11 years to pay off 30-yr mortgage. Here's how.

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
User avatar
Topic Author
sunny_socal
Posts: 2732
Joined: Tue Mar 24, 2015 4:22 pm

11 years to pay off 30-yr mortgage. Here's how.

Post by sunny_socal »

Maybe this is 'old news' to many of you but here goes. I have just seen a convenient way to pay off a mortgage in far less time than normal. We sold our home in CA after moving to TX but instead of putting all the proceeds toward the new home I kept 100k "just in case." I threw that 100k into a taxable account and invested it.

Within a year that 100k has now turned into 120k! Now maybe that growth it not normal but nonetheless it got me thinking. Would I be better off just waiting until my investment reaches parity with my remaining mortgage and then paying off the house or would it have been better to just put that 100k toward the house in the first place?

Actual parameters
- Loan amount 460k when keeping 100k in cash, or 360k with no cash out
- Loan rate 2.5%
- Investment growth rate 10% for sake modeling (mine has been way better)
- Target monthly payment is about $1800, only because that's what we pay at the moment

Scenario 1: Put that 100k toward the house, invest the monthly 'savings'
- Borrow 360k, no cash left over
- Payment is $1422/m
- Invest $400/m
- Parity reached: About 15 years when each balance is $200k

Scenario 2: Keep 100k invested, no further contribution
- Borrow 460k, keep 100k cash and invest it
- Payment is $1817/m
- Parity reached: About 11 years when each balance is $300k

I'm currently in Scenario2 only because we happened to hold back some cash. I'm normally extremely risk-adverse but for some reason I liked the idea of keeping some cash rather pulling a big HELOC.

Now I know I might need to add about a year to the above scenarios to account for tax on the investment but nonetheless the main principle still applies: It's faster to pay off with a large investment up front rather than to invest monthly.

And some of you will say "Why didn't you just take the lower mortage and pay $400/m extra!" Well, because that would still take 23 years to pay off! May approach is the fastest by far.

And others will say "But this is just like taking out a home equity loan and investing it. That's crazy!" Maybe it is the same but for some reason it doesn't seem very risky. Home value is $1M, we still have plenty of equity. I'm basically paying 2.5% interest on my 'loan' whereas a true HELOC or equity loan would likely be 4-5%.

Now feel free to poke holes in this.
User avatar
Mountain Doc
Posts: 409
Joined: Tue Aug 08, 2017 3:15 pm
Location: Life Elevated

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Mountain Doc »

sunny_socal wrote: Fri Jun 18, 2021 8:31 am And others will say "But this is just like taking out a home equity loan and investing it. That's crazy!" Maybe it is the same but for some reason it doesn't seem very risky.
You are comparing a low-risk investment (a mortgage note) to a high-risk investment (stocks). Yes, you will come out ahead most of the time by investing in stocks instead of the mortgage, but it is also possible you come out way behind due to poor stock market returns. If you're well positioned to take this risk, that is fine. But perhaps "it doesn't seem very risky" to you because stocks have done well in recent years. How would you have felt in 2008-2009? I had family at that time who voiced regret about having put extra cash flow into the market (and watching it drop 50%) instead of taking the guaranteed return from paying down their mortgage. Just because stocks have had ~10% CAGR over many decades does not mean you will get 10% CAGR in the next decade.

Full disclosure: I have a mortgage, and I invest my free cash flow rather than paying down that mortgage. But I don't think the risk should be ignored.
Last edited by Mountain Doc on Fri Jun 18, 2021 8:53 am, edited 1 time in total.
User avatar
Nate79
Posts: 9373
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Nate79 »

Suggest you rerun your model and this time input the return for stocks in your taxable account at 0% and report back which scenario wins and what you learned.
User avatar
Topic Author
sunny_socal
Posts: 2732
Joined: Tue Mar 24, 2015 4:22 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by sunny_socal »

Mountain Doc wrote: Fri Jun 18, 2021 8:47 am
sunny_socal wrote: Fri Jun 18, 2021 8:31 am And others will say "But this is just like taking out a home equity loan and investing it. That's crazy!" Maybe it is the same but for some reason it doesn't seem very risky.
You are comparing a low-risk investment (a mortgage note) to a high-risk investment (stocks). Yes, you will come out ahead most of the time by investing in stocks instead of the mortgage, but it is also possible you come out way behind due to poor stock market returns. If you're well positioned to take this risk, that is fine. But perhaps "it doesn't seem very risky" to you because stocks have done well in recent years. How would you have felt in 2008-2009? I had family at that time who voiced regret about having put extra cash flow into the market (and watching it drop 50%) instead of taking the guaranteed return from paying down their mortgage. Just because stocks have had ~10% CAGR over many decades does not mean you will get 10% CAGR in the next decade.

Full disclosure: I have a mortgage, and I invest my free cash flow rather than paying down that mortgage. But I don't think the risk should be ignored.
I lived through 2008-2009 and during that time I ended up shuffling my 401k around a little bit to 'safer' investments (thank goodness I didn't turn it all into cash within the account.) What I learned: Even that blew over and I would have been better off just leaving everything completely untouched.

And someone else posted, what if the return were 0%? That's exactly how it would be if I just left it in a checking account. Then it would take me 25 years to reach parity, assuming that 100k was still worth anything given the inflation we're likely to face.

But the reality is that the stock market is very, very unlikely to be at 0% over such a long period of time. Consider some of the biggest disruptions in history, WWI and WWII:
https://awealthofcommonsense.com/2020/0 ... ck-market/
But markets don’t always care about rules of thumb, and uncertain situations don’t always play out in stocks as many would have you assume. The relationship between geopolitical crises and market outcomes isn’t as simple as it seems.

In the six months following the onset of World War I in 1914, the Dow fell more than 30%. Because the war basically ground the business world to a halt and market liquidity all but dried up, the decision was made to close the stock market that year. This lasted for six months, the longest such period on record. Making up for lost time, the Dow rose more than 88% in 1915 after it reopened, which remains the highest annual return on record for the DJIA. In fact, from the start of the war in 1914 until the war ended in late 1918, the Dow was up more than 43% in total or around 8.7% annually.

World War II had a similarly counterintuitive market outcome. Hitler invaded Poland on September 1, 1939, setting off the war. When the market opened on September 5, the Dow shot almost 10% higher that day. When the attack on the U.S. naval base at Pearl Harbor occurred in early December 1941, stocks opened up the following Monday down 2.9%, but it took just a month to regain those losses. When the allied forces invaded France on D-Day on June 6, 1944, the stock market barely noticed. The Dow rose more than 5% over the ensuing month.

From the start of WWII in 1939 until it ended in late 1945, the Dow was up a total of 50%, more than 7% per year.

So, during two of the worst wars in modern history, the U.S. stock market was up a combined 115%.
To throw around 0% scenarios is fear-mongering, plain and simple.
TheLaughingCow
Posts: 253
Joined: Tue Jul 01, 2014 9:41 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by TheLaughingCow »

Yes, there are great benefits to employing leverage in a bull market.

What you are describing has a lot of risk however.

Anyone who plans to invest using borrowed money should realize statistically, they are far more likely to be leveraging up near the peak of the market than near the trough.

Here is one example of what can happen when you get it wrong:

viewtopic.php?t=5934
7eight9
Posts: 2406
Joined: Fri May 17, 2019 7:11 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by 7eight9 »

sunny_socal wrote: Fri Jun 18, 2021 9:10 am
Mountain Doc wrote: Fri Jun 18, 2021 8:47 am
sunny_socal wrote: Fri Jun 18, 2021 8:31 am And others will say "But this is just like taking out a home equity loan and investing it. That's crazy!" Maybe it is the same but for some reason it doesn't seem very risky.
You are comparing a low-risk investment (a mortgage note) to a high-risk investment (stocks). Yes, you will come out ahead most of the time by investing in stocks instead of the mortgage, but it is also possible you come out way behind due to poor stock market returns. If you're well positioned to take this risk, that is fine. But perhaps "it doesn't seem very risky" to you because stocks have done well in recent years. How would you have felt in 2008-2009? I had family at that time who voiced regret about having put extra cash flow into the market (and watching it drop 50%) instead of taking the guaranteed return from paying down their mortgage. Just because stocks have had ~10% CAGR over many decades does not mean you will get 10% CAGR in the next decade.

Full disclosure: I have a mortgage, and I invest my free cash flow rather than paying down that mortgage. But I don't think the risk should be ignored.
I lived through 2008-2009 and during that time I ended up shuffling my 401k around a little bit to 'safer' investments (thank goodness I didn't turn it all into cash within the account.) What I learned: Even that blew over and I would have been better off just leaving everything completely untouched.

And someone else posted, what if the return were 0%? That's exactly how it would be if I just left it in a checking account. Then it would take me 25 years to reach parity, assuming that 100k was still worth anything given the inflation we're likely to face.

But the reality is that the stock market is very, very unlikely to be at 0% over such a long period of time. Consider some of the biggest disruptions in history, WWI and WWII:
https://awealthofcommonsense.com/2020/0 ... ck-market/
But markets don’t always care about rules of thumb, and uncertain situations don’t always play out in stocks as many would have you assume. The relationship between geopolitical crises and market outcomes isn’t as simple as it seems.

In the six months following the onset of World War I in 1914, the Dow fell more than 30%. Because the war basically ground the business world to a halt and market liquidity all but dried up, the decision was made to close the stock market that year. This lasted for six months, the longest such period on record. Making up for lost time, the Dow rose more than 88% in 1915 after it reopened, which remains the highest annual return on record for the DJIA. In fact, from the start of the war in 1914 until the war ended in late 1918, the Dow was up more than 43% in total or around 8.7% annually.

World War II had a similarly counterintuitive market outcome. Hitler invaded Poland on September 1, 1939, setting off the war. When the market opened on September 5, the Dow shot almost 10% higher that day. When the attack on the U.S. naval base at Pearl Harbor occurred in early December 1941, stocks opened up the following Monday down 2.9%, but it took just a month to regain those losses. When the allied forces invaded France on D-Day on June 6, 1944, the stock market barely noticed. The Dow rose more than 5% over the ensuing month.

From the start of WWII in 1939 until it ended in late 1945, the Dow was up a total of 50%, more than 7% per year.

So, during two of the worst wars in modern history, the U.S. stock market was up a combined 115%.
To throw around 0% scenarios is fear-mongering, plain and simple.
Nikkei December 29, 1989 --- 38,915
Nikkei June 18, 2021 --- 28,964

No reason it can't happen here.
I guess it all could be much worse. | They could be warming up my hearse.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by anon_investor »

sunny_socal wrote: Fri Jun 18, 2021 9:10 am
Mountain Doc wrote: Fri Jun 18, 2021 8:47 am
sunny_socal wrote: Fri Jun 18, 2021 8:31 am And others will say "But this is just like taking out a home equity loan and investing it. That's crazy!" Maybe it is the same but for some reason it doesn't seem very risky.
You are comparing a low-risk investment (a mortgage note) to a high-risk investment (stocks). Yes, you will come out ahead most of the time by investing in stocks instead of the mortgage, but it is also possible you come out way behind due to poor stock market returns. If you're well positioned to take this risk, that is fine. But perhaps "it doesn't seem very risky" to you because stocks have done well in recent years. How would you have felt in 2008-2009? I had family at that time who voiced regret about having put extra cash flow into the market (and watching it drop 50%) instead of taking the guaranteed return from paying down their mortgage. Just because stocks have had ~10% CAGR over many decades does not mean you will get 10% CAGR in the next decade.

Full disclosure: I have a mortgage, and I invest my free cash flow rather than paying down that mortgage. But I don't think the risk should be ignored.
I lived through 2008-2009 and during that time I ended up shuffling my 401k around a little bit to 'safer' investments (thank goodness I didn't turn it all into cash within the account.) What I learned: Even that blew over and I would have been better off just leaving everything completely untouched.

And someone else posted, what if the return were 0%? That's exactly how it would be if I just left it in a checking account. Then it would take me 25 years to reach parity, assuming that 100k was still worth anything given the inflation we're likely to face.

But the reality is that the stock market is very, very unlikely to be at 0% over such a long period of time. Consider some of the biggest disruptions in history, WWI and WWII:
https://awealthofcommonsense.com/2020/0 ... ck-market/
But markets don’t always care about rules of thumb, and uncertain situations don’t always play out in stocks as many would have you assume. The relationship between geopolitical crises and market outcomes isn’t as simple as it seems.

In the six months following the onset of World War I in 1914, the Dow fell more than 30%. Because the war basically ground the business world to a halt and market liquidity all but dried up, the decision was made to close the stock market that year. This lasted for six months, the longest such period on record. Making up for lost time, the Dow rose more than 88% in 1915 after it reopened, which remains the highest annual return on record for the DJIA. In fact, from the start of the war in 1914 until the war ended in late 1918, the Dow was up more than 43% in total or around 8.7% annually.

World War II had a similarly counterintuitive market outcome. Hitler invaded Poland on September 1, 1939, setting off the war. When the market opened on September 5, the Dow shot almost 10% higher that day. When the attack on the U.S. naval base at Pearl Harbor occurred in early December 1941, stocks opened up the following Monday down 2.9%, but it took just a month to regain those losses. When the allied forces invaded France on D-Day on June 6, 1944, the stock market barely noticed. The Dow rose more than 5% over the ensuing month.

From the start of WWII in 1939 until it ended in late 1945, the Dow was up a total of 50%, more than 7% per year.

So, during two of the worst wars in modern history, the U.S. stock market was up a combined 115%.
To throw around 0% scenarios is fear-mongering, plain and simple.
OP, if you give yourself 20+ years, then using equities makes sense. But for any shorter timeframe (e.g. 10 years) equities could be negative or under perform your mortgage rate).

Personally, after my last refi (2.75% 30 year fixed), I stopped pre-paying more mortgage and took the extra money I would be putting toward my mortgage and started to put it into VTSAX. I do plan to hold my mortgage for at least 15 years (but probably more like 20 years) so I have a sufficient runway for equities to out perform my mortgage.
Bigt3142
Posts: 179
Joined: Thu Jul 11, 2019 9:09 am

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Bigt3142 »

This is what I'm doing. My decision was based on flexibility of having the money in the market instead of locked in your house. If you truly needed the money you could sell the index fund in your taxable account. If you had put all your extra cash in to the mortgage you would have to do a cash out refinance. There is also the argument you could get a HELOC, however in a down turn there is a high chance the bank could turn off your HELOC and you have no access to the money.
Once you reach parity you can choose to pay off the loan or, most likely for me, continue investing until you decide one day to be rid of the mortgage.
Last edited by Bigt3142 on Fri Jun 18, 2021 10:15 am, edited 1 time in total.
brian91480
Posts: 683
Joined: Fri Jan 29, 2021 6:44 pm
Location: Minnesota

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by brian91480 »

sunny_socal wrote: Fri Jun 18, 2021 8:31 am Now feel free to poke holes in this.
Here's the problem:

Can everyone use the same plan for all scenarios in life?

Example: a 100% stock portfolio will outperform any retirement portfolio that has any amount of bonds or fixed income... on average.... over time! So everyone should just do that in retirement!

Each method we write can work... but both carry risk. Just acknowledge the risk and move on.
Mike Scott
Posts: 3579
Joined: Fri Jul 19, 2013 2:45 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Mike Scott »

I'm doing a version of this but there is more risk than you are considering. My primary goal is not to pay it off faster but to maintain more ongoing liquidity.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by anon_investor »

Mike Scott wrote: Fri Jun 18, 2021 9:31 am I'm doing a version of this but there is more risk than you are considering. My primary goal is not to pay it off faster but to maintain more ongoing liquidity.
Not to make more money long term?
User avatar
Nate79
Posts: 9373
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Nate79 »

All you have shown is that if you have 2 investments, one earning X and one earning Y and if the rate of return of X > Y you should put your money in X and not Y. Not rocket science except you can't predict the future and are completely ignoring risk.
Mike Scott
Posts: 3579
Joined: Fri Jul 19, 2013 2:45 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Mike Scott »

I hope to make more money but will have to wait and see how that works out. I know I have more liquidity.
User avatar
Mountain Doc
Posts: 409
Joined: Tue Aug 08, 2017 3:15 pm
Location: Life Elevated

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Mountain Doc »

It is absolutely possible that stocks return less than a mortgage over an 11-year timeframe. As I said, during most 11-year periods this will not be the case, but it has happened several times. Acknowledging that as a possibility it not fear mongering. I don’t think anyone is saying your plan is unreasonable, but ignoring the risk involved in your plan is unreasonable.
flyfishers83
Posts: 408
Joined: Fri Jun 07, 2019 6:08 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by flyfishers83 »

As mentioned, if you're going to project 10% annual returns, that obviously exceeds 2.5%. If this calculation is important to you, I would run projections based on a few different scenarios. You could just as easily experience 2% returns, or 10% followed by 5%, followed by -15%. So what happens at 2%,4%,6%,8%, etc. The possibilities are endless, but I don't have a single model where I forecast 10% annual returns. I'll be happy if my projections end up being conservative.
User avatar
Topic Author
sunny_socal
Posts: 2732
Joined: Tue Mar 24, 2015 4:22 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by sunny_socal »

Mountain Doc wrote: Fri Jun 18, 2021 9:42 am It is absolutely possible that stocks return less than a mortgage over an 11-year timeframe. As I said, during most 11-year periods this will not be the case, but it has happened several times. Acknowledging that as a possibility it not fear mongering. I don’t think anyone is saying your plan is unreasonable, but ignoring the risk involved in your plan is unreasonable.
Ok so yes it's possible. Someone brought up the nikkei, it has indeed stunk it up over several decades.

Image

Solution: Don't invest in the nikkei. Mine is a "Total Stock Market Fund" which is likely just the USA, I should probably put part of it in some Euro fund.

So to be risk-free I could indeed just stick with paying off the mortgage at 2.5% but it sure seems like a slow path to follow. Meanwhile my 401k is making 4x what I'm able to contribute.
Californiastate
Posts: 1516
Joined: Thu Feb 04, 2021 10:52 am

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Californiastate »

Maybe I missed it. Where are you paying STCG and/or LTCG with these market proceeds?
invest4
Posts: 1905
Joined: Wed Apr 24, 2019 2:19 am

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by invest4 »

I don't really see this discussion as fundamentally different than any of the others we have in regard to paying off ones' mortgage, etc. If OP feels confident to invest cash in equities as a way to juice returns in a taxable account to pay off the mortgage faster, that is definitely one approach with the usual risks.

In my own case, I choose to keep my 30 year mortgage @2.625% as an inflation hedge and providing me with options such as investing more monies for retirement (via mega backdoor Roth for example). Ultimately, I believe this has similar risks and trade-offs...the outcomes of which remain to be seen.
sunny_socal wrote: Fri Jun 18, 2021 8:31 am And others will say "But this is just like taking out a home equity loan and investing it. That's crazy!" Maybe it is the same but for some reason it doesn't seem very risky. Home value is $1M, we still have plenty of equity. I'm basically paying 2.5% interest on my 'loan' whereas a true HELOC or equity loan would likely be 4-5%.
Just go in with your eyes wide open. Today's home value may go up, down, or sideways and "for some reason it doesn't feel very risky" is not very reassuring...although people make decisions based upon on how they feel all the time.
hnd
Posts: 1077
Joined: Mon Jun 22, 2020 11:43 am

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by hnd »

I can almost predict before i click on a thread that the Nikkei will get brought up.

We refied into a new 30 year. we compared it to a 15 year and decided to opt for the 30 yr and place a rounded higher difference in a 70/30 index fund. everything is set to auto invest. We will likely have enough liquidity to pay off the mortgage within a year or 2 but have decided to just let this roll for the time being. per reasonable estimates, taking into consideration taxes and the like, the home would be paid off in 10-15 years depending upon the returns we get.

The difference i think in our scenario is Dollar cost averaging.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by grabiner »

Are your investments 100% stock? If not, then you can make a more fair comparison by selling some of your bonds to pay down the mortgage. If you sell a bond yielding 2% with the same duration as the prepayment on the 2.5% mortgage, you have a guaranteed benefit (unless the bond is tax-exempt and the mortgage is tax-deductible, and then you have a guaranteed loss).

But note the duration issue. Paying down a 29-year mortgage has a 29-year duration (or, say, a 25-year duration if you pay it down to 21 years). If your mortgage interest is deductible at 24%, the prepayment earns only 1.90%, which is a poor return for a 25-year bond. I would rather hold munis for a slightly lower return with less interest-rate risk; you can make up the return gap by increasing the risk of the rest of your portfolio (holding longer-duration bonds than you would otherwise hold, or taking some other type of risk such as holding more stock or lower-quality bonds).

The other reason to keep the money outside the mortgage, as you noted, is liquidity.
Wiki David Grabiner
fulltilt
Posts: 276
Joined: Thu Dec 01, 2011 1:23 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by fulltilt »

sunny_socal wrote: Fri Jun 18, 2021 9:59 am
Mountain Doc wrote: Fri Jun 18, 2021 9:42 am It is absolutely possible that stocks return less than a mortgage over an 11-year timeframe. As I said, during most 11-year periods this will not be the case, but it has happened several times. Acknowledging that as a possibility it not fear mongering. I don’t think anyone is saying your plan is unreasonable, but ignoring the risk involved in your plan is unreasonable.
...

Solution: Don't invest in the nikkei. Mine is a "Total Stock Market Fund" which is likely just the USA, I should probably put part of it in some Euro fund.

So to be risk-free I could indeed just stick with paying off the mortgage at 2.5% but it sure seems like a slow path to follow. Meanwhile my 401k is making 4x what I'm able to contribute.
Pretend it is 1998 and you made this 'discovery', how would that have worked out for you?

Just because you plan has worked for the last X number of years doesn't imply it will work for the next X years...
Walk a single path, becoming neither cocky with victory nor broken with defeat, without forgetting caution when all is quiet or becoming frightened when danger threatens. -- Jigoro Kano
Chuckles960
Posts: 920
Joined: Thu May 13, 2021 12:09 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Chuckles960 »

This whole thread should be deleted so that others don't find out about the OP's discovery. Lets keep this thing among ourselves. If too many people do it, it could have a cataclysmic impact on the mortgage market.
Chuckles960
Posts: 920
Joined: Thu May 13, 2021 12:09 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Chuckles960 »

sunny_socal wrote: Fri Jun 18, 2021 9:59 amSolution: Don't invest in the nikkei.
Seriously, that's what you took from it? What everyone has been telling you, apparently without much effect, is that you cannot predict the future by looking at the past. Period. No ifs or buts.

What has happened in the past is an example of what could happen, but it doesn't tell you what will happen.
sunny_socal wrote: Fri Jun 18, 2021 8:31 amAnd others will say "But this is just like taking out a home equity loan and investing it. That's crazy!" Maybe it is the same but for some reason it doesn't seem very risky.
It is the same. How it "seems" to you is irrelevant.
Last edited by Chuckles960 on Fri Jun 18, 2021 1:55 pm, edited 2 times in total.
Hyperchicken
Posts: 2007
Joined: Mon Mar 02, 2020 4:33 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Hyperchicken »

Buy stocks, wait for them to go up... PROFIT!
If they won't go up, don't buy them!
cshell2
Posts: 1204
Joined: Thu May 09, 2019 10:29 am

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by cshell2 »

fulltilt wrote: Fri Jun 18, 2021 11:07 am Pretend it is 1998 and you made this 'discovery', how would that have worked out for you?
I was thinking the same thing. It took me 6 or 7 years or so to get back to where I was in 2000.
LittleMaggieMae
Posts: 2569
Joined: Mon Aug 12, 2019 9:06 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by LittleMaggieMae »

Why wait 11 or 15 years to "prepay" the mortgage?? What about the scenario where you "skim off" any $$ above the original invested amount and apply that to your Mortgage every year?? So some years you might pre pay quite a bit - other years you may pre-pay 0 (when your "working money" value goes below your "invested amount"). Maybe you'll have a string of years as your "working money" recovers from earlier losses. Or maybe you'll have a string of "really good" years and will be able to pay down a lot of the principle.
User avatar
Topic Author
sunny_socal
Posts: 2732
Joined: Tue Mar 24, 2015 4:22 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by sunny_socal »

LittleMaggieMae wrote: Fri Jun 18, 2021 2:02 pm Why wait 11 or 15 years to "prepay" the mortgage?? What about the scenario where you "skim off" any $$ above the original invested amount and apply that to your Mortgage every year?? So some years you might pre pay quite a bit - other years you may pre-pay 0 (when your "working money" value goes below your "invested amount"). Maybe you'll have a string of years as your "working money" recovers from earlier losses. Or maybe you'll have a string of "really good" years and will be able to pay down a lot of the principle.
I like that idea. Just need to make sure I'm selling past the 1-yr mark to minimize tax, that should be happening very soon.
aj44
Posts: 309
Joined: Sat May 10, 2014 11:22 am

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by aj44 »

My quick way paying off a home was to buy one that was roughly half our annual income.
User avatar
Topic Author
sunny_socal
Posts: 2732
Joined: Tue Mar 24, 2015 4:22 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by sunny_socal »

Found this cool free XLS calculator that allows both monthly extra payments or lumps sums along the way:
https://templates.office.com/en-us/loan ... tm06206283

The 'skimming' idea seems very safe but the approach does take longer, about 18 years.

Another great calculator:
https://financial-calculators.com/histo ... calculator

So if I had invested 100k into the S&P 500 when I got married, I'd have about 330k now. Thus my assumption of 10% return is perhaps too optimistic. Some years the market took a dump, eg. -23%, -28%. Other years it was way up, eg. 23%, 29%.

Anyway thanks for the all the feedback. If I had an expensive mortgage I'd be more excited about paying if off but for now I'll keep that cash off to the side.
Last edited by sunny_socal on Sat Jun 19, 2021 8:13 am, edited 1 time in total.
Nowizard
Posts: 4842
Joined: Tue Oct 23, 2007 5:33 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Nowizard »

There has always been discussion about whether it is prudent to essentially obtain larger mortgage loans than necessary to invest in stocks with the excess amount. However, though it is not prudent for the highly risk averse, it is contradictory to say on one hand that long term investing in the market pays off but to minimize the amount put in the market if loan interest is reasonable. There are other issues that reflect personal circumstances, as always, but investing and having a higher mortgage than required has been positive over many. Long term investing is a key to accumulation, but investing higher amounts is an obvious benefit that augments the concept for many.

Tim
User avatar
Topic Author
sunny_socal
Posts: 2732
Joined: Tue Mar 24, 2015 4:22 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by sunny_socal »

Nowizard wrote: Sat Jun 19, 2021 8:09 am There has always been discussion about whether it is prudent to essentially obtain larger mortgage loans than necessary to invest in stocks with the excess amount. However, though it is not prudent for the highly risk averse, it is contradictory to say on one hand that long term investing in the market pays off but to minimize the amount put in the market if loan interest is reasonable. There are other issues that reflect personal circumstances, as always, but investing and having a higher mortgage than required has been positive over many. Long term investing is a key to accumulation, but investing higher amounts is an obvious benefit that augments the concept for many.

Tim
Is this really "a larger loan than necessary"? Many here seem to have a 6-12M emergency fund, many seems to have a taxable account - and yet they still have a mortgage. They are not explicitly borrowing for the EF or their brokerage accounts yet their mortgage is larger than necessary. That's all I'm doing as well.
Nowizard
Posts: 4842
Joined: Tue Oct 23, 2007 5:33 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by Nowizard »

I would not say larger than "necessary" other than for those who want as small a loan as possible.

Tim
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by anon_investor »

aj44 wrote: Sat Jun 19, 2021 7:48 am My quick way paying off a home was to buy one that was roughly half our annual income.
You must either have a very high income or do not live in a HCOL/VHCOL area...
seawolf21
Posts: 1590
Joined: Tue Aug 05, 2014 7:33 am

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by seawolf21 »

brian91480 wrote: Fri Jun 18, 2021 9:28 am
sunny_socal wrote: Fri Jun 18, 2021 8:31 am Now feel free to poke holes in this.
Here's the problem:

Can everyone use the same plan for all scenarios in life?

Example: a 100% stock portfolio will outperform any retirement portfolio that has any amount of bonds or fixed income... on average.... over time! So everyone should just do that in retirement!

Each method we write can work... but both carry risk. Just acknowledge the risk and move on.
+1

Thread could have read “30 days to pay off 30-yr mortgage. Here's how.”

Invested it all in DOGE earlier this year.

Another possibility is the thread may have not existed at all if investments went south as people tend to only post about personal wins not losses.
lazydavid
Posts: 5155
Joined: Wed Apr 06, 2016 1:37 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by lazydavid »

7eight9 wrote: Fri Jun 18, 2021 9:19 am Nikkei December 29, 1989 --- 38,915
Nikkei June 18, 2021 --- 28,964

No reason it can't happen here.
When the value of my home exceeds the GNP of a first-world country, I'll start worrying about that scenario.
aj44
Posts: 309
Joined: Sat May 10, 2014 11:22 am

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by aj44 »

anon_investor wrote: Sat Jun 19, 2021 8:34 am
aj44 wrote: Sat Jun 19, 2021 7:48 am My quick way paying off a home was to buy one that was roughly half our annual income.
You must either have a very high income or do not live in a HCOL/VHCOL area...
Both those helped but were second and third to not buying more house than we need.
User avatar
vitaflo
Posts: 1905
Joined: Sat Sep 03, 2011 3:02 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by vitaflo »

This is what I did, instead of paying down the mortgage I put the money I would have used into stocks. After 7 years I had enough from contributions + returns to have more than enough to pay off the mortgage, so I did.

BUT! I never once deluded myself into thinking these were equivalent investments. I knew full well I was taking way more risk by putting the money into stocks instead of the mortgage, and that I could fall behind if we had an extended downturn. But I was ok with that.

I think it's important for all investors to understand the risks they take. Risks are risks for a reason. If you're honest with yourself and ok with that, then there is nothing wrong with this plan.
User avatar
Topic Author
sunny_socal
Posts: 2732
Joined: Tue Mar 24, 2015 4:22 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by sunny_socal »

vitaflo wrote: Sat Jun 19, 2021 9:45 am This is what I did, instead of paying down the mortgage I put the money I would have used into stocks. After 7 years I had enough from contributions + returns to have more than enough to pay off the mortgage, so I did.

BUT! I never once deluded myself into thinking these were equivalent investments. I knew full well I was taking way more risk by putting the money into stocks instead of the mortgage, and that I could fall behind if we had an extended downturn. But I was ok with that.

I think it's important for all investors to understand the risks they take. Risks are risks for a reason. If you're honest with yourself and ok with that, then there is nothing wrong with this plan.
Well ok then, thank you :beer

Will it work all the time? No. Will it work for everyone? No. Is it sometimes better to invest than to pay off a cheap mortgage? Absolutely.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by anon_investor »

aj44 wrote: Sat Jun 19, 2021 9:31 am
anon_investor wrote: Sat Jun 19, 2021 8:34 am
aj44 wrote: Sat Jun 19, 2021 7:48 am My quick way paying off a home was to buy one that was roughly half our annual income.
You must either have a very high income or do not live in a HCOL/VHCOL area...
Both those helped but were second and third to not buying more house than we need.
I agree with that, buy only as much house as you need. In a HCOL area, 50% of income is impossible for nearly everyone... I live in a HCOL area, I would kill for a house that cheap!
aj44
Posts: 309
Joined: Sat May 10, 2014 11:22 am

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by aj44 »

anon_investor wrote: Sat Jun 19, 2021 10:22 am
aj44 wrote: Sat Jun 19, 2021 9:31 am
anon_investor wrote: Sat Jun 19, 2021 8:34 am
aj44 wrote: Sat Jun 19, 2021 7:48 am My quick way paying off a home was to buy one that was roughly half our annual income.
You must either have a very high income or do not live in a HCOL/VHCOL area...
Both those helped but were second and third to not buying more house than we need.
I agree with that, buy only as much house as you need. In a HCOL area, 50% of income is impossible for nearly everyone... I live in a HCOL area, I would kill for a house that cheap!
Definitely matters where you live, I targeted a company in the L to MCOL ex burbs that needs to pay big city HCOL wages to attract applicants and then moved a half mile away. Trade off is my house isn't appreciating anywhere near the amount a more expensive house is in this recent run-up but I'm also not paying interest, more taxes and more upkeep costs.
User avatar
anon_investor
Posts: 15122
Joined: Mon Jun 03, 2019 1:43 pm

Re: 11 years to pay off 30-yr mortgage. Here's how.

Post by anon_investor »

aj44 wrote: Sat Jun 19, 2021 10:32 am
anon_investor wrote: Sat Jun 19, 2021 10:22 am
aj44 wrote: Sat Jun 19, 2021 9:31 am
anon_investor wrote: Sat Jun 19, 2021 8:34 am
aj44 wrote: Sat Jun 19, 2021 7:48 am My quick way paying off a home was to buy one that was roughly half our annual income.
You must either have a very high income or do not live in a HCOL/VHCOL area...
Both those helped but were second and third to not buying more house than we need.
I agree with that, buy only as much house as you need. In a HCOL area, 50% of income is impossible for nearly everyone... I live in a HCOL area, I would kill for a house that cheap!
Definitely matters where you live, I targeted a company in the L to MCOL ex burbs that needs to pay big city HCOL wages to attract applicants and then moved a half mile away. Trade off is my house isn't appreciating anywhere near the amount a more expensive house is in this recent run-up but I'm also not paying interest, more taxes and more upkeep costs.
I relocated for work from a VHCOL to HCOL, so my housing cost was significantly less than before, so it is all about perspective. Although on paper my house gained 25%+ in value recently, since I am not selling, it gives me little benefit, I bet prices ease back down eventually.
Post Reply