Should we put more toward our mortgage?

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nolesrule
Posts: 2631
Joined: Thu Feb 26, 2015 9:59 am

Re: Should we put more toward our mortgage?

Post by nolesrule »

capran wrote: Thu Jan 27, 2022 11:14 am That is very true. The two recent bull markets have been a windfall, even by historical standards, so timing has worked to your advantage. And I suppose it is impossible for the markets to ever return to a period similar to the 1929 to 1949 period. The ending price of the S&P500 in the 1920-30 bull market was 25.92. Even with all the bear and bull markets in between, even the bull market of May 1947 to June of 1948 produced a closing price high of only 17.06! It wasn't until the bull market from June of 1949 to August of 1956 when the market finally got above what it closed at in April 1930. Just imagine being 60 years old in 1930, and the share price of your stock on April 10,1930 was 25.92! And the bull market that ended on June 15, 1948, at age 78, had a closing price of 17.06!!!! Maybe a more realistic possibility, and more recent, was what occurred in 2000. Recalling that the longest bull market was from December 1987 to March of 2000, with a closing price of 1527.46. It did not return to that price until toward the end of the bull that began on October 9, 2002 and ended at 1565.15 on October 9, 2007. To be exact, the market on May 30, 2007 closed for the first time above the 1527.46 of March 2000 level. If you were a retiree in 2000, one could assume excluding dividends, that your balance was nearly the same in March of 2000 and May of 2007.
Why are we excluding dividends? It's a component of total return.

There as a positive real return from 1930 to 1948, even though the price dropped by nearly 8 over that time.
capran
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Re: Should we put more toward our mortgage?

Post by capran »

nolesrule wrote: Thu Jan 27, 2022 12:42 pm
capran wrote: Thu Jan 27, 2022 11:14 am That is very true. The two recent bull markets have been a windfall, even by historical standards, so timing has worked to your advantage. And I suppose it is impossible for the markets to ever return to a period similar to the 1929 to 1949 period. The ending price of the S&P500 in the 1920-30 bull market was 25.92. Even with all the bear and bull markets in between, even the bull market of May 1947 to June of 1948 produced a closing price high of only 17.06! It wasn't until the bull market from June of 1949 to August of 1956 when the market finally got above what it closed at in April 1930. Just imagine being 60 years old in 1930, and the share price of your stock on April 10,1930 was 25.92! And the bull market that ended on June 15, 1948, at age 78, had a closing price of 17.06!!!! Maybe a more realistic possibility, and more recent, was what occurred in 2000. Recalling that the longest bull market was from December 1987 to March of 2000, with a closing price of 1527.46. It did not return to that price until toward the end of the bull that began on October 9, 2002 and ended at 1565.15 on October 9, 2007. To be exact, the market on May 30, 2007 closed for the first time above the 1527.46 of March 2000 level. If you were a retiree in 2000, one could assume excluding dividends, that your balance was nearly the same in March of 2000 and May of 2007.
Why are we excluding dividends? It's a component of total return.

There as a positive real return from 1930 to 1948, even though the price dropped by nearly 8 over that time.
I did not include dividends because I am not aware of how to get that info. If you have a link I would love to know what the dividends were for the S&P 500 for every year. Lets assume that it is 2 1/2 % dividend, which I think is close to a realistic expectation, you are right, that would produce a gain, in either the 1930-48 period or the 2000-2007 period. But given the high appreciation of the last two bulls plus dividends, compared to the no appreciation but add in similar dividends of the two time periods I quoted, i would think everyone would agree the more recent appreciations with dividends is much greater of late. Unless I am totally mistaken, I honestly thought an average increase of 11% plus 2 1/2% dividends over a 5 year period would be viewed as spectacular, where as an increase/appreciation in price of 0% plus 2 1/2% dividends over a 5 to 16 year period would be not so favorably viewed.
nolesrule
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Re: Should we put more toward our mortgage?

Post by nolesrule »

capran wrote: Thu Jan 27, 2022 2:09 pm
nolesrule wrote: Thu Jan 27, 2022 12:42 pm
capran wrote: Thu Jan 27, 2022 11:14 am That is very true. The two recent bull markets have been a windfall, even by historical standards, so timing has worked to your advantage. And I suppose it is impossible for the markets to ever return to a period similar to the 1929 to 1949 period. The ending price of the S&P500 in the 1920-30 bull market was 25.92. Even with all the bear and bull markets in between, even the bull market of May 1947 to June of 1948 produced a closing price high of only 17.06! It wasn't until the bull market from June of 1949 to August of 1956 when the market finally got above what it closed at in April 1930. Just imagine being 60 years old in 1930, and the share price of your stock on April 10,1930 was 25.92! And the bull market that ended on June 15, 1948, at age 78, had a closing price of 17.06!!!! Maybe a more realistic possibility, and more recent, was what occurred in 2000. Recalling that the longest bull market was from December 1987 to March of 2000, with a closing price of 1527.46. It did not return to that price until toward the end of the bull that began on October 9, 2002 and ended at 1565.15 on October 9, 2007. To be exact, the market on May 30, 2007 closed for the first time above the 1527.46 of March 2000 level. If you were a retiree in 2000, one could assume excluding dividends, that your balance was nearly the same in March of 2000 and May of 2007.
Why are we excluding dividends? It's a component of total return.

There as a positive real return from 1930 to 1948, even though the price dropped by nearly 8 over that time.
I did not include dividends because I am not aware of how to get that info. If you have a link I would love to know what the dividends were for the S&P 500 for every year. Lets assume that it is 2 1/2 % dividend, which I think is close to a realistic expectation, you are right, that would produce a gain, in either the 1930-48 period or the 2000-2007 period. But given the high appreciation of the last two bulls plus dividends, compared to the no appreciation but add in similar dividends of the two time periods I quoted, i would think everyone would agree the more recent appreciations with dividends is much greater of late. Unless I am totally mistaken, I honestly thought an average increase of 11% plus 2 1/2% dividends over a 5 year period would be viewed as spectacular, where as an increase/appreciation in price of 0% plus 2 1/2% dividends over a 5 to 16 year period would be not so favorably viewed.
Dividend yields in the 30s and 40s were higher than they have been for the past 20 years, in some cases significantly higher. I don't have actual raw dividend numbers though.

https://www.multpl.com/s-p-500-dividend ... le/by-year

Obviously yield alone doesn't tell the whole story because of fluctuation in price, but here's the return story on the S&P 500 in the 1930 to 1948 timeframe.

https://www.officialdata.org/us/stocks/ ... dYear=1948

Total return was a positive real, which means the dividends offset the decrease in price over the time period, even after inflation was accounted for.

We're kinda getting off track here regarding the actual discussion, but my point is that price never tells the whole story, and things can look very different when you look at total return.
capran
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Re: Should we put more toward our mortgage?

Post by capran »

nolesrule wrote: Thu Jan 27, 2022 2:25 pm
capran wrote: Thu Jan 27, 2022 2:09 pm
nolesrule wrote: Thu Jan 27, 2022 12:42 pm
capran wrote: Thu Jan 27, 2022 11:14 am That is very true. The two recent bull markets have been a windfall, even by historical standards, so timing has worked to your advantage. And I suppose it is impossible for the markets to ever return to a period similar to the 1929 to 1949 period. The ending price of the S&P500 in the 1920-30 bull market was 25.92. Even with all the bear and bull markets in between, even the bull market of May 1947 to June of 1948 produced a closing price high of only 17.06! It wasn't until the bull market from June of 1949 to August of 1956 when the market finally got above what it closed at in April 1930. Just imagine being 60 years old in 1930, and the share price of your stock on April 10,1930 was 25.92! And the bull market that ended on June 15, 1948, at age 78, had a closing price of 17.06!!!! Maybe a more realistic possibility, and more recent, was what occurred in 2000. Recalling that the longest bull market was from December 1987 to March of 2000, with a closing price of 1527.46. It did not return to that price until toward the end of the bull that began on October 9, 2002 and ended at 1565.15 on October 9, 2007. To be exact, the market on May 30, 2007 closed for the first time above the 1527.46 of March 2000 level. If you were a retiree in 2000, one could assume excluding dividends, that your balance was nearly the same in March of 2000 and May of 2007.
Why are we excluding dividends? It's a component of total return.

There as a positive real return from 1930 to 1948, even though the price dropped by nearly 8 over that time.
I did not include dividends because I am not aware of how to get that info. If you have a link I would love to know what the dividends were for the S&P 500 for every year. Lets assume that it is 2 1/2 % dividend, which I think is close to a realistic expectation, you are right, that would produce a gain, in either the 1930-48 period or the 2000-2007 period. But given the high appreciation of the last two bulls plus dividends, compared to the no appreciation but add in similar dividends of the two time periods I quoted, i would think everyone would agree the more recent appreciations with dividends is much greater of late. Unless I am totally mistaken, I honestly thought an average increase of 11% plus 2 1/2% dividends over a 5 year period would be viewed as spectacular, where as an increase/appreciation in price of 0% plus 2 1/2% dividends over a 5 to 16 year period would be not so favorably viewed.
Dividend yields in the 30s and 40s were higher than they have been for the past 20 years, in some cases significantly higher. I don't have actual raw dividend numbers though.

https://www.multpl.com/s-p-500-dividend ... le/by-year

Obviously yield alone doesn't tell the whole story because of fluctuation in price, but here's the return story on the S&P 500 in the 1930 to 1948 timeframe.

https://www.officialdata.org/us/stocks/ ... dYear=1948

Total return was a positive real, which means the dividends offset the decrease in price over the time period, even after inflation was accounted for.

We're kinda getting off track here regarding the actual discussion, but my point is that price never tells the whole story, and things can look very different when you look at total return.
Thanks for those links. Very interesting seeing the yield over all those years vary. It was relevant, I thought, since many people were pointing out that they could make so much more putting money in the market rather than what they were saving by paying off a mortgage. Of course, we never had a mortgage when rates were so low. 1975 house 30 yr was 8 1/2%, 1978 house 30 yr was 9 1/2%, 1989 house 5 1/2% 30 year and 1993 house had a 5 year lock of 5 1/2%, and we were worried it was going to go UP! LOL
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JoeRetire
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Re: Should we put more toward our mortgage?

Post by JoeRetire »

PNWpilot wrote: Thu Jan 27, 2022 5:57 am The borrower is a slave to the lender.
Sounds like we have different definitions of the term "slave".
Things you can do with a paid off house and $2,200 extra dollars each month:
- be EXTRA generous to organizations and causes you care about, like a church.
- allow your wife to potentially stay-at-home for a period of time should you have children
- Spoil yourself, your wife, and your family every once in a while. It's a privilege to be able to do so.
- invest in a taxable brokerage....after paying off the house
- save money faster to pay cash for future big purchases like a car, roof, HVAC, or vacation home
- literally whatever you want because you don't owe anybody anything :D
How many of those things can you do with a mortgage and the money in the bank instead?
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barberakb
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Re: Should we put more toward our mortgage?

Post by barberakb »

Simple answer = No

Pay as little as u can for as long as you can. You can easily make 4-5% outside the mortgage
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sunny_socal
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Re: Should we put more toward our mortgage?

Post by sunny_socal »

JoeRetire wrote: Thu Jan 27, 2022 3:53 pm
PNWpilot wrote: Thu Jan 27, 2022 5:57 am The borrower is a slave to the lender.
Sounds like we have different definitions of the term "slave".
Things you can do with a paid off house and $2,200 extra dollars each month:
- be EXTRA generous to organizations and causes you care about, like a church.
- allow your wife to potentially stay-at-home for a period of time should you have children
- Spoil yourself, your wife, and your family every once in a while. It's a privilege to be able to do so.
- invest in a taxable brokerage....after paying off the house
- save money faster to pay cash for future big purchases like a car, roof, HVAC, or vacation home
- literally whatever you want because you don't owe anybody anything :D
How many of those things can you do with a mortgage and the money in the bank instead?
Interesting question but no one puts the money "in the bank" and just starts spending it, eg. to fund cash flow shortfall if one parent stays at home.
Hyperchicken
Posts: 2007
Joined: Mon Mar 02, 2020 4:33 pm

Re: Should we put more toward our mortgage?

Post by Hyperchicken »

sunny_socal wrote: Fri Jan 28, 2022 6:30 am Interesting question but no one puts the money "in the bank" and just starts spending it, eg. to fund cash flow shortfall if one parent stays at home.
No one spends the money they put in the bank? Not sure I follow.
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JoeRetire
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Re: Should we put more toward our mortgage?

Post by JoeRetire »

sunny_socal wrote: Fri Jan 28, 2022 6:30 am
JoeRetire wrote: Thu Jan 27, 2022 3:53 pm
PNWpilot wrote: Thu Jan 27, 2022 5:57 am The borrower is a slave to the lender.
Sounds like we have different definitions of the term "slave".
Things you can do with a paid off house and $2,200 extra dollars each month:
- be EXTRA generous to organizations and causes you care about, like a church.
- allow your wife to potentially stay-at-home for a period of time should you have children
- Spoil yourself, your wife, and your family every once in a while. It's a privilege to be able to do so.
- invest in a taxable brokerage....after paying off the house
- save money faster to pay cash for future big purchases like a car, roof, HVAC, or vacation home
- literally whatever you want because you don't owe anybody anything :D
How many of those things can you do with a mortgage and the money in the bank instead?
Interesting question but no one puts the money "in the bank" and just starts spending it, eg. to fund cash flow shortfall if one parent stays at home.
The money to pay off the mortgage has to come from somewhere.
This isn't just my wallet. It's an organizer, a memory and an old friend.
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sunny_socal
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Re: Should we put more toward our mortgage?

Post by sunny_socal »

JoeRetire wrote: Fri Jan 28, 2022 3:11 pm
sunny_socal wrote: Fri Jan 28, 2022 6:30 am
JoeRetire wrote: Thu Jan 27, 2022 3:53 pm
PNWpilot wrote: Thu Jan 27, 2022 5:57 am The borrower is a slave to the lender.
Sounds like we have different definitions of the term "slave".
Things you can do with a paid off house and $2,200 extra dollars each month:
- be EXTRA generous to organizations and causes you care about, like a church.
- allow your wife to potentially stay-at-home for a period of time should you have children
- Spoil yourself, your wife, and your family every once in a while. It's a privilege to be able to do so.
- invest in a taxable brokerage....after paying off the house
- save money faster to pay cash for future big purchases like a car, roof, HVAC, or vacation home
- literally whatever you want because you don't owe anybody anything :D
How many of those things can you do with a mortgage and the money in the bank instead?
Interesting question but no one puts the money "in the bank" and just starts spending it, eg. to fund cash flow shortfall if one parent stays at home.
The money to pay off the mortgage has to come from somewhere.
No one takes out a 2nd mortgage to pay off the first. And if they do, they don't keep it in a literal bank - it's in funds, stocks, bitcoin.
Hyperchicken
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Re: Should we put more toward our mortgage?

Post by Hyperchicken »

sunny_socal wrote: Fri Jan 28, 2022 4:27 pm No one takes out a 2nd mortgage to pay off the first. And if they do, they don't keep it in a literal bank - it's in funds, stocks, bitcoin.
This is literally what refinancing is.
LeeAtlantica2020
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Re: Should we put more toward our mortgage?

Post by LeeAtlantica2020 »

Hyperchicken wrote: Fri Jan 28, 2022 8:26 pm
sunny_socal wrote: Fri Jan 28, 2022 4:27 pm No one takes out a 2nd mortgage to pay off the first. And if they do, they don't keep it in a literal bank - it's in funds, stocks, bitcoin.
This is literally what refinancing is.
No, it's not. Refinancing is when you replace your original mortgage loan with a new loan (i.e., choosing new lender, changing loan term, taking new interest rate, taking on new loan type/structure). The goal is not to take a second loan, but to change the parameters of the existing one to be more advantageous or appropriate to your financial situation.

A second mortgage (e.g., HELOC) is a second loan taken against the equity possessed in the home/property still under the first mortgage loan. It only makes sense to use those funds to pay off the first mortgage if the interest rate is better. Most homeowners do not use either a lump sum of cash or a HELOC from the second mortgage for the first mortgage -- it's typically for other exigent goals (college, roof, higher-interest debt, investments, other RE, et cetera).

In other words, these are LITERALLY very different financial instruments.
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JoeRetire
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Re: Should we put more toward our mortgage?

Post by JoeRetire »

sunny_socal wrote: Fri Jan 28, 2022 4:27 pm
JoeRetire wrote: Fri Jan 28, 2022 3:11 pm
sunny_socal wrote: Fri Jan 28, 2022 6:30 am
JoeRetire wrote: Thu Jan 27, 2022 3:53 pm
PNWpilot wrote: Thu Jan 27, 2022 5:57 am The borrower is a slave to the lender.
Sounds like we have different definitions of the term "slave".
Things you can do with a paid off house and $2,200 extra dollars each month:
- be EXTRA generous to organizations and causes you care about, like a church.
- allow your wife to potentially stay-at-home for a period of time should you have children
- Spoil yourself, your wife, and your family every once in a while. It's a privilege to be able to do so.
- invest in a taxable brokerage....after paying off the house
- save money faster to pay cash for future big purchases like a car, roof, HVAC, or vacation home
- literally whatever you want because you don't owe anybody anything :D
How many of those things can you do with a mortgage and the money in the bank instead?
Interesting question but no one puts the money "in the bank" and just starts spending it, eg. to fund cash flow shortfall if one parent stays at home.
The money to pay off the mortgage has to come from somewhere.
No one takes out a 2nd mortgage to pay off the first. And if they do, they don't keep it in a literal bank - it's in funds, stocks, bitcoin.
No idea what you mean. Doesn't matter.
This isn't just my wallet. It's an organizer, a memory and an old friend.
Hyperchicken
Posts: 2007
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Re: Should we put more toward our mortgage?

Post by Hyperchicken »

LeeAtlantica2020 wrote: Sat Jan 29, 2022 1:44 am
Hyperchicken wrote: Fri Jan 28, 2022 8:26 pm
sunny_socal wrote: Fri Jan 28, 2022 4:27 pm No one takes out a 2nd mortgage to pay off the first. And if they do, they don't keep it in a literal bank - it's in funds, stocks, bitcoin.
This is literally what refinancing is.
No, it's not. Refinancing is when you replace your original mortgage loan with a new loan (i.e., choosing new lender, changing loan term, taking new interest rate, taking on new loan type/structure). The goal is not to take a second loan, but to change the parameters of the existing one to be more advantageous or appropriate to your financial situation.

A second mortgage (e.g., HELOC) is a second loan taken against the equity possessed in the home/property still under the first mortgage loan. It only makes sense to use those funds to pay off the first mortgage if the interest rate is better. Most homeowners do not use either a lump sum of cash or a HELOC from the second mortgage for the first mortgage -- it's typically for other exigent goals (college, roof, higher-interest debt, investments, other RE, et cetera).

In other words, these are LITERALLY very different financial instruments.
If you take out 2nd mortgage to pay off your 1st one, then your 2nd mortgage becomes your 1st and only one.
Apathizer
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Re: Should we put more toward our mortgage?

Post by Apathizer »

barberakb wrote: Thu Jan 27, 2022 10:25 pm Simple answer = No

Pay as little as u can for as long as you can. You can easily make 4-5% outside the mortgage
That's not an apples-to-apples analogy. Mortgage is debt, which means for practical purposes you're investing with leverage when you have a mortgage. Again, Felix explains this very well. Incidentally, I have just enough in my taxable account to pay off my mortgage, so I will.
https://www.youtube.com/watch?v=AKc01jo1qLw
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
Tom_T
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Re: Should we put more toward our mortgage?

Post by Tom_T »

Hyperchicken wrote: Sat Jan 29, 2022 10:20 am
If you take out 2nd mortgage to pay off your 1st one, then your 2nd mortgage becomes your 1st and only one.
Let's be careful with terminology. "Second mortgage" has a specific meaning in finance. It doesn't mean "this is the second time I've gotten a mortgage on this house." It means you now have two liens against your house, not one, as a prior post explained. You are talking about refinancing.
barberakb
Posts: 629
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Re: Should we put more toward our mortgage?

Post by barberakb »

Hyperchicken wrote: Fri Jan 28, 2022 8:26 pm
sunny_socal wrote: Fri Jan 28, 2022 4:27 pm No one takes out a 2nd mortgage to pay off the first. And if they do, they don't keep it in a literal bank - it's in funds, stocks, bitcoin.
This is literally what refinancing is.
Nope. Refinancing is not taking out a 2nd mortgage. It is replacing the 1st one with a new one but you only have 1...

You can have more than 1 mortgage on a house at a time. It isn't the norm but it is done.

A second mortgage is a lien taken out against a property that already has a loan on it.
barberakb
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Re: Should we put more toward our mortgage?

Post by barberakb »

Apathizer wrote: Tue Feb 01, 2022 1:57 am
barberakb wrote: Thu Jan 27, 2022 10:25 pm Simple answer = No

Pay as little as u can for as long as you can. You can easily make 4-5% outside the mortgage
That's not an apples-to-apples analogy. Mortgage is debt, which means for practical purposes you're investing with leverage when you have a mortgage. Again, Felix explains this very well. Incidentally, I have just enough in my taxable account to pay off my mortgage, so I will.
https://www.youtube.com/watch?v=AKc01jo1qLw
Im not trying to make an apples-to-apples analogy.
If you want to pay off your house then do so. Thats a good goal.
But not all debt is bad and mathematically for most people it doesn't make sense.

If it helps you sleep better at night, that's a valid but different reason to do it.
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Should we put more toward our mortgage?

Post by Apathizer »

barberakb wrote: Tue Feb 01, 2022 4:47 pm
Apathizer wrote: Tue Feb 01, 2022 1:57 am
barberakb wrote: Thu Jan 27, 2022 10:25 pm Simple answer = No

Pay as little as u can for as long as you can. You can easily make 4-5% outside the mortgage
That's not an apples-to-apples analogy. Mortgage is debt, which means for practical purposes you're investing with leverage when you have a mortgage. Again, Felix explains this very well. Incidentally, I have just enough in my taxable account to pay off my mortgage, so I will.
https://www.youtube.com/watch?v=AKc01jo1qLw
Im not trying to make an apples-to-apples analogy.
If you want to pay off your house then do so. Thats a good goal.
But not all debt is bad and mathematically for most people it doesn't make sense.

If it helps you sleep better at night, that's a valid but different reason to do it.
Even if I assume to make 4 to 5%, my mortgage interest rate is 4.2%. The 4 to 5% I might make in the market isn't guaranteed whereas if I pay off the mortgage I'm guaranteed to return 4.2%. So how exactly does it not make sense mathematically to just pay it off?
Last edited by Apathizer on Fri Feb 18, 2022 11:32 pm, edited 1 time in total.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
aristotelian
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Re: Should we put more toward our mortgage?

Post by aristotelian »

I would just add that paying off the mortgage is very similar to deciding on the amount of bonds in your asset allocation (which makes sense since some consider mortgage to be a negative bond where you are borrowing money as opposed to buying debt). Just like asset allocation the choice is personal and depends on your risk tolerance. I would push back on the notion that "investing is mathematically best ." It is not a strict mathematical calculation because you are comparing two different asset classes with completely different types and levels of risk. That said I would incline strongly toward investing as much as possible when young, then at some point you may decide to pay it off with additional contributions or even appreciated stocks. We made the equivalent of an extra mortgage payment a year for about 10 years, then paid off completely around age 42.
barberakb
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Re: Should we put more toward our mortgage?

Post by barberakb »

Apathizer wrote: Tue Feb 01, 2022 8:45 pm
barberakb wrote: Tue Feb 01, 2022 4:47 pm
Apathizer wrote: Tue Feb 01, 2022 1:57 am
barberakb wrote: Thu Jan 27, 2022 10:25 pm Simple answer = No

Pay as little as u can for as long as you can. You can easily make 4-5% outside the mortgage
That's not an apples-to-apples analogy. Mortgage is debt, which means for practical purposes you're investing with leverage when you have a mortgage. Again, Felix explains this very well. Incidentally, I have just enough in my taxable account to pay off my mortgage, so I will.
https://www.youtube.com/watch?v=AKc01jo1qLw
Im not trying to make an apples-to-apples analogy.
If you want to pay off your house then do so. Thats a good goal.
But not all debt is bad and mathematically for most people it doesn't make sense.

If it helps you sleep better at night, that's a valid but different reason to do it.
Even if I assume to make 4 to 5%, my mortgage interest rate is 4.2%. the 4 to 5% I might make in the market isn't guaranteed whereas if I pay off the mortgage I'm guaranteed to return 4.2%. so how exactly does it not make sense mathematically to just pay it off?
It might make sense for you. That why I said most people...
My 1st ? for you would be why didn't you refinance your mortgage? Mine went from 4+ to 2.5%.
I can easily double that rate of return by investing. Most likely quadruple it.
Apathizer
Posts: 2507
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Re: Should we put more toward our mortgage?

Post by Apathizer »

barberakb wrote: Wed Feb 02, 2022 4:21 pm
Apathizer wrote: Tue Feb 01, 2022 8:45 pm
barberakb wrote: Tue Feb 01, 2022 4:47 pm
Apathizer wrote: Tue Feb 01, 2022 1:57 am
barberakb wrote: Thu Jan 27, 2022 10:25 pm Simple answer = No

Pay as little as u can for as long as you can. You can easily make 4-5% outside the mortgage
That's not an apples-to-apples analogy. Mortgage is debt, which means for practical purposes you're investing with leverage when you have a mortgage. Again, Felix explains this very well. Incidentally, I have just enough in my taxable account to pay off my mortgage, so I will.
https://www.youtube.com/watch?v=AKc01jo1qLw
Im not trying to make an apples-to-apples analogy.
If you want to pay off your house then do so. Thats a good goal.
But not all debt is bad and mathematically for most people it doesn't make sense.

If it helps you sleep better at night, that's a valid but different reason to do it.
Even if I assume to make 4 to 5%, my mortgage interest rate is 4.2%. the 4 to 5% I might make in the market isn't guaranteed whereas if I pay off the mortgage I'm guaranteed to return 4.2%. so how exactly does it not make sense mathematically to just pay it off?
It might make sense for you. That why I said most people...
My 1st ? for you would be why didn't you refinance your mortgage? Mine went from 4+ to 2.5%.
I can easily double that rate of return by investing. Most likely quadruple it.
That's just an assumption, and a risky one. While equities are the best long-term investment, in the short-term they're unpredictable. In a worse case-scenario like 2000-2009 they'd be flat for a decade. Also, with refinancing costs it would take about 2 years to make up difference. Eliminating or greatly reducing debt makes more sense to me than just restructuring it.
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nolesrule
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Re: Should we put more toward our mortgage?

Post by nolesrule »

Apathizer wrote: Wed Feb 02, 2022 4:39 pm
barberakb wrote: Wed Feb 02, 2022 4:21 pm
Apathizer wrote: Tue Feb 01, 2022 8:45 pm
barberakb wrote: Tue Feb 01, 2022 4:47 pm
Apathizer wrote: Tue Feb 01, 2022 1:57 am
That's not an apples-to-apples analogy. Mortgage is debt, which means for practical purposes you're investing with leverage when you have a mortgage. Again, Felix explains this very well. Incidentally, I have just enough in my taxable account to pay off my mortgage, so I will.
https://www.youtube.com/watch?v=AKc01jo1qLw
Im not trying to make an apples-to-apples analogy.
If you want to pay off your house then do so. Thats a good goal.
But not all debt is bad and mathematically for most people it doesn't make sense.

If it helps you sleep better at night, that's a valid but different reason to do it.
Even if I assume to make 4 to 5%, my mortgage interest rate is 4.2%. the 4 to 5% I might make in the market isn't guaranteed whereas if I pay off the mortgage I'm guaranteed to return 4.2%. so how exactly does it not make sense mathematically to just pay it off?
It might make sense for you. That why I said most people...
My 1st ? for you would be why didn't you refinance your mortgage? Mine went from 4+ to 2.5%.
I can easily double that rate of return by investing. Most likely quadruple it.
That's just an assumption, and a risky one. While equities are the best long-term investment, in the short-term they're unpredictable. In a worse case-scenario like 2000-2009 they'd be flat for a decade. Also, with refinancing costs it would take about 2 years to make up difference. Eliminating or greatly reducing debt makes more sense to me than just restructuring it.
It's risky, but it's not that risky. If it were no one would ever invest. Plus, the investment is for the long term. If it was short term, again, we wouldn't be doing it.

I haven't had a 4.2% mortgage since 2016. That was the previous house and 4 mortgages ago. I'm on my 3rd mortgage since moving into the current house 2.5 years ago, and all refi costs were covered by the lender for both refis. And it isn't just restructuring. I pay more toward principal with each payment compared to the previous loans because of the lower interest rate.
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Re: Should we put more toward our mortgage?

Post by Apathizer »

nolesrule wrote: Wed Feb 02, 2022 9:22 pm
Apathizer wrote: Wed Feb 02, 2022 4:39 pm
barberakb wrote: Wed Feb 02, 2022 4:21 pm
Apathizer wrote: Tue Feb 01, 2022 8:45 pm
barberakb wrote: Tue Feb 01, 2022 4:47 pm

Im not trying to make an apples-to-apples analogy.
If you want to pay off your house then do so. Thats a good goal.
But not all debt is bad and mathematically for most people it doesn't make sense.

If it helps you sleep better at night, that's a valid but different reason to do it.
Even if I assume to make 4 to 5%, my mortgage interest rate is 4.2%. the 4 to 5% I might make in the market isn't guaranteed whereas if I pay off the mortgage I'm guaranteed to return 4.2%. so how exactly does it not make sense mathematically to just pay it off?
It might make sense for you. That why I said most people...
My 1st ? for you would be why didn't you refinance your mortgage? Mine went from 4+ to 2.5%.
I can easily double that rate of return by investing. Most likely quadruple it.
That's just an assumption, and a risky one. While equities are the best long-term investment, in the short-term they're unpredictable. In a worse case-scenario like 2000-2009 they'd be flat for a decade. Also, with refinancing costs it would take about 2 years to make up difference. Eliminating or greatly reducing debt makes more sense to me than just restructuring it.
It's risky, but it's not that risky. If it were no one would ever invest. Plus, the investment is for the long term. If it was short term, again, we wouldn't be doing it.

I haven't had a 4.2% mortgage since 2016. That was the previous house and 4 mortgages ago. I'm on my 3rd mortgage since moving into the current house 2.5 years ago, and all refi costs were covered by the lender for both refis. And it isn't just restructuring. I pay more toward principal with each payment compared to the previous loans because of the lower interest rate.
But why not just be rid of debt if you can and pay it off? Afterwards my fixed expenses will be much lower, so I'll have more to invest and it won't be leveraged.
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nolesrule
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Re: Should we put more toward our mortgage?

Post by nolesrule »

Apathizer wrote: Wed Feb 02, 2022 10:48 pm
nolesrule wrote: Wed Feb 02, 2022 9:22 pm
Apathizer wrote: Wed Feb 02, 2022 4:39 pm
barberakb wrote: Wed Feb 02, 2022 4:21 pm
Apathizer wrote: Tue Feb 01, 2022 8:45 pm
Even if I assume to make 4 to 5%, my mortgage interest rate is 4.2%. the 4 to 5% I might make in the market isn't guaranteed whereas if I pay off the mortgage I'm guaranteed to return 4.2%. so how exactly does it not make sense mathematically to just pay it off?
It might make sense for you. That why I said most people...
My 1st ? for you would be why didn't you refinance your mortgage? Mine went from 4+ to 2.5%.
I can easily double that rate of return by investing. Most likely quadruple it.
That's just an assumption, and a risky one. While equities are the best long-term investment, in the short-term they're unpredictable. In a worse case-scenario like 2000-2009 they'd be flat for a decade. Also, with refinancing costs it would take about 2 years to make up difference. Eliminating or greatly reducing debt makes more sense to me than just restructuring it.
It's risky, but it's not that risky. If it were no one would ever invest. Plus, the investment is for the long term. If it was short term, again, we wouldn't be doing it.

I haven't had a 4.2% mortgage since 2016. That was the previous house and 4 mortgages ago. I'm on my 3rd mortgage since moving into the current house 2.5 years ago, and all refi costs were covered by the lender for both refis. And it isn't just restructuring. I pay more toward principal with each payment compared to the previous loans because of the lower interest rate.
But why not just be rid of debt if you can and pay it off? Afterwards my fixed expenses will be much lower, so I'll have more to invest and it won't be leveraged.
Because it doesn't make financial sense to pay off the mortgage even though we can (as of about the last month or so). The change in fixed expenses isn't significant for us with the P&I at 8% of our gross income. The tax cost to liquidate to cash is 53% of the remaining interest, and that would be a sunk cost that could possibly be reduced by or avoided by not touching the money until retirement.

I will grant you that one should look at the specifics of their individual circumstances. For us, the choices we make are based on long-term thinking and not short-term emotions.
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Re: Should we put more toward our mortgage?

Post by kd2008 »

Debt has negative cultural connotations. Many people who are debt averse may not have processed internalizing of those anchors. It is understandable because even 15 years ago a "low interest rate" was 6% or so on mortgages. Now we live in different reality. We have a 15 year 2% note. Before that it was 2.875% for 30 years. It is a completely different world. Inflation is about 6-7%. Instead of a dogma about debt, be adaptable and make use of what seems like a lucky break. Little guys & gals don't get many breaks compared to how the system is setup in favor of big guys. So don't fitter it away. Stop anchoring on guaranteed return as if it were something magical. It is not. Stock market is not guaranteed but it has managed to provide a lot of money to pension funds, institutional funds, little people, hedge funds etc. Stop being a perma bear about it.
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Re: Should we put more toward our mortgage?

Post by barberakb »

Last 2 posters, thanks for explaining it in a way that i could not.

Again, it did make a lot of sense back in the day when mortgage rates were much higher. My parents had several mortgages that were between
12-18%. And that was the best rate you could get!

If those rates were current, I would change my tune and pay extra to my houses every month. But they aren't.

I am over 1 million dollars in debt. And I sleep like a baby. I'm not gonna pay an extra penny on my fixed 30 year 2.5% mortgage.
I can easily invest it in a much higher rate. With very , very little risk. With just a little risk I can triple that. With a little more risk but still not that risky I can get a 10-12% return.

Look, everything is risky. Driving to work is risky. Playing sports is risky. Investing your $$$ is risky. Not investing it is even more risky!

It may be less risky to just pay off your mortgage. But for most people who took advantage of the historically low interest rates it DOESN'T make
mathematical sense.
av111
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Re: Should we put more toward our mortgage?

Post by av111 »

Apathizer wrote: Tue Feb 01, 2022 8:45 pm
barberakb wrote: Tue Feb 01, 2022 4:47 pm
Apathizer wrote: Tue Feb 01, 2022 1:57 am
barberakb wrote: Thu Jan 27, 2022 10:25 pm Simple answer = No

Pay as little as u can for as long as you can. You can easily make 4-5% outside the mortgage
That's not an apples-to-apples analogy. Mortgage is debt, which means for practical purposes you're investing with leverage when you have a mortgage. Again, Felix explains this very well. Incidentally, I have just enough in my taxable account to pay off my mortgage, so I will.
https://www.youtube.com/watch?v=AKc01jo1qLw
Im not trying to make an apples-to-apples analogy.
If you want to pay off your house then do so. Thats a good goal.
But not all debt is bad and mathematically for most people it doesn't make sense.

If it helps you sleep better at night, that's a valid but different reason to do it.
Even if I assume to make 4 to 5%, my mortgage interest rate is 4.2%. the 4 to 5% I might make in the market isn't guaranteed whereas if I pay off the mortgage I'm guaranteed to return 4.2%. so how exactly does it not make sense mathematically to just pay it off?
Can we include dollar devaluation or inflation in these calculations? Purchasing power of the dollar has gone down over several years
https://www.visualcapitalist.com/purcha ... over-time/

If this continues, one would pay back the loan with less valuable dollars down the line
AV111
Apathizer
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Re: Should we put more toward our mortgage?

Post by Apathizer »

av111 wrote: Thu Feb 03, 2022 3:28 pm
Apathizer wrote: Tue Feb 01, 2022 8:45 pm
barberakb wrote: Tue Feb 01, 2022 4:47 pm
Apathizer wrote: Tue Feb 01, 2022 1:57 am
barberakb wrote: Thu Jan 27, 2022 10:25 pm Simple answer = No

Pay as little as u can for as long as you can. You can easily make 4-5% outside the mortgage
That's not an apples-to-apples analogy. Mortgage is debt, which means for practical purposes you're investing with leverage when you have a mortgage. Again, Felix explains this very well. Incidentally, I have just enough in my taxable account to pay off my mortgage, so I will.
https://www.youtube.com/watch?v=AKc01jo1qLw
Im not trying to make an apples-to-apples analogy.
If you want to pay off your house then do so. Thats a good goal.
But not all debt is bad and mathematically for most people it doesn't make sense.

If it helps you sleep better at night, that's a valid but different reason to do it.
Even if I assume to make 4 to 5%, my mortgage interest rate is 4.2%. The 4 to 5% I might make in the market isn't guaranteed whereas if I pay off the mortgage I'm guaranteed to return 4.2%. so how exactly does it not make sense mathematically to just pay it off?
Can we include dollar devaluation or inflation in these calculations? Purchasing power of the dollar has gone down over several years
https://www.visualcapitalist.com/purcha ... over-time/

If this continues, one would pay back the loan with less valuable dollars down the line
Yes there are all manner of unknowns to consider when you have a mortgage. We probably don't even know what all the unknowns are. Paying off the mortgage eliminates most of them.
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Re: Should we put more toward our mortgage?

Post by willthrill81 »

Apathizer wrote: Thu Feb 03, 2022 3:35 pm Yes there are all manner of unknowns to consider when you have a mortgage. We probably don't even know what all the unknowns are. Paying off the mortgage eliminates most of them.
Indeed. As long you have a mortgage, the underlying property is at some risk. We might not believe that risk to be significant, but I'm sure that Enron, Washington Mutual, and Meta stockholders thought the same thing. Millions lost their homes a little over a decade ago, and I'll bet that most of them didn't think that the risk of a mortgage was significant either.

The bottom line is that once your mortgage-free on your primary residence, as long as you pay your property taxes, you always have a place to live. There's a lot to be said for that. Many well-to-do folks in the first-world don't seem to be aware of this and are instead focusing on leveraging themselves to the hilt in the hopes of gaining even more.
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Re: Should we put more toward our mortgage?

Post by av111 »

Apathizer wrote: Thu Feb 03, 2022 3:35 pm
av111 wrote: Thu Feb 03, 2022 3:28 pm
Apathizer wrote: Tue Feb 01, 2022 8:45 pm
barberakb wrote: Tue Feb 01, 2022 4:47 pm
Apathizer wrote: Tue Feb 01, 2022 1:57 am
That's not an apples-to-apples analogy. Mortgage is debt, which means for practical purposes you're investing with leverage when you have a mortgage. Again, Felix explains this very well. Incidentally, I have just enough in my taxable account to pay off my mortgage, so I will.
https://www.youtube.com/watch?v=AKc01jo1qLw
Im not trying to make an apples-to-apples analogy.
If you want to pay off your house then do so. Thats a good goal.
But not all debt is bad and mathematically for most people it doesn't make sense.

If it helps you sleep better at night, that's a valid but different reason to do it.
Even if I assume to make 4 to 5%, my mortgage interest rate is 4.2%. The 4 to 5% I might make in the market isn't guaranteed whereas if I pay off the mortgage I'm guaranteed to return 4.2%. so how exactly does it not make sense mathematically to just pay it off?
Can we include dollar devaluation or inflation in these calculations? Purchasing power of the dollar has gone down over several years
https://www.visualcapitalist.com/purcha ... over-time/

If this continues, one would pay back the loan with less valuable dollars down the line
Yes there are all manner of unknowns to consider when you have a mortgage. We probably don't even know what all the unknowns are. Paying off the mortgage eliminates most of them.
Following is just a theoretical argument and not meant to be advice for anyone

Since mortgage is just one more bill, everything is known. If you are able to pay your bills all is well.

if dollar continues purchasing power as it has (The US government has little incentive to reduce the dollar supply as long as dollar is the reserve currency), in long term stocks and real estate will inflate. Taking a loan out and investing the money in some assets appears to be the right move for richer people that are still in the game for more net worth at low risk.
AV111
Apathizer
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Re: Should we put more toward our mortgage?

Post by Apathizer »

av111 wrote: Thu Feb 03, 2022 5:19 pm
Apathizer wrote: Thu Feb 03, 2022 3:35 pm
av111 wrote: Thu Feb 03, 2022 3:28 pm
Apathizer wrote: Tue Feb 01, 2022 8:45 pm
barberakb wrote: Tue Feb 01, 2022 4:47 pm

Im not trying to make an apples-to-apples analogy.
If you want to pay off your house then do so. Thats a good goal.
But not all debt is bad and mathematically for most people it doesn't make sense.

If it helps you sleep better at night, that's a valid but different reason to do it.
Even if I assume to make 4 to 5%, my mortgage interest rate is 4.2%. The 4 to 5% I might make in the market isn't guaranteed whereas if I pay off the mortgage I'm guaranteed to return 4.2%. so how exactly does it not make sense mathematically to just pay it off?
Can we include dollar devaluation or inflation in these calculations? Purchasing power of the dollar has gone down over several years
https://www.visualcapitalist.com/purcha ... over-time/

If this continues, one would pay back the loan with less valuable dollars down the line
Yes there are all manner of unknowns to consider when you have a mortgage. We probably don't even know what all the unknowns are. Paying off the mortgage eliminates most of them.
Following is just a theoretical argument and not meant to be advice for anyone

Since mortgage is just one more bill, everything is known. If you are able to pay your bills all is well.

if dollar continues purchasing power as it has (The US government has little incentive to reduce the dollar supply as long as dollar is the reserve currency), in long term stocks and real estate will inflate. Taking a loan out and investing the money in some assets appears to be the right move for richer people that are still in the game for more net worth at low risk.
Yes a mortgage is another bill but it's not necessarily consistent. So many people believe the fallacy that rent will always increase while the mortgage stays the same. That's not necessarily true. Sometimes rents decrease while a mortgage increases with increased property taxes and utilities.

The home you own also isn't guaranteed to appreciate. In fact if it's your primary asset you're taking significant risk because it's an undiversified asset in one location. As was mentioned previously in 2008 and 2009 property values plummeted.

Anytime you have significant debt risk is amplified. Most of the time you're better off paying down debt rather than making leveraged investments.
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Re: Should we put more toward our mortgage?

Post by nolesrule »

Apathizer wrote: Thu Feb 03, 2022 5:59 pm Sometimes rents decrease while a mortgage increases with increased property taxes and utilities.
Property taxes and utilities are not part of a mortgage. I assume what you actually meant was a comparison of total costs, not a mortgage.
Anytime you have significant debt risk is amplified. Most of the time you're better off paying down debt rather than making leveraged investments.
Sure, but with the type of debt and rates we're discussing here, most of the time you're better off making the leveraged investments than paying off debt. I mean, if you can't beat current mortgage rates with investments over a 20-30 year period, you probably shouldn't bother investing in stock funds at all.
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Re: Should we put more toward our mortgage?

Post by Apathizer »

nolesrule wrote: Thu Feb 03, 2022 8:18 pm
Apathizer wrote: Thu Feb 03, 2022 5:59 pm Sometimes rents decrease while a mortgage increases with increased property taxes and utilities.
Property taxes and utilities are not part of a mortgage. I assume what you actually meant was a comparison of total costs, not a mortgage.
Anytime you have significant debt risk is amplified. Most of the time you're better off paying down debt rather than making leveraged investments.
Sure, but with the type of debt and rates we're discussing here, most of the time you're better off making the leveraged investments than paying off debt. I mean, if you can't beat current mortgage rates with investments over a 20-30 year period, you probably shouldn't bother investing in stock funds at all.
Maybe it varies by state but property taxes are absolutely included in my mortgage. When they increase my mortgage increases and so far they've only increased not decreased.

Low interest rates are one of the reasons real estate is so inflated and it's a major concern. What's basically happened is people are borrowing more money at a lower rate. This is concerning because right now debt is very high relative to income.

I don't know if this will happen but if real estate takes a dive the low interest rates won't matter that much. That's essentially what happened in 2008-2009. So many dubious loans were issued that inflated the real estate market and when it came crashing down property values crashed. That's bad for homeowners in any situation but it's especially bad for people with significant mortgage debt.
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Re: Should we put more toward our mortgage?

Post by nolesrule »

Apathizer wrote: Thu Feb 03, 2022 8:45 pm Maybe it varies by state but property taxes are absolutely included in my mortgage. When they increase my mortgage increases and so far they've only increased not decreased.
No, your mortgage is the purchase loan. The escrow for collecting money for property taxes and insurance in addition to the loan payment may or may not be required by the lender, but it is actually separate from the mortgage itself. I haven't had an escrow payment to a lender in 8 years.
Low interest rates are one of the reasons real estate is so inflated and it's a major concern. What's basically happened is people are borrowing more money at a lower rate. This is concerning because right now debt is very high relative to income.

I don't know if this will happen but if real estate takes a dive the low interest rates won't matter that much. That's essentially what happened in 2008-2009. So many dubious loans were issued that inflated the real estate market and when it came crashing down property values crashed. That's bad for homeowners in any situation but it's especially bad for people with significant mortgage debt.
This has gone from a debate about invest or pay off a mortgage to fear, uncertainty and doubt about the state of the housing industry, which a different subject matter entirely. Quite frankly, the value of a house only matters when you are buying or selling. If housing prices crash, I will just keep making my mortgage payment, just like I did in 2008-9, 2 houses ago.
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Re: Should we put more toward our mortgage?

Post by Apathizer »

nolesrule wrote: Thu Feb 03, 2022 9:06 pm
Apathizer wrote: Thu Feb 03, 2022 8:45 pm Maybe it varies by state but property taxes are absolutely included in my mortgage. When they increase my mortgage increases and so far they've only increased not decreased.
No, your mortgage is the purchase loan. The escrow for collecting money for property taxes and insurance in addition to the loan payment may or may not be required by the lender, but it is actually separate from the mortgage itself. I haven't had an escrow payment to a lender in 8 years.
Low interest rates are one of the reasons real estate is so inflated and it's a major concern. What's basically happened is people are borrowing more money at a lower rate. This is concerning because right now debt is very high relative to income.

I don't know if this will happen but if real estate takes a dive the low interest rates won't matter that much. That's essentially what happened in 2008-2009. So many dubious loans were issued that inflated the real estate market and when it came crashing down property values crashed. That's bad for homeowners in any situation but it's especially bad for people with significant mortgage debt.
This has gone from a debate about invest or pay off a mortgage to fear, uncertainty and doubt about the state of the housing industry, which a different subject matter entirely. Quite frankly, the value of a house only matters when you are buying or selling. If housing prices crash, I will just keep making my mortgage payment, just like I did in 2008-9, 2 houses ago.
I agree but it is in a related issue. Having significant debt in something that crashes can be disastrous financially. If it's paid off it's not nearly as much of a concern.

I'm actually planning to sell my house in a year or two because I've decided I absolutely hate being a homeowner. I'd like to get my balance way down so that I'll get a decent proceed from the sale.

Yes it is somewhat personal. I don't like having debt and I like to own relatively little physical stuff including a home. I'd much rather have equity in bond indexes rather than stuff.
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Re: Should we put more toward our mortgage?

Post by Hyperchicken »

Apathizer wrote: Thu Feb 03, 2022 10:39 pm I agree but it is in a related issue. Having significant debt in something that crashes can be disastrous financially. If it's paid off it's not nearly as much of a concern.
[...]
What's disastrous is not debt, but not being able to make payments. If I can pay debt off, I can also make payments.

I'd much rather go into a crash with $300k assets and $200k mortgage, than $100k assets and no mortgage.

My number of months of expenses in liquid assets would be greater in the former case.
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Re: Should we put more toward our mortgage?

Post by Apathizer »

Duplicate post
Last edited by Apathizer on Fri Feb 04, 2022 12:38 am, edited 1 time in total.
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Re: Should we put more toward our mortgage?

Post by Apathizer »

Hyperchicken wrote: Thu Feb 03, 2022 11:13 pm Duplicate post
Last edited by Apathizer on Fri Feb 04, 2022 12:33 am, edited 1 time in total.
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Re: Should we put more toward our mortgage?

Post by Apathizer »

Hyperchicken wrote: Thu Feb 03, 2022 11:13 pm
Apathizer wrote: Thu Feb 03, 2022 10:39 pm I agree but it is in a related issue. Having significant debt in something that crashes can be disastrous financially. If it's paid off it's not nearly as much of a concern.
[...]
What's disastrous is not debt, but not being able to make payments. If I can pay debt off, I can also make payments.

I'd much rather go into a crash with $300k assets and $200k mortgage, than $100k assets and no mortgage.

My number of months of expenses in liquid assets would be greater in the former case.
But without a mortgage your monthly expenses would be much lower. If you have 300K in other assets and owe 200k on a mortgage you still only have 100K in actual assets. In both cases you have the same net worth but to me the second case is better because you don't owe anything.

In the first case you're continuing to make interest payments on an asset that could be depreciating. If something is depreciating it's much better to own it free and clear. That would significantly limit your losses.

Thinking about all this I might carry a small amount of mortgage debt rather than pay it off entirely. If I have a balance of say 30,000 I'm paying minimal interest. That might make the most sense since the interest penalty would be greatly reduced.
Last edited by Apathizer on Fri Feb 18, 2022 11:36 pm, edited 1 time in total.
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Hyperchicken
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Re: Should we put more toward our mortgage?

Post by Hyperchicken »

Apathizer wrote: Thu Feb 03, 2022 11:33 pm But without a mortgage your monthly expenses would be much lower. If you have 300K in other assets and owe 200k on a mortgage you still only have 100K in actual assets. In both cases you have the same net wealth but to me the second case is better because you don't owe anything.
[...]
Depends on the numbers, but oftentimes no, you do have more months of expenses with mortgage than without.

Say, $3,000 monthly expenses, of which $1,000 is mortgage payment. With mortgage - 300 / 3 = 100 months of expenses. Without mortgage - 100 / 2 = 50 months of expenses.

Now if you have $2,000 mortgage payment and $3,000 total monthly expenses, then you have 100 months of expenses either way. But then I'd argue you simply bought too much house (P&I is 2/3 of your overall expenses - very high).
Last edited by Hyperchicken on Thu Feb 03, 2022 11:56 pm, edited 1 time in total.
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Re: Should we put more toward our mortgage?

Post by Chadnudj »

My two cents:

1. People don't regret paying off their mortgages....HOWEVER....
2. Those people tended to have plenty of liquidity elsewhere such that it didn't matter that they were putting extra/so much towards paying off their mortage.
3. Those people also were in their forever (or, at least, for the next decade plus) homes.

So I'd say save up your money and invest it consistent with Boglehead priorities and methods (401k to match, then Roths, then max out 401ks, then taxable -- all in index funds at an optimized asset allocation you're comfortable with), rather than paying extra on your mortgage. This gives you:

- liquidity (stocks can be sold to come up with cash in the event you lose a job/have an emergency/have a cash-needed opportunity far easier than you can tap home equity)

- the likely upside of higher returns than your low interest mortgage (not certain, but highly likely over the longer term)

- likely more diversifying of your assets (your home is concentrated; stock/bond index funds are diversified)

- likely more tax-efficiency (stock/bond index funds in optimized accounts that are bought and held are generally speaking very tax efficient; maintaining a mortgage and the associated mortgage interest rate deduction/property tax deduction assuming you itemize is also arguably more tax efficient or reduces the effective interest rate of your mortgage)

- likely more freedom (should a job offer come along you won't have as much tied up in equity in your home; you'll have bridge money to cover you as you move and sell the old house or rent it out, etc.).

Plus, you can decide at any time to use a large chunk of your savings/investments to pay down and recast your mortgage (reducing your monthly payment but keeping it on the same term, provided your mortgage lender allows that) or even pay it off entirely (if you've saved enough to do that).
Apathizer
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Re: Should we put more toward our mortgage?

Post by Apathizer »

willthrill81 wrote: Thu Feb 03, 2022 3:41 pm
Apathizer wrote: Thu Feb 03, 2022 3:35 pm Yes there are all manner of unknowns to consider when you have a mortgage. We probably don't even know what all the unknowns are. Paying off the mortgage eliminates most of them.
Indeed. As long you have a mortgage, the underlying property is at some risk. We might not believe that risk to be significant, but I'm sure that Enron, Washington Mutual, and Meta stockholders thought the same thing. Millions lost their homes a little over a decade ago, and I'll bet that most of them didn't think that the risk of a mortgage was significant either.

The bottom line is that once your mortgage-free on your primary residence, as long as you pay your property taxes, you always have a place to live. There's a lot to be said for that. Many well-to-do folks in the first-world don't seem to be aware of this and are instead focusing on leveraging themselves to the hilt in the hopes of gaining even more.
Exactly. To me a good rental situation is the best since it's simple and straightforward. The next best is a paid for home since you're very secure even though of course you do have bills associated with it once it's paid for you're in much less danger of losing it and even if you do you get most of your money back.

But as you say if you have a mortgage your property isn't really yours and is in at least some potential jeopardy. After the mortgage is paid off and you don't have any significant debt there's no leverage to worry about. Everything you have is yours whether it's a home investments etc. That's better than being in debt.
Last edited by Apathizer on Fri Feb 18, 2022 11:38 pm, edited 1 time in total.
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nps
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Re: Should we put more toward our mortgage?

Post by nps »

Chadnudj wrote: Thu Feb 03, 2022 11:52 pm - likely more diversifying of your assets (your home is concentrated; stock/bond index funds are diversified)
Can you explain your logic here? Your home is still your asset, regardless of whether you have a mortgage on it.
Mr. Rumples
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Re: Should we put more toward our mortgage?

Post by Mr. Rumples »

With a 3.625% mortgage rate, in the 25%* federal bracket and with state taxes at 5.3%, am I wrong in thinking that to get the equivalent return on a bond it would have to be 5.3%? I used a muni tax equivalent yield calculator for these figures, do these figures apply to some degree?

https://www.bankrate.com/calculators/re ... -tool.aspx

(*Sorry it defaults to 25% which is not a bracket now.)
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nolesrule
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Re: Should we put more toward our mortgage?

Post by nolesrule »

Apathizer wrote: Thu Feb 03, 2022 10:39 pm
I agree but it is in a related issue. Having significant debt in something that crashes can be disastrous financially. If it's paid off it's not nearly as much of a concern.
It's only a concern if you owe more on the house than it is worth when you go to sell it, in which case you'd need to go through a short sale process. Otherwise you keep paying the payment and it'll be gone eventually or any price drop won't matter.

If you look at purchase vs. sale price, I lost money on our first 2 houses, but because I kept making payments and had made proper down payments, neither sale was a short sale. And I still had a place to live for 16 years. That taught me not to be scared of housing prices and not to overbuy. But I can't speak for others.

As bad as 2008-9 was, most people didn't actually lose their homes. Only those who took on unreasonable risk or had no means to continue servicing their existing mortgages.

In the before times, a new car lost about 30% of its value the moment you drove it off the lot, but it wasn't disastrous unless you needed to sell it a month later.
I'm actually planning to sell my house in a year or two because I've decided I absolutely hate being a homeowner. I'd like to get my balance way down so that I'll get a decent proceed from the sale.

Yes it is somewhat personal. I don't like having debt and I like to own relatively little physical stuff including a home. I'd much rather have equity in bond indexes rather than stuff.
If being a homeowner doesn't allow you to sleep well at night, then I agree. Don't be a homeowner. You should probably sell now rather than a year or two if you are worried about a housing crash. The money you are putting in now to get your balance "way down" would just be money in your pocket instead.
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willthrill81
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Re: Should we put more toward our mortgage?

Post by willthrill81 »

Mr. Rumples wrote: Fri Feb 04, 2022 6:19 am With a 3.625% mortgage rate, in the 25%* federal bracket and with state taxes at 5.3%, am I wrong in thinking that to get the equivalent return on a bond it would have to be 5.3%? I used a muni tax equivalent yield calculator for these figures, do these figures apply to some degree?

https://www.bankrate.com/calculators/re ... -tool.aspx

(*Sorry it defaults to 25% which is not a bracket now.)
The needed nominal, pre-tax bond return would be 5.2%.

This is something that many lose sight of or try to 'mentally account away' (i.e., 'I want bonds, and I don't care if I have a mortgage'). Unless bond yields have rise substantially since you took our your mortgage, you're better off financially for paying down your mortgage rather than buying bonds. The only thing bonds have going for them is liquidity, and I think that benefit is often oversold. Being able to rebalance a portfolio with bonds is only a risk mitigation tool and does not carry an expectation of higher returns.
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barberakb
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Re: Should we put more toward our mortgage?

Post by barberakb »

Apathizer wrote: Fri Feb 04, 2022 12:46 am
willthrill81 wrote: Thu Feb 03, 2022 3:41 pm
Apathizer wrote: Thu Feb 03, 2022 3:35 pm Yes there are all manner of unknowns to consider when you have a mortgage. We probably don't even know what all the unknowns are. Paying off the mortgage eliminates most of them.
Indeed. As long you have a mortgage, the underlying property is at some risk. We might not believe that risk to be significant, but I'm sure that Enron, Washington Mutual, and Meta stockholders thought the same thing. Millions lost their homes a little over a decade ago, and I'll bet that most of them didn't think that the risk of a mortgage was significant either.

The bottom line is that once your mortgage-free on your primary residence, as long as you pay your property taxes, you always have a place to live. There's a lot to be said for that. Many well-to-do folks in the first-world don't seem to be aware of this and are instead focusing on leveraging themselves to the hilt in the hopes of gaining even more.
Exactly. To me a good rental situation is the best since it's simple and straightforward. The next best is a paid for home since you're very secure even though of course you do have bills associated with it once it's paid for you're in much less danger of losing it and even if you do you get most of your money back.

But as you say as you have a mortgage your property isn't really yours and is in at least some potential jeopardy. After the mortgage is paid off and you don't have any significant debt there's no leverage to worry about. Everything you have is yours whether it's a home investments etc. That's better than being in debt.
Even after you pay off the mortgage the house is not really yours. Not in the sense that it can't be taken away.
People every year lose their house due to not paying their taxes. It can still be taken away.
Look, your trying to argue that your way is the best way. It is NOT. At-least it seems like that's what you are doing.
Open your mind to other ways that people do things.
It may be the best way for you, but not for everyone. Thats why its called Personal finance. Personal circumstances matter.
Just like keeping my low interest rate mortgage as long as I can is best for me, I realize that approach doesn't work for everyone.
You never answered my ? , why didn't you refinance your 4.2% mortgage? Would your outlook be different if you had a 2.2% mortgage.
Just curious.
Admiral
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Re: Should we put more toward our mortgage?

Post by Admiral »

willthrill81 wrote: Fri Feb 04, 2022 9:18 am
Mr. Rumples wrote: Fri Feb 04, 2022 6:19 am With a 3.625% mortgage rate, in the 25%* federal bracket and with state taxes at 5.3%, am I wrong in thinking that to get the equivalent return on a bond it would have to be 5.3%? I used a muni tax equivalent yield calculator for these figures, do these figures apply to some degree?

https://www.bankrate.com/calculators/re ... -tool.aspx

(*Sorry it defaults to 25% which is not a bracket now.)
The needed nominal, pre-tax bond return would be 5.2%.

This is something that many lose sight of or try to 'mentally account away' (i.e., 'I want bonds, and I don't care if I have a mortgage'). Unless bond yields have rise substantially since you took our your mortgage, you're better off financially for paying down your mortgage rather than buying bonds. The only thing bonds have going for them is liquidity, and I think that benefit is often oversold. Being able to rebalance a portfolio with bonds is only a risk mitigation tool and does not carry an expectation of higher returns.
The ONLY thing bonds have going for them is liquidity? That's quite a statement. Will you make that argument if and when bonds return 3%? 4%? 5%?

Last I checked my 2.25% mortgage rate was fixed for 15 years. Bond rates float.

I am not currently buying bonds, but I do HOLD bonds in my tax-sheltered accounts. And yes, I have a mortgage.
Admiral
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Re: Should we put more toward our mortgage?

Post by Admiral »

Apathizer wrote: Fri Feb 04, 2022 12:46 am
willthrill81 wrote: Thu Feb 03, 2022 3:41 pm
Apathizer wrote: Thu Feb 03, 2022 3:35 pm Yes there are all manner of unknowns to consider when you have a mortgage. We probably don't even know what all the unknowns are. Paying off the mortgage eliminates most of them.
Indeed. As long you have a mortgage, the underlying property is at some risk. We might not believe that risk to be significant, but I'm sure that Enron, Washington Mutual, and Meta stockholders thought the same thing. Millions lost their homes a little over a decade ago, and I'll bet that most of them didn't think that the risk of a mortgage was significant either.

The bottom line is that once your mortgage-free on your primary residence, as long as you pay your property taxes, you always have a place to live. There's a lot to be said for that. Many well-to-do folks in the first-world don't seem to be aware of this and are instead focusing on leveraging themselves to the hilt in the hopes of gaining even more.
Exactly. To me a good rental situation is the best since it's simple and straightforward. The next best is a paid for home since you're very secure even though of course you do have bills associated with it once it's paid for you're in much less danger of losing it and even if you do you get most of your money back.

But as you say as you have a mortgage your property isn't really yours and is in at least some potential jeopardy. After the mortgage is paid off and you don't have any significant debt there's no leverage to worry about. Everything you have is yours whether it's a home investments etc. That's better than being in debt.
If you have the funds to pay off your mortgage but choose not to do so, you are in no danger of losing your home.

Where I live rents are up 30-40% and there is a HUGE backlog of eviction proceedings in the court system. Many people prefer to have what is their largest expense predictable and not at the whims of a landlord. Many people also prefer to have most of their monthly housing expense go toward something they can eventually sell. Yes, taxes do go up, which is why it's important to buy a home that is affordable, and with the realistic expectation of other expenses. There is nothing WRONG with renting, but there is no prima facie case that it's somehow better.

Regardless of the underlying reasons for it, in the United States people who own their homes have more wealth, period. That's what the data show and while it may reflect nothing more than a poor savings rate, the facts are the facts. A mortgage is forced savings. Rent is an expense.
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