Should I go against the math and pay off the mortgage early?

[corn18]

As would I. I actually did this in ~2012. Rates were low, so I took out an equity loan against my house and invested it. I'd do this again if the conditions are right.



Congrats, but the money is still there. It's locked up in equity in your home. How much would that equity have earned if it was invested?

The money part of this is about cash flow. If you can earn greater than the rate of the mortgage, you'll come out ahead. It's not hard. It's also not hard to get more than 3.5%.

But if you want peace of mind, don't want to deal with the hassle of a mortgage, feel better about lowering your monthly cashflow, etc, then pay off the mortgage.

I’m sure you would have been equally happy had you done that is 2007 when you joined this forum. Easy to answer yes when you did it in 2012.

 

[harley]

I’m sure you would have been equally happy had you done that is 2007 when you joined this forum. Easy to answer yes when you did it in 2012.

I got one in Dec of 2008, and I never regretted it, all through the recession. I regretted other things, but never the mortgage. But we had the cash flow to handle it, or it might have been a different story.

And I can guarantee that when I'm paying today's payment with 15 years in the future dollars I won't regret it either.

Edit: That didn't make sense when I reread it. I mean that as inflation occurs the drag of the payment is decreased.

 

[Perryinva]

Same here. I’ve had mortgages my whole life, and never lost any sleep. The leverage of the consecutive mortgages allowed me to buy more house & to make more on appreciation (with more invested) than a cash purchase by far. It was a major reason I retired as comfortably as we have. Money tied up in a house does nothing for me.

To the OP, a $133k mortgage isn’t going to make any significant difference, financially either way, at today's low rates. Its practically like saying a car payment is the difference between living well or not. Do whatever makes you feel better.

 

[Ed_The_Gypsy]

We paid ours off and got a HELOC which we did not use right away.

We eventually used the HELOC to do some remodeling. You don't pay interest until you use it. If you never use it, cancel it later.

 

[Old Microbiologist]

I sent 26 years in uniform and bought a house every PCS as the Army basically wa spaying me to do that. At one point I owned 6 houses all with mortgages and all with renters and everything was fine and dandy until it wasn't. I had 5 of them go vacant in the late 80's and couldn't sell or find renters which was a rough time. So, we got a bot more cautious after that. When I retired we had 3 houses in NoVA one of which we lived in and all had roughly 50% equity. Two were rented at barely positive but then 2007 came and both houses went deeply under water. That was part of the calculation of when to retire as the taxes were eating us up and the decision was to sell all three and take what we could and get out of Dodge.

Part of the decision should be a worst case analysis if another 2007 comes again which looks very likely this year because nearly every part in the world is made in China and because of Just In Time manufacturing the loss of a single part will hut down an entire line. The repercussions of China's shutdown because of the Coronavirus are going to be tough and maybe we will see this soon. The entire world's economy depends on them making cheap parts and that has stopped. How long it remains shut down is the question but it is going to have an impact.

The same can be said for geopolitical situations which also can affect everything else. As you are in the military this can impact you. I tried for 4 years to retire but was refused as I was determined to be mission critical. I was then passed over 2 times and forced to retire because I was prior enlisted for 12 years and you can't be in a non-promotable status after 20 years of service. For me it was no biggie and I was persuaded to stay at my same position but as a GS-15 instead so basically nothing changed except I became less deployable. That said I have been recalled once to active duty since retirement (and received warning orders 3 more times but were cancelled before I started my journey home) since retirement which is another factor to consider. You are never really out until you die. Interestingly, I have not been notified yet for recall due to the Coronavirus problem but won't be too surprised. I am 67 now so maybe I am too old (I hope). I recall reading somewhere that age 65 was some kind of cutoff but I had a 76 years old friend who was an oral surgeon recalled so you never can tell. My last recall I was such a pain in the butt my Branch Manager told me I was the last person he would ever recall. BUt, our pool of officers has dwindled down to only 25 in my MOS (and 11 are full colonels so useless) so I can see this is a serious problem. The only people with field skills are all retired and I am the only one who has done this stuff in the field in a high threat environment. So, time will tell.

 

[Beachcomber]

Yes, as others have said, thank you for your service! I think your age is key here. At 37, you have an opportunity to earn investments long term (to use in retirement). I know you despise debt, as do I, look at it this way:

As someone pointed out the avg. market rate of return since 1926 is over 9%. Most military can put zero down and get a good rate, you put 25% down and pay extra to get it paid off quickly. Change that. Maybe your attitude should be putting equity to work now for better retirement later?

Maximize your loan amount to $200k and 30 years. How much will that 9% x $200k be worth in 30 years at 9%?

Or, 9% - 2% (inflation) - 3% (rate) = 4% realized return

I believe that is $8,000 x 30= $240,000. This is an opportunity cost you will forego if you pay it off - IMO.

If you were 65, I would probably pay it off, because what would you do with the money at 95?

(My predicament now on a $900k home at age 65).

 

[2cheap2eat]

As you and many others stated, the math says keep the mortgage and invest the rest.

I’m in the camp of paying off early. The piece of mind for me is huge!

 

[LarryL]

The joy of having the house paid off far exceeded and financial benefit I would have had by investing the money. Peace of mind and old school mentality. I never regretted that decision.

 

[MrsHaloFIRE]

Paid off. Well really we just bought with cash. Logic was: guaranteed immediate savings on interest expenses. Also, less BS at closing. And very little BS during negotiation bc cash talks. Yes I believe in the long-term success of the stock market, but we are so heavily invested in equities I did not like the feeling of having a big mortgage and then watching the market drop. Cash flow is not a problem, but its a worry I just took off the table. Don't owe any money to anyone anywhere. I sleep ok knowing I lost potential return on what I pulled out of the market.

 

[Maidensong]

I know not everyone on this forum likes Dave Ramsey, but I have to agree with him when he says "Debt is dumb." I sleep better knowing we own what we own. If you can pay off that mortgage, I'd encourage you to do so.

 

[Hardatit]

This. Strictly by the math, I shouldn't have bought my house when I did, in 2006. I knew that - though not just HOW bad it would get - and bought anyway, because math doesn't cover the freedom that comes with having my own house.

Strictly by the math, I shouldn't pay my house off early, by 55 or so. But math doesn't cover my husband's ease of mind, because he knows what it's like to not be able to afford rent, or the mortgage. Relaxed husband makes for a happier marriage. It's worth it.

Ultimately, I can't take it with me. I'll have enough for retirement. Maybe I'll retire a little later, or take an overseas trip or two less. And so.

Thanks for that insight, you really drilled into the emotion side of it and how having no mortgage increased your quality of life and marriage. That's more less my perspective on it. I'll have enough for retirement, will I have millions, probably not but I'll have enough and enough will be plenty. Having and finding what "enough" is would make a good discussion in itself and like this would differ for everyone.

I love having my mortgage paid off. I think that feeling is priceless. As someone else mentioned, get a HELOC in place (no fees) in case you need to borrow money. If you already have a mortgage on your rental, keep it if it is a good rate. It's tax deductible right off the top.

Definitely an option that I will look into. My house, rental and land are all under the same loan btw. When I think line of credit, I apply at my bank and the paperwork is done after the house is paid off but while I'm still in the military. The bank has preapproved me to borrow $XXX on my house whenever my need arises at which point the process to get the money is fairly quick and painless? Is this more or less how a HELOC works? I'm not very familiar. I buy and sell things(vehicles, boats, ATV's) as a side hustle and the option to buy big ticket items quickly and resell would be great. Just a thought.

As Mike Tyson once said "everyone has a plan until they get punched in the mouth"

If you plan to stay single and never have any children, then that's awesome and your set. Just curious if someday you plan to get married and have children. Then your plans will change dramatically

I may get married one day but she'll have her finances in order and be like minded as me when it comes to finances or we won't get married. Kids.. I don't really think it's in the cards for me. If so it would be 1 kid. I'm 37 and I keep thinking I'm close to 60 by the time they leave the nest. Not sure that's what I want. Would love to hear from those that have lived it.

I think there are no wrong answers, unless you leave yourself with a cash flow problem after paying off your mortgage. Early retirees are probably most like to hit this issue if they can't yet access their IRAs, and pension and social security income hasn't started with. Otherwise, do what you want. No need to tell others what to do. You can retire with a mortgage, you can be rich with a mortgage, and it's ok to pay off your mortgage. Some people like the feeling of not having that debt, others like to leverage their house to invest more.

It won't give me a huge cash flow problem to keep the mortgage in retirement especially making standard payments but it would limit my cash flow.

What would thoughts be if I could pay off that mortgage and take that $1700 what would be mortgage payment and turn it into $3000+ every month by doing something on that side that I enjoy that most would consider w*ork? This would be possible.

Thanks for all the replies, loving reading all the different views.

 

[RunningBum]

What would thoughts be if I could pay off that mortgage and take that $1700 what would be mortgage payment and turn it into $3000+ every month by doing something on that side that I enjoy that most would consider w*ork? This would be possible.

I'd say, why not take the $200K or whatever you would've had in cash by keeping the mortgage, and turn it into $350+K?

 

[corn18]

I'd say, why not take the $200K or whatever you would've had in cash by keeping the mortgage, and turn it into $350+K?

You could also turn it into $100k.

 

[Earlygirl]

Oh I see. You can typically get a HELOC only on your primary home. It's a line of credit and they usually don't charge fees when you get it as long as you keep it open (i.e. don't sell the house) for at least two years. Yes, it's very easy to access the line of credit with checks or debit card. You will need to have income coming in to get it set up.

 

[COcheesehead]

There's some truth in this post. The stock market will tumble.

Don’t put the “house” money in the market. There are plenty of investments that yield over 4% which should give you a positive delta over a current mortgage interest rate. Factoring in liquidity, now is the time to borrow.

 

[COcheesehead]

Oh I see. You can typically get a HELOC only on your primary home. It's a line of credit and they usually don't charge fees when you get it as long as you keep it open (i.e. don't sell the house) for at least two years. Yes, it's very easy to access the line of credit with checks or debit card. You will need to have income coming in to get it set up.

Careful, some require a draw within two years of opening. A lot require a yearly fee. Banks don’t usually give things away. They will make their money.

 

[Earlygirl]

Careful, some require a draw within two years of opening. A lot require a yearly fee. Banks don’t usually give things away. They will make their money.

Yes you are right he would need to make sure of the terms. I can only speak for the ones that I have gotten before or are available in my area that have essentially no fees if you follow the rules.

 

[COcheesehead]

Yes you are right he would need to make sure of the terms. I can only speak for the ones that I have gotten before or are available in my area that have essentially no fees if you follow the rules.

 

[RetiredAt55.5]

Yes you are right he would need to make sure of the terms. I can only speak for the ones that I have gotten before or are available in my area that have essentially no fees if you follow the rules. ��

I'm curious what the typical interest rate is on a HELOC these days.

Also, I assume the rate is determined when you actually borrow some money ??

I only ask since the discussion is about paying off a long term fixed rate 3% mortgage, and using a HELOC as a backup plan.

Not sure how much longer we will be in this low rate environment, but at some point rates will rise. Unless this time it's different ....