Payoff mortgage

[DireWolf]

Yeah, something doesn’t look right. I checked the calculator site I used, and looks like they are giving a monthly payment that must include escrow items with their defaults, not just p&i. I’ll try to rerun when I get home

 

[Montecfo]

Yeah, something doesn’t look right. I checked the calculator site I used, and looks like they are giving a monthly payment that must include escrow items with their defaults, not just p&i. I’ll try to rerun when I get home

It's interesting but I'm not sure it's a sharp enough pencil to get an accurate answer. Taxes are material to the answer, particularly whether you itemize or not.

Firecalc is using a constant tax rate assumption, correct? Tax benefit of a mortgage likely will vary unless there is no benefit from the start.

And, in most cases the runway will not be 30 years. It will be remaining mortgage term or till home is sold.

Shorter periods will favor mortgage payoff I would expect.

 

[ERD50]

It's interesting but I'm not sure it's a sharp enough pencil to get an accurate answer. Taxes are material to the answer, particularly whether you itemize or not.

Firecalc is using a constant tax rate assumption, correct? Tax benefit of a mortgage likely will vary unless there is no benefit from the start.

....

With the current SALT and higher standard deduction, I'd assume no tax benefit in the general case.

... And, in most cases the runway will not be 30 years. It will be remaining mortgage term or till home is sold.

Shorter periods will favor mortgage payoff I would expect.

For the short term, any upfront costs (points, appraisal, fees) will hurt, less time to earn enough to pay those off.

But I think it's more accurate to say the results are more variable for the short term. Heck, you could do this at the beginning of a bull market, sell and close it out 5 years later and make out like a King. Or at the start of a market dive, and be crying in your beer.

The long term smooths out that volatility and has historically provided an advantage, but still, we have no crystal ball.

-ERD50

 

[ERD50]

Yeah, something doesn’t look right. I checked the calculator site I used, and looks like they are giving a monthly payment that must include escrow items with their defaults, not just p&i. I’ll try to rerun when I get home

OK, thanks. Yep, that sounds like a reasonable explanation, and an easy 'oops'.

Look forward to the update.

-ERD50

 

[RetiredHappy]

Here are my thoughts about taking on a mortgage and escalating repayment. If I take a $200K loan at 3% and my $200K investment made 12%, net gain is 9% in that year. At the end of the 1st year, I repay the gains, i.e. 9% of the 200K invested, $18K. 2nd year, assuming now I still owe $180K and I do the same rinse and repeat exercise. If market is down, I don't make additional repayment. Thoughts?

 

[Markola]

^^^^ I have modeled and explored similar scenarios, and would emotionally like a paid off house, but I can’t get over the hurdle of trading assets appreciating at 12%, in your example, for an asset appreciating at about 4.25% long term in our home’s example, and paying 15% in capital gains taxes for the privilege. It seems a bad trade.

 

[RetiredHappy]

^^^^ I have modeled and explored similar scenarios, and would emotionally like a paid off house, but I can’t get over the hurdle of trading assets appreciating at 12%, in your example, for an asset appreciating at about 4.25% long term in our home’s example, and paying 15% in capital gains taxes for the privilege. It seems a bad trade.

Ah, I forgot about the capital gains part. I think we will still escalate payment when we have excess income, which will start from 2028 for us.

 

[street]

These question threads are always fun to follow but again really no right or wrong way IMO.
All expert advise paying off any loans in retirement years and go in debt free. I think gaining equity in home over a 30 time frame without a loan/interest is something not looked at closely. When you consider fluctuation of home markets, inflation and market numbers play a huge part and can be good or bad in having a loan or not having a loan.

 

[Montecfo]

But I think it's more accurate to say the results are more variable for the short term.

-ERD50

Market returns are more variable in short term. Return from mortgage paydown is fixed, not variable. That's why I said shorter periods will tend to favor mortgage paydown more than longer periods.

 

[ERD50]

Market returns are more variable in short term. Return from mortgage paydown is fixed, not variable. That's why I said shorter periods will tend to favor mortgage paydown more than longer periods.

This is admittedly probably too deep into semantics to matter, but historically...

Mortgages at current rates have always been favorable long term (invest the money).

In the short run, a mortgage can be very favorable, or unfavorable (volatility). But I don't think that 'favors' a paydown in shorter periods - it's unknown. It only means (again, historically) that sometimes the paydown has been advantageous, but more often not.

I don't think that qualifies as favoring the mortgage paydown for shorter periods. It's like saying investing isn't a good thing in the short term. Well, it may or may not, but on average it is, and you can't get to the long term w/o going through the short term.

-ERD50

 

[Markola]

I wonder if the mods have considered merging the frequent “Should I payoff my mortgage?” strings into a single one, as they did with cryptocurrency? These strings seem to regurgitate that same arguments and always come out at the same places:

1) Yes, emotionally
2) No, mathematically
3) It depends.

 

[corn18]

I wonder if the mods have considered merging the frequent “Should I payoff my mortgage?” strings into a single one, as they did with cryptocurrency? These strings seem to regurgitate that same arguments and always come out at the same places:

1) Yes, emotionally
2) No, mathematically
3) It depends.

Should do the same for lump sum vs. DCA and when should I take SS.

Like I always told my kids: You don't have to be right, just don't be wrong. That's how it is with paying off the mortgages. Wrong would be taking out an interest only variable rate 30 year mortgage with a 54% debt to income ratio (we did that). Wrong would be cashing in your 401k and IRAs to pay cash for a house. I'm sure there are other wrong answers, but most of the rest are right. Makes it tough to argue effectively when pretty much everyone is right to some degree.

 

[Montecfo]

This is admittedly probably too deep into semantics to matter, but historically...

Mortgages at current rates have always been favorable long term (invest the money).

In the short run, a mortgage can be very favorable, or unfavorable (volatility). But I don't think that 'favors' a paydown in shorter periods - it's unknown. It only means (again, historically) that sometimes the paydown has been advantageous, but more often not.

I don't think that qualifies as favoring the mortgage paydown for shorter periods. It's like saying investing isn't a good thing in the short term. Well, it may or may not, but on average it is, and you can't get to the long term w/o going through the short term.

-ERD50

I think I'm not managing to get my point across for some reason. I don't think it is important enough to continue the discussion but will continue to follow.

One thing I said earlier, that no one has really latched onto, is the idea that in our current environment of increased inflation, it is probably good to maintain low cost mortgage debt as a hedge at least for now.

 

[ERD50]

... One thing I said earlier, that no one has really latched onto, is the idea that in our current environment of increased inflation, it is probably good to maintain low cost mortgage debt as a hedge at least for now.

Exactly. Locking in a current rate mortgage could look really good if/when inflation increases. And it's unlikely to look bad even if inflation stays on the low end.

-ERD50

 

[RetiredHappy]

I think I'm not managing to get my point across for some reason. I don't think it is important enough to continue the discussion but will continue to follow.

One thing I said earlier, that no one has really latched onto, is the idea that in our current environment of increased inflation, it is probably good to maintain low cost mortgage debt as a hedge at least for now.

I am in agreement. I figure if you put the same money in TIPs, the returns will certainly be higher than the current mortgage rate, thereby having a positive return on the money.

 

[Born2Fish]

With the 10 year breakeven inflation rate @ 2.51%, that mortgage is basically free money. My mortgage is 2.25% fixed with 30 years left. I am making money by keeping it.

That's what the data show.

Your emotions might be different from the data. I have almost gotten over the urge to pay off my mortgage, but I still think about it. At this point, not paying cash for my house last May has netted enough gains to pay for a patio, landscaping, fence and a 5th wheel camper. With money left over. But that's not why I keep the mortgage. The net present value of my mortgage is less than what I owe. And if inflation keeps going up, it will only get better over time. What a great inflation hedge. Better than anything else I've found.

At the moment this is where I am with the mortgage payoff debate. Refinanced at 2.25% with 28 years remaining. Life is good.

 

[CardsFan]

A much as we love to re-hash this topic,

Anyone else notice that OP is MIA, and his previous post was almost 7 years ago?