plus years of putting money into equities without any worry about mortgage payment..... and retire shortly after 50.

BTW I live in my first house which appreciated greatly over the years. Yet we could pay off 80% value of the house in 3-4 years even today.

 

[FUEGO]

Maybe she also forgot that you told her about the boat you are buying with the mortgage payment money. Hey, it's worth a try.

Hey Honey I'm thinking about moving from the Vanguard Tax Advantaged Equestrian Holdings at 0.09% expense ratio to the Vanguard Partially Tax Advantaged Equestrian Holdings at 0.07% expense ratio. ImBuyingABoatAReallyReallyExpensiveBoat. I should be able to save oh let's see 0.02% on $100,000 is about $20 per year. All that sound good? Just wanted to run it by you.

 

[samclem]

Hey Honey I'm thinking about moving from the Vanguard Tax Advantaged Equestrian Holdings at 0.09% expense ratio to the Vanguard Partially Tax Advantaged Equestrian Holdings at 0.07% expense ratio. ImBuyingABoatAReallyReallyExpensiveBoat. I should be able to save oh let's see 0.02% on $100,000 is about $20 per year. All that sound good? Just wanted to run it by you.

That's how it is done. Those who have mastered the art are the only ones looking forward to body cameras and the new 24/7 surveillance society. "But you agreed to this boat purchase weeks ago. Let's roll the tape."

 

[O2Bfree]

My DSO and I bought about half the house we could have afforded. We're frugal, but we also enjoy simplicity. We paid it off in 2006. Neither of us like being in debt, and also job security ain't what it used to be with all the buyouts and outsourcing these days. It was comforting to know that if one of us got laid off, the other could easily handle the bills with neither of us having to dip into our savings.

 

[eta2020]

My DSO and I bought about half the house we could have afforded. We're frugal, but we also enjoy simplicity. We paid it off in 2006. Neither of us like being in debt, and also job security ain't what it used to be with all the buyouts and outsourcing these days. It was comforting to know that if one of us got laid off, the other could easily handle the bills with neither of us having to dip into our savings.

That is exactly what we did with same line of thinking.

We also selected buying cheapest house in very expensive suburb. I am redneck of the neighborhood ..... though by now we could buy upper 10% house in the town.

If you want to RE don't overspend on house. But in my opinion do not save money on location. Go for best because quality of your life will be more influenced by location then size of house.

 

[ERD50]

My DSO and I bought about half the house we could have afforded. We're frugal, but we also enjoy simplicity. We paid it off in 2006. Neither of us like being in debt, and also job security ain't what it used to be with all the buyouts and outsourcing these days. It was comforting to know that if one of us got laid off, the other could easily handle the bills with neither of us having to dip into our savings.

That's all well and good, but I get I find it curious that people ignore the fact that they had to 'dig into savings' BIG TIME to pre-pay the mortgage! That doesn't count?

If you think about it, having that stash in an account would probably do more to help you out during a break in employment than the reduced monthly cash flow from no mortgage payments. You could make many, many mortgage payments from your 'stash'. Or buy food, repair the roof, replace the furnace, pay the property taxes, etc - all hard to do if it is tied up in the house.

edit/add: I agree that LBYM on the house itself sure does help in all cases.

-ERD50

 

[eta2020]

That's all well and good, but I get I find it curious that people ignore the fact that they had to 'dig into savings' BIG TIME to pre-pay the mortgage! That doesn't count?

If you think about it, having that stash in an account would probably do more to help you out during a break in employment than the reduced monthly cash flow from no mortgage payments. You could make many, many mortgage payments from your 'stash'. Or buy food, repair the roof, replace the furnace, pay the property taxes, etc - all hard to do if it is tied up in the house.

edit/add: I agree that LBYM on the house itself sure does help in all cases.

-ERD50

ERD if you timed it right and injected that cash into equities in 2008-2009 then you certainly would be many times better off ....

 

[ERD50]

ERD if you timed it right and injected that cash into equities in 2008-2009 then you certainly would be many times better off ....

But I'm not thinking short term or 'timing it right'.

The OP was talking short term (two years?), and he had reasons why the 'stash' would sit in cash (already at/near 100% equities). So I agreed that a pay-off made sense in that scenario.

But if you get a low rate mortgage, and are talking 20-30 years for that 'stash' to stay invested, the odds are very good that you will come out ahead with the investment.

If even those odds are not comfortable for you, then don't do it. But accept it for what it is, don't 'oversell' it.

-ERD50

 

[eta2020]

But I'm not thinking short term or 'timing it right'.

The OP was talking short term (two years?), and he had reasons why the 'stash' would sit in cash (already at/near 100% equities). So I agreed that a pay-off made sense in that scenario.

But if you get a low rate mortgage, and are talking 20-30 years for that 'stash' to stay invested, the odds are very good that you will come out ahead with the investment.

If even those odds are not comfortable for you, then don't do it. But accept it for what it is, don't 'oversell' it.

-ERD50

You are right.

Problem is that you kinda don't get those ultra great mortgage APIs when you are 28.

Then when you are pretty well off and 300k mortgage is insignificant in your late 40s or 50s you will get it but it is peanuts at that point so you do not care.

Maybe you got to that point because you payed of mortgage when you were young and rate was not that enticing.

What I am trying to say those great and superb rates are available to people who do NOT need them and not to average person. Once you do not need them.... they will not make difference to your NW. At that point it is just peanuts.

But if you can get lowest 2% mortgage for 30 years at the age of 25....load up on it my friend

 

[Gumby]

If you think about it, having that stash in an account would probably do more to help you out during a break in employment than the reduced monthly cash flow from no mortgage payments. You could make many, many mortgage payments from your 'stash'. Or buy food, repair the roof, replace the furnace, pay the property taxes, etc - all hard to do if it is tied up in the house.

This is a very, very good point. In a bad financial situation, liquidity is golden.

 

[NW-Bound]

... What I am trying to say those great and superb rates are available to people who do NOT need them and not to average person. Once you do not need them.... they will not make difference to your NW. At that point it is just peanuts...

Yes, but we have on this forum many LBYM millionaires who still like to count peanuts. Old habits die hard.

And then, there are people who are still emotional about being debt free, although total NW is what it is really about.

So, people can do whatever that makes them happy. Beer, wine, or distilled spirits? I like all 3, and alternate them.

 

[eta2020]

Yes, but we have on this forum many LBYM millionaires who still like to count peanuts. Old habits die hard.

And then, there are people who are still emotional about being debt free, although total NW is what it is really about.

So, people can do whatever that makes them happy. Beer, wine, or distilled spirits? I like all 3, and alternate them.

Well if you are LBYM millionaire in your 50s....then I must agree with ERD. Yes you 99% could earn money by taking 30 year mortgage at superb rate and investing it in equities.

You still have to time this right Window was big though....

But you may better of spending your energy looking for nice bottle of wine at this point

 

[NW-Bound]

... you may better of spending your energy looking for nice bottle of wine at this point

I don't even do that. My palate is getting shot. I started to substitute cheaper brandies for the beloved Cognacs, and my taste buds did not complain. I am getting easier to please, and less and less picky all the time.

It doesn't matter any more, as long as I can be self-propelled and still breathing, and even make that 2000-ft climb hike. Everything else is secondary.