What to do with big payoff?

[Dash man]

All I know is when the market tanked in March of last year, when we knew it would bounce back but still had that little doubt in the pit of our stomachs, I was glad I was debt free. I had a mortgage in the 2008-9 crash, but also had a job. I like the security of being debt free. I’ll accept a little less growth for security, just in case the growth stops for a longer period than we’re used too. Nobody knows what the markets will do for the rest of our lives. But I still have plenty invested, just not my house or my kids’ homes.

 

[RobbieB]

I paid off my mortgage early. It was 8%. Does that help?

 

[COcheesehead]

I paid off my mortgage early. It was 8%. Does that help?

Ouch, why no refi’s? Or was it looooong ago?

 

[DrRoy]

Thanks for the quick responses. DW likes VW's response best - using the profits from the invested funds to pay down mortgage.

+1. Not only is it a decent choice, you get bonus points for doing what DW wants!

 

[rwdflynavy]

I'd be willing to bet nobody will ever have a mortgage for less than 2.5%

The lender has to have some return on their money.

I also have a 30 year mortgage at 2.25%

 

[Bigdawg]

Has anybody asked the OP whether he/she is retired or not? I was happy to have a low interest mortgage and a little higher interest rate HEL until I was retired. At that point I was anxious and eager to retire the last debt I had. It was a few years ago so inflation was a non-issue.

"Retired 12/16/2015 at 60."

Happy retirement anniversary

 

[Andre1969]

Just curious, how would your mortgage payment compare if you refinanced to a 15-year? The length wouldn't be that much longer (15 years versus 13 years), and I think 15-years are now running in the low 2% range.

Also, how much does having that mortgage payment bother you? I struggle with the whole "pay off the mortgage" debate on a regular basis. In my case, I have about $2.5M in invested assets. 29 years left on a 30-year mortgage at 2.875%. The original balance was $468K, but I think I'm down to about $455K now. The principal/interest portion of the payment is about $1941/mo.

Sometimes I'll think, I could pay the mortgage in full, and still be over the $2M mark. And sometimes I do like the idea of eliminating that $1941/mo payment (although it's less when you factor in the tax writeoff).

I've also thought about doing little "mind tricks" to pay the mortgage down faster. Such as, for example, every time my invested assets hit a new goal, I pay down $50K or $100K or whatever. But, unless I refinance, that doesn't change the monthly payment; all it does is moves the payoff date up. And then I start thinking along the lines of, who cares if it's paid off when I'm 70, versus 80 for example. And, over time, thanks to inflation, that $1941/mo becomes less and less significant. So, I guess analysis paralysis sets in, and I end up doing absolutely nothing

 

[rayvt]

And sometimes I do like the idea of eliminating that $1941/mo payment

Set up an automatic bill-pay and you'll never even see it or need to think about it.

We were once on a 14 day segment of a 120 day world cruise, and our tablemates were taking the entire 120 day. I asked him how they handled things like the mortgage payment, utility bills, etc. He said "automatic bill pay. Automatic month withdrawal from retirement account to a dedicated checking account, and all the monthly bills get paid from that checking account." Set it up once and never have to mess with it again.

And, over time, thanks to inflation, that $1941/mo becomes less and less significant.

My Dad told me that they were on year 23 of their mortgage, and the tax&insurance alone was more than their entire PITI at the beginning. By that time, the P&I was virtually pocket change.

 

[RobbieB]

Ouch, why no refi’s? Or was it looooong ago?

Yeah, long ago. Got lots of calls, said lets go, how much you need? Fifty grand.

Click.

 

[COcheesehead]

Yeah, long ago. Got lots of calls, said lets go, how much you need? Fifty grand.

Click.

50 grand for what?

 

[RobbieB]

That was the loan balance. Nobody wanted to write a loan for such a piddly amount. Not worth their time.

 

[reneeh63]

Paying off the mortgage is an emotional decision, not a financial one.

This x 1,000! I neither like spending like a child with money burning in their pockets or cowering under the covers always afraid - clear, calm, rational decisions.

 

[athena53]

That [$50,000] was the loan balance. Nobody wanted to write a loan for such a piddly amount. Not worth their time.

Mine is $65,000. Same thing- I think anything under $100K can't be sold on the secondary market. I can refi only if it's a cash-out refi. I suppose if I checked the fine print carefully, some might allow me to pay back $35K immediately with no penalty, but not worth my time.

 

[bcbix001]

Mine is $65,000. Same thing- I think anything under $100K can't be sold on the secondary market. I can refi only if it's a cash-out refi. I suppose if I checked the fine print carefully, some might allow me to pay back $35K immediately with no penalty, but not worth my time.

Cash out refi, invest extra in anything earning more than the 2.5% the refi costs that is more liquid than real estate.

 

[Broland]

I second this. I love and hate our 2.25% 30 year fixed rate mortgage.

Love it when inflation is 6.8%. That means I am making 4.55% real on my mortgage. Holy crap. I am making money on my mortgage? This doesn't even factor in what the market has done. No brainer.

Hate it when I think about not being debt free. I hate typing debt free except for mortgage. Feels like failure.

+1

 

[RobbieB]

Failure? Stacking equity on 2 and a quarter? While market is paying 20?

Yeah, go figure.

 

[Closet_Gamer]

We torpedo'd our mortgage eight years ago when I was 42.

On pure spread of return in the stock market vs. mortgage rate, this was a bad decision. A very bad decision.

But that's not apples-to-apples as guaranteed RoR on investments are almost always lower than what you're paying on a mortgage. So, one could say that I'm dumb having some emergency CDs sitting out there rather than having those in the market too.

Of course, with a big mortgage hanging over my head and two young kids, I would have been more conservative in my AA. And I would have had to keep money coming in to pay the mortgage (and thereby staying in a higher tax bracket) rather than stashing it in my deferred compensation program.

And I liked the idea of not owing anyone anything. With college loans I had been in debt since I was 18 years old. 24 years in debt was long enough. (As OldShooter points out, there are non-balance sheet considerations that motivate us. These are not illegitmate.)

Today my house is less than 5% of my assets. Everything turned out well. I could retire today if I wanted but will motor on for a couple more years.

Net, I'm reallly happy that we shot the mortgage in the head...but from a perfectly long term, financial perspective it wasn't the most profitable thing to do.

Good luck.