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Old 06-29-2021, 05:07 AM   #21
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I am a big fan of low interest mortgage debt, as long as you can afford the payments. We have a reasonably high risk tolerance and therefore invest most of our portfolio (75%) in equities. I value liquidity more than being debt free.

However, it depends on your other assets, your risk tolerance, what if any income streams you have, etc. In our case, our mortgage debt on both of our properties combined is around 15% of the value of our financial assets. We have significant equity in both of the properties we own. Im sure Id feel a lot differently if we were highly leveraged and wouldnt be able to cover our mortgage payment if our asset value declined by 20%.
I normally have a high risk tolerance but I think that is what is kind of bothering me is the fact the funding and loan amount are so close, with little equity.
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Old 06-29-2021, 05:37 AM   #22
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Originally Posted by Out-to-Lunch View Post
I thought about this recently. You could stick the lump sum into a separate account in a balanced fund, and autopay your mortgage payment. (Google the term "defeasement.")

If you run Firecalc on this situation, (and remembering that mortage payments are not inflation-adjusted), you come out ahead about 80% of the time. The question becomes, "Do you feel lucky?"
I normally wouldn't hesitate on going the balanced fund route or a traditionally more stable investment than I normally do (75/25) but when you look at the chart for even VBINX for the last 20 years, it has been run up so much, I can see it falling just like anything else. I think that is the unsettling part of this whole thing.
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Old 06-29-2021, 06:15 AM   #23
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We have to order the new house, sell existing home and get moved next spring-fall.
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We are ordering a Manufactured home in Idaho.
Do you have any equity in the existing home and land? Once closed on the existing home, pay those proceeds towards the new mortgage and have the mortgage recast.

Do you own the land for the new home already, or need to buy it? My Dad bought a Manufactured home and had it installed on his farm. A $432,225 mortgage for a Manufactured home and a lot sounds high to me, but I have no idea how much land you are buying. How much land do you want? Is the new location nearby or far away?

Just trying to understand the parts of the puzzle.
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Old 06-29-2021, 06:53 AM   #24
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+1, 15 years mortgage free and what would have been my monthly payments, I poured it back into the market. No regrets from me too!
Here's a (pretty common) example of the kind of "reasoning" that drives me nuts on these threads.

If you didn't pay off your mortgage, you would have already been in the market. A person has to take money out to pay off the mortgage, so then the lack of monthly payments is just rebuilding what they already had. Playing "catch up" is not an advantage!

As I said below: "Pay it off if you want, it's not such a big deal either way in most cases. But I cringe a bit at some of the "reasoning" for doing so."

It's extremely likely that a portfolio will outperform these historically low rates over the long term. If you don't want to take advantage of such an opportunity (which of course, is not guaranteed), that's fine, your choice. But let's use good reasoning behind the choice.

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Old 06-29-2021, 07:53 AM   #25
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I was/am in this position. I went with mortgage @2.7% fixed while my money sits in my pension account at my company growing at 4.5% minimum (tied to 1yr treasury so it's not going up anytime soon). No risk of loss of capital. It's there if a sudden emergency should arise. I'm in no hurry to pay off the mortgage.
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Old 06-29-2021, 08:01 AM   #26
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In our current market conditions with inflation as a threat, I would tend to avoid paying down a mortgage. It is a valuable inflation hedge.
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Old 06-29-2021, 09:05 AM   #27
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How about these onions? I just found out the price they are listing are cash prices. This is odd because we have been talking to two different dealers for over a year now and this is the first time this has been brought up. I am betting they just changed this due to the delay in construction and deliveries.

This is not right. It doesn't say that anywhere in their advertised prices. They are now saying they have to pay interest between the time the home leaves the factory and the time it is delivered. This is adding another $7485 to the price of the home.

This just pickles me because this truly is a reputable company and the best in the area. I may run that by the home office. Arggh.
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Old 06-29-2021, 09:33 AM   #28
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Do you have any equity in the existing home and land? Once closed on the existing home, pay those proceeds towards the new mortgage and have the mortgage recast.

Do you own the land for the new home already, or need to buy it? My Dad bought a Manufactured home and had it installed on his farm. A $432,225 mortgage for a Manufactured home and a lot sounds high to me, but I have no idea how much land you are buying. How much land do you want? Is the new location nearby or far away?

Just trying to understand the parts of the puzzle.
Today's manufactured/modular homes are made very well now and if you throw in an energy package, probably better than some stick built. Depends on where you are, but that price does sound a little high. The higher end models, such as a Grand Manor can easily take you right up into that price range. They're really nice homes though. You can add thousands of dollars in options and customize floor plans which makes them go back through engineering. Most run $30,000-$50,000 additional cost. That all depends on what you want. It really is the way to go if you are building on your own piece of property.

The new home is 1600 miles away. We are going to finance the land along with the home. We built a pole barn on it already, so yes we have $100,000 equity already, not to mention the land is coming in at a very good price, so some equity there too.
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Old 06-29-2021, 09:37 AM   #29
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I recently faced this dilemma and here is what I did and why.

I took out a $480K mortgage in 2015 at 3.5%. I had $435K remaining and plan to FIRE next year @ age 50. I have sufficient liquid funds (non-retirement accounts) to pay off the mortgage but that would leave me lean on after-tax money to use between 50-59.5. The shortfall could be covered by SEPP withdrawals though.

Since this is my final w*rking year I took a look at refi rates and found a great loan with minimal closing costs at 2.75% for a 30 year fixed. It lowers my mortgage payment though I plan to pay the same amount as I do now and pay it off a few years earlier than the current schedule. It will also give me more flexibility if my plan goes south and I need to pare back expenses, because I can reduce my monthly mortgage payment to the minimum instead of the extra I plan to pay.

Between the mortgage and property taxes, I should be able to itemize deductions instead of the standard deduction, so there will also be a benefit there.

I agree with harley, if you are able to - look into a refi. I've seen 15 year rates under 2% if that makes you feel better about keeping a mortgage.

But everyone is right, its a personal choice - so good luck with your decision.
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Old 06-29-2021, 10:43 AM   #30
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It's extremely likely that a portfolio will outperform these historically low rates over the long term. If you don't want to take advantage of such an opportunity (which of course, is not guaranteed), that's fine, your choice. But let's use good reasoning behind the choice.

-ERD50

There is a Patton quote that sums up your stance, "Take calculated risks. That is quite different from being rash." As you said, rates are at historical lows. If they go lower one, can refinance at no cost or pay off the loan. If they go higher, then the mortgage and investment returns differential could be a real money maker for the next 30 years.
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Old 06-29-2021, 11:21 AM   #31
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I just prefer to keep my life simple in retirement, and that includes not having to worry about cash flow day to day.

My biggest expenses are insurance on cars and homeowners and a Amazon charge card that my wife loves using. I also pay my daughter's healthcare insurance.

We would have to dip into our IRA Rollover to make any house payment, and I'm trying to put that off until RMD's at age 72.

But we're fortunate to have our main house and a fish camp on the river that are paid for.
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Old 06-29-2021, 12:10 PM   #32
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Here's a (pretty common) example of the kind of "reasoning" that drives me nuts on these threads.

If you didn't pay off your mortgage, you would have already been in the market. A person has to take money out to pay off the mortgage, so then the lack of monthly payments is just rebuilding what they already had. Playing "catch up" is not an advantage!

As I said below: "Pay it off if you want, it's not such a big deal either way in most cases. But I cringe a bit at some of the "reasoning" for doing so."

It's extremely likely that a portfolio will outperform these historically low rates over the long term. If you don't want to take advantage of such an opportunity (which of course, is not guaranteed), that's fine, your choice. But let's use good reasoning behind the choice.

-ERD50
Correction - having been mortgage free for a number of years allowed me to pour more money into the market monthly regardless of market conditions and allowed me to buy more shares. It was one of the best moves I've made in my life and my net worth has grown tremendously. Some choose to keep paying off their mortgage , I choose to pay it off as fast as I can which I did. Mortgage free has a really nice ring to it and I sleep better at night.
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Old 06-29-2021, 12:16 PM   #33
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I would do a 50-50. Half into the mortgage, half into the market. Then you enjoy the market gains as well as applying more to the principal with each monthly payment.
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Old 06-29-2021, 12:18 PM   #34
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Correction - having been mortgage free for a number of years allowed me to pour more money into the market monthly regardless of market conditions and allowed me to buy more shares. It was one of the best moves I've made in my life and my net worth has grown tremendously. Some choose to keep paying off their mortgage , I choose to pay it off as fast as I can which I did. Mortgage free has a really nice ring to it and I sleep better at night.
If you had a $400K mortgage, that would have allowed you to have put $400K more into the market, wouldn't it? Going forward that may or may not be a good idea, but it seems like the market has had much higher returns in recent years than the interest on mortgage rates have been.
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Old 06-29-2021, 12:21 PM   #35
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Correction - having been mortgage free for a number of years allowed me to pour more money into the market monthly regardless of market conditions and allowed me to buy more shares. It was one of the best moves I've made in my life and my net worth has grown tremendously. Some choose to keep paying off their mortgage , I choose to pay it off as fast as I can which I did. Mortgage free has a really nice ring to it and I sleep better at night.
I still don't see how this works in any way.

You pump extra money into your mortgage (which could have gone into the market instead), then you say you have all this extra money to put into the market after your mortgage was paid off.

But that money would have already been in the market and growing, instead of being tied up in the house.

Maybe you can put some numbers to that to make it clearer?

-ERD50
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Old 06-29-2021, 12:22 PM   #36
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If you had a $400K mortgage, that would have allowed you to have put $400K more into the market, wouldn't it? Going forward that may or may not be a good idea, but it seems like the market has had much higher returns in recent years than the interest on mortgage rates has been.
Bingo! Higher ROI with my stocks and mutual funds than mortgage rates by a long shot. It was risks but it paid off big time for me.
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Old 06-29-2021, 12:24 PM   #37
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I still don't see how this works in any way.

You pump extra money into your mortgage (which could have gone into the market instead), then you say you have all this extra money to put into the market after your mortgage was paid off.

But that money would have already been in the market and growing, instead of being tied up in the house.

Maybe you can put some numbers to that to make it clearer?

-ERD50
I've been investing in stocks monthly since I was in my late teens and paying off my mortgage early allowed me to buy more shares monthly. It is not too difficult to figure out. Some choose to keep paying off their house and that's a personal choice. In the market for 30 plus years..
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Old 06-29-2021, 12:26 PM   #38
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Bingo! Higher ROI with my stocks and mutual funds than mortgage rates by a long shot. It was risks but it paid off big time for me.

Using a very simple example without taxes or other considerations, if you had a $400K mortgage @ 3% for 5 years and your investment returns were 10% for each of those 5 years, wouldn't you be making an extra 7% each year on $400K more than if you paid off your mortgage?
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Old 06-29-2021, 12:32 PM   #39
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I've been investing in stocks monthly since I was in my late teens and paying off my mortgage early allowed me to buy more shares monthly. It is not too difficult to figure out. Some choose to keep paying off their house and that's a personal choice. In the market for 30 plus years..
WADR, I really do not think you have figured it out.

The problem with your thinking is, you are ignoring one side of the equation. That money that went into paying off the mortgage could have gone into the market instead. You seem to be ignoring that.

I see that daylatedollarshort is in the same boat as I am. Can you explain?

-ERD50
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Old 06-29-2021, 12:38 PM   #40
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WADR, I really do not think you have figured it out.

The problem with your thinking is, you are ignoring one side of the equation. That money that went into paying off the mortgage could have gone into the market instead. You seem to be ignoring that.

I see that daylatedollarshort is in the same boat as I am. Can you explain?

-ERD50
You seem to not get that more I free up cash ( aka mortgage free ) and buy into the market on a continual basis , more shares but also I run the risks of an up and down market. Last time I check my portfolio has increased big time over the last few years. It is my choice to pay off my mortgage early, my choice to risk more buying into the market and it has paid off well for me. I will end this by saying we all make choices in life and the market has been very very good to me and my family!
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