Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Pay off the mortgage or set it and forget it, what would you do?
Old 07-06-2021, 08:48 AM   #81
Thinks s/he gets paid by the post
Markola's Avatar
 
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,282
Pay off the mortgage or set it and forget it, what would you do?

Quote:
Originally Posted by bobandsherry View Post
With nearly 70 messages, to summarize the responses:
1. Go ahead and pay off your mortgage
2. Go ahead and keep your mortgage, invest the funds and pocket a hopeful spread (arbitrage)

Do what makes you happy - no right or wrong answer, actual results won't be known until 10-30 years down the road.


+1,000. “Do what makes you happy” is where every single one of these “Pay off the mortgage?” threads eventually deadlocks.
Markola 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 07-06-2021, 03:40 PM   #82
Recycles dryer sheets
 
Join Date: Feb 2018
Posts: 428
It's not a math thing, it's an emotional thing. It can reduce stress a LOT by not having that mortgage payment anymore even though theoretically you might make more by investing in the stock market.
I decided to pay off my place and still glad I did. It dropped my "base" expenses each month really low and gave me the confidence to retire.
imnontrad is offline   Reply With Quote
Old 07-06-2021, 03:58 PM   #83
Recycles dryer sheets
 
Join Date: Jun 2010
Posts: 183
Quote:
Originally Posted by Camas Lilly View Post
My first quote from the bank for financing this house that is 12 months out on build time includes appraisal fees (2) construction inspections, construction management fee, title insurance fee of $3,000 alone!, origination fee $4000, and yea, I can buy the loan down to 3.65% for $5745. Total cost from the bank $16,957 and this lender works with the manufacturer on a regular basis, so knows the routine.
We are facing a similar situation and the above is 100% true and rarely mentioned. This is one of the main reasons why we may just pay cash and be done with it. In our case, the difference in closing costs alone between paying cash or getting a mortgage was about $15/20K. This does not include, of course, interest charged by the bank which, even at -/+ 3% is still about 2.99% more than what they pay me to hold my cash, so why would I throw more money at them? And with the market at an all-time high, I simply do not feel like taking a chance.
Karloff is offline   Reply With Quote
Old 07-06-2021, 04:17 PM   #84
Dryer sheet aficionado
tizod's Avatar
 
Join Date: May 2020
Posts: 38
Quote:
Originally Posted by Camas Lilly View Post
DH is retired. I am still working. Probably retire next year. We have to order the new house, sell existing home and get moved next spring-fall, so no real reason to retire yet with expenses we are having. DH is almost 70, I just turned 63.

Really leaning to just paying it off and not having anything hanging over my head.
Its not hanging over your head if you have the money beside it (like in the CD mentioned above). Just remember, banks never give you money when you need it. Have a fire? some other issue occurs weather is crazy we had a microburst put a tree into the house nearby). Have the bank on your side.

A mortage is an asset to use and is only a concern if you cannot pay it off. So keep that money (or a large % of it) tucked away but under your command when you want it to be.
tizod is offline   Reply With Quote
Old 07-06-2021, 04:46 PM   #85
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2013
Posts: 8,827
Quote:
Originally Posted by tizod View Post
Its not hanging over your head if you have the money beside it (like in the CD mentioned above). Just remember, banks never give you money when you need it. Have a fire? some other issue occurs weather is crazy we had a microburst put a tree into the house nearby). Have the bank on your side.

A mortage is an asset to use and is only a concern if you cannot pay it off. So keep that money (or a large % of it) tucked away but under your command when you want it to be.

I see people posting that not having a mortgage reduces expenses, which is true, but not having the money invested reduces income. Someone could just as easily say I could never retire without a mortgage because my income would be too low instead of saying I could never retire with a mortgage because my expenses would be too high.
__________________
Even clouds seem bright and breezy, 'Cause the livin' is free and easy, See the rat race in a new way, Like you're wakin' up to a new day (Dr. Tarr and Professor Fether lyrics, Alan Parsons Project, based on an EA Poe story)
daylatedollarshort is offline   Reply With Quote
Old 07-06-2021, 07:09 PM   #86
Recycles dryer sheets
 
Join Date: Apr 2018
Posts: 431
Quote:
Originally Posted by Ready View Post
What we would do doesn’t really matter. You have to decide what you are comfortable doing. First ask yourself what you would do with the $432K if you don’t pay off the mortgage. Would you keep it in the bank, buy bonds, buy equities, etc? What is your risk tolerance? Once you have those answers we can give you a more thoughtful response.
+1

Second forum thread in a row to +1 Ready's post. He's/She's right on. There is a lot of personality variables that play into affect here.. always get confused on affect/effect.

Maybe diversify it a little so it's not "all your eggs in one basket"

Unless that basket is the winning lotto ticket!....
JK JK JK JK
FIREarly is offline   Reply With Quote
Old 07-07-2021, 07:38 AM   #87
Recycles dryer sheets
 
Join Date: Jun 2017
Location: Punta del Este
Posts: 480
Quote:
Originally Posted by Ready View Post
What we would do doesn’t really matter. You have to decide what you are comfortable doing. First ask yourself what you would do with the $432K if you don’t pay off the mortgage. Would you keep it in the bank, buy bonds, buy equities, etc? What is your risk tolerance? Once you have those answers we can give you a more thoughtful response.
Instead of going the mortgage route with related fees I left my cash invested in my diversified portfolio and borrowed against that portfolio with an interest only loan at under 2% at the time. Blended Return on my investments is regularly 8% or more so rather a no brainer. When those numbers change I will pay off the mortgage but until then?…….why not make money on that money?
Retired Expat is offline   Reply With Quote
Old 07-07-2021, 07:51 AM   #88
Recycles dryer sheets
 
Join Date: Jun 2017
Location: Punta del Este
Posts: 480
Quote:
Originally Posted by l8_apex View Post
Emotional response: pay it all off, what great peace of mind!
Analytical response: get that rate as low as you can find and invest all of said money since it's going to gain at a higher rate than the loan's rate.

Your choice.

I ER'd with 5 mortgages, but hey, I seem to like to do things different.
There is a big difference if you need to borrow or have to borrow to buy or build your house versus choose to borrow. If one has to borrow than that is one set of criteria. If one is fortunate to have the liquid funds to pay cash then it is just the emotional or analytical question of what is best for you the borrower, what value you place on that piece of mind knowing you are debt free. Of course finding a way to fund that purchase without fees, insurance, points, appraisals was the deciding factor for me
Retired Expat is offline   Reply With Quote
Old 07-07-2021, 08:07 AM   #89
Dryer sheet aficionado
 
Join Date: Nov 2015
Location: Mahopac, NY
Posts: 32
Will you be financing the new build before you retire or after? Many banks won't approve a mortgage for someone that no longer has adequate income, even if they have the assets. For that reason and the fact that you are looking to retire shortly, I would hold on to the cash so it's available for the new build in case the bank declines to finance you.
piccolopat is offline   Reply With Quote
Old 07-07-2021, 06:10 PM   #90
Dryer sheet aficionado
 
Join Date: Oct 2015
Location: Queen Creek
Posts: 25
Cash is king. Zero debt is freedom. You need to decide which fits your needs the best.
Gary 1958 is offline   Reply With Quote
Old 07-07-2021, 06:42 PM   #91
Thinks s/he gets paid by the post
Markola's Avatar
 
Join Date: Nov 2013
Location: Twin Cities
Posts: 3,282
Quote:
Originally Posted by Gary 1958 View Post
Cash is king. Zero debt is freedom.

This is exactly the eternal rub regarding mortgage or no mortgage. Which provides more freedom: Zero debt or liquidity?
Markola is offline   Reply With Quote
Old 07-07-2021, 08:59 PM   #92
gone traveling
 
Join Date: Apr 2021
Posts: 74
One benefit I got from paying off a mortgage was more flexibility with homeowners insurance. The mortgage company demanded that I buy flood insurance which I otherwise wouldn't have purchased and they also mandated that my homeowners insurance had to use a 5% deductible amount and not the 10% that I wanted to use resulting in higher premiums.

Once I paid the 4.5% mortgage off (using bond mutual funds earning about 2.5% I liquidated) I figuratively told the mortgage company to go pound sand regarding insurance decisions on the property.
beernutzbob is offline   Reply With Quote
Debt Free is freedom for me
Old 07-07-2021, 10:04 PM   #93
Confused about dryer sheets
 
Join Date: Jul 2020
Posts: 5
Debt Free is freedom for me

By the time I turned 50, I had 2 homes and was completely mortgage and debt free. For me, it was part of my plan to walk away at 50, not sure I would have been able to pull the trigger with mortgages even though I could on paper. I carry a home equity line on one of them with enough cash to cover expenses for 3 year but I never have used it. It’s a security blanket left over from when I was working. 5 years into Fire, no regrets about living debt free, I doubt if anyone ever really does. If I was chasing bigger returns, I would raise my equity investment from 70% to 80% instead of getting a mortgage. As a finance person, I get the math, but to me debt free makes me happy and I can get the returns I want with my allocation. I’ve been told I was doing this wrong many times, usually from well intentioned people still working. I’m sure their are very successful Financially independent people that carry debt, just not this one. So, I guess it’s your call but when you say “hanging over my head” I think you will enjoy being debt free, maybe with a security blanket.
Mike999 is offline   Reply With Quote
Old 07-08-2021, 01:04 AM   #94
gone traveling
 
Join Date: Dec 2018
Posts: 1,196
Quote:
Originally Posted by beernutzbob View Post
One benefit I got from paying off a mortgage was more flexibility with homeowners insurance. The mortgage company demanded that I buy flood insurance which I otherwise wouldn't have purchased and they also mandated that my homeowners insurance had to use a 5% deductible amount and not the 10% that I wanted to use resulting in higher premiums.

Once I paid the 4.5% mortgage off (using bond mutual funds earning about 2.5% I liquidated) I figuratively told the mortgage company to go pound sand regarding insurance decisions on the property.
Good for you. Debt free is a foreign language to some but mortgage and debt free is freedom to me.
Nick12 is offline   Reply With Quote
Old 07-08-2021, 06:09 AM   #95
Recycles dryer sheets
 
Join Date: Apr 2018
Posts: 431
Quote:
Originally Posted by Mr. Tightwad View Post
I own 3 homes and have been mortgage free for 13 years.

No regrets.
Congratulations!

Currently, I own 1 home and saving towards more.
FIREarly is offline   Reply With Quote
Old 07-08-2021, 09:23 AM   #96
Full time employment: Posting here.
 
Join Date: Apr 2011
Location: Castro Valley
Posts: 778
I paid off my mortgage in late 2004 with 9 years remaining on a fixed 4.75% loan. At the time I was well aware of the options to pay it off or try for a greater ROI by investing. I chose to pay it off mostly due to the intangible peace of mind you get from being debt free.

Just for fun, when 2013 rolled around I did an approximate calculation to determine if I would have been better off withdrawing monthly from the invested money (to pay the mortgage) over the last 9 years. In my particular case, due to sequence of return risk (big crash in 2009), I actually came out a little ahead by paying off the mortgage.
jkern is offline   Reply With Quote
Old 07-08-2021, 10:13 AM   #97
Recycles dryer sheets
 
Join Date: Apr 2018
Posts: 431
Quote:
Originally Posted by jkern View Post
I paid off my mortgage in late 2004 with 9 years remaining on a fixed 4.75% loan. At the time I was well aware of the options to pay it off or try for a greater ROI by investing. I chose to pay it off mostly due to the intangible peace of mind you get from being debt free.

Just for fun, when 2013 rolled around I did an approximate calculation to determine if I would have been better off withdrawing monthly from the invested money (to pay the mortgage) over the last 9 years. In my particular case, due to sequence of return risk (big crash in 2009), I actually came out a little ahead by paying off the mortgage.
It worked out well for you!
FIREarly is offline   Reply With Quote
Old 07-10-2021, 08:23 AM   #98
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 25,280
Quote:
Originally Posted by jkern View Post
I paid off my mortgage in late 2004 with 9 years remaining on a fixed 4.75% loan. At the time I was well aware of the options to pay it off or try for a greater ROI by investing. I chose to pay it off mostly due to the intangible peace of mind you get from being debt free.

Just for fun, when 2013 rolled around I did an approximate calculation to determine if I would have been better off withdrawing monthly from the invested money (to pay the mortgage) over the last 9 years. In my particular case, due to sequence of return risk (big crash in 2009), I actually came out a little ahead by paying off the mortgage.
I'd be interested if you could give us some specific numbers on this.

I simulated it, based on an amortization schedule, and looking at a payoff with nine years left, versus 60/40 and 70/30 AA portfolio returns for those nine years. It does look like the investment would have been very slightly negative, compared to the payoff. Maybe a bit more so after taxes are factored in, but what were the taxes on the money used for the pay-off?

But that's not unexpected:

1st: There is of course no guarantee that investments will outpace mortgage rates.

2nd: Nine years is a short time, and there is more likely to be periods of under-performance over that time. History looks much better for 20-30 year periods.

3rd: You probably could have refinanced to a much lower rate and/or for a longer term, and come out way ahead since then.

But if a person doesn't want to take the small risk that their portfolio won't exceed these historically low mortgage rates, that's up to them. But a nine year snapshot really doesn't provide any meaningful insights. I could give many more nine year snapshots that would be way more positive than yours was negative, and that wouldn't really provide much insight either. But even at a relatively short nine year look-see, I'd bet the odds are generally in favor of the market.


Quote:
Originally Posted by FIREarly View Post
It worked out well for you!
I doubt it worked out well enough for a bunch of hand claps. Probably a little better, but nothing exciting. OTOH, many of us are many tens of thousands of dollars ahead by holding a low rate mortgage. Now that's some real money.

-ERD50
ERD50 is offline   Reply With Quote
Old 07-10-2021, 10:08 AM   #99
gone traveling
 
Join Date: Dec 2018
Posts: 1,196
Quote:
Originally Posted by Markola View Post
+1,000. “Do what makes you happy” is where every single one of these “Pay off the mortgage?” threads eventually deadlocks.
Agreed. There are opinions that some say being mortgage free is the way to go. Others have the complete opposite viewpoint. Bottom line it is what is better for that particular person in their mindset. Some try to attempt to say their way is better but that is strictly their viewpoint no more no less.
Nick12 is offline   Reply With Quote
Old 07-10-2021, 10:15 AM   #100
gone traveling
 
Join Date: Dec 2018
Posts: 1,196
Quote:
Originally Posted by jkern View Post
I paid off my mortgage in late 2004 with 9 years remaining on a fixed 4.75% loan. At the time I was well aware of the options to pay it off or try for a greater ROI by investing. I chose to pay it off mostly due to the intangible peace of mind you get from being debt free.

Just for fun, when 2013 rolled around I did an approximate calculation to determine if I would have been better off withdrawing monthly from the invested money (to pay the mortgage) over the last 9 years. In my particular case, due to sequence of return risk (big crash in 2009), I actually came out a little ahead by paying off the mortgage.
Me too! I paid off my mortgage years before the 2009 recession and some of the ones who held a mortgage that I knew were hit hard, foreclosed, and had to start from the beginning again.
Nick12 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
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
Im young, so are there any 'set it and forget it' type of investments? Fantasm Young Dreamers 18 08-19-2010 07:19 AM
What would you do - pay off student loan or pay down mortgage? bank5 FIRE and Money 27 07-27-2009 05:30 PM
Set it and forget it retirement mugs FIRE and Money 34 03-13-2006 08:09 AM

» Quick Links

 
All times are GMT -6. The time now is 02:25 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2022, vBulletin Solutions, Inc.