"Nobody's ever regretted paying off the mortgage."

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qwertyjazz
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Re: "Nobody's ever regretted paying off the mortgage."

Post by qwertyjazz »

corn18 wrote: Fri Apr 16, 2021 6:52 am
LongRoad wrote: Fri Apr 16, 2021 6:45 am
corn18 wrote: Thu Apr 15, 2021 7:51 pm
steven2000myers wrote: Thu Apr 15, 2021 7:20 pm In my opinion there are several things to consider here:
  • There is a psychological benefit that a lot of people have when paying off their mortgage. There's a weight lifted off their shoulders, they are no longer slaves to the lenders, it's freeing.
  • Also, when the mortgage is paid off, it creates an insane positive cash flow into your monthly financial life. I mean, what would you with any extra $500, $1,000, etc. every month.
  • The third thing to consider, probably the most important factor is risk. Sure, you could probably get anywhere in the range of 6% - 12% a year in the market, but then again you could also not. You could get -6% to -12% a year. Do you know what you are guaranteed to get by paying off your mortgage? A guaranteed 2.99% no matter what economic event does or does not happen.
Now, you could invest in the market and you'll probably be totally fine, but the whole point is, there is no guarantee.
Please point out where the market has returned less than 2.75% over any 30 year period. The blue line is a 60/40 portfolio.

Image
Fair point.

But what if my mortgage has 10 years remaining? And those ten years are 1999-2009.
Time is what really makes a case for the 30 year fixed rate mortgage in today's environment. If I only had 10 years left on my mortgage, I think I would pay it off if I had tax free funds to do it.

The perfect solution is to take a mortgage at the beginning of a bull market and pay it off with equity funds right before a bear market.
It is a hierarchy of perfect solutions

1 Take a mortgage at beginning of bull market and pay it off before bear
2 increase leverage to do one
3 Buy the winning Powerball Lottery Ticket
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Nowizard
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Re: "Nobody's ever regretted paying off the mortgage."

Post by Nowizard »

Conservatism says to be as debt free as possible as one of beginning investment approaches for many. We have typically taken mortgages in greater amounts than needed to invest over many years. The reason in our case has simply been because of two things: 1. Our analysis supported the conclusion that careful investing would produce gains that exceeded the mortgage, and, 2. We were willing to accept what some would call the increased risk, but what we call increased opportunity for investment gains. Another way of looking at the second reason is that many people just don't want to deal with the added complexity and potential psychological ambiguity of a mortgage. Personal comfort sometimes trumps what can be a good decision with investments since risk tolerance is a factor. It is a mistake, however, to always consider a high level of risk tolerance is a mistake.

Tim
EvanRude
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Re: "Nobody's ever regretted paying off the mortgage."

Post by EvanRude »

All the replies about lower risk and peace of mind are true in our experience. For those not inclined to pay off the mortgage be sure to include the opportunity costs of having 6-24 months of mortgage payments in low-yielding holdings as part of your emergency fund.
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JoeRetire
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Re: "Nobody's ever regretted paying off the mortgage."

Post by JoeRetire »

Random Poster wrote: Thu Apr 15, 2021 9:17 pmBut everyone has to live somewhere and if they can do it by trading dollars that aren’t earning much money for a roof and a few walls, then why not?
Why aren't their dollars earning much money?
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LongRoad
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Re: "Nobody's ever regretted paying off the mortgage."

Post by LongRoad »

JoeRetire wrote: Fri Apr 16, 2021 7:16 am
Random Poster wrote: Thu Apr 15, 2021 9:17 pmBut everyone has to live somewhere and if they can do it by trading dollars that aren’t earning much money for a roof and a few walls, then why not?
Why aren't their dollars earning much money?
Maybe they're invested in fixed income?
mbasherp
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Re: "Nobody's ever regretted paying off the mortgage."

Post by mbasherp »

bluebolt wrote: Fri Apr 16, 2021 6:30 am
dmcmahon wrote: Thu Apr 15, 2021 11:20 pm
Bing bing bing bing! You'd be amazed at how the savings pile up once you no longer have to pay that monthly nut.
This doesn't make much sense to me. You just reduced your savings by the amount of the mortgage balance. How long will it take to replenish the cash you used to pay off your mortgage with that monthly cashflow?
Exactly. The savings already piled up while paying that monthly nut. There they sit. To then get rid of the savings balance, so it can be built up again... feels like playing a trick of cups and balls with ourselves.

I know we won’t win over someone who uses the “it’s emotional” argument, but using this logic to argue paying off the mortgage doesn’t hold up.

I respect those who want to have that “feeling,” I agree that it reduces sequence of returns risk to pay off before retirement, and I largely agree with not borrowing at a higher rate than you are making with fixed income investments. But getting rid of savings so they can built back up quickly doesn’t make sense.
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JoeRetire
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Re: "Nobody's ever regretted paying off the mortgage."

Post by JoeRetire »

mbasherp wrote: Fri Apr 16, 2021 7:37 am
bluebolt wrote: Fri Apr 16, 2021 6:30 am
dmcmahon wrote: Thu Apr 15, 2021 11:20 pm
Bing bing bing bing! You'd be amazed at how the savings pile up once you no longer have to pay that monthly nut.
This doesn't make much sense to me. You just reduced your savings by the amount of the mortgage balance. How long will it take to replenish the cash you used to pay off your mortgage with that monthly cashflow?
Exactly. The savings already piled up while paying that monthly nut. There they sit. To then get rid of the savings balance, so it can be built up again... feels like playing a trick of cups and balls with ourselves.

I know we won’t win over someone who uses the “it’s emotional” argument, but using this logic to argue paying off the mortgage doesn’t hold up.

I respect those who want to have that “feeling,” I agree that it reduces sequence of returns risk to pay off before retirement, and I largely agree with not borrowing at a higher rate than you are making with fixed income investments. But getting rid of savings so they can built back up quickly doesn’t make sense.
Some apparently like the feeling of watching "savings pile up" more than actually having savings in the bank.
So give me $10,000 now, and you can enjoy the feeling of watching your savings pile up at the rate of $1001 per year that I will give you for the next 10 years. Deal?
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vanbogle59
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Re: "Nobody's ever regretted paying off the mortgage."

Post by vanbogle59 »

I think many posts (on both sides of the argument) on this thread are committing a mental error.

You don't hold a mortgage in a vacuum. It's part of a much larger picture. You have to look at the entire financial life of an individual to make an informed judgement about the appropriateness of their use of debt.

My guess is that most of the individuals in this forum do that when making the decision for themselves. They shouldn't really be surprised when someone else's situation leads to a different conclusion.
CoastLawyer2030
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Re: "Nobody's ever regretted paying off the mortgage."

Post by CoastLawyer2030 »

Great thread with a lot of interesting perspectives. My only comment is that I think it is in error to assume that you need 25x your annual mortgage expense saved for retirement.

In reality, you should only multiply this expense by the years left in your term. Say your mortgage is $1,000/month, or $12,000/year; your mortgage term has 15 years left; thus you need $12k x 15 years = $180,000 (plus tax); not $12k x 25 ($300,000).

In fact, with a 15 year time horizon, the number you need to save is likely less than $180,000, as your funds would be invested.

Obviously taxes have to be taken into account, but the point is that a mortgage has a term limit unlike other expenses you will have in retirement (utilities, property taxes, etc.).
EnjoyTheJourney
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Re: "Nobody's ever regretted paying off the mortgage."

Post by EnjoyTheJourney »

With a short and fixed time horizon before a home sale paying down a mortgage can make sense when bond returns are lower than the mortgage interest rate. That is our scenario, at present.

Also, for investors who will use invested funds to pay their bills until social security is claimed at 70 what works best financially can be a bit different than for others.

For example, thinking about the longer term we are likely to have more funds in tax deferred accounts than would be optimal; without Roth IRA conversions after retirement we'd probably be hit hard by taxes once RMDs and social security began. Thus, with retirement for us on the horizon, paying down the mortgage makes more taxable funds available after sale to be used toward Roth IRA conversions and to build a taxable investment account (for tax diversification purposes).

A dollar in taxable funds can purchase about 4 dollars of Roth IRA funds via conversion, post-retirement.
delamer
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Re: "Nobody's ever regretted paying off the mortgage."

Post by delamer »

JBEB wrote: Thu Apr 15, 2021 6:03 pm
JBEB wrote: Thu Apr 15, 2021 3:37 pm Ive really enjoyed reading both sides of this thread.

Now here is a hypothetical-

If you had a pension, would that effect your decision one way or another? What is your reasoning

EDIT-If you had a pension, would you pay off your mortgage in your 30s? In your 40s? 50s? How would it effect your decision?
Thanks for the responses- I edited my initial post to reflect what I was thinking more
Well, we were both pension-eligible and didn’t pay off our mortgage until we bought our retirement home. At that point, putting all the equity from our prior home into the retirement home would have left us with a mortgage of only about 12% of the retirement home’s cost. And we didn’t consider investing the equity and taking out a larger mortgage. Although in the long run, we probably would end up with a higher net worth if we did. And more flexibility (liquid vs. non-liquid asset).

So I guess the answer is “no.” If anything, the pensions put less pressure on to pay off any mortgage due to not bring dependent on savings to pay retirement expenses.
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dmcmahon
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Re: "Nobody's ever regretted paying off the mortgage."

Post by dmcmahon »

bluebolt wrote: Fri Apr 16, 2021 6:30 am
dmcmahon wrote: Thu Apr 15, 2021 11:20 pm
TheTimeLord wrote: Wed Apr 14, 2021 12:06 pm For people who view things from a cash-flow perspective paying off a mortgage greatly improves monthly cashflow substantially by eliminating what is for most people by far the largest line item in their monthly budget.
Bing bing bing bing! You'd be amazed at how the savings pile up once you no longer have to pay that monthly nut.
This doesn't make much sense to me. You just reduced your savings by the amount of the mortgage balance. How long will it take to replenish the cash you used to pay off your mortgage with that monthly cashflow?
Less time to reach $X savings than if you continuing paying the mortgage while earning less than the mortgage interest on bonds.
Random Poster
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Re: "Nobody's ever regretted paying off the mortgage."

Post by Random Poster »

JoeRetire wrote: Fri Apr 16, 2021 7:16 am
Random Poster wrote: Thu Apr 15, 2021 9:17 pmBut everyone has to live somewhere and if they can do it by trading dollars that aren’t earning much money for a roof and a few walls, then why not?
Why aren't their dollars earning much money?
Because, presumably, everyone has some cash lying around.

As for me, I took my paycheck and put some of it in index funds, some in the bank, and some to pay off monthly expenses. After a while, the sums in the bank and index funds grew to a reasonable amount. So taking money from the bank and putting it into a house didn’t “cost” me anything, tax wise, or possibly investment wise.
invest4
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Re: "Nobody's ever regretted paying off the mortgage."

Post by invest4 »

kd2008 wrote: Wed Apr 14, 2021 5:42 pm Life is risky. We hardly ever take equivalent risk with our choice of partners, jobs, friends etc. And we dust up and try again if we fail.

Take the risk you can. Insure the ones you cannot.

For some, cash flow picture in retirement improves dramatically upon paying off mortgage and saves taxes on withdrawals from IRAs.

Their is no one size fits all.
Agreed. I don't believe there is a "wrong" decision here. One can easily make their case for one side or the other which includes many factors, both financial as well as personal (as is often the case in life).
Admiral wrote: Wed Apr 14, 2021 6:59 pm I would not pre-pay a sub-4% mortgage unless it was to kill it before retirement (and, again, in such a case you're hopefully financially comfortable anyway.)

I don't subscribe to the morgage-as-negative-bond theory of finance, nor do I take issue with holding bonds and a mortgage (at least bonds in a retirement account.) You can't eat your house or sell off a bathroom. Bonds have their place in a portfolio. A mortgage is simply a debt uncorrelated to a portfolio.

I have never, and won't likely ever, pre-pay my 2.25% mortgage. I may pay it off early. But certainly not down.
Agreed.

* At age 48, I now often think about paying off my mortgage for retirement. Mainly to have more flexibility in terms of income for Roth conversions and whatever else that may be a possibility (subsidies, etc.).

* I also think mortgage and bonds play different roles in my overall finances. I struggle with some of the arguments in regard to having both. Very often I see analysis based upon current conditions (mortgage rate today vs bond rate today to support paying off the mortgage). I do not see it as straightforward as this and I think carefully about my fixed rate mortgage at 2.625% which is a certainty vs my BND / BNDX ETFs which are fluctuating with the market. Of course, I don't know the future, but I am willing to make an assessment of potential options and risks and take action accordingly.

* In other posts, I have supported the general idea of borrowing as much as possible for as long as possible and paying it back with inflated dollars. At my current mortgage rate and future inflation (whatever that may ultimately may be), I am willing to continue holding my mortgage for quite some time and see how things play out. Depending on interest rates, I think a reasonable chance I may pay it off per schedule vs before retirement.

* Further (and important for our family), the mortgage provides me with flexibility to support longer term goals as well as current obligations at this time life including:

- Additional funding for retirement (boosting Roth contributions via mega backdoor Roth to achieve a better balance / optionality with pre-tax (currently 83% pre-tax and 17% Roth))

- Cash flowing a portion of college expense for 4 kids (rest via 529s)...2 kids already in college.
I-Know-Nothing wrote: Wed Apr 14, 2021 5:43 pmIf you don’t have a mortgage in retirement, you will have lower expenses, which opens up a lot more opportunities. You could bring your expenses low enough that your income qualifies you for substantial ACA credits, which would make your income needs even lower. And you can potentially keep your tax bracket down - so you can do more Roth conversions at 0 or 10%.
Also agreed! As mentioned above, I think about this a lot (and when / how much time to give myself to accomplish it if I should decide to do so.). As noted immediately above, decision and timing are still pending (let's see how things develop over the next few years).
Admiral wrote: Thu Apr 15, 2021 8:04 am There's very little utility in agonizing over pre-paying a mortgage with a tiny interest rate or buying bonds with a tiny interest rate. Your mortgage has the tremendous financial benefit of being FIXED at that tiny rate. Bond interest rates are not fixed. I cannot tell you how many times over the last 8 years people have been absolutely 100% sure that interest rates would be zero, or below zero, only to be wrong.

Inflation now seems to be a thing again, even a modest thing. Keep your mortgage, keep your bonds, and wait to see what happens. The great thing about investing in taxable (call it a dedicated "sinking fund" if you want, but it's mental accounting) is that when you have enough, you can pay off your mortgage, but you don't have to.
Yes.
Fat-Tailed Contagion wrote: Wed Apr 14, 2021 12:40 pm I don't see many people consider the inflation factor in a fixed-rate mortgage.

Every year you are paying your fixed-rate mortgage with less valuable dollars.

At very low rates, it seems like a winning strategy to take out as much debt as possible for the longest possible term.
Aligns with my current thinking.
prd1982 wrote: Wed Apr 14, 2021 12:33 pm Paying off your mortgage may not be the best financial decision, but it won’t be the worst investment decision you make.
Yup. Fully support those who wish to do so.
KlangFool wrote: Wed Apr 14, 2021 12:26 pm OP,

Let me give you one more. Folks that pay off the low interest- rate mortgage and then take a more expensive student loan for their kids.

KlangFool
Aye.
redmaw
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Re: "Nobody's ever regretted paying off the mortgage."

Post by redmaw »

I am seriously surprised by the number of people who say they regret paying off their mortgage. I get that the market has done great recently, but if you truly regret it, it is not an irreversible decision. What is stopping you from going out and taking a new mortgage? As I understand it you should be able to get one without much in the way of fees, and a low rate, and you have undone the payoff (of course you can't go back and earn the missed investment gains).

I have to admit this has crossed my mind lately 2-3% interest really isn't that hard to beat.
stoptothink
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Re: "Nobody's ever regretted paying off the mortgage."

Post by stoptothink »

redmaw wrote: Fri Apr 16, 2021 1:12 pm I am seriously surprised by the number of people who say they regret paying off their mortgage. I get that the market has done great recently, but if you truly regret it, it is not an irreversible decision. What is stopping you from going out and taking a new mortgage? As I understand it you should be able to get one without much in the way of fees, and a low rate, and you have undone the payoff (of course you can't go back and earn the missed investment gains).

I have to admit this has crossed my mind lately 2-3% interest really isn't that hard to beat.
Because we don't know whether the market will continue at this pace. It's hindsight.
joe_the_buckeye
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Re: "Nobody's ever regretted paying off the mortgage."

Post by joe_the_buckeye »

I have a slight bit of regret about paying off the mortgage. We'd obviously have come out way ahead given market returns of the past decade, particularly if instead of putting down 50%, we had put down something like 20%.

But, we're now able to substantially increase investment contributions and do so on a regular, steady basis. That gives us the reassurance of DCA, if at its natural mathematical disadvantage. It would have been very difficult to watch $100k lumped into the market at once if things had gone wrong (or if I'd done it in early February last year). It's much easier for me to drop in $1,000 a paycheck and know that if the market goes down, I'm just going to get better deals.

My 2 cents.
bluebolt
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Re: "Nobody's ever regretted paying off the mortgage."

Post by bluebolt »

dmcmahon wrote: Fri Apr 16, 2021 10:01 am
bluebolt wrote: Fri Apr 16, 2021 6:30 am
dmcmahon wrote: Thu Apr 15, 2021 11:20 pm
TheTimeLord wrote: Wed Apr 14, 2021 12:06 pm For people who view things from a cash-flow perspective paying off a mortgage greatly improves monthly cashflow substantially by eliminating what is for most people by far the largest line item in their monthly budget.
Bing bing bing bing! You'd be amazed at how the savings pile up once you no longer have to pay that monthly nut.
This doesn't make much sense to me. You just reduced your savings by the amount of the mortgage balance. How long will it take to replenish the cash you used to pay off your mortgage with that monthly cashflow?
Less time to reach $X savings than if you continuing paying the mortgage while earning less than the mortgage interest on bonds.
Very high likelihood of more time to reach $X savings than if you kept the money in reasonably allocated investments. Even if you compare it only to bonds, you are taking a bet that your record low fixed 2-3% interest rate mortgage will remain above the return of bonds for 15-30 years. That seems like a bad bet unless you prioritize certainty and paying off debt over return. That's a fine position, but is extraordinarily likely to get you lower returns than some alternatives.
PowderDay9
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Re: "Nobody's ever regretted paying off the mortgage."

Post by PowderDay9 »

stoptothink wrote: Fri Apr 16, 2021 1:17 pm
redmaw wrote: Fri Apr 16, 2021 1:12 pm I am seriously surprised by the number of people who say they regret paying off their mortgage. I get that the market has done great recently, but if you truly regret it, it is not an irreversible decision. What is stopping you from going out and taking a new mortgage? As I understand it you should be able to get one without much in the way of fees, and a low rate, and you have undone the payoff (of course you can't go back and earn the missed investment gains).

I have to admit this has crossed my mind lately 2-3% interest really isn't that hard to beat.
Because we don't know whether the market will continue at this pace. It's hindsight.
This.

With VTSAX at a 29 P/E ratio, 2-3% might be hard to beat. Nobody knows.

The few people that regret paying off the mortgage
do so because we've had an incredible bull market and low interest rates. It's just Monday morning quarterbacking. Maybe we should start a thread regretting 60/40 stocks to bonds that should have been 100/0. Or better yet, 60/40 TSLA/BTC. :D
GP813
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Re: "Nobody's ever regretted paying off the mortgage."

Post by GP813 »

I very much doubt the phrase "nobody's ever regretted paying off their mortgage"

Tell this to people in New Orleans or Mississippi who payed off their home only to have insurance stiff them after Katrina, or people who've experienced sinkholes or other catastrophic events. My friend inherited multiple parcels of land with homes on them that are essentially worthless in Pennsylvania(not worth the taxes or upkeep). While she didn't pay off the mortgage I'm sure if her grandparents were alive they regret buying and paying off these homes.
Wrench
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Re: "Nobody's ever regretted paying off the mortgage."

Post by Wrench »

corn18 wrote: Fri Apr 16, 2021 6:42 am
TJHOFF wrote: Fri Apr 16, 2021 6:40 am It's pretty easy to regret not putting more money in a rising stock market after the fact.
Over 30 years, there is a 100% probability that a 60/40 portfolio will go up more than the current 30 year fixed rate mortgage.
That is true - you have shown the data to prove it. But life is not lived in a 30 year window. It is lived in a month to month, or year to year basis. What happens when life throws a curve ball at you like a major accident, disability, medical issue, child disability, long term care, job loss, etc. when you need the cash flow AND the market is down 30-40%? The extra cash flow from NOT having a mortgage can make a big difference then AND can be a huge stress reducer. In a way, it is like insurance. You are reducing your level of risk for an unlikely tail event by paying off your mortgage. But, if you are comfortable not having that insurance and prefer to take the path of maintaining a mortgage, more power to you. It's just not for everyone.

Wrench
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JoeRetire
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Re: "Nobody's ever regretted paying off the mortgage."

Post by JoeRetire »

Random Poster wrote: Fri Apr 16, 2021 10:23 am
JoeRetire wrote: Fri Apr 16, 2021 7:16 am
Random Poster wrote: Thu Apr 15, 2021 9:17 pmBut everyone has to live somewhere and if they can do it by trading dollars that aren’t earning much money for a roof and a few walls, then why not?
Why aren't their dollars earning much money?
Because, presumably, everyone has some cash lying around.
Everyone does?
As for me, I took my paycheck and put some of it in index funds, some in the bank, and some to pay off monthly expenses. After a while, the sums in the bank and index funds grew to a reasonable amount. So taking money from the bank and putting it into a house didn’t “cost” me anything, tax wise, or possibly investment wise.
It "cost" you whatever you could have earned if you put that money into the market instead, of course.
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corn18
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Re: "Nobody's ever regretted paying off the mortgage."

Post by corn18 »

Wrench wrote: Fri Apr 16, 2021 2:49 pm
corn18 wrote: Fri Apr 16, 2021 6:42 am
TJHOFF wrote: Fri Apr 16, 2021 6:40 am It's pretty easy to regret not putting more money in a rising stock market after the fact.
Over 30 years, there is a 100% probability that a 60/40 portfolio will go up more than the current 30 year fixed rate mortgage.
That is true - you have shown the data to prove it. But life is not lived in a 30 year window. It is lived in a month to month, or year to year basis. What happens when life throws a curve ball at you like a major accident, disability, medical issue, child disability, long term care, job loss, etc. when you need the cash flow AND the market is down 30-40%? The extra cash flow from NOT having a mortgage can make a big difference then AND can be a huge stress reducer. In a way, it is like insurance. You are reducing your level of risk for an unlikely tail event by paying off your mortgage. But, if you are comfortable not having that insurance and prefer to take the path of maintaining a mortgage, more power to you. It's just not for everyone.

Wrench
The extra $582k I have in savings will help me out in that case.
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JoeRetire
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Re: "Nobody's ever regretted paying off the mortgage."

Post by JoeRetire »

PowderDay9 wrote: Fri Apr 16, 2021 2:11 pm The few people that regret paying off the mortgage
do so because we've had an incredible bull market and low interest rates. It's just Monday morning quarterbacking.
Wishing one had made a different decision in the past, because the consequences of the decision were unfavorable is the definition of regret.
That doesn't mean the decision was wrong for the time in which it was made. And it doesn't mean that it would be the right decision today.

You pays yer money and you takes yer chances.
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bluebolt
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Re: "Nobody's ever regretted paying off the mortgage."

Post by bluebolt »

Wrench wrote: Fri Apr 16, 2021 2:49 pm
corn18 wrote: Fri Apr 16, 2021 6:42 am
TJHOFF wrote: Fri Apr 16, 2021 6:40 am It's pretty easy to regret not putting more money in a rising stock market after the fact.
Over 30 years, there is a 100% probability that a 60/40 portfolio will go up more than the current 30 year fixed rate mortgage.
That is true - you have shown the data to prove it. But life is not lived in a 30 year window. It is lived in a month to month, or year to year basis. What happens when life throws a curve ball at you like a major accident, disability, medical issue, child disability, long term care, job loss, etc. when you need the cash flow AND the market is down 30-40%? The extra cash flow from NOT having a mortgage can make a big difference then AND can be a huge stress reducer. In a way, it is like insurance. You are reducing your level of risk for an unlikely tail event by paying off your mortgage. But, if you are comfortable not having that insurance and prefer to take the path of maintaining a mortgage, more power to you. It's just not for everyone.

Wrench
Wouldn't it be a bigger stress reducer to have the funds on hand to pay for whatever unexpected expense rather than having to cash flow it? Because that's what the comparison should be.
bmelikia
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Re: "Nobody's ever regretted paying off the mortgage."

Post by bmelikia »

nolesrule wrote: Fri Apr 16, 2021 7:03 am
bmelikia wrote: Thu Apr 15, 2021 6:30 pm
nolesrule wrote: Thu Apr 15, 2021 2:33 pm
bmelikia wrote: Thu Apr 15, 2021 2:11 pm
nolesrule wrote: Wed Apr 14, 2021 2:26 pm
The trade off to getting that additional cash flow is that you reduce your future monthly payment to principal resulting in more interest paid than if you had not done a recast.
That's not true if you keep your payments the same amount they were.

Just because the liability is reduced (in my case to 775/month) - you can still pay the old amount.

We have kept the same overpayment schedule for a little while now. . .1,764.00 every 2 weeks
But if you do that you haven't improved your cashflow.... which was the point I was making.
It does improve your cashflow though - I have just elected to have that extra cashflow go towards additional principal pay down.
If you are using your extra money to do the same thing with the money that you would have done without the money, then you haven't improved your cashflow since you haven't changed how you are using the money. Your net position is the same.

In order to have an actual change in cashflow you would have to redirect the money to some other purpose, and that would result in an increase in interest paid because you will have slowed the rate at which you pay down the mortgage.
Recasting does create additional cash flow - for whatever purpose a person wants. Of course the liability on the remaining mortgage balance remains and therefore interest continues to accrue on the remaining balance - but without a doubt, additional cashflow is available.
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Random Poster
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Re: "Nobody's ever regretted paying off the mortgage."

Post by Random Poster »

JoeRetire wrote: Fri Apr 16, 2021 3:06 pm It "cost" you whatever you could have earned if you put that money into the market instead, of course.
But I wouldn’t have put (and didn’t put) that money into the market anyway. So that comparison of cost is irrelevant and immaterial to me.

Having a decent amount of cash in the bank is something I’ve always had and kept.

Cash gives me a feeling of security, which is worth way more to me than watching my investment portfolio go up.

And all I really did was trade one form of security (cash in the bank) for another form (paid off house to live in).

And knowing that my residence is paid off is worth way more to me than watching my investment portfolio go up.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by JoeRetire »

Random Poster wrote: Fri Apr 16, 2021 3:26 pm
JoeRetire wrote: Fri Apr 16, 2021 3:06 pm It "cost" you whatever you could have earned if you put that money into the market instead, of course.
But I wouldn’t have put (and didn’t put) that money into the market anyway. So that comparison of cost is irrelevant and immaterial to me.
You can call any cost irrelevant and immaterial if you choose. It's still a cost investment-wise. It's just a cost that you are willing to pay.
Having a decent amount of cash in the bank is something I’ve always had and kept.

Cash gives me a feeling of security, which is worth way more to me than watching my investment portfolio go up.

And all I really did was trade one form of security (cash in the bank) for another form (paid off house to live in).
So you decided you need a lesser feeling of security because your mortgage is paid off. That's understandable - lots of people give up money for emotional reasons.
And knowing that my residence is paid off is worth way more to me than watching my investment portfolio go up.
Then why did you wait? Why didn't you liquidate your investment portfolio in order to buy your home or pay it off earlier?
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bmelikia
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Re: "Nobody's ever regretted paying off the mortgage."

Post by bmelikia »

nolesrule wrote: Fri Apr 16, 2021 7:03 am
bmelikia wrote: Thu Apr 15, 2021 6:30 pm
nolesrule wrote: Thu Apr 15, 2021 2:33 pm
bmelikia wrote: Thu Apr 15, 2021 2:11 pm
nolesrule wrote: Wed Apr 14, 2021 2:26 pm
The trade off to getting that additional cash flow is that you reduce your future monthly payment to principal resulting in more interest paid than if you had not done a recast.
That's not true if you keep your payments the same amount they were.

Just because the liability is reduced (in my case to 775/month) - you can still pay the old amount.

We have kept the same overpayment schedule for a little while now. . .1,764.00 every 2 weeks
But if you do that you haven't improved your cashflow.... which was the point I was making.
It does improve your cashflow though - I have just elected to have that extra cashflow go towards additional principal pay down.
If you are using your extra money to do the same thing with the money that you would have done without the money, then you haven't improved your cashflow since you haven't changed how you are using the money. Your net position is the same.

In order to have an actual change in cashflow you would have to redirect the money to some other purpose, and that would result in an increase in interest paid because you will have slowed the rate at which you pay down the mortgage.
We'll have to agree to disagree

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Re: "Nobody's ever regretted paying off the mortgage."

Post by nolesrule »

bmelikia wrote: Fri Apr 16, 2021 3:42 pm
nolesrule wrote: Fri Apr 16, 2021 7:03 am
bmelikia wrote: Thu Apr 15, 2021 6:30 pm
nolesrule wrote: Thu Apr 15, 2021 2:33 pm
bmelikia wrote: Thu Apr 15, 2021 2:11 pm

That's not true if you keep your payments the same amount they were.

Just because the liability is reduced (in my case to 775/month) - you can still pay the old amount.

We have kept the same overpayment schedule for a little while now. . .1,764.00 every 2 weeks
But if you do that you haven't improved your cashflow.... which was the point I was making.
It does improve your cashflow though - I have just elected to have that extra cashflow go towards additional principal pay down.
If you are using your extra money to do the same thing with the money that you would have done without the money, then you haven't improved your cashflow since you haven't changed how you are using the money. Your net position is the same.

In order to have an actual change in cashflow you would have to redirect the money to some other purpose, and that would result in an increase in interest paid because you will have slowed the rate at which you pay down the mortgage.
We'll have to agree to disagree

:sharebeer :sharebeer
I guess?

Cashflow is a measure of the gap between money in and money out. While you've given yourself the option to increase your cashflow, you haven't actually exercised the option because you continue to pay the same amount. therefore no change in the cashflow equation. If you choose to take the option of paying less, then you'll have an increase in cashflow... but you'll pay more in interest.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by kd2008 »

There are no losses until you actually sell your investments. Market drops are not losses but volatility.

My conjecture - incorrect as it may be - is people who sleep better at night with mortgage paid off for a very low rate mortgage may have internalized volatility for losses.

With homes typically around 5x-10x annual spending, why couldn't you sleep well if you know you can continue to pay the mortgage for a year or few years while the market recovers.

I am not against having a paid off mortgage. We have done so on multiple homes before. Now we find that our taxable investment amount dwarfs the mortgage balance on current residence. We always have the option to pay it off if the circumstances warrant even in a 50% down market - where we won't pay LTCG.

YMMV.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by jrbdmb »

KlangFool wrote: Wed Apr 14, 2021 12:26 pm OP,

Let me give you one more. Folks that pay off the low interest- rate mortgage and then take a more expensive student loan for their kids.

KlangFool
Parents can pay off their mortgage quickly and are then more capable of paying for their child's college using their cash flow and fewer / no loans. Or they can keep the mortgage and plow more money into the 529. Two different roads to get to Oz, I guess.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by KlangFool »

jrbdmb wrote: Fri Apr 16, 2021 4:03 pm
KlangFool wrote: Wed Apr 14, 2021 12:26 pm OP,

Let me give you one more. Folks that pay off the low interest- rate mortgage and then take a more expensive student loan for their kids.

KlangFool
Parents can pay off their mortgage quickly and are then more capable of paying for their child's college using their cash flow and fewer / no loans. Or they can keep the mortgage and plow more money into the 529. Two different roads to get to Oz, I guess.
jrbdmb,

<<Parents can pay off their mortgage quickly and are then more capable of paying for their child's college using their cash flow and fewer / no loans. >>

If they are employed.

<<Or they can keep the mortgage and plow more money into the 529.>>

Then, they are unemployed. And, they need to use the 529's money to feed the family.

There are a fair amount of age discrimination in some industry. The usual story is folks in their 30s when they have their kids, they believe that they can be fully-employed continuously until their retirement age. So, they pay off their mortgage and contribute to 529. Then, they are in their 40s and 50s. They are unemployed or under-employed when their kids started college.

A) They have to take a more expensive student loan for their kids.

B) The 529 reduces their kids' financial aid eligibility right when they need it.

One of the story that we had in the forum. Someone with 200K to 300K in 529 and 200K to 300K in tax-advantaged account was laid off right before his kid started college.

Murphy's law
If something could go wrong, it will go wrong in the worst possible time.

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Re: "Nobody's ever regretted paying off the mortgage."

Post by Random Poster »

JoeRetire wrote: Fri Apr 16, 2021 3:31 pm So you decided you need a lesser feeling of security because your mortgage is paid off. That's understandable - lots of people give up money for emotional reasons.
Not sure what you mean by this, as everyone has to live somewhere and living costs money.

And some people have money in the bank equal to or in excess of what their house cost, so I don’t quite follow the “lesser feeling of security” comment.
JoeRetire wrote: Fri Apr 16, 2021 3:31 pm
Then why did you wait? Why didn't you liquidate your investment portfolio in order to buy your home or pay it off earlier?
Because my job was unstable (which made renting more advantageous), I moved around a bit as a consequence of my job (which, again, made renting more advantageous), and aside from one location in a foreign country, I didn’t want to live permanently (ie, for at least 7 years) in any place where I was working (which, again, made renting more advantageous).

To me, owning a house (mortgage or not) doesn’t make much sense while you are young(-ish) and moving a bit or working in corporate America. Why tie yourself down and take on the obligations when you can spend the same time working (or, at least, appearing to work)?

Just rent and save your money, and then when you become financially independent or quit the corporate life, buy a place for cash and downshift.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by cribby1531 »

We fall on both sides of the coin. We're young 41 & 32 and knocked out our 4.5% large $550k mortgage in 32 months. What it did for us:

1. Making good income through our business we were just kind of floating along in prior years. Having the goal of knocking down this huge debt got us focused on what we were doing with our money (not just in terms of monthly spend on a mortgage).

2. Once paid off (and yes it felt amazing) we immediately crafted a plan to divert the old mortgage + extra amounts into investments. Each year we got a little more educated and really started maximizing all our available options (HSA/Mega Backdoor/Solo 401k, iBonds, etc). I can't say for certain that had we not gotten so focused on our 'mortgage murder' plan that we would've ended up here as new Bogleheads.

All that being said, we plan to move from our HCOL state to some place much cheaper within a couple years. We will hopefully take advantage of the amazing appreciation we've had on our current property, downsize into something a little smaller to manage, and now, knowing what we know, we'll probably hold a mortgage.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by grabiner »

invest4 wrote: Fri Apr 16, 2021 11:32 am * I also think mortgage and bonds play different roles in my overall finances. I struggle with some of the arguments in regard to having both. Very often I see analysis based upon current conditions (mortgage rate today vs bond rate today to support paying off the mortgage).
For the proper equivalence, compare a mortgage payment to buying an individual bond. If you pay down your ten-year mortgage, you know exactly how much you will get back in payments eliminated in ten years; your ten-year return is the mortgage rate. Likewise, if you buy a ten-year zero-coupon bond, you know exactly how much you will get in ten years; your ten-year return is the bond yield.

If you hold bonds with a duration different from ten years, or sell them before maturity (as a bond fund does), you don't know exactly what you will get, but you should be fairly compensated for the interest-rate risk. With bond funds, you can avoid this issue by buying a fund now with a ten-year duration, then selling some of that fund to buy a shorter-term fund next year so that you have a nine-year duration.
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2020content
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Re: "Nobody's ever regretted paying off the mortgage."

Post by 2020content »

This is a long thread and I haven't read all of it, so I apologize in advance if someone has posed these questions:

For those that are in favor of "having a mortgage", if you did happen to own your home outright for some reason such as inheritance or whatever, would you then mortgage your home, take cash out, and then invest it in the market? Or, if a bank were willing to loan you cash at 2.5% interest, would you borrow as much as you could and invest it?

If the answer is no, that should be a fairly clear answer to: Does it makes sense to pay off your mortgage?

If the answer is yes, then your are in a situation or an emotional state that allows you to accept more risk and uncertainty than the average individual or family.

I don't believe either answer is wrong. The real answer to the question is that it's personal and situational, like many others have said. If you were delivering a message to the masses, and you had to choose one, I feel the best answer would be to recommend freedom from debt.

Disclaimer - I don't have a mortgage, and I've managed to save enough to retire without having a mortgage.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by corn18 »

2020content wrote: Fri Apr 16, 2021 6:54 pm This is a long thread and I haven't read all of it, so I apologize in advance if someone has posed these questions:

For those that are in favor of "having a mortgage", if you did happen to own your home outright for some reason such as inheritance or whatever, would you then mortgage your home, take cash out, and then invest it in the market? Or, if a bank were willing to loan you cash at 2.5% interest, would you borrow as much as you could and invest it?

If the answer is no, that should be a fairly clear answer to: Does it makes sense to pay off your mortgage?

If the answer is yes, then your are in a situation or an emotional state that allows you to accept more risk and uncertainty than the average individual or family.

I don't believe either answer is wrong. The real answer to the question is that it's personal and situational, like many others have said. If you were delivering a message to the masses, and you had to choose one, I feel the best answer would be to recommend freedom from debt.

Disclaimer - I don't have a mortgage, and I've managed to save enough to retire without having a mortgage.
I had a paid off house and definitely would not have taken out a mortgage to invest.

Then I sold that house and had a boatload of cash in the bank while we were waiting for the new house to be built. Made the decision to lock in a 2.75% 30 year fixed mortgage and put the previous house proceeds in our 60/40 portfolio.

Then we got enough severance to pay off the same house. We put it all in our 60/40 portfolio instead.

So we made the decision twice in one year to not pay off the house with tax free dollars.

In my mind, that is completely different than taking out a mortgage on a paid off home to invest.
Last edited by corn18 on Fri Apr 16, 2021 7:14 pm, edited 1 time in total.
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JBEB
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Re: "Nobody's ever regretted paying off the mortgage."

Post by JBEB »

Here is another hypothetical for you small time rental owners-

Do you view your primary residence/rentals different for this exercise? Especially assuming PR is a liability and rentals are assets
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Re: "Nobody's ever regretted paying off the mortgage."

Post by av111 »

PowderDay9 wrote: Fri Apr 16, 2021 2:11 pm
stoptothink wrote: Fri Apr 16, 2021 1:17 pm
redmaw wrote: Fri Apr 16, 2021 1:12 pm I am seriously surprised by the number of people who say they regret paying off their mortgage. I get that the market has done great recently, but if you truly regret it, it is not an irreversible decision. What is stopping you from going out and taking a new mortgage? As I understand it you should be able to get one without much in the way of fees, and a low rate, and you have undone the payoff (of course you can't go back and earn the missed investment gains).

I have to admit this has crossed my mind lately 2-3% interest really isn't that hard to beat.
Because we don't know whether the market will continue at this pace. It's hindsight.
This.

With VTSAX at a 29 P/E ratio, 2-3% might be hard to beat. Nobody knows.

The few people that regret paying off the mortgage
do so because we've had an incredible bull market and low interest rates. It's just Monday morning quarterbacking. Maybe we should start a thread regretting 60/40 stocks to bonds that should have been 100/0. Or better yet, 60/40 TSLA/BTC. :D
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Re: "Nobody's ever regretted paying off the mortgage."

Post by Finridge »

an_asker wrote: Wed Apr 14, 2021 2:31 pm
Triple digit golfer wrote: Wed Apr 14, 2021 11:49 am I see this argument a lot when people favor paying down their mortgage in place of taxable investing.

I also see the argument that you wouldn't take a mortgage on a paid off house to invest. At least, most people wouldn't. So why would you invest rather than pay down the mortgage? This, to me, is a much better argument than the first.

To be clear, I'm not talking about tax-advantaged accounts, only taxable investments.

Every so often, when I look at my mortgage balance, I get tempted to direct some new money there instead of to taxable investments. However, I know that I am seeing one side of the balance sheet, the mortgage liability, and taking for granted the larger opposite side, the assets I've built up in my taxable account. I know that I am likely to do much better investing, even at 80% stocks and 20% bonds, than the 2.99% that I'm paying on the mortgage. I think this is fairly basic and simple to understand.

Why, then, do so many very respected financial gurus, the most well known being Dave Ramsey, but also many others, advocate so hard for mortgage paydown before taxable investing? Is it simply to appeal to the masses because the masses would likely not be disciplined, so the mortgage paydown is forced savings, which is better than buying a boat and expensive vacations?

Ramsey's argument is basically the title of my post: Nobody's ever regretted paying off the mortgage. I doubt anybody's ever regretted investing tens of thousands of dollars in the S&P 500 and holding for 20 years, either.

I know most answers will be, "Don't listen to Ramsey for investing advice." That's not really what I'm asking. I know deep down that he knows investing will yield a higher rate than a 30 year mortgage. I'm asking why, in your opinion, is this advice to pay down the mortgage so prevalent in the personal finance industry?
I think it depends on the person and how immune he/she is to risk.

I have regretted paying off the mortgage. Why? Because a) hindsight 20/20 and b) I am finding it unpleasant putting all money into the market at current levels.

That said, if you are quoting Dave Ramsey, you (or I) should also answer his counter question. Would I take a mortgage at this level and plough the money into the stock market? Guess what, the mortgage rates are less than 2%, lower than any mortgage I had ever held. So, would I? Absolutely not. For the exact reason I state above - if I am having such an unpleasant time DCAing into the market at current levels, do you really think that I would take a mortgage and plug that money in? No way Sir!!
I like using counter questioning, but would extend that to your stock holdings themselves. If you think the market is overvalued, why own them now? At least in tax-advantaged accounts, they can be sold without tax consequences?

But one reason not to is that this thinking is premised on people being able to market-time, and while I'd like to believe that I am able do so successfully, all of the research indicates that almost nobody is able to do this.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by coachd50 »

stoptothink wrote: Wed Apr 14, 2021 4:28 pm
getthatmarshmallow wrote: Wed Apr 14, 2021 4:10 pm
JoeRetire wrote: Wed Apr 14, 2021 4:07 pm
getthatmarshmallow wrote: Wed Apr 14, 2021 3:58 pm Paying off the mortgage is a form of forced savings, and indeed most Americans who go into retirement with any kind of savings have most of it in their house. Most people aren't disciplined enough to save what they would have put toward the mortgage payoff: the real decision is between 'pay down the mortgage' and 'fritter away the rest on consumables.

So the advice works from the perspective of behavioral finance, especially given that Ramsey's audience seems to be upper-middle-income households with a history of bad finanical decisions.

We are paying down our mortgage before investing additional in taxable because our mortgage is both small and at 3.8%/15, and it makes the spouse happier to pay it down. It works for me.
So would you fritter the money away if you weren't paying down your mortgage?
No, but I'm not providing advice on talk radio to a bunch of people with credit card debt. I'm paying down the mortgage because it feels more real to my better half than an investment account, and we're saving enough in tax-advantaged accounts that I'm fine with picking my battles.
I was in the exact same position. It is fun now shoving large amounts of money every week into a brokerage account, but we missed 4.5yrs of serious gains. We'll be fine either way.
Count me in as well. I sold off some funds and used a small amount of an inherited IRA to pay off about $50,000 in January. While it is nice right now to probably have less than $1,000 a month in living expenses (Single) mathematically right now it was probably the wrong choice as I not only missed out on the gains since Februrary, but have to try and skirt my way around the $11,000 LTCG tax.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by capran »

Absolutely no regrets in paying off our mortgage. After our mortgage burning party it just felt like we had planted a money tree because each month there was so much more available cash. We saved 50% of our income after the house was paid off. Many people said we were making a mistake, that we could have made alot more in the market, but we always thought of it as saving several hundred thousand dollars, guaranteed. Sure, you get to deduct some interest, but it feels better not having a monthly payment due.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by gideon trumpet »

Sometimes the message and actual advice of the gurus can get muddled. For example, Ramsey spends a lot of time railing against debt--that's the "message"--but even he advises investing 15% of gross salary in stocks and saving for college before putting extra on the mortgage. For exceptionally high savers living in high-cost-of-living areas, following Ramsey's advice could have a significant impact on their financial future by diverting large sums to the mortgage rather than investing at a higher rate of return. But for most people who are not saving much more than 15% anyway or who live in lower-cost-of-living areas where the mortgage is a smaller chunk of their overall expenses, following Ramsey's advice isn't going to hurt them. I could easily see someone in the first category regretting paying down the mortgage early but that is not most people.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by Tingting1013 »

gideon trumpet wrote: Sat Apr 17, 2021 7:11 pm Sometimes the message and actual advice of the gurus can get muddled. For example, Ramsey spends a lot of time railing against debt--that's the "message"--but even he advises investing 15% of gross salary in stocks and saving for college before putting extra on the mortgage. For exceptionally high savers living in high-cost-of-living areas, following Ramsey's advice could have a significant impact on their financial future by diverting large sums to the mortgage rather than investing at a higher rate of return. But for most people who are not saving much more than 15% anyway or who live in lower-cost-of-living areas where the mortgage is a smaller chunk of their overall expenses, following Ramsey's advice isn't going to hurt them. I could easily see someone in the first category regretting paying down the mortgage early but that is not most people.
So in a way, the title of this thread is incontrovertible. Nobody has ever regretted paying off their mortgage, because those who shouldn’t, don’t!
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Re: "Nobody's ever regretted paying off the mortgage."

Post by reln »

Triple digit golfer wrote: Wed Apr 14, 2021 11:49 am I see this argument a lot when people favor paying down their mortgage in place of taxable investing.

I also see the argument that you wouldn't take a mortgage on a paid off house to invest. At least, most people wouldn't. So why would you invest rather than pay down the mortgage? This, to me, is a much better argument than the first.

To be clear, I'm not talking about tax-advantaged accounts, only taxable investments.

Every so often, when I look at my mortgage balance, I get tempted to direct some new money there instead of to taxable investments. However, I know that I am seeing one side of the balance sheet, the mortgage liability, and taking for granted the larger opposite side, the assets I've built up in my taxable account. I know that I am likely to do much better investing, even at 80% stocks and 20% bonds, than the 2.99% that I'm paying on the mortgage. I think this is fairly basic and simple to understand.

Why, then, do so many very respected financial gurus, the most well known being Dave Ramsey, but also many others, advocate so hard for mortgage paydown before taxable investing? Is it simply to appeal to the masses because the masses would likely not be disciplined, so the mortgage paydown is forced savings, which is better than buying a boat and expensive vacations?

Ramsey's argument is basically the title of my post: Nobody's ever regretted paying off the mortgage. I doubt anybody's ever regretted investing tens of thousands of dollars in the S&P 500 and holding for 20 years, either.

I know most answers will be, "Don't listen to Ramsey for investing advice." That's not really what I'm asking. I know deep down that he knows investing will yield a higher rate than a 30 year mortgage. I'm asking why, in your opinion, is this advice to pay down the mortgage so prevalent in the personal finance industry?
Dave isn't a guru.

The argument for paying down a mortgage is improved emotional well being.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by Gooch1226 »

eye.surgeon wrote: Wed Apr 14, 2021 11:08 pm Because my kids don't sleep in my taxable account.
Probably one of the best posts on this forum!
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Re: "Nobody's ever regretted paying off the mortgage."

Post by coachd50 »

reln wrote: Sat Apr 17, 2021 7:28 pm
Triple digit golfer wrote: Wed Apr 14, 2021 11:49 am I see this argument a lot when people favor paying down their mortgage in place of taxable investing.

I also see the argument that you wouldn't take a mortgage on a paid off house to invest. At least, most people wouldn't. So why would you invest rather than pay down the mortgage? This, to me, is a much better argument than the first.

To be clear, I'm not talking about tax-advantaged accounts, only taxable investments.

Every so often, when I look at my mortgage balance, I get tempted to direct some new money there instead of to taxable investments. However, I know that I am seeing one side of the balance sheet, the mortgage liability, and taking for granted the larger opposite side, the assets I've built up in my taxable account. I know that I am likely to do much better investing, even at 80% stocks and 20% bonds, than the 2.99% that I'm paying on the mortgage. I think this is fairly basic and simple to understand.

Why, then, do so many very respected financial gurus, the most well known being Dave Ramsey, but also many others, advocate so hard for mortgage paydown before taxable investing? Is it simply to appeal to the masses because the masses would likely not be disciplined, so the mortgage paydown is forced savings, which is better than buying a boat and expensive vacations?

Ramsey's argument is basically the title of my post: Nobody's ever regretted paying off the mortgage. I doubt anybody's ever regretted investing tens of thousands of dollars in the S&P 500 and holding for 20 years, either.

I know most answers will be, "Don't listen to Ramsey for investing advice." That's not really what I'm asking. I know deep down that he knows investing will yield a higher rate than a 30 year mortgage. I'm asking why, in your opinion, is this advice to pay down the mortgage so prevalent in the personal finance industry?
Dave isn't a guru.

The argument for paying down a mortgage is improved emotional well being.
I think from some of those perspectives, the argument regarding mortgage vs taxable investing is also a forced savings one. Bogleheads are not the general public when it comes to financial behavior. I could see an argument being made that people investing in taxable might just as easily spend THAT as if they never invested in the first place.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by reln »

coachd50 wrote: Sat Apr 17, 2021 7:47 pm
reln wrote: Sat Apr 17, 2021 7:28 pm
Triple digit golfer wrote: Wed Apr 14, 2021 11:49 am I see this argument a lot when people favor paying down their mortgage in place of taxable investing.

I also see the argument that you wouldn't take a mortgage on a paid off house to invest. At least, most people wouldn't. So why would you invest rather than pay down the mortgage? This, to me, is a much better argument than the first.

To be clear, I'm not talking about tax-advantaged accounts, only taxable investments.

Every so often, when I look at my mortgage balance, I get tempted to direct some new money there instead of to taxable investments. However, I know that I am seeing one side of the balance sheet, the mortgage liability, and taking for granted the larger opposite side, the assets I've built up in my taxable account. I know that I am likely to do much better investing, even at 80% stocks and 20% bonds, than the 2.99% that I'm paying on the mortgage. I think this is fairly basic and simple to understand.

Why, then, do so many very respected financial gurus, the most well known being Dave Ramsey, but also many others, advocate so hard for mortgage paydown before taxable investing? Is it simply to appeal to the masses because the masses would likely not be disciplined, so the mortgage paydown is forced savings, which is better than buying a boat and expensive vacations?

Ramsey's argument is basically the title of my post: Nobody's ever regretted paying off the mortgage. I doubt anybody's ever regretted investing tens of thousands of dollars in the S&P 500 and holding for 20 years, either.

I know most answers will be, "Don't listen to Ramsey for investing advice." That's not really what I'm asking. I know deep down that he knows investing will yield a higher rate than a 30 year mortgage. I'm asking why, in your opinion, is this advice to pay down the mortgage so prevalent in the personal finance industry?
Dave isn't a guru.

The argument for paying down a mortgage is improved emotional well being.
I think from some of those perspectives, the argument regarding mortgage vs taxable investing is also a forced savings one. Bogleheads are not the general public when it comes to financial behavior. I could see an argument being made that people investing in taxable might just as easily spend THAT as if they never invested in the first place.
Agreed.
nguy44
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Re: "Nobody's ever regretted paying off the mortgage."

Post by nguy44 »

Triple digit golfer wrote: Wed Apr 14, 2021 11:49 am Nobody's ever regretted paying off the mortgage. I doubt anybody's ever regretted investing tens of thousands of dollars in the S&P 500 and holding for 20 years, either.
I have not read all of the replies, but on this point I do have a comment. It is easier to pay down a mortgage early than to buy and hold an investment for 20 years. Call it discipline, call it more control, less emotional, quicker feedback, psychological satisfaction, whatever.

You are in control when you pay down the mortgage. You can see the instant gratification of the end date creeping closer and the smaller, steadily diminishing balance. The bank will not surprise you with "oh, by the way, you owe $10,000 more that will be added to the balance".

Holding the S&P 500 for 20 years takes more discipline because you cannot see the future. While the past may be a good indicator, as it is said, "past performance is not a indicator of future results." The growth is not steady state. Over 20 years there will be dips that will challenge many to stay the course. Just look at the conversations started last March, with the theme of "I can't take this, I'm getting out totally/mostly out now!"

I agree that no one has has actually held the S&P 500 for 20 years has regretted it. I certainly have not (I have been investing in an S&P 500 index fund for almost 25 years). But one has had to fight a lot of emotional temptation to stay the course with the downturns that have occurred in the last 20 or so years. Not so, in my opinion, with paying down the mortgage, where you do have a lot of control.
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