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

[daylatedollarshort]

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

For some households, a bit extra in after tax accounts may keep the AGI low, resulting in a five figure ACA tax credit and plus possibly financial aid for those with kids in college.

Fixed 30 year mortgages at low rates may also serve as a bit of an inflation hedge, especially for those of us with non-COLA pensions to use as offsets.

 

[ERD50]

... 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.

... Once you do not need them.... they will not make difference to your NW. At that point it is just peanuts. ...

Well, as others said, it can still be a difference, so why not go for it?

I agree that the difference will likely be small, but a buck is a buck, and I won't say 'insignificant, 'do not care' or 'no difference'.


But that's my point towards all these (silly IMO) dancing, excited, 'no feeling like it', congratulations, posts whenever anyone mentions paying off the mortgage. The difference with a pay-off is likely to be a small difference, and if you have a low rate locked in and a long time frame, the pay-off is very likely to be negative. So why celebrate?

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

Yes - yet there are many on this forum who say 'no debt, no way'.

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

I'll drink to that!

-ERD50

 

[rayvt]

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

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.

Huh??
aimloan{dot}com is currently quoting 3.875% (0 points, 3.925% APR) for a conforming 30-yr fixed loan. Available to all ages of people, 21 to 99.

One should be able to pay off house in 3-4 years IMO after putting 20% down. (while maxing out 401k)

Again, huh??
Who are these people who can pay 20%-25% of their house every year, out of their current income? I suppose one should be able to run a 4-mnute mile, too? There's probably many more people in the second category than the first.

Or did I get punk'd?

 

[eta2020]

huh??
Who are these people who can pay 20%-25% of their house every year, out of their current income? I suppose one should be able to run a 4-mnute mile, too? There's probably many more people in the second category than the first.

Or did I get punk'd?

Inexpensive house in expensive neighborhood of Boston area will be 500k. Two professionals in this area should easily make 250k by the time they are 30. I don't see how it could be difficult to pay off 400k mortgage in 4 years....(On that kind salary I would save 100k plus max out 401k)

Modest house in Colorado Springs will be 300k where such couple makes about 160k. Again I don't see difficulty in paying off 240k mortgage in 4 years.

It probably is not possible in Palo Alto CA

But those kind of couples will usually buy McMansions for 1.2 Million or so and more less never pay it off. Which is perfectly fine if one wants to work into their 60s.

I see and interact with that type of people/couples daily..... It is nothing out of ordinary. Now I know nobody who can run mile in 4 minutes

 

[dallas27]

Inexpensive house in expensive neighborhood of Boston area will be 500k. Two professionals in this area should easily make 250k by the time they are 30. I don't see how it could be difficult to pay off 400k mortgage in 4 years....(On that kind salary I would save 100k plus max out 401k)

Modest house in Colorado Springs will be 300k where such couple makes about 160k. Again I don't see difficulty in paying off 240k mortgage in 4 years.

It probably is not possible in Palo Alto CA

But those kind of couples will usually buy McMansions for 1.2 Million or so and more less never pay it off. Which is perfectly fine if one wants to work into their 60s.

I see and interact with that type of people/couples daily..... It is nothing out of ordinary. Now I know nobody who can run mile in 4 minutes

Wow, really cant agree with this veiwpont.


Sent from my iPhone using Early Retirement Forum

 

[eta2020]

Wow, really cant agree with this veiwpont.


Sent from my iPhone using Early Retirement Forum

With which part?

 

[dallas27]

With which part?

The numbers and assumptions you are making. In your 20's you have to pay down student debt, earn the masters, buy first car, furnish first home, possible childbirth, adjust to being adult, make a number of mistakes, not to mention switch jobs a few times to find what you love or are good at.


Sent from my iPhone using Early Retirement Forum

 

[eta2020]

The numbers and assumptions you are making. In your 20's you have to pay down student debt, earn the masters, buy first car, furnish first home, possible childbirth, adjust to being adult, make a number of mistakes, not to mention switch jobs a few times to find what you love or are good at.


Sent from my iPhone using Early Retirement Forum

I said buying house at 30.

You should not have any student loan. You should not have any car loan. I came to this country alone without parents at 18 and by 26 I had Masters in Computer science and job paying around 80-90k in todays money in cheap Texas and I had no loans.

But I agree I am talking about upper 15% of people. This may be "bad" of me. I suspect those are great candidates for FIRE because they certainly can do it if they do right things.

If you are young and want to FIRE my first advice would be get great education first so you can belong into upper 15% on a income scale. If instead you are paying of student loans and figuring out what you love to do you are already missing train.

 

[O2Bfree]

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

We didn't dig into savings to pay off the mortgage early. We've each always had enough stashed in savings to last at least a year and cover most emergencies, whether we had a mortgage or not.

 

[ERD50]

We didn't dig into savings to pay off the mortgage early. We've each always had enough stashed in savings to last at least a year and cover most emergencies, whether we had a mortgage or not.

I'm not sure what you are saying then (BTW, I see I did misquote you, if it makes a difference - should be 'dip' into savings, not 'dig').

You said "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."

So if you didn't need to 'dip' into savings to pay off the mortgage, where did the money come from then? OK, I'm guessing there is some semantics going on here - you paid extra each month from your income stream? Well, that would have gone to savings if you hadn't. And that savings could tide you over a lapse in employment.

And until it is all paid off, you still have the monthly bill.

Like I've said many, many times before - it's such a minor thing either way, but this rationalization to make it seem important just gets me.

-ERD50

 

[eta2020]

I'm not sure what you are saying then (BTW, I see I did misquote you, if it makes a difference - should be 'dip' into savings, not 'dig').

You said "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."

So if you didn't need to 'dip' into savings to pay off the mortgage, where did the money come from then? OK, I'm guessing there is some semantics going on here - you paid extra each month from your income stream? Well, that would have gone to savings if you hadn't. And that savings could tide you over a lapse in employment.

And until it is all paid off, you still have the monthly bill.

Like I've said many, many times before - it's such a minor thing either way, but this rationalization to make it seem important just gets me.

-ERD50

The existence of mortgage especially for someone with great credit/great rate is probably one of the least significant factors to being Financially Independent.

There are much bigger problems like Car loans, student loans, credit card balances, spouse that is big spender, health, education etc etc.

As long as you can pay off mortgage with no sweat ...you are in good shape.

 

[daylatedollarshort]

So if you didn't need to 'dip' into savings to pay off the mortgage, where did the money come from then? OK, I'm guessing there is some semantics going on here - you paid extra each month from your income stream? Well, that would have gone to savings if you hadn't. And that savings could tide you over a lapse in employment.

And until it is all paid off, you still have the monthly bill.

Like I've said many, many times before - it's such a minor thing either way, but this rationalization to make it seem important just gets me.

-ERD50

I actually don't think it is minor. I think it is good to point out. Otherwise people reading these threads for financial advice may not accurately consider all the factors to optimize their decision.

There are, of course, pros and cons to either paying off or keeping a mortgage. Paying down the principal usually does not usually impact net worth, since the money to pay it off comes out of the portfolio or could be added to savings, perhaps tax deferred savings. If the payoff money comes out of retirement accounts, then it may create additional taxable income for the year. Is it better to have more money in a liquid account or the house? That again may depend on individual factors. In some states the house may provide the best option for asset protection and others not. In states with natural disasters, it might be better to keep the money in liquid assets.

That leaves the interest portion, which may be tax deductible on a mortgage. Can that money make more some place else, perhaps a 10 year CD with FDIC insurance, held in a tax deferred account? It all depends on the rate differential and tax situations. 10 - 20 year broker CDs at Fidelity are yielding over 3% right now.

 

[Meadbh]

It all depends on the rate differential and tax situations.

Exactly.

 

[NW-Bound]

Inexpensive house in expensive neighborhood of Boston area will be 500k. Two professionals in this area should easily make 250k by the time they are 30. I don't see how it could be difficult to pay off 400k mortgage in 4 years....(On that kind salary I would save 100k plus max out 401k)

Modest house in Colorado Springs will be 300k where such couple makes about 160k. Again I don't see difficulty in paying off 240k mortgage in 4 years.

It probably is not possible in Palo Alto CA

But those kind of couples will usually buy McMansions for 1.2 Million or so and more less never pay it off. Which is perfectly fine if one wants to work into their 60s...

Or they can choose to keep the mortgage for the interest deduction, and max out their pre-tax savings first. The point is that people may be able to pay off the mortgage, but prefer not to.

But just as often, high-income people have other trappings: bigger home, German luxury cars, children in private school, nice vacations, country clubs, etc...

And then, in a society where a 30-year mortgage is the norm, many people do not think that having the house paid off (or the means to do so if one chooses to keep the mortgage for other reasons) when one is still in the late 30s or 40s is even possible. So, they do not even try.

 

[O2Bfree]

I'm not sure what you are saying then (BTW, I see I did misquote you, if it makes a difference - should be 'dip' into savings, not 'dig').

You said "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."

So if you didn't need to 'dip' into savings to pay off the mortgage, where did the money come from then? OK, I'm guessing there is some semantics going on here - you paid extra each month from your income stream? Well, that would have gone to savings if you hadn't. And that savings could tide you over a lapse in employment.

And until it is all paid off, you still have the monthly bill.


Like I've said many, many times before - it's such a minor thing either way, but this rationalization to make it seem important just gets me.

-ERD50

The money came from my income stream, and gosh, I had like $60k in savings at the time. I mentioned "at least a year" because that was our minimum safety net for an emergency fund. $60k would have lasted me 3 or 4 years, mortgage included, and without considering unemployment.

Edit: Oh, and I was also maxing out my 401k and IRA contributions, and making other investments here and there while pre-paying the mortgage.

 

[jkern]

I paid off my mortgage in 04' with 9 years remaining at 4.75%. I have no regrets. I have always enjoyed the peace of mind having no debt. I did a cursory calculation comparing paying it off or investing the money. After making a few assumptions, I came out slightly ahead paying it off. I also took out human emotion with respect to staying the investment course (might have come in handy in 08' and 09').