Pay off the mortgage or set it and forget it, what would you do?

[Montecfo]

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.

 

[Camas Lilly]

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.

 

[Camas Lilly]

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.

 

[caninelover]

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.

 

[daylatedollarshort]

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.

 

[Bamaman]

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.

 

[Nick12]

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.

 

[RobbieB]

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.

 

[daylatedollarshort]

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.

 

[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.

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

 

[Nick12]

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.

 

[Nick12]

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..

 

[daylatedollarshort]

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?

 

[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..

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

 

[Nick12]

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!

 

[daylatedollarshort]

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!

You aren't freeing up the amount of your mortgage. Paying off your mortgage is pretty much the opposite of freeing up cash. Can you show us the math how you would come out ahead during high return stock market years and a low interest mortgage?

If you have a 3% mortgage and 10% investment returns, how can you not come out ahead having the mortgage? Using the simple example without taxes, for every $100K, you are paying $3K in interest and earning $10K, with a $7K net profit by having the mortgage.

 

[RunningBum]

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!

Where did the money come from to pay off your mortgage?

 

[Nick12]

Where did the money come from to pay off your mortgage?

Working thru high school, college, every vacation period, lucrative side gigs, living at home for a few years rent free while earning, putting 25% down on the house, living below my means, investing monthly regardless of market conditions , sold well performing stocks to pay off early etc. Was in the group where our monies worked harder than we did but I actually enjoyed working.

 

[latexman]

For example, right before you paid your first mortgage payment, you discovered you had $100 extra. Do you pay an extra $100 of principle and avoid paying 3% interest on that $100 for the next 30 years. or do you invest it and earn 10% for the next 30 years? Avoid 3% or earn 10%?

 

[RunningBum]

Working thru high school, college, every vacation period, lucrative side gigs, living at home for a few years rent free while earning, putting 25% down on the house, living below my means, investing monthly regardless of market conditions , sold well performing stocks to pay off early etc. Was in the group where our monies worked harder than we did but I actually enjoyed working.

So the point is that you could have taken that extra money beyond the regular monthly payment and invested it earlier and would have taken even more advantage of the great market returns.

Nobody is arguing against the decision to pay the mortgage off early if you prefer not to take so many risks or just like being debt free, but to say that you did it so you could invest more in the market now doesn't really make sense because you were limiting how much you were putting in the market earlier.

In any case, it's very admirable to have worked so hard to get yourself in good financial shape no matter what choice you could have made in your mortgage, so congratulations on that.

 

[Montecfo]

I think it is kind of a false choice to compare mortgage paydown with equity investing as they have very different risk characteristics. Most people don't consider using their bond allocation to buy stocks for just that reason.

I think what the poster is saying is he allocates money to both mortgage paydown (A bond-like investment) and to equities.

That seems perfectly rational to me.

 

[l8_apex]

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.

 

[Nick12]

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.

I would never ER carrying 5 mortgages. Investment returns are variable and mortgage payments are fixed. I bet on the market and still do. Over the long run, a diversified portfolio should provide greater ROI than real estate and yes, paying off a mortgage(s) is a great thing.

 

[RunningBum]

OK, so once someone is mortgage free (and presumably totally debt-free), they feel more comfortable putting more money into the market. That makes sense to me.

 

[l8_apex]

I would never ER carrying 5 mortgages. Investment returns are variable and mortgage payments are fixed. I bet on the market and still do. Over the long run, a diversified portfolio should provide greater ROI than real estate and yes, paying off a mortgage(s) is a great thing.

A diversified portfolio of an equivalent amount to the mortgage balance will earn more than the interest cost of the mortgage, correct? Then we agree on taking the analytical approach. Cheers

I gross about $20k/mo but don't have the $+1 million to pay off all of those mortgages. Why should I keep w*rking to pay them off? What's the point?