TromboneAl
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
- Joined
- Jun 30, 2006
- Messages
- 12,880
Feeling superior to those who have mortgages: priceless.
EvrClrx311 said:That's one way to look at it... but see the edit I added in maroon color to my previous post to explain it more thoroughly. Really the point was that the return you're getting by removing the mortgage is not 3.6%... but its 25% less than that because you have less to write off... when you pay your mortgage every month on a 3.6% rate, because of the tax write-off you're really only paying 2.7% interest, in reality.
At the end of the day what matters is the net gain and risk tolerance... if carrying a higher mortgage and applying the money to something that gets a better return makes sense for you then sometimes yes... it does make sense to pay 100% interest (on a 3.6% rate) to get back 25% (or 0.9%) if you are making a better return (than 2.7%) somewhere else.
There are three categories of people who own homes...
A) People who have the funds to pay down the mortgage, so they do and that's that. No mortgage necessary.
B) People who have the funds to pay down some or all of the mortgage, and have a choice to either pay 2.7% in hopes they'll get a better return somewhere else or... pay it down and get the 2.7% automatic returned on their money by putting it into the house.
C) People who have no funds to pay down the mortgage, and have little to no choice... they are paying someone to carry a loan regardless (they are LUCKY we have such low rates today)
Most fall in Category B for the majority of their time as a homeowner (at some point they are faced with a decision to apply money to the house... or invest it else ware)... some like to pay off the mortgage, others like to leverage it and invest the difference thinking they can beat the 2.7% on their own.
The warm and fuzzy of removing the mortgage debt entirely is real... and for some worth it to remove ALL the risk.
For those who have the funds to pay off a house entirely... really a mortgage is just like someone coming up to you saying "Hey I'll give you $500,000 if you pay me 2.7% a year for 30 years?... want to?" Some will say "no thanks, I'm comfortable where I am and don't want that risk right now..." while others will say "I think I'll do a good job to beat that return and come out on top"
+1To some degree -- and this will *always* be a frequently debated question -- I think it depends on how long you think the War On Savers will continue. The Fed has pretty much indicated it will continue through 2014 and I suspect it will wage on considerably longer than that.
As long as savings yields are like 0.00003%, *if* the War On Savers rages several more years, I'd personally think almost *any* debt payoff, even at a low rate, makes more sense (as long as you don't eat too deeply into an emergency fund). Of course, if you think savings yields will go up after the next couple of years, locking in a long term loan at (say) 2-3% has its distinct advantages, especially if you can itemize.
As long as savings yields are like 0.00003%, *if* the War On Savers rages several more years, I'd personally think almost *any* debt payoff, even at a low rate, makes more sense (as long as you don't eat too deeply into an emergency fund). Of course, if you think savings yields will go up after the next couple of years, locking in a long term loan at (say) 2-3% has its distinct advantages, especially if you can itemize.
Feeling superior to those who have mortgages: priceless.
True there are some very poor decisions a person could make with $XXX,XXX in cash over equity in their house trying to beat out a 2.5-3% return... those who feel uncomfortable carrying a mortgage are probably more likely to make such mistakes...
...those who feel uncomfortable carrying a mortgage are probably more likely to make such mistakes...
were you trying?
Interesting, thanks!1. Pay off student loans (done)
2. Build up nest egg for full retirement at 59.5 in tax deferred accounts. (in progress...)
3. Next, build up taxable account to cover gap between ER and age 59.5 (also in progress...)
4. If practical, pay off mortgage as last step to reduce fixed expenses.
5. Begin living off of investment SWR while still working to test the system while "slowly backing out" of the jobs.