szvacek
Confused about dryer sheets
What’s the groups opinion on paying off a mortgage from investments or make the payment each month from the investment? Current mortgage is about $144k with a 2 5/8%
At 2 5/8%, I think paying off a mortgage from investments only makes sense if you simultaneously change your AA target so in effect you are using bonds to pay off the mortgage.
For example, let's say you have $1 million in investments that are 60/40 and the 40 is in BND. BND is currently yielding ~1.5%... less than 2.58%... so IMO forgoing 1.5% to avoid paying 2 5/8% is a good deal.
So before the $144k payoff you would have $600k of equites and $400k of BND and after the payoff you would have $600k of equities and $256k of BND... so your AA would change from 60/40 to 70/30.
I don't think it is wise to payoff the mortgage and stay at 60/40 because I think a 60/40 portfolio will earn more than 2 5/8% in the long term.
Since you no longer have a mortgage payment you have less financial risk so you can prudently have a higher AA.
YMMV and I'm sure others will come along with other views.
paying off a mortgage from investments or make the payment each month from the investment?
there are a [-]few[/-] mountain of threads and even more opinions
When it was paid off I invested the same amount into my retirement accounts.
The ability to put more money into our 403b and Roth IRAs along with the satisfaction/comfort of having a home free and clear was worth it to us.
I my opinions it is all about risk. May it never happen to you, but if you lost your job, would you want more investments, or a paid off place to live? I finally became debt free last month.
It is a nice feeling to know, that if a lost this job, or needed to quit… I can…
What’s the groups opinion on paying off a mortgage from investments or make the payment each month from the investment? Current mortgage is about $144k with a 2 5/8%
What’s the groups opinion on paying off a mortgage from investments or make the payment each month from the investment? Current mortgage is about $144k with a 2 5/8%
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. ...
What’s the groups opinion on paying off a mortgage from investments or make the payment each month from the investment? Current mortgage is about $144k with a 2 5/8%
I tried to model this in FICalc. I chose that calculator because it lets me run the typical constant dollar FIRE calculator without adjusting the number for inflation, via unchecking a box. Plugging your $144K and interest rate into a mortgage calculator and multiplying the result by 12 months, I get an annual $10,340 payment. So, in FICalc, I used 30 years, $144K, 60/40 portfolio, and $10,340 (non adjusted!). The thinking here was to let the $144K fund the mortgage payments while also growing. Would the portfolio survive, or would I have to dig into the rest of my retirement funds?
FICalc says this portfolio only survives 60.33% of the time against all historical 30 year periods. And of course, if you just considered similar high CAPE years, it would be well worse. And that doesn’t even consider things like taxes and ACA subsidies.
I looked at some of the failure years. 1929, I knew, was followed by some deflation, so I suspected that might be problematic. Sure enough, the portfolio fails just 14 years in.
To be sure, you haven’t lost ALL your money. You’ve got whatever equity. But you now need to find that extra $10K+ every year out of other funds.
If that initial $144K runs to $0, it’s gone. You can grow it 1000% but it’s still zero. People just aren’t understanding SORRs when it comes to this investment. If you held the house free and clear, you’d have the value of the house. Instead, you hold some amount of equity and still owe however many more years on the house. This buffer you are pulling from, it’s just your regular portfolio that would either have grown or not of its own accord, but now you’ve pulled from it to cover an expense.
If that initial $144K runs to $0, it’s gone. You can grow it 1000% but it’s still zero. People just aren’t understanding SORRs when it comes to this investment. If you held the house free and clear, you’d have the value of the house. Instead, you hold some amount of equity and still owe however many more years on the house. This buffer you are pulling from, it’s just your regular portfolio that would either have grown or not of its own accord, but now you’ve pulled from it to cover an expense.
... Plugging your $144K and interest rate into a mortgage calculator and multiplying the result by 12 months, I get an annual $10,340 payment. ....