What perfect timing for this thread. I just finished wiring my mortgage pay off to Bank of America a few minutes ago. Last month I paid off my Pen Fed Home Equity Loan
So in the immortal words of Dave Ramsey
I AM DEBT FREE
Frankly I am pretty surprised by my actions, since I generally have sided with the keep a low mortgage crowd in the pay off vs keep mortgage debate. Mine were low 4.99% for PenFed HEL and 4.875 for the 1st.
As Gumby suggests part of the reason for doing so in looking in the abyss and deciding to step back. Somebody, probably Buffett, said that "leverage is the only way for a rich man to become poor". While a small 1st mortgage isn't leverage in the same way as say a margin account, an interest only option ARM, or buying call options, it is still leverage. One thing that leverage isn't good for is a getting a good nights sleep, as I remember from last year, when my net worth hit a 10 year low. There is a psychological advantage to not having a mortgage.
Still, in my case this was primarily a financial decision. I have been whining on several threads about the lack of good investments. Looking everything from CDs, to refinancing I was struck by the change that has occurred compared to most of the last decade.
A few months before taking out a 4.99% Pen Fed HEL in Jan 2008, I opened a 6% 3 year CD at PenFed. Part of my reasoning for keeping a mortgage was because it always seemed that if you had a very good credit score,you could obtain a mortgage at rate that was less than you could get on a CD. After all if you could borrow money at 5% and turn around invest it a 6% why not do it? If interest rates drop you refinance, and if interest rates climb you roll over your CDs at a higher rate (or even pay the early withdrawal penalty.) Similarly my Vanguard GNMA fund was yielding about 5.5% slightly higher than the home equity loan. Plus to a dirty market timer and stock picker like myself, the lure of "safe" stocks and Master Limited Partnership (MLPs) paying 6,7,8 and even 10% dividends with a history of growth was irresistible. I wish I was young so I could blame my hubris on youth
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In today's investment environment, I couldn't find CD over 3 or 3.5%, government bonds are lower and corporates and Muni in the 4-5% range. The dividend yield on the market is 2%, traditional dividend growth stocks are 3-3.55%. REIT, and MLPs are in the 5%-7%. In short, anything safe paid less than my mortgage interest rate, and anything that paid the same or higher was significantly riskier. Eliminating my mortgage payments will let me take the standard deduction saving me taxes. Finally as as side benefit. I can cancel my expensive hurricane insurance. (My house is concrete cinder block and the deductible on the insurance is more than 10K!). In all I figure I'll save about 4-5K a year paying of the mortgages. I am sure that this first time in 5 years that paying of my mortgage was unambiguously a money saver.
To the OP question did I use profits to pay off the mortgage. You bet about 1/2 was from money made when from the nice run up in Vanguard High yield, I trimmed a position in a pipeline Master Limited Partnership and I also took a loss on Vanguard Large Cap index fund. Paying off the mortgage puts my AA at 80/20 which is higher than I like but as much as I don't like stocks, I hate bonds, and 0% cash is almost as bad..
As aside not having to deal with BofA and their horrible automated phone system and there so called "customer service", is almost as nice as not having to write an electronic check.