Anyone regret paying off mortgage early?

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vanbogle59
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Re: Anyone regret paying off mortgage early?

Post by vanbogle59 »

lazynovice wrote: Mon Jun 14, 2021 2:01 pm Do people who pay off their mortgages take on more risk?
I, for one, did. Yes. In my IRA AA.
lazynovice wrote: Mon Jun 14, 2021 2:01 pm Do they invest more because they have smaller EFs?
I, for one, did. Yes. In my 401K.
lazynovice wrote: Mon Jun 14, 2021 2:01 pm Are they better at staying the course?
If the coronavirus dip is a valid test, then Yes, this helped me.
lazynovice wrote: Mon Jun 14, 2021 2:01 pm And we have survivorship bias in that people who suffered foreclosure and loss of equity don’t post here.
I can't speak about this in the first person. But I have had multiple acquantinces who have either suffered foreclosure or just had trouble keeping up with their mortgages. None of them would fall into a BH mentality.
Ron Ronnerson
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Re: Anyone regret paying off mortgage early?

Post by Ron Ronnerson »

vanbogle59 wrote: Mon Jun 14, 2021 1:56 pm
Ron Ronnerson wrote: Mon Jun 14, 2021 1:29 pm
vanbogle59 wrote: Mon Jun 14, 2021 1:05 pm
Ron Ronnerson wrote: Thu Jun 10, 2021 12:10 pm It may not be for everyone, but we’re sort of taking the opposite approach to paying it off early. In 2010, at age 35, we got a 30-year mortgage at a rate of 5.25%. We restarted the 30-year clock in 2012 when we refinanced at 3.25%. Then we refinanced for 30 years again in 2020 at 2.875%. The most recent refi, for 30 years one more time, was earlier this year. The rate is now at 2.375% and we took out $150k in cash this time as well. All the refinances were no-cost. I don’t know if I’ll be able to refinance to another 30-year loan at a better rate but would do so happily if the chance came up.

The original purchase price on our home was $500k and we put down $15k, or 3%, but didn’t have to pay PMI. After 11.5 years, we owe $492k on the house – more than we did when we first bought our home.

This approach has worked out well so far. Due to the low mortgage payments, we’ve been able to invest the money over the years and my wife has been able to be a stay-at-home parent. Our net worth in 2010, when we bought the house, was $100k and it is $1.6M now. I’m a public-school teacher.

A couple of important factors to this approach for us include that we need to keep our AGI low in order to get some nice tax credits (worth over $20k this year) and I’m expecting a six-figure pension so having a mortgage into retirement is less of a concern than it may be to others (though I doubt we’ll continue to live in our current home during retirement).
$500K - $15K = $485K at 5.25% = monthly 2.7K mortgage. $32 per year.
2010, credit must have been reasonably tight, so something like a conforming loan. I'm guessing your income had to be around 485/3 ??? $160???

1) "I’m expecting a six-figure pension" - Of course
2) "Our net worth in 2010, when we bought the house, was $100k and it is $1.6M now" - Of course
3) "I’m a public-school teacher."

Moral of the story for me is to move to where public-school teachers make $160K+ in 2010.
My income at the time was around $75k. My wife used to work and made around $50k in those days. She hasn’t worked for the past three years.

The loan was for teachers and required a 3% down payment without the option to put down a bigger down payment. Of course, one could pay extra toward the mortgage after getting the loan. There was no PMI.

By keeping our non-housing expenses low, we have more room in the budget for housing cost.
$75K income, $400K debt, roll the debt, bet on equities(?), rinse repeat for 10 years.
ok, new moral to the story:
1) Start this in 2010 (Not in 200x)
2) be lucky

I mean, god bless y'all. But you do realize this could have gone very differently, right?
Luck is always a factor and it was for us as well. However, I was pretty careful in running the numbers too. Don't rely on benchmarks and look at particulars of the situation. Other people spend vast amounts on categories that are blips for us. Here is a quick example on our current gross income of $115k/year:
Federal taxes: $500/year
California income taxes: $0
Child care: $0
Transportation: Minimal (plan to keep our Corollas for 15-20 years; I used to carpool; wife is now a stay-at-home parent but used to work from home and carpool when she had to go into the office)
Travel: $1k/year (we churn credit cards for bonuses)
Health Insurance: $600/year (receive a subsidy for $20k on the health care exchange with an AGI of around $60k for a family of 3)

We save roughly half our income and that's a big reason for the growth of our net worth. Luck was a factor in the market being so generous over the past decade (as it was for tons of people on this forum). We may have bought too much house (4-bedroom/4-bathroom for 3 people) that cost 4x our income with a tiny down payment but that doesn't mean we're not frugal. I know that probably sounds strange at the surface level, but why can't we afford a house that costs as much as ours on our income if we're still saving plenty? Retirement expenses should be fully covered by the pension and social security, by the way.

Full disclosure: I am not making the suggestion that anyone else do what we did as everyone's situation is different.
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corn18
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Re: Anyone regret paying off mortgage early?

Post by corn18 »

KlangFool wrote: Mon Jun 14, 2021 1:30 pm
ElJefeDelQueso wrote: Mon Jun 14, 2021 12:54 pm
Person B with 5 million may have started late and may have the same retirement living expenses as Person A in which case would have 5x the current resources as Person A.
ElJefeDelQueso,

But, in the real world, someone that has only 1X gross income saved versus someone with 5X gross income saved at the same age has about 5X difference in current annual expense. We have plenty of examples with lawyers and doctors.

<<for example one with MD/PhD was early 40s before hitting earning potential. Others early to mid 30s with big debts to pay off.>>

And, it is very common for the doctors to buy big expensive houses before they pay off their student loans.

<<same retirement living expenses >>

This is assuming that the person is fully-employed continuously until retirement age. Someone with 5X gross income saved can be Financially Independence. Aka, retired early with the current annual expense.

KlangFool
You certainly make a lot of assumptions to make your point. I would much rather have $5M in savings, $5M in income and $100k in annual expenses. How's that for an assumption?
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KlangFool
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Re: Anyone regret paying off mortgage early?

Post by KlangFool »

corn18 wrote: Mon Jun 14, 2021 3:25 pm
KlangFool wrote: Mon Jun 14, 2021 1:30 pm
ElJefeDelQueso wrote: Mon Jun 14, 2021 12:54 pm
Person B with 5 million may have started late and may have the same retirement living expenses as Person A in which case would have 5x the current resources as Person A.
ElJefeDelQueso,

But, in the real world, someone that has only 1X gross income saved versus someone with 5X gross income saved at the same age has about 5X difference in current annual expense. We have plenty of examples with lawyers and doctors.

<<for example one with MD/PhD was early 40s before hitting earning potential. Others early to mid 30s with big debts to pay off.>>

And, it is very common for the doctors to buy big expensive houses before they pay off their student loans.

<<same retirement living expenses >>

This is assuming that the person is fully-employed continuously until retirement age. Someone with 5X gross income saved can be Financially Independence. Aka, retired early with the current annual expense.

KlangFool
You certainly make a lot of assumptions to make your point. I would much rather have $5M in savings, $5M in income and $100k in annual expenses. How's that for an assumption?
corn18,

I would enjoy hearing your story on how that combination is possible.

KlangFool
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FireSekr
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Re: Anyone regret paying off mortgage early?

Post by FireSekr »

KlangFool wrote: Mon Jun 14, 2021 3:30 pm
corn18 wrote: Mon Jun 14, 2021 3:25 pm
KlangFool wrote: Mon Jun 14, 2021 1:30 pm
ElJefeDelQueso wrote: Mon Jun 14, 2021 12:54 pm
Person B with 5 million may have started late and may have the same retirement living expenses as Person A in which case would have 5x the current resources as Person A.
ElJefeDelQueso,

But, in the real world, someone that has only 1X gross income saved versus someone with 5X gross income saved at the same age has about 5X difference in current annual expense. We have plenty of examples with lawyers and doctors.

<<for example one with MD/PhD was early 40s before hitting earning potential. Others early to mid 30s with big debts to pay off.>>

And, it is very common for the doctors to buy big expensive houses before they pay off their student loans.

<<same retirement living expenses >>

This is assuming that the person is fully-employed continuously until retirement age. Someone with 5X gross income saved can be Financially Independence. Aka, retired early with the current annual expense.

KlangFool
You certainly make a lot of assumptions to make your point. I would much rather have $5M in savings, $5M in income and $100k in annual expenses. How's that for an assumption?
corn18,

I would enjoy hearing your story on how that combination is possible.

KlangFool
How is it impossible?

Just because someone has $5M income doesn’t mean they need to spend a lot per year.

Maybe they used to spend a lot but have drastically cut their lifestyle so now they only spend $100k. So their savings is currently low relative to income but will be a higher percentage going forward.

Or for some reason their income shot up significantly recently, and their savings hasn’t caught up.

Maybe they own a small business and they spent all of their money investing in the business which had low cash flow in the past now the investments are paying off the income has just shot up.

There are tons of ways you can be in this situation.

If you were saying income to spending ratio is 1:1 yeah that would be different but we’re talking income to net worth. There can be a lag betweeen the two.
KlangFool
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Re: Anyone regret paying off mortgage early?

Post by KlangFool »

FireSekr wrote: Mon Jun 14, 2021 3:49 pm
KlangFool wrote: Mon Jun 14, 2021 3:30 pm
corn18 wrote: Mon Jun 14, 2021 3:25 pm
KlangFool wrote: Mon Jun 14, 2021 1:30 pm
ElJefeDelQueso wrote: Mon Jun 14, 2021 12:54 pm
Person B with 5 million may have started late and may have the same retirement living expenses as Person A in which case would have 5x the current resources as Person A.
ElJefeDelQueso,

But, in the real world, someone that has only 1X gross income saved versus someone with 5X gross income saved at the same age has about 5X difference in current annual expense. We have plenty of examples with lawyers and doctors.

<<for example one with MD/PhD was early 40s before hitting earning potential. Others early to mid 30s with big debts to pay off.>>

And, it is very common for the doctors to buy big expensive houses before they pay off their student loans.

<<same retirement living expenses >>

This is assuming that the person is fully-employed continuously until retirement age. Someone with 5X gross income saved can be Financially Independence. Aka, retired early with the current annual expense.

KlangFool
You certainly make a lot of assumptions to make your point. I would much rather have $5M in savings, $5M in income and $100k in annual expenses. How's that for an assumption?
corn18,

I would enjoy hearing your story on how that combination is possible.

KlangFool
How is it impossible?

Just because someone has $5M income doesn’t mean they need to spend a lot per year.
FireSekr,

If the person does not spend a lot, why would the saving be only 5M? Aka, 1X gross income? How does the numbers add up?

KlangFool
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corn18
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Re: Anyone regret paying off mortgage early?

Post by corn18 »

KlangFool wrote: Mon Jun 14, 2021 4:01 pm
FireSekr wrote: Mon Jun 14, 2021 3:49 pm
KlangFool wrote: Mon Jun 14, 2021 3:30 pm
corn18 wrote: Mon Jun 14, 2021 3:25 pm
KlangFool wrote: Mon Jun 14, 2021 1:30 pm

ElJefeDelQueso,

But, in the real world, someone that has only 1X gross income saved versus someone with 5X gross income saved at the same age has about 5X difference in current annual expense. We have plenty of examples with lawyers and doctors.

<<for example one with MD/PhD was early 40s before hitting earning potential. Others early to mid 30s with big debts to pay off.>>

And, it is very common for the doctors to buy big expensive houses before they pay off their student loans.

<<same retirement living expenses >>

This is assuming that the person is fully-employed continuously until retirement age. Someone with 5X gross income saved can be Financially Independence. Aka, retired early with the current annual expense.

KlangFool
You certainly make a lot of assumptions to make your point. I would much rather have $5M in savings, $5M in income and $100k in annual expenses. How's that for an assumption?
corn18,

I would enjoy hearing your story on how that combination is possible.

KlangFool
How is it impossible?

Just because someone has $5M income doesn’t mean they need to spend a lot per year.
FireSekr,

If the person does not spend a lot, why would the saving be only 5M? Aka, 1X gross income? How does the numbers add up?

KlangFool
Because they used to spend a lot and had a lot of debt. Then they read the book The Millionaire Next Door and turned things around. That's my story.
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randomguy
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Re: Anyone regret paying off mortgage early?

Post by randomguy »

KlangFool wrote: Mon Jun 14, 2021 11:13 am
randomguy wrote: Mon Jun 14, 2021 11:06 am
We have two people
a) Person A with 1 million dollars and a wealth to income ratio of 4:1
b) Person B with 5 million dollars and a wealth to income ratio of 1:1

Would you really rather be A who has made the choices in life to maximize their wealth to income ratio or would your rather be B who has chosen to maximize their wealth. I know which camp I am in. Keep your eyes on the stats that matter and not the ones that people make up to try and makes themselves feel better.

I am sure he enjoyed paying off his mortgage. But for a person who is willing to defer gratification rather than go for short term rewards, it doesn't answer the question of it was the right thing to do or not.
randomguy,

I would rather be (A). (A) could early retire. (B) could not.

<<B who has chosen to maximize their wealth.>>

Which is not my goal in life. My goal in life is to maximize my enjoyment of my life. In order to do that, I need more time. Not greater wealth.

<<Keep your eyes on the stats that matter>>

Correct! Money is a good tool. It is a lousy master. Making and having more money should not be THE GOAL of someone's life.

To each its own.

KlangFool
How is A retiring? They are earning 100k/year and only have 1 million dollars? A 25% SWR doesn't seem safe to me. Just cause they made 1 million on bitcoin, game stop, and dogcoin doesn't change anything.

How can B not retire? They are making 500k/year, living on 150k and have 5 million bucks. Are you really worried about a 3% SWR?

You might like the fantasy of the high wealth to income person being able to retire, but as I said the stat is meaningless. It tells you nothing. In the end it will be more driven by things like investment returns and time in market as much as anything.
KlangFool
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Re: Anyone regret paying off mortgage early?

Post by KlangFool »

randomguy wrote: Mon Jun 14, 2021 9:15 pm
KlangFool wrote: Mon Jun 14, 2021 11:13 am
randomguy wrote: Mon Jun 14, 2021 11:06 am
We have two people
a) Person A with 1 million dollars and a wealth to income ratio of 4:1
b) Person B with 5 million dollars and a wealth to income ratio of 1:1

Would you really rather be A who has made the choices in life to maximize their wealth to income ratio or would your rather be B who has chosen to maximize their wealth. I know which camp I am in. Keep your eyes on the stats that matter and not the ones that people make up to try and makes themselves feel better.

I am sure he enjoyed paying off his mortgage. But for a person who is willing to defer gratification rather than go for short term rewards, it doesn't answer the question of it was the right thing to do or not.
randomguy,

I would rather be (A). (A) could early retire. (B) could not.

<<B who has chosen to maximize their wealth.>>

Which is not my goal in life. My goal in life is to maximize my enjoyment of my life. In order to do that, I need more time. Not greater wealth.

<<Keep your eyes on the stats that matter>>

Correct! Money is a good tool. It is a lousy master. Making and having more money should not be THE GOAL of someone's life.

To each its own.

KlangFool
How is A retiring? They are earning 100k/year and only have 1 million dollars? A 25% SWR doesn't seem safe to me. Just cause they made 1 million on bitcoin, game stop, and dogcoin doesn't change anything.

How can B not retire? They are making 500k/year, living on 150k and have 5 million bucks. Are you really worried about a 3% SWR?

You might like the fantasy of the high wealth to income person being able to retire, but as I said the stat is meaningless. It tells you nothing. In the end it will be more driven by things like investment returns and time in market as much as anything.
randomguy,

This is from your post.

<<We have two people
a) Person A with 1 million dollars and a wealth to income ratio of 4:1
b) Person B with 5 million dollars and a wealth to income ratio of 1:1>>

<<How is A retiring? They are earning 100k/year and only have 1 million dollars?>>
<<How can B not retire? They are making 500k/year,>>
<< I would much rather have $5M in savings, $5M in income and $100k in annual expenses. How's that for an assumption?>>

1) A is earning 1 million /4 = $250K per year.

2) B is earning 5 million /1 = 5M per year.

3) You are claiming that both of them spend 100K per year.

4) It is likely for A for earn 250K per year, spend 100K per year and accumulate 1 million over many years. At this pace, (A) would early retire in the future.

5) I would like a good story from you on how (B) earn 5 million a year, spend 100K per year, and only save 5 million. How do the numbers add up?

KlangFool
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corn18
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Re: Anyone regret paying off mortgage early?

Post by corn18 »

Here's my story:

2008: Age 42. retired from military with $80k of consumer debt and a $450k interest only mortgage with negative equity. No savings. Found a job making $150k / year.
2014: Age 48. Pay has increased to $500k / year. Consumer debt is now $160k. $500k mortgage with negative equity. Spending $36k / year more than I take home. $90k of savings.
2015: Age 49. Negative $200k net worth. We decided maybe we ought to try to change. So I read the Millionaire Next Door. Then asked my wife to read it (she did). And we changed. Pay has risen to $600k / year. So we sold the horse, horse trailer, camper, 3rd car, paid off all debt except the mortgage.
2019: Age 53. No debt. Paid off house. $915k in savings. NW $1.6M. Salary $750k.
2021: Age 55. No debt. $500k mortgage @ 2.75% fixed rate. $2.1M savings. NW $2.4M. Retired.

Spending is now $150k / year for everything including the mortgage and taxes.

That's my story.
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EnjoyIt
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Re: "Nobody's ever regretted paying off the mortgage."

Post by EnjoyIt »

afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
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corn18
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Re: "Nobody's ever regretted paying off the mortgage."

Post by corn18 »

EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
Long thread on if / how paying off a mortgage reduces SORR. I was convinced it did not when I started the thread. By the end, I changed my mind. All things being equal, if you pay off the mortgage with tax free dollars prior to retirement, you will always reduce SORR vs. keeping the mortgage.

viewtopic.php?f=2&t=338759
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KlangFool
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Re: Anyone regret paying off mortgage early?

Post by KlangFool »

corn18 wrote: Tue Jun 15, 2021 8:53 am Here's my story:

2008: Age 42. retired from military with $80k of consumer debt and a $450k interest only mortgage with negative equity. No savings. Found a job making $150k / year.
2014: Age 48. Pay has increased to $500k / year. Consumer debt is now $160k. $500k mortgage with negative equity. Spending $36k / year more than I take home. $90k of savings.
2015: Age 49. Negative $200k net worth. We decided maybe we ought to try to change. So I read the Millionaire Next Door. Then asked my wife to read it (she did). And we changed. Pay has risen to $600k / year. So we sold the horse, horse trailer, camper, 3rd car, paid off all debt except the mortgage.
2019: Age 53. No debt. Paid off house. $915k in savings. NW $1.6M. Salary $750k.
2021: Age 55. No debt. $500k mortgage @ 2.75% fixed rate. $2.1M savings. NW $2.4M. Retired.

Spending is now $150k / year for everything including the mortgage and taxes.

That's my story.
corn18,

Great! You should be congratulated for being very exceptional with very good discipline!

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

Post by KlangFool »

corn18 wrote: Tue Jun 15, 2021 9:22 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
Long thread on if / how paying off a mortgage reduces SORR. I was convinced it did not when I started the thread. By the end, I changed my mind. All things being equal, if you pay off the mortgage with tax free dollars prior to retirement, you will always reduce SORR vs. keeping the mortgage.

viewtopic.php?f=2&t=338759
corn18,

I am paying down my mortgage because

A) I am Financially Independent. My portfolio (excluding EF) is at 27.5X and my EF is at 3X. I have enough.

B) My kids graduated college and fully employed.

Hence, it is worthwhile for me to pay down my 3.49% mortgage. My mortgage probably would be paid off this year or next.

KlangFool
Last edited by KlangFool on Tue Jun 15, 2021 9:39 am, edited 1 time in total.
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corn18
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Re: "Nobody's ever regretted paying off the mortgage."

Post by corn18 »

KlangFool wrote: Tue Jun 15, 2021 9:33 am
corn18 wrote: Tue Jun 15, 2021 9:22 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
Long thread on if / how paying off a mortgage reduces SORR. I was convinced it did not when I started the thread. By the end, I changed my mind. All things being equal, if you pay off the mortgage with tax free dollars prior to retirement, you will always reduce SORR vs. keeping the mortgage.

viewtopic.php?f=2&t=338759
corn18,

I am paying down my mortgage because

A) I am Financially Independent. My portfolio (excluding EF) is at 27.5X and my EF is at 3X. I have enough.

B) My kids graduated college and fully employed.

Hence, it is worthwhile for my to pay down my 3.49% mortgage. My mortgage probably would be paid off this year or next.

KlangFool
As this thread has demonstrated, there are data and there are emotions. I have a 2.75% fixed rate 30 year mortgage and I want to pay it off. I have made $100k net of interest since I took out the mortgage in May of 2020 and invested the $500k in my 60/40 portfolio. Rising inflation makes my mortgage even more attractive. But I want to pay it off. I probably will next year. Even though my spreadsheet flashes a big "you're an idiot" banner every time I select the option to pay it off.
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KlangFool
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Re: "Nobody's ever regretted paying off the mortgage."

Post by KlangFool »

corn18 wrote: Tue Jun 15, 2021 9:38 am
KlangFool wrote: Tue Jun 15, 2021 9:33 am
corn18 wrote: Tue Jun 15, 2021 9:22 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
Long thread on if / how paying off a mortgage reduces SORR. I was convinced it did not when I started the thread. By the end, I changed my mind. All things being equal, if you pay off the mortgage with tax free dollars prior to retirement, you will always reduce SORR vs. keeping the mortgage.

viewtopic.php?f=2&t=338759
corn18,

I am paying down my mortgage because

A) I am Financially Independent. My portfolio (excluding EF) is at 27.5X and my EF is at 3X. I have enough.

B) My kids graduated college and fully employed.

Hence, it is worthwhile for my to pay down my 3.49% mortgage. My mortgage probably would be paid off this year or next.

KlangFool
As this thread has demonstrated, there are data and there are emotions. I have a 2.75% fixed rate 30 year mortgage and I want to pay it off. I have made $100k net of interest since I took out the mortgage in May of 2020 and invested the $500k in my 60/40 portfolio. Rising inflation makes my mortgage even more attractive. But I want to pay it off. I probably will next year. Even though my spreadsheet flashes a big "you're an idiot" banner every time I select the option to pay it off.
corn18,

And, the emotion works differently for each person. I am 50+years old and the social security would cover about 50% of my current annual expense. My portfolio is at 27.5X without social security. And, it is 55X with social security.

I had been through too many recession/economy crisis. I am not comfortable in paying down or paying off my mortgage until I am absolutely safe under the worst possible condition.

We all require a different degree of safeness before we feel comfortable in paying down or off the mortgage.

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

Post by EnjoyIt »

corn18 wrote: Tue Jun 15, 2021 9:22 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
Long thread on if / how paying off a mortgage reduces SORR. I was convinced it did not when I started the thread. By the end, I changed my mind. All things being equal, if you pay off the mortgage with tax free dollars prior to retirement, you will always reduce SORR vs. keeping the mortgage.

viewtopic.php?f=2&t=338759
It gets more tricky when one is not maxing out their tax preferred space, getting close to retirement, but still has a mortgage. With regards to sequence of return risk, is it worth decreasing Roth or traditional contributions to pay off that house prior to retirement? Is it worth selling from one's IRA or 401k, paying taxes and being debt free the year one retires?

At the end of the day, we were lucky enough to pay off our mortgage and not pull from tax protected space.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
Admiral
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Re: "Nobody's ever regretted paying off the mortgage."

Post by Admiral »

EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
While it's true that if one is relying on market returns to pay one's mortgage and/or support their lifestyle, then there is SORR risk in keeping it.

However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle, I don't see how paying it off or not paying it off makes any difference. You either reduce your pile and reduce your expenses, or maintain your pile and maintain your expenses at the same level. Having a mortgage if/when the market tanks and not being able to make the payments is a risk. But not if you have the money to pay them.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by KlangFool »

Admiral wrote: Tue Jun 15, 2021 10:42 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
While it's true that if one is relying on market returns to pay one's mortgage and/or support their lifestyle, then there is SORR risk in keeping it.

However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle, I don't see how paying it off or not paying it off makes any difference. You either reduce your pile and reduce your expenses, or maintain your pile and maintain your expenses at the same level. Having a mortgage if/when the market tanks and not being able to make the payments is a risk. But not if you have the money to pay them.
Admiral,

<<However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle,>>

I would like a clarification as to what do you mean by that. Do you mean that the person is Financially Independent? Aka, the person can support their current lifestyle without their jobs after paying off the mortgage or it is something else?

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

Post by Admiral »

KlangFool wrote: Tue Jun 15, 2021 10:51 am
Admiral wrote: Tue Jun 15, 2021 10:42 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
While it's true that if one is relying on market returns to pay one's mortgage and/or support their lifestyle, then there is SORR risk in keeping it.

However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle, I don't see how paying it off or not paying it off makes any difference. You either reduce your pile and reduce your expenses, or maintain your pile and maintain your expenses at the same level. Having a mortgage if/when the market tanks and not being able to make the payments is a risk. But not if you have the money to pay them.
Admiral,

<<However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle,>>

I would like a clarification as to what do you mean by that. Do you mean that the person is Financially Independent? Aka, the person can support their current lifestyle without their jobs after paying off the mortgage or it is something else?

KlangFool
Correct. I am speaking of someone who has "enough." If you've bucketed your portfolio properly SORR should really not be an issue for you except in some black swan scenario. If you have enough cash or fixed income to pay your mortgage, then the decision to pay it off or not is simply a matter of arbitrage.
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corn18
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Re: "Nobody's ever regretted paying off the mortgage."

Post by corn18 »

Admiral wrote: Tue Jun 15, 2021 10:55 am
KlangFool wrote: Tue Jun 15, 2021 10:51 am
Admiral wrote: Tue Jun 15, 2021 10:42 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
While it's true that if one is relying on market returns to pay one's mortgage and/or support their lifestyle, then there is SORR risk in keeping it.

However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle, I don't see how paying it off or not paying it off makes any difference. You either reduce your pile and reduce your expenses, or maintain your pile and maintain your expenses at the same level. Having a mortgage if/when the market tanks and not being able to make the payments is a risk. But not if you have the money to pay them.
Admiral,

<<However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle,>>

I would like a clarification as to what do you mean by that. Do you mean that the person is Financially Independent? Aka, the person can support their current lifestyle without their jobs after paying off the mortgage or it is something else?

KlangFool
Correct. I am speaking of someone who has "enough." If you've bucketed your portfolio properly SORR should really not be an issue for you except in some black swan scenario. If you have enough cash or fixed income to pay your mortgage, then the decision to pay it off or not is simply a matter of arbitrage.
It comes down to degrees of risk. Heading into retirement in Mar of this year, I had enough cash to pay off my $500k mortgage from my severance package. My contention in the thread I cited was the same as yours: it made no difference WRT to SORR if I paid it off with the cash or invested the cash in my 60/40 portfolio. I argued that for several pages. But it did matter, a little bit. My WR with the mortgage was 4.13% and without was 3.86%. While not a big difference, the slightly higher WR with the mortgage increased SORR a small amount. So I agree with you and disagree with you. You cannot make a blanket statement that it doesn't matter. But it may only matter a little bit and that may not matter to you (or me).

I will say the reason I kept the mortgage (for now) is that 2.75% fixed rate is just too good to pass up. If inflation goes above 2.75%, the mortgage is 0% real. So free money. And if I can make anything over 2.75% - inflation in my 60/40 portfolio, I come out way ahead. So I kept it. For now.
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Re: "Nobody's ever regretted paying off the mortgage."

Post by sport »

Admiral wrote: Tue Jun 15, 2021 10:55 am
KlangFool wrote: Tue Jun 15, 2021 10:51 am
Admiral wrote: Tue Jun 15, 2021 10:42 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
While it's true that if one is relying on market returns to pay one's mortgage and/or support their lifestyle, then there is SORR risk in keeping it.

However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle, I don't see how paying it off or not paying it off makes any difference. You either reduce your pile and reduce your expenses, or maintain your pile and maintain your expenses at the same level. Having a mortgage if/when the market tanks and not being able to make the payments is a risk. But not if you have the money to pay them.
Admiral,

<<However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle,>>

I would like a clarification as to what do you mean by that. Do you mean that the person is Financially Independent? Aka, the person can support their current lifestyle without their jobs after paying off the mortgage or it is something else?

KlangFool
Correct. I am speaking of someone who has "enough." If you've bucketed your portfolio properly SORR should really not be an issue for you except in some black swan scenario. If you have enough cash or fixed income to pay your mortgage, then the decision to pay it off or not is simply a matter of arbitrage.
It can also depend on interest rates. For my first house, I had a mortgage rate of 6.75%. I reached a point where I had the money to pay it off, but was far from being FI. However, my MM fund was yielding 18% and my CDs were yielding between 13% and 16%. It would have been stupid to pay it off under those circumstances.
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Re: Anyone regret paying off mortgage early?

Post by LadyGeek »

I removed some contentious posts. As a reminder, see: General Etiquette
We expect this forum to be a place where people can feel comfortable asking questions and where debates and discussions are conducted in civil tones.

... At all times we must conduct ourselves in a respectful manner to other posters.
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Re: Anyone regret paying off mortgage early?

Post by Grt2bOutdoors »

corn18 wrote: Tue Jun 15, 2021 8:53 am Here's my story:

2008: Age 42. retired from military with $80k of consumer debt and a $450k interest only mortgage with negative equity. No savings. Found a job making $150k / year.
2014: Age 48. Pay has increased to $500k / year. Consumer debt is now $160k. $500k mortgage with negative equity. Spending $36k / year more than I take home. $90k of savings.
2015: Age 49. Negative $200k net worth. We decided maybe we ought to try to change. So I read the Millionaire Next Door. Then asked my wife to read it (she did). And we changed. Pay has risen to $600k / year. So we sold the horse, horse trailer, camper, 3rd car, paid off all debt except the mortgage.
2019: Age 53. No debt. Paid off house. $915k in savings. NW $1.6M. Salary $750k.
2021: Age 55. No debt. $500k mortgage @ 2.75% fixed rate. $2.1M savings. NW $2.4M. Retired.

Spending is now $150k / year for everything including the mortgage and taxes.

That's my story.
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Exchme
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Re: Anyone regret paying off mortgage early?

Post by Exchme »

No regrets, it did several things for us:

It helped DW save, she grew up with little, so it was always hard for her to save since "retirement" and "portfolios" were very nebulous things, but she grasped saving for this and loved the idea of getting rid of that monthly payment. Once we succeeded, the success plus more maturity helped her be better with money.

I was too ignorant in investing to have made anything like market returns anyway, I bounced around to various high fee funds that were last year's winners.

My attitude improved after we got rid of the mortgage because it never again felt like we were living near the edge. So I relaxed and became the perfect husband easier to live with.

We were paying down in the late 90's and got done in 1999, so while not perfect timing, we were in position to put that extra money to work starting in 2000, so have had a good run on average since then.
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Re: Anyone regret paying off mortgage early?

Post by Tingting1013 »

My attitude improved after we got rid of the mortgage because it never again felt like we were living near the edge.
It finally clicked for me why I can’t relate to any of the posts in this thread.

If I paid off my mortgage, my annual savings would go from $370k to $385k. The mortgage is just not a significant cost item in my budget. Property taxes actually are higher than my mortgage interest. And both are way overshadowed by my $52k/yr daycare bill. Heck, one day of my portfolio fluctuation usually is larger than my annual mortgage.
Simple Simon
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Re: Anyone regret paying off mortgage early?

Post by Simple Simon »

I have not yet paid off mortgage.

At first this was because I preferred owing the bank $1 + having $1 invested, to owing the bank nothing and having nothing.

Now I have $2 invested and the reason has become different: the return on my leveraged portfolio seems likely to exceed the interest on my debt.

However, if one day I have $3,I don't plan to borrow and invest another $1 to maintain the 50:50 ratio. Logically I can't explain why not, this part is probably emotional.
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Admiral
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Re: Anyone regret paying off mortgage early?

Post by Admiral »

Tingting1013 wrote: Tue Jun 15, 2021 9:57 pm
My attitude improved after we got rid of the mortgage because it never again felt like we were living near the edge.
It finally clicked for me why I can’t relate to any of the posts in this thread.

If I paid off my mortgage, my annual savings would go from $370k to $385k. The mortgage is just not a significant cost item in my budget. Property taxes actually are higher than my mortgage interest. And both are way overshadowed by my $52k/yr daycare bill. Heck, one day of my portfolio fluctuation usually is larger than my annual mortgage.
Right. My mortgage payment is about 13% of take home. It's dwarfed by other things. The beauty of the fixed, low-rate loan is that over time it becomes a smaller and smaller part of your budget, assuming your income rises with inflation and/or raises/promotions. (And I acknowledge this is not always the case.) It will nice when it's gone but I'll be happier when private school and college are gone!
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Re: Anyone regret paying off mortgage early?

Post by lazynovice »

Exchme wrote: Tue Jun 15, 2021 8:20 pm No regrets, it did several things for us:

It helped DW save, she grew up with little, so it was always hard for her to save since "retirement" and "portfolios" were very nebulous things, but she grasped saving for this and loved the idea of getting rid of that monthly payment. Once we succeeded, the success plus more maturity helped her be better with money.

I was too ignorant in investing to have made anything like market returns anyway, I bounced around to various high fee funds that were last year's winners.

My attitude improved after we got rid of the mortgage because it never again felt like we were living near the edge. So I relaxed and became the perfect husband easier to live with.

We were paying down in the late 90's and got done in 1999, so while not perfect timing, we were in position to put that extra money to work starting in 2000, so have had a good run on average since then.
Amazing! I have never thought about it this way. This is true for us as well.
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EnjoyIt
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Re: "Nobody's ever regretted paying off the mortgage."

Post by EnjoyIt »

Admiral wrote: Tue Jun 15, 2021 10:42 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
While it's true that if one is relying on market returns to pay one's mortgage and/or support their lifestyle, then there is SORR risk in keeping it.

However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle, I don't see how paying it off or not paying it off makes any difference. You either reduce your pile and reduce your expenses, or maintain your pile and maintain your expenses at the same level. Having a mortgage if/when the market tanks and not being able to make the payments is a risk. But not if you have the money to pay them.
There is a bit more than what afan alluded to. In retirement, paying a mortgage requires one to take out money to cover that expense. If it comes from a tax protected account, that comes with taxes that need to be paid. If it comes from taxable, it can have capital gains. If the cash is invested, in will be throwing off dividends that require capital gains tax. If one has higher income, they may be subject to paying more for healthcare if one loses some subsidies from the affordable care act. If over 65, it could be higher IRMA payments. And that is on top of the slightly higher withdrawal rate needed to cover the mortgage as Afan described above.

In retirement, there is a lot of benefit in having as low as possible fixed/required expenses and the rest being discretionary. Just as an arbitrary example using 4% withdrawal rates:
If I had to choose between $2 million, spending $80k a year, paying ~$25,000 a year on a $500k 3% mortgage, as well as another ~$36k/year mandatory/living expenses, plus another ~$6k/year covering health insurance (due to loss of subsidy.) Add in an additional ~$2k in taxes, giving you a discretionary budget of $12k/yr.

vs

$1.5 million, spending nothing on mortgage, ~$36k on mandatory living expenses, ~$3k/yr for health insurance, and only ~$1k in taxes leaving you with a discretionary budget leaving you with $20k discretionary budget.

Even if we consider similar taxes and similar health insurance costs. we are still looking at $12k vs $16k in discretionary spending. That difference could be a very big deal during tough economic times if it occurs early on in retirement.

I will admit, if those hard times don't come early on, that would mean investments will outgrow a 3% mortgage and one should do better. The problem is, we don't know what the future will be, and we choose to be slightly safer by being debt free.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
Topic Author
acegolfer
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Re: anyone regret paying off mortgage early

Post by acegolfer »

LateStarter1975 wrote: Tue Jun 08, 2021 9:08 pm For all those who stated that they regret paying off their mortgage, I'm just wondering, is it not possible to take out a new mortgage on your home and then use that money to invest while you start paying your monthly mortgage for another 30 years? I mean, if you have to use that word regret about eliminating your mortgage, then why don't you try to get it back and use the money to invest instead? And if you wouldn't do this, why not?
I'm the OP who started this discussion 9 years ago. We paid off our mortgage in 2013. I'm in the minority, as I am one of the few who regret paying it off. Nevertheless, if I could go back 9 years ago (or in the same position now), I'd pay off again. I'm currently paying off a <3% car loan right now.

Was paying off the best decision ex post? No. But we don't know the future. I prefer a guaranteed 2-4% return over 8% expected but risky return. Everybody is different. As I stated in OP, I didn't intend this thread to be about whether or not to pay off the loan. Instead, it was more about human emotion, psychological aspects.
Admiral
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Re: "Nobody's ever regretted paying off the mortgage."

Post by Admiral »

EnjoyIt wrote: Wed Jun 16, 2021 8:40 am
Admiral wrote: Tue Jun 15, 2021 10:42 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
While it's true that if one is relying on market returns to pay one's mortgage and/or support their lifestyle, then there is SORR risk in keeping it.

However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle, I don't see how paying it off or not paying it off makes any difference. You either reduce your pile and reduce your expenses, or maintain your pile and maintain your expenses at the same level. Having a mortgage if/when the market tanks and not being able to make the payments is a risk. But not if you have the money to pay them.
There is a bit more than what afan alluded to. In retirement, paying a mortgage requires one to take out money to cover that expense. If it comes from a tax protected account, that comes with taxes that need to be paid. If it comes from taxable, it can have capital gains. If the cash is invested, in will be throwing off dividends that require capital gains tax. If one has higher income, they may be subject to paying more for healthcare if one loses some subsidies from the affordable care act. If over 65, it could be higher IRMA payments. And that is on top of the slightly higher withdrawal rate needed to cover the mortgage as Afan described above.

In retirement, there is a lot of benefit in having as low as possible fixed/required expenses and the rest being discretionary. Just as an arbitrary example using 4% withdrawal rates:
If I had to choose between $2 million, spending $80k a year, paying ~$25,000 a year on a $500k 3% mortgage, as well as another ~$36k/year mandatory/living expenses, plus another ~$6k/year covering health insurance (due to loss of subsidy.) Add in an additional ~$2k in taxes, giving you a discretionary budget of $12k/yr.

vs

$1.5 million, spending nothing on mortgage, ~$36k on mandatory living expenses, ~$3k/yr for health insurance, and only ~$1k in taxes leaving you with a discretionary budget leaving you with $20k discretionary budget.

Even if we consider similar taxes and similar health insurance costs. we are still looking at $12k vs $16k in discretionary spending. That difference could be a very big deal during tough economic times if it occurs early on in retirement.

I will admit, if those hard times don't come early on, that would mean investments will outgrow a 3% mortgage and one should do better. The problem is, we don't know what the future will be, and we choose to be slightly safer by being debt free.
At some level any calculations about the tax consequences are unknowable. This family could be paying nothing on capital gains, the money could come from Roth and thus already have been taxed, and so on.

In your example, don't forget that the $500k that has been kept is, in this scenario, throwing off 3%, or $15k, which equates to 60% of the mortgage payment (ignoring taxes). If it returns a whopping 4% then $20k of the $25k has been paid with gains and they STILL have the vast majority of their $500k invested to cover their other expenses.
EnjoyIt
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Re: "Nobody's ever regretted paying off the mortgage."

Post by EnjoyIt »

Admiral wrote: Wed Jun 16, 2021 10:37 am
EnjoyIt wrote: Wed Jun 16, 2021 8:40 am
Admiral wrote: Tue Jun 15, 2021 10:42 am
EnjoyIt wrote: Tue Jun 15, 2021 9:15 am
afan wrote: Wed Apr 14, 2021 7:02 pm Pre or post retirement has nothing to do with it.

If you pay off the mortgage, you have less money available to spend in retirement. People pretend that paying it off is somehow free- as if you have the same assets at retirement whether you pay off or keep the loan.

You do not make yourself better off by getting rid of the mortgage. You just shift from a monthly expense to all at once.
Here is how one is better off. It reduces sequence of return risk in retirement by lower one's fixed expenses allowing added flexibility. I am a big proponent of not paying off one's mortgage until ready to retire or one's wealth is large enough that the arbitrage taking on additional risk is just not worth it.

When we became almost financially independent, we paid off our 2.75% mortgage by funneling dividends from taxable, as well as any potential taxable contributions towards the mortgage. We had no need to take additional risk in arbitraging a mortgage with possible taxable returns of a 70/30 portfolio.
While it's true that if one is relying on market returns to pay one's mortgage and/or support their lifestyle, then there is SORR risk in keeping it.

However, if a person has cash or fixed income investments to pay off a mortgage and still has enough to support their lifestyle, I don't see how paying it off or not paying it off makes any difference. You either reduce your pile and reduce your expenses, or maintain your pile and maintain your expenses at the same level. Having a mortgage if/when the market tanks and not being able to make the payments is a risk. But not if you have the money to pay them.
There is a bit more than what afan alluded to. In retirement, paying a mortgage requires one to take out money to cover that expense. If it comes from a tax protected account, that comes with taxes that need to be paid. If it comes from taxable, it can have capital gains. If the cash is invested, in will be throwing off dividends that require capital gains tax. If one has higher income, they may be subject to paying more for healthcare if one loses some subsidies from the affordable care act. If over 65, it could be higher IRMA payments. And that is on top of the slightly higher withdrawal rate needed to cover the mortgage as Afan described above.

In retirement, there is a lot of benefit in having as low as possible fixed/required expenses and the rest being discretionary. Just as an arbitrary example using 4% withdrawal rates:
If I had to choose between $2 million, spending $80k a year, paying ~$25,000 a year on a $500k 3% mortgage, as well as another ~$36k/year mandatory/living expenses, plus another ~$6k/year covering health insurance (due to loss of subsidy.) Add in an additional ~$2k in taxes, giving you a discretionary budget of $12k/yr.

vs

$1.5 million, spending nothing on mortgage, ~$36k on mandatory living expenses, ~$3k/yr for health insurance, and only ~$1k in taxes leaving you with a discretionary budget leaving you with $20k discretionary budget.

Even if we consider similar taxes and similar health insurance costs. we are still looking at $12k vs $16k in discretionary spending. That difference could be a very big deal during tough economic times if it occurs early on in retirement.

I will admit, if those hard times don't come early on, that would mean investments will outgrow a 3% mortgage and one should do better. The problem is, we don't know what the future will be, and we choose to be slightly safer by being debt free.
At some level any calculations about the tax consequences are unknowable. This family could be paying nothing on capital gains, the money could come from Roth and thus already have been taxed, and so on.

In your example, don't forget that the $500k that has been kept is, in this scenario, throwing off 3%, or $15k, which equates to 60% of the mortgage payment (ignoring taxes). If it returns a whopping 4% then $20k of the $25k has been paid with gains and they STILL have the vast majority of their $500k invested to cover their other expenses.
I took everything you said into account utilizing the well accepted 4% withdrawal rate. The only time not having a mortgage outweighs keeping it is if there is a big downturn in the first couple of years of retirement. This is exactly what sequence of return risk is. Otherwise, keeping the mortgage and investing the cash should come out ahead.

I will show a more extreme example:
$500k portfolio, $500k mortgage at $25k/yr payment, $50k/yr expenses excluding the mortgage with SS paying $50k/yr.

Let's assume this couple held the mortgage and right as they retire there is a big downturn. Their $500k 60/40 portfolio drops down to $350k and the market is stagnant for 3 years and then recover by year 4 a not too far fetched straw man example. After three years their portfolio is down to $275k while their mortgage is $461k. In year 4, markets return and their 60/40 portfolio is now $440k if the couple rebalances at the market low and now unable to cover the mortgage. This is the definition of sequence of return risk. Sure the example is a straw man, but it is the easiest way to show how that risk exists.

On the other hand, if the markets return the average 8.7% on a 60/40 portfolio, and inflation is 3%, and this continues for another 5 years before the next recession, the above couple will be far better off keeping the mortgage.

I hope my example explains the statement. "Paying off a mortgage decreases sequence of return risk."
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JupiterJones
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Re: Anyone regret paying off mortgage early?

Post by JupiterJones »

Tingting1013 wrote: Tue Jun 15, 2021 9:57 pm
My attitude improved after we got rid of the mortgage because it never again felt like we were living near the edge.
It finally clicked for me why I can’t relate to any of the posts in this thread.

If I paid off my mortgage, my annual savings would go from $370k to $385k. The mortgage is just not a significant cost item in my budget. Property taxes actually are higher than my mortgage interest. And both are way overshadowed by my $52k/yr daycare bill. Heck, one day of my portfolio fluctuation usually is larger than my annual mortgage.
Interesting. My mortgage expense is actually not a significant cost item for me either. More than yours, relative to income, that's for sure. But a lot less than most people.

But rather than seeing it as "too small to worry about paying off", I see it as "so small, I might as well pay it off and just get rid of even having to think about it".
I don't lose sleep over my mortgage debt. However I do like having fewer open loops in my life. :sharebeer
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IMO
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Re: Anyone regret paying off mortgage early?

Post by IMO »

KlangFool wrote: Tue Jun 15, 2021 9:29 am
corn18 wrote: Tue Jun 15, 2021 8:53 am Here's my story:

2008: Age 42. retired from military with $80k of consumer debt and a $450k interest only mortgage with negative equity. No savings. Found a job making $150k / year.
2014: Age 48. Pay has increased to $500k / year. Consumer debt is now $160k. $500k mortgage with negative equity. Spending $36k / year more than I take home. $90k of savings.
2015: Age 49. Negative $200k net worth. We decided maybe we ought to try to change. So I read the Millionaire Next Door. Then asked my wife to read it (she did). And we changed. Pay has risen to $600k / year. So we sold the horse, horse trailer, camper, 3rd car, paid off all debt except the mortgage.
2019: Age 53. No debt. Paid off house. $915k in savings. NW $1.6M. Salary $750k.
2021: Age 55. No debt. $500k mortgage @ 2.75% fixed rate. $2.1M savings. NW $2.4M. Retired.

Spending is now $150k / year for everything including the mortgage and taxes.

That's my story.
corn18,

Great! You should be congratulated for being very exceptional with very good discipline!

KlangFool
Interesting story. Is this really a good example of whether to pay off the mortgage early?

Not sure that's a typical life example I would use for a typical person as not many people at age 42 go from $150K to $500k income in 6 yrs, and not many pulling in another probably $50K year in a lifetime COLA'd pension at 42. A similar story would be someone coming into a large inheritance vs. the huge career income change during that time frame. Awesome ending, but quite honestly, I could see it having turned out vastly differently if there weren't the huge salary increases. I do think it does need to be corrected for 2021, $500K mortgage on my books is $500K of debt.

I thought the thought is 25x expenses are needed to typically retire? $150K x 25 = $3.75 Million in savings? 4% of $2.1 Million is $84K/year. I presume the $66K/year is net after taxes of military pension? If that is the case, a more typical person with a paid off home could potentially retire with $66K/year, and apparently wouldn't need $1 in a savings account. Could we go back to age 42 yrs old in this example, readjust the COLA'd pension back to 2008 level with a paid off house and have retired? Obviously things like quality of life vs. yearly expenses come into play, but one could argue retiring at 42 years old would have been a huge quality of life factor, even if the annual spend was less. Personal finances cannot be equated with the mathematical answer in every case.
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Re: Anyone regret paying off mortgage early?

Post by Tingting1013 »

JupiterJones wrote: Wed Jun 16, 2021 11:59 am
Tingting1013 wrote: Tue Jun 15, 2021 9:57 pm
My attitude improved after we got rid of the mortgage because it never again felt like we were living near the edge.
It finally clicked for me why I can’t relate to any of the posts in this thread.

If I paid off my mortgage, my annual savings would go from $370k to $385k. The mortgage is just not a significant cost item in my budget. Property taxes actually are higher than my mortgage interest. And both are way overshadowed by my $52k/yr daycare bill. Heck, one day of my portfolio fluctuation usually is larger than my annual mortgage.
Interesting. My mortgage expense is actually not a significant cost item for me either. More than yours, relative to income, that's for sure. But a lot less than most people.

But rather than seeing it as "too small to worry about paying off", I see it as "so small, I might as well pay it off and just get rid of even having to think about it".
I don't lose sleep over my mortgage debt. However I do like having fewer open loops in my life. :sharebeer
Paying it off is out of the realm of possibility for me (the mortgage is >$1M, I don’t have anything close to that saved up in taxable). But the carrying cost is so low relative to my income that it doesn’t come up in my list of top financial concerns.
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acegolfer
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Re: Anyone regret paying off mortgage early?

Post by acegolfer »

Tingting1013 wrote: Wed Jun 16, 2021 12:59 pm Paying it off is out of the realm of possibility for me (the mortgage is >$1M, I don’t have anything close to that saved up in taxable). But the carrying cost is so low relative to my income that it doesn’t come up in my list of top financial concerns.
assuming 3% mortgage rate, your annual interest expense > $30k. If that's low relative to your income, good for you.
Simple Simon
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Re: anyone regret paying off mortgage early

Post by Simple Simon »

acegolfer wrote: Wed Jun 16, 2021 10:20 am I am one of the few who regret paying it off.
Have you ever regretted it enough that you thought about re-mortgaging?

If not then perhaps your regret is the sort of unactionable regret that comes with hindsight. Like someone might regret not buying bitcoin or Amazon?
25% house, 25% pension, 25% stock, 25% cash
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acegolfer
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Re: anyone regret paying off mortgage early

Post by acegolfer »

Simple Simon wrote: Wed Jun 16, 2021 1:51 pm
acegolfer wrote: Wed Jun 16, 2021 10:20 am I am one of the few who regret paying it off.
Have you ever regretted it enough that you thought about re-mortgaging?

If not then perhaps your regret is the sort of unactionable regret that comes with hindsight. Like someone might regret not buying bitcoin or Amazon?
Exactly. I regret not buying TSLA, AAPL, AMZN, BTC 10 years ago. If I could go back in time, would I buy them? No.
capran
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Re: Anyone regret paying off mortgage early?

Post by capran »

sc9182 wrote: Mon Jun 14, 2021 10:16 am
capran wrote: Mon Jun 14, 2021 9:56 am
Pranav wrote: Wed Jun 13, 2018 3:17 pm I regret that we initially payed extra towards mortgage while only contributing company match to 401(k).

After reading Bogleheads and other resources, I realized we should prioritize contributions to tax-advantaged accounts (401k, IRA, HSA) and then target the mortgage.
I agree it is important to contribute to tax deferred/"tax advantaged" accounts, but I wish I would have had thought more about NOT trying to maximize tax deferred accounts. Our income in retirement is substantially more than our income when working, leaving us paying substantially more in income tax. (By maximizing deferred while working, we always kept our combined income low enough to use the tax tables to compute our tax. ie under 99,999. Now it's a struggle to keep our income below the IRMAA surcharge threshold.)
LOL - this may be young Vs mature accounts at play. For a long successful career of capran, with ample savings/investing., the investments are expected to grow to larger sums. This is good problem to have. Roth's weren't as freely available until last decade or two. What else you going to do -- if you intend to save for retirement -- mostly left with Pre-Tax and/or Brokerage (Pre-Roth days). Or you could have invested in direct/indirect real-estate, if you were willing to manage it (besides - it would have bestowed better depreciation and/or returns., as you mentioned you throttled your income ..).

For younger folks - their human/career capital would assist towards account growth. For mature folks - their investments/savings inherent growth (due to markets) would cause lot of "mo money" issues (good problem to have)

Was IRMAA (2007 !?) even around during most of your working career !? Likely Roth/MBR , Roth-Convert (2012 blessed !?) wasn’t around there during good chunk of your career. How one plans for unknowns — other than try to diversify, adapt, and be flexible !?
True it must be a young vs old issue. I am sure we would have saved as much, but could have done so in a taxable account, paying a much lower income tax rate on our deposits then versus now, as well as capital gains rates rather than ordinary income rates. true, you never know how laws and rates change, but it's pretty painful to be in the 22% bracket knowing if we didn't have such a large deferred balance, it would be much lower. I do remember when Roths came out, I think it was 1500 per person, and when we retired we were contributing 6,000 each. Certainly much worse problems to have. But if I pass too early, spouse will be above the IRMAA surcharge level with her regular income plus RMD's, which we could have avoided with a smaller deferred balance. Never considered those aspects of saving when we took advantage of every loophole for deferral of income.
Tingting1013
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Re: Anyone regret paying off mortgage early?

Post by Tingting1013 »

acegolfer wrote: Wed Jun 16, 2021 1:42 pm
Tingting1013 wrote: Wed Jun 16, 2021 12:59 pm Paying it off is out of the realm of possibility for me (the mortgage is >$1M, I don’t have anything close to that saved up in taxable). But the carrying cost is so low relative to my income that it doesn’t come up in my list of top financial concerns.
assuming 3% mortgage rate, your annual interest expense > $30k. If that's low relative to your income, good for you.
The rate is 1.5% (1.1% net of tax benefits), and yes it’s a super low portion of my income.
bmelikia
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Re: Anyone regret paying off mortgage early?

Post by bmelikia »

Age: 36
Spouse: 34

Just made our final mortgage payment yesterday. . .

Approximate home value: 470-500k

Approximate 401k/Roth IRA value: 440k

I'll let you know if/when any regret sets in. . .
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle
Grt2bOutdoors
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Re: Anyone regret paying off mortgage early?

Post by Grt2bOutdoors »

bmelikia wrote: Thu Jun 17, 2021 10:49 am Age: 36
Spouse: 34

Just made our final mortgage payment yesterday. . .

Approximate home value: 470-500k

Approximate 401k/Roth IRA value: 440k

I'll let you know if/when any regret sets in. . .
Congratulations!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
sjahoo
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Re: Anyone regret paying off mortgage early?

Post by sjahoo »

Nope, not for one minute. It reduced the burn rate, and whether it (opportunity) costs or saves me money at this point doesn't matter. Peace of mind is good. And the monthly money from the mortgage can get redirected into other targets (tuition, room and board) and/or IRAs.
JohnnyP853
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Re: Anyone regret paying off mortgage early?

Post by JohnnyP853 »

I am in the minority here, but I have small regrets on paying off the mortgage early. My wife was very excited and enthusiastic about paying it off early. At the time, we had some room to invest in IRAs and I wanted to use the money to put it in there instead of pay off early. I made the correct marriage decision and we paid the mortgage off years early. We would have been ahead financially had we done it my way. However, it was a pretty big deal to my wife. That is why I say it was a small regret.
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vanbogle59
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Re: Anyone regret paying off mortgage early?

Post by vanbogle59 »

JohnnyP853 wrote: Thu Jun 17, 2021 8:40 pm I made the correct marriage decision
Drop the mike.
bmelikia
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Re: Anyone regret paying off mortgage early?

Post by bmelikia »

Grt2bOutdoors wrote: Thu Jun 17, 2021 8:00 pm
bmelikia wrote: Thu Jun 17, 2021 10:49 am Age: 36
Spouse: 34

Just made our final mortgage payment yesterday. . .

Approximate home value: 470-500k

Approximate 401k/Roth IRA value: 440k

I'll let you know if/when any regret sets in. . .
Congratulations!
Thank you!
"I would rather die with money, than live without it...." - Bogleheads member Ron | | "The greatest enemy of a good plan, is the dream of a perfect plan." | -Bogle
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