Anyone regret paying off mortgage early?

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KlangFool
Posts: 31526
Joined: Sat Oct 11, 2008 12:35 pm

Re: anyone regret paying off mortgage early

Post by KlangFool »

Admiral wrote: Wed Jun 09, 2021 8:48 am
KlangFool wrote: Wed Jun 09, 2021 8:35 am Folks,

A) When you asked the wrong question, you would never get the right answer!

Why would you consider the mortgage a burden to you? If it does, why are you buying the house?

I bought my house at price X a few years ago. My portfolio excluding the house is at 2.5X. The PITI of the house is 20% to 30% lower than the market rent. I enjoy paying my mortgage. My house is cheap enough that I save money every month. And, I can pay off the house at any time.

B) My peers bought too much house. Hence, the mortgage feels like a burden to them. Then, they compounded their mistakes by not maxing up their 401K. They pay 20+% to 30+% taxes in order to pay down their mortgage. Then, when their kids go to college, they took a more expensive student loan for their kids.

If they are lucky and continuously fully-employed until retirement, they have the house and not much else. If they are not, they may lose everything.

KlangFool
Klang:

What’s the point of finger-wagging at those who have already purchased their home? We are attempting to help the OP for their situation, not preach to those who are house hunting.

The OP is not going to sell their home and buy another based on your particular requirements.

Let’s try to be constructive at least with our advice.
I am being constructive.

If someone bought too much house, please do not compound the mistake by

A) Paying too much taxes in order to pay down the mortgages

B) Pay down or pay off the mortgage and then take a more expensive student loan.

KlangFool
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Wannaretireearly
Posts: 4881
Joined: Wed Mar 31, 2010 4:39 pm

Re: anyone regret paying off mortgage early

Post by Wannaretireearly »

camillus wrote: Wed Jun 09, 2021 3:02 am 6 years in to a 15 year, 3.0% mortgage, remaining balance 5 figures

This year we decided to "do something" about our mortgage. So far we've made a large principal payment. Then became interested in inflation and began thinking about my mortgage as a (small?) hedge against inflation. I hesitated. Then I learned about Series I Bonds and maxed out 10k for myself for the year (currently 3.54%). I am dedicating this money as a "mortgage equivalency fund." Next, my wife will buy 10k. When I bought I Bonds, I exchanged 10k of bonds in a 403b for equities.

In other words, we have a full-blown mental accounting circus going on over here.

It's hard to know what's optimal, but I think one element that's undersold in this thread is that "paying off your mortgage" is a behavioral forced savings. You trick yourself to juicing your savings rate. If you can trick yourself into doing the same forced savings into a taxable account, that is probably the best of all worlds - especially given current truly historically low mortgage rates.
Ha. How about not worrying about less than 1% differences in interest (mortgage, bonds etc). Tune out the noise and take the guaranteed return paying of the mortgage? Less than one % either way is noise imo.
“At some point you are trading time you will never get back for money you will never spend.“ | “How do you want to spend the best remaining year of your life?“
smitcat
Posts: 13308
Joined: Mon Nov 07, 2016 9:51 am

Re: anyone regret paying off mortgage early

Post by smitcat »

KlangFool wrote: Wed Jun 09, 2021 8:57 am
Admiral wrote: Wed Jun 09, 2021 8:48 am
KlangFool wrote: Wed Jun 09, 2021 8:35 am Folks,

A) When you asked the wrong question, you would never get the right answer!

Why would you consider the mortgage a burden to you? If it does, why are you buying the house?

I bought my house at price X a few years ago. My portfolio excluding the house is at 2.5X. The PITI of the house is 20% to 30% lower than the market rent. I enjoy paying my mortgage. My house is cheap enough that I save money every month. And, I can pay off the house at any time.

B) My peers bought too much house. Hence, the mortgage feels like a burden to them. Then, they compounded their mistakes by not maxing up their 401K. They pay 20+% to 30+% taxes in order to pay down their mortgage. Then, when their kids go to college, they took a more expensive student loan for their kids.

If they are lucky and continuously fully-employed until retirement, they have the house and not much else. If they are not, they may lose everything.

KlangFool
Klang:

What’s the point of finger-wagging at those who have already purchased their home? We are attempting to help the OP for their situation, not preach to those who are house hunting.

The OP is not going to sell their home and buy another based on your particular requirements.

Let’s try to be constructive at least with our advice.
I am being constructive.

If someone bought too much house, please do not compound the mistake by

A) Paying too much taxes in order to pay down the mortgages

B) Pay down or pay off the mortgage and then take a more expensive student loan.

KlangFool
The subject is "anyone regret paying back your mortgage early"
It is right there in the title line of this post.

It is not "anyone regret buying too much or too little house."
SethJane42
Posts: 267
Joined: Sat May 09, 2020 5:38 pm

Re: anyone regret paying off mortgage early

Post by SethJane42 »

No one can time the stock, bond, and real estate markets. All could crash at any time. So the invested extra one makes by not paying off the mortgage early is not guaranteed to have a predicted return. If I pay off a mortgage early, those predicted savings are guaranteed and absolute. Freedom from that debt is certain. Sure, property taxes and insurance (my total cost for both is about 2600.00 or 50 bucks a week) are certain as well. But the return on paying it off early is certainly certain. Which is more Bogleheadian? Paying it off early, or gambling on a predicted return in the markets with the money?
Grt2bOutdoors
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Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: anyone regret paying off mortgage early

Post by Grt2bOutdoors »

smitcat wrote: Tue Jun 08, 2021 7:13 pm
ensign wrote: Tue Jun 08, 2021 4:42 pm
KlangFool wrote: Tue Jun 08, 2021 8:36 am
mrsgoldilocks wrote: Mon Jun 07, 2021 9:29 pm
I really hate myself always going back to revisit my decision. I just wonder if others' personal experience can help me settle the issue.
mrsgoldilocks,

A) It is common for some of my income peers to either pay down or pay off their mortgage and assuming that they will be fully-employed continuously until retirement age. Then, they were permanently unemployed or under-employed in their 40s and 50s when their kids go to college. They have to take a more expensive student loan for their kids' college education.

KlangFool
If one is underemployed or unemployed in their 40s and 50s the last thing he or she needs is a mortgage.
I agree with Klang - often its much better to have that mortgage at any age - even if you get laid off.
Holding a mortgage doesn’t diffuse the need for other sources of financing to pay for school if there is no other aid or merit/grants available.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
smitcat
Posts: 13308
Joined: Mon Nov 07, 2016 9:51 am

Re: anyone regret paying off mortgage early

Post by smitcat »

Grt2bOutdoors wrote: Wed Jun 09, 2021 9:19 am
smitcat wrote: Tue Jun 08, 2021 7:13 pm
ensign wrote: Tue Jun 08, 2021 4:42 pm
KlangFool wrote: Tue Jun 08, 2021 8:36 am
mrsgoldilocks wrote: Mon Jun 07, 2021 9:29 pm
I really hate myself always going back to revisit my decision. I just wonder if others' personal experience can help me settle the issue.
mrsgoldilocks,

A) It is common for some of my income peers to either pay down or pay off their mortgage and assuming that they will be fully-employed continuously until retirement age. Then, they were permanently unemployed or under-employed in their 40s and 50s when their kids go to college. They have to take a more expensive student loan for their kids' college education.

KlangFool
If one is underemployed or unemployed in their 40s and 50s the last thing he or she needs is a mortgage.
I agree with Klang - often its much better to have that mortgage at any age - even if you get laid off.
Holding a mortgage doesn’t diffuse the need for other sources of financing to pay for school if there is no other aid or merit/grants available.
I am sorry , I do not understand the point that you are trying to make.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: anyone regret paying off mortgage early

Post by Grt2bOutdoors »

smitcat wrote: Wed Jun 09, 2021 9:22 am
Grt2bOutdoors wrote: Wed Jun 09, 2021 9:19 am
smitcat wrote: Tue Jun 08, 2021 7:13 pm
ensign wrote: Tue Jun 08, 2021 4:42 pm
KlangFool wrote: Tue Jun 08, 2021 8:36 am

mrsgoldilocks,

A) It is common for some of my income peers to either pay down or pay off their mortgage and assuming that they will be fully-employed continuously until retirement age. Then, they were permanently unemployed or under-employed in their 40s and 50s when their kids go to college. They have to take a more expensive student loan for their kids' college education.

KlangFool
If one is underemployed or unemployed in their 40s and 50s the last thing he or she needs is a mortgage.
I agree with Klang - often its much better to have that mortgage at any age - even if you get laid off.
Holding a mortgage doesn’t diffuse the need for other sources of financing to pay for school if there is no other aid or merit/grants available.
I am sorry , I do not understand the point that you are trying to make.
You indicate you agree with Klang. He indicated it’s better to have a mortgage as not holding one and being under or unemployed will require them to obtain a higher cost of financing.

My point is - holding a mortgage does not eliminate or reduce the chance that a higher cost of financing will not be required.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
solarcub
Posts: 253
Joined: Sat Feb 08, 2020 9:09 pm

Re: anyone regret paying off mortgage early

Post by solarcub »

Admiral wrote: Wed Jun 09, 2021 8:37 am I agree that at current rates and providing one is not saving for a specific purpose/purchase in a taxable account that pre-payment is better MATHEMATICALLY than buying lower rate bonds.
But I thought the point of paying off the mortgage was the guaranteed return. I take the standard deduction and have a 3% mortgage, so paying extra on that is a guaranteed 3% return. How do I know my Total Market Bond Index won't do better than that over the next 10 years? Maybe not this year, but the next 10 years? I don't have that knowledge. So it's 3% guaranteed vs "I don't know what" somewhere else. It's a guess.
solarcub
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Re: anyone regret paying off mortgage early

Post by solarcub »

Grt2bOutdoors wrote: Wed Jun 09, 2021 9:51 am
smitcat wrote: Wed Jun 09, 2021 9:22 am
Grt2bOutdoors wrote: Wed Jun 09, 2021 9:19 am
smitcat wrote: Tue Jun 08, 2021 7:13 pm
ensign wrote: Tue Jun 08, 2021 4:42 pm

If one is underemployed or unemployed in their 40s and 50s the last thing he or she needs is a mortgage.
I agree with Klang - often its much better to have that mortgage at any age - even if you get laid off.
Holding a mortgage doesn’t diffuse the need for other sources of financing to pay for school if there is no other aid or merit/grants available.
I am sorry , I do not understand the point that you are trying to make.
You indicate you agree with Klang. He indicated it’s better to have a mortgage as not holding one and being under or unemployed will require them to obtain a higher cost of financing.

My point is - holding a mortgage does not eliminate or reduce the chance that a higher cost of financing will not be required.
I think Klang's point is that if you pay off the mortgage at the expense of other savings, and then lose your job, you will have no savings for college, so you have to take out 6% loans for your kids. Whereas if you had invested that money instead of pre-paying the mortgage, you would still have the money available to you. It's hard to take out your equity when you don't have any income, because no one will want to give you a loan.
smitcat
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Joined: Mon Nov 07, 2016 9:51 am

Re: anyone regret paying off mortgage early

Post by smitcat »

Grt2bOutdoors wrote: Wed Jun 09, 2021 9:51 am
smitcat wrote: Wed Jun 09, 2021 9:22 am
Grt2bOutdoors wrote: Wed Jun 09, 2021 9:19 am
smitcat wrote: Tue Jun 08, 2021 7:13 pm
ensign wrote: Tue Jun 08, 2021 4:42 pm

If one is underemployed or unemployed in their 40s and 50s the last thing he or she needs is a mortgage.
I agree with Klang - often its much better to have that mortgage at any age - even if you get laid off.
Holding a mortgage doesn’t diffuse the need for other sources of financing to pay for school if there is no other aid or merit/grants available.
I am sorry , I do not understand the point that you are trying to make.
You indicate you agree with Klang. He indicated it’s better to have a mortgage as not holding one and being under or unemployed will require them to obtain a higher cost of financing.

My point is - holding a mortgage does not eliminate or reduce the chance that a higher cost of financing will not be required.
"My point is - holding a mortgage does not eliminate or reduce the chance that a higher cost of financing will not be required."
And your example "other sources of financing to pay for school if there is no other aid or merit/grants available"

A few observations from my time alive....
- If you have paid off your mortgage rather than save the funds you have less liquidity.
- typically the lowest rates for debt are with home mortgages
- typically rates for education loans are much higher
- typically mortgage debt can be eliminated with bankruptcy
- typically higher education debt cannot be elminated
Best case - chances are that that debt for higher education could be handled by delaying an early mortgage payoff at lower rates. Chances are that if the worst occurred you would be best off by having the mortgage.
lazynovice
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Location: Denver area. Former Texan.

Re: anyone regret paying off mortgage early

Post by lazynovice »

solarcub wrote: Wed Jun 09, 2021 9:58 am
Grt2bOutdoors wrote: Wed Jun 09, 2021 9:51 am
smitcat wrote: Wed Jun 09, 2021 9:22 am
Grt2bOutdoors wrote: Wed Jun 09, 2021 9:19 am
smitcat wrote: Tue Jun 08, 2021 7:13 pm

I agree with Klang - often its much better to have that mortgage at any age - even if you get laid off.
Holding a mortgage doesn’t diffuse the need for other sources of financing to pay for school if there is no other aid or merit/grants available.
I am sorry , I do not understand the point that you are trying to make.
You indicate you agree with Klang. He indicated it’s better to have a mortgage as not holding one and being under or unemployed will require them to obtain a higher cost of financing.

My point is - holding a mortgage does not eliminate or reduce the chance that a higher cost of financing will not be required.
I think Klang's point is that if you pay off the mortgage at the expense of other savings, and then lose your job, you will have no savings for college, so you have to take out 6% loans for your kids. Whereas if you had invested that money instead of pre-paying the mortgage, you would still have the money available to you. It's hard to take out your equity when you don't have any income, because no one will want to give you a loan.
If you pay off your house, lose your job and have no income or savings, you are a candidate for need-based aid. Income and savings are what disqualify most people from need-based aid.
EnjoyIt
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Re: anyone regret paying off mortgage early

Post by EnjoyIt »

I'm a huge proponent of investing instead of paying off one's mortgage. Once financially independent or retired, I am a big proponent of paying off the mortgage. It is exactly what we did and I would gladly do it again.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
coachd50
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Re: anyone regret paying off mortgage early

Post by coachd50 »

SethJane42 wrote: Wed Jun 09, 2021 9:15 am No one can time the stock, bond, and real estate markets. All could crash at any time. So the invested extra one makes by not paying off the mortgage early is not guaranteed to have a predicted return. If I pay off a mortgage early, those predicted savings are guaranteed and absolute. Freedom from that debt is certain. Sure, property taxes and insurance (my total cost for both is about 2600.00 or 50 bucks a week) are certain as well. But the return on paying it off early is certainly certain. Which is more Bogleheadian? Paying it off early, or gambling on a predicted return in the markets with the money?
Doesn't that point of view than make it decision purely based on the interest rate? Otherwise you could say the exact same thing about an FDIC insured bank account or treasury instruments and ask why one doesn't solely invest in that as opposed to index funds comprised of equity market instruments.

If your argument is simply "not guaranteed to have a predicted return" then the concept is the same right? We are only then haggling over the amount
smitcat
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Re: anyone regret paying off mortgage early

Post by smitcat »

lazynovice wrote: Wed Jun 09, 2021 10:14 am
solarcub wrote: Wed Jun 09, 2021 9:58 am
Grt2bOutdoors wrote: Wed Jun 09, 2021 9:51 am
smitcat wrote: Wed Jun 09, 2021 9:22 am
Grt2bOutdoors wrote: Wed Jun 09, 2021 9:19 am

Holding a mortgage doesn’t diffuse the need for other sources of financing to pay for school if there is no other aid or merit/grants available.
I am sorry , I do not understand the point that you are trying to make.
You indicate you agree with Klang. He indicated it’s better to have a mortgage as not holding one and being under or unemployed will require them to obtain a higher cost of financing.

My point is - holding a mortgage does not eliminate or reduce the chance that a higher cost of financing will not be required.
I think Klang's point is that if you pay off the mortgage at the expense of other savings, and then lose your job, you will have no savings for college, so you have to take out 6% loans for your kids. Whereas if you had invested that money instead of pre-paying the mortgage, you would still have the money available to you. It's hard to take out your equity when you don't have any income, because no one will want to give you a loan.
If you pay off your house, lose your job and have no income or savings, you are a candidate for need-based aid. Income and savings are what disqualify most people from need-based aid.
I adjusted you summary a bit here...
"If you dont pay off your house, but have larger retirement accounts instead, and then lose your job and have no income or after tax savings, you are a candidate for need-based aid. Income and savings outside of retirement accounts are what disqualify most people from need-based aid."
.
lazynovice
Posts: 3370
Joined: Mon Apr 16, 2012 10:48 pm
Location: Denver area. Former Texan.

Re: anyone regret paying off mortgage early

Post by lazynovice »

smitcat wrote: Wed Jun 09, 2021 10:50 am
lazynovice wrote: Wed Jun 09, 2021 10:14 am
solarcub wrote: Wed Jun 09, 2021 9:58 am
Grt2bOutdoors wrote: Wed Jun 09, 2021 9:51 am
smitcat wrote: Wed Jun 09, 2021 9:22 am

I am sorry , I do not understand the point that you are trying to make.
You indicate you agree with Klang. He indicated it’s better to have a mortgage as not holding one and being under or unemployed will require them to obtain a higher cost of financing.

My point is - holding a mortgage does not eliminate or reduce the chance that a higher cost of financing will not be required.
I think Klang's point is that if you pay off the mortgage at the expense of other savings, and then lose your job, you will have no savings for college, so you have to take out 6% loans for your kids. Whereas if you had invested that money instead of pre-paying the mortgage, you would still have the money available to you. It's hard to take out your equity when you don't have any income, because no one will want to give you a loan.
If you pay off your house, lose your job and have no income or savings, you are a candidate for need-based aid. Income and savings are what disqualify most people from need-based aid.
I adjusted you summary a bit here...
"If you dont pay off your house, but have larger retirement accounts instead, and then lose your job and have no income or after tax savings, you are a candidate for need-based aid. Income and savings outside of retirement accounts are what disqualify most people from need-based aid."
.
Correct. I would not forego paying off a mortgage to build up a 529 or to preserve cash flow for college.
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vitaflo
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Re: anyone regret paying off mortgage early

Post by vitaflo »

I do not regret it, however the situation at the time was perhaps different than others. My mortgage was 4.25%, bonds were paying about 2.5%, I could not get a deduction for mortgage interest any longer, and I had a maxed emergency fund and plenty of money in taxable to pay it off. All of that just meant it was kinda stupid to keep the mortgage, so I paid it off.

I do think this is a fairly personal decision and there is no real correct answer. I would just make sure you are fully funding any tax-advantaged accounts and have a solid emergency fund before you put even a dime extra onto a mortgage.
lakpr
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Re: anyone regret paying off mortgage early

Post by lakpr »

vitaflo wrote: Wed Jun 09, 2021 10:56 am I do not regret it, however the situation at the time was perhaps different than others. My mortgage was 4.25%, bonds were paying about 2.5%, I could not get a deduction for mortgage interest any longer, and I had a maxed emergency fund and plenty of money in taxable to pay it off. All of that just meant it was kinda stupid to keep the mortgage, so I paid it off.
The situation is always going to be that the mortgage interest rate would be a few percentage points higher than the bond rates. Even today, mortgages for 15 years are in the 2.0% to 2.5% range, and for 30 years about 2.75% to 3.25% range. Bonds are yielding 1.3% for intermediate term, and the comparable long-term bonds are yielding only 2.1%.

Just saying that the situation today is no different than when you paid off the mortgage. According to IRS, 93% of taxpayers took standard deduction, so the deduction for mortgage interest is no longer there for the vast majority of America.
vitaflo wrote: Wed Jun 09, 2021 10:56 am I do think this is a fairly personal decision and there is no real correct answer. I would just make sure you are fully funding any tax-advantaged accounts and have a solid emergency fund before you put even a dime extra onto a mortgage.
I agree COMPLETELY with this statement! No bloody point in paying the mortgage down while leaving tax advantaged space unused. Trying to save 2% to 3% while paying 22% extra in taxes that could be avoided by maxing out tax-advantaged space, really does not make sense. Max out 401k, Max out Roth IRA, only then pay down the mortgage (or invest in the market, as you see fit).
Hyperchicken
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Re: anyone regret paying off mortgage early

Post by Hyperchicken »

SethJane42 wrote: Wed Jun 09, 2021 9:15 am No one can time the stock, bond, and real estate markets. All could crash at any time. So the invested extra one makes by not paying off the mortgage early is not guaranteed to have a predicted return. If I pay off a mortgage early, those predicted savings are guaranteed and absolute. Freedom from that debt is certain. Sure, property taxes and insurance (my total cost for both is about 2600.00 or 50 bucks a week) are certain as well. But the return on paying it off early is certainly certain. Which is more Bogleheadian? Paying it off early, or gambling on a predicted return in the markets with the money?
By this very logic, no one should invest a penny in the stock market, ever.
Admiral
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Joined: Mon Oct 27, 2014 12:35 pm

Re: anyone regret paying off mortgage early

Post by Admiral »

solarcub wrote: Wed Jun 09, 2021 9:54 am
Admiral wrote: Wed Jun 09, 2021 8:37 am I agree that at current rates and providing one is not saving for a specific purpose/purchase in a taxable account that pre-payment is better MATHEMATICALLY than buying lower rate bonds.
But I thought the point of paying off the mortgage was the guaranteed return. I take the standard deduction and have a 3% mortgage, so paying extra on that is a guaranteed 3% return. How do I know my Total Market Bond Index won't do better than that over the next 10 years? Maybe not this year, but the next 10 years? I don't have that knowledge. So it's 3% guaranteed vs "I don't know what" somewhere else. It's a guess.
TBM may do better in the future, it may do worse, or it may be identical to your mortgage rate. We're discussing how to invest the dollar that you have today. If your mortgage rate is 3% and your bonds pay 2% then the dollar is better used to pay down the mortgage, assuming you don't need the liquidity. BUT, there are many caveats, taxes being the big one. If you have a choice of deferring income taxes on the dollar by buying bonds in a retirement account vs paying taxes on it and then pre-paying your mortgage, you might choose to do that. Much depends on your expected future tax rate when that dollar is withdrawn. If I'm now at a 25% federal bracket than the dollar I use to pre-pay costs me $1.25.

Buying a bond fund gives you both liquidity and optionality: you put your finger on the optionality argument. If I pre-pay my mortgage, the return on my dollar is fixed. But if I buy a share of a bond fund, my return may be greater than my mortgage rate in the future AND I have access to my money to buy that new bond fund, or some other investment.
Admiral
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Re: anyone regret paying off mortgage early

Post by Admiral »

lakpr wrote: Wed Jun 09, 2021 11:14 am I agree COMPLETELY with this statement! No bloody point in paying the mortgage down while leaving tax advantaged space unused. Trying to save 2% to 3% while paying 22% extra in taxes that could be avoided by maxing out tax-advantaged space, really does not make sense. Max out 401k, Max out Roth IRA, only then pay down the mortgage (or invest in the market, as you see fit).
But of course (and as I believe you yourself have argued on other threads) the taxes are deferred not avoided. So it's only the marginal tax rate difference (if there is one) on the delta between the mortgage rate and the bond rate that's at issue.
lakpr
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Re: anyone regret paying off mortgage early

Post by lakpr »

Admiral wrote: Wed Jun 09, 2021 12:14 pm
lakpr wrote: Wed Jun 09, 2021 11:14 am I agree COMPLETELY with this statement! No bloody point in paying the mortgage down while leaving tax advantaged space unused. Trying to save 2% to 3% while paying 22% extra in taxes that could be avoided by maxing out tax-advantaged space, really does not make sense. Max out 401k, Max out Roth IRA, only then pay down the mortgage (or invest in the market, as you see fit).
But of course (and as I believe you yourself have argued on other threads) the taxes are deferred not avoided. So it's only the marginal tax rate difference (if there is one) on the delta between the mortgage rate and the bond rate that's at issue.
In the sentence above, I was trying to focus on the tax picture for that particular year. Short term view.

Yes, taxes are deferred and not avoided, but with the idea that in retirement we would be in a lower tax bracket than where we are currently in our careers. Unless there is a lot of tax-deferred investments already or there is a pension to look forward to, perhaps we can agree that most people would be in 22% or 24% bracket today, and to the extent they can control their mandatory distributions in retirement, will likely be in 15% bracket?

Even if you take the "delta" approach you outlined, taking advantage of the tax-deferred space to save 7% to 9% in the long run is better than taking 2% to 3% for the next few years.

If they are not in a situation to be in a lower tax bracket in retirement (too much in tax-deferred already, or a substantial pension to look forward to), then perhaps making Roth contributions to the retirement plan now and max out the annual limits is still better than squeezing 2% to 3% out of the mortgage.

Before beginning any taxable investing, even prepayment of mortgage: max out all tax-advantaged space first.
Admiral
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Joined: Mon Oct 27, 2014 12:35 pm

Re: anyone regret paying off mortgage early

Post by Admiral »

lakpr wrote: Wed Jun 09, 2021 12:25 pm
Admiral wrote: Wed Jun 09, 2021 12:14 pm
lakpr wrote: Wed Jun 09, 2021 11:14 am I agree COMPLETELY with this statement! No bloody point in paying the mortgage down while leaving tax advantaged space unused. Trying to save 2% to 3% while paying 22% extra in taxes that could be avoided by maxing out tax-advantaged space, really does not make sense. Max out 401k, Max out Roth IRA, only then pay down the mortgage (or invest in the market, as you see fit).
But of course (and as I believe you yourself have argued on other threads) the taxes are deferred not avoided. So it's only the marginal tax rate difference (if there is one) on the delta between the mortgage rate and the bond rate that's at issue.
In the sentence above, I was trying to focus on the tax picture for that particular year. Short term view.

Yes, taxes are deferred and not avoided, but with the idea that in retirement we would be in a lower tax bracket than where we are currently in our careers. Unless there is a lot of tax-deferred investments already or there is a pension to look forward to, perhaps we can agree that most people would be in 22% or 24% bracket today, and to the extent they can control their mandatory distributions in retirement, will likely be in 15% bracket?

Even if you take the "delta" approach you outlined, taking advantage of the tax-deferred space to save 7% to 9% in the long run is better than taking 2% to 3% for the next few years.

If they are not in a situation to be in a lower tax bracket in retirement (too much in tax-deferred already, or a substantial pension to look forward to), then perhaps making Roth contributions to the retirement plan now and max out the annual limits is still better than squeezing 2% to 3% out of the mortgage.

Before beginning any taxable investing, even prepayment of mortgage: max out all tax-advantaged space first.
Generally yes I'd agree with 22% going to 15% in retirement, though of course the brackets will likely change. 25% is a bit more borderline, depends where in that bracket one is now and how large SS payments will be.

In terms of maxing retirement space before pre-payment of a mortgage, for most people who are not close to retirement yes, I agree. For those who can see the light at the end of the tunnel and/or have saved a sizable amount in pre-tax, then I'd say Roth and/or prepayment are both good options, esp if the mortgage can be killed before retirement.
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Re: anyone regret paying off mortgage early

Post by mbasherp »

SethJane42 wrote: Wed Jun 09, 2021 9:15 am No one can time the stock, bond, and real estate markets. All could crash at any time. So the invested extra one makes by not paying off the mortgage early is not guaranteed to have a predicted return. If I pay off a mortgage early, those predicted savings are guaranteed and absolute. Freedom from that debt is certain. Sure, property taxes and insurance (my total cost for both is about 2600.00 or 50 bucks a week) are certain as well. But the return on paying it off early is certainly certain. Which is more Bogleheadian? Paying it off early, or gambling on a predicted return in the markets with the money?
That “guaranteed, absolute, certainly certain” return you like is an illusion. The value of a dollar changes each year. You can have no more of an idea of what your mortgage prepayment savings will be worth (REAL value) in 20 years than what the value of the stock market will be.

The only thing you can do is guess based on the info we have from the past. The past is clear that the value of a dollar degrades, and that it’s better to invest in productive companies than it is to prepay long term fixed rate debt which is near or below historical rates of inflation.

There are no guarantees ever. Certainty is an illusion. All roads carry risk.
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Re: anyone regret paying off mortgage early

Post by SethJane42 »

coachd50 wrote: Wed Jun 09, 2021 10:44 am
SethJane42 wrote: Wed Jun 09, 2021 9:15 am No one can time the stock, bond, and real estate markets. All could crash at any time. So the invested extra one makes by not paying off the mortgage early is not guaranteed to have a predicted return. If I pay off a mortgage early, those predicted savings are guaranteed and absolute. Freedom from that debt is certain. Sure, property taxes and insurance (my total cost for both is about 2600.00 or 50 bucks a week) are certain as well. But the return on paying it off early is certainly certain. Which is more Bogleheadian? Paying it off early, or gambling on a predicted return in the markets with the money?
Doesn't that point of view than make it decision purely based on the interest rate? Otherwise you could say the exact same thing about an FDIC insured bank account or treasury instruments and ask why one doesn't solely invest in that as opposed to index funds comprised of equity market instruments.

If your argument is simply "not guaranteed to have a predicted return" then the concept is the same right? We are only then haggling over the amount
It come down to what one values. What one wants to create in one's life. I determined early on that I hated debt and wanted to create a life without any. Now I live in a reality in which I have zero debt, more money than I'll ever need for what I need, and no worries about losing my house, calls from creditors, or a crashing economy. When I talk about certainty, I knew if I took action I could create this financial reality I'm experiencing. It was certain that if I paid x amount extra every month, I'd pay my mortgage off in 6 years. I hunkered down and did so. It's not so certain what the future would have been if I kept paying off all that interest up front to the bank on a 30-year mortgage, with uncertain financial and real estate markets. One never knows when one finds one's self out of a job, with a house under water, with the economy crashing everywhere. If I can come up with 50 bucks a week to pay taxes and insurance, I can live here. I have enough to pay that for 100's of years. That's the essence of what I'm talking about.
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Re: anyone regret paying off mortgage early

Post by aristotelian »

Does anyone regret buying bonds? (Wait, don't answer that.) Bonds have lower expected return in exchange for lower risk. Paying down debt is no different than buying bonds. You are exchanging higher expected return with market risk for lower return that is guaranteed. Generally paying down mortgage is even more favorable than buying bonds. Just as asset allocation with stocks and bonds is an individual choice, so is paying down mortgage. Just depends on your situation and risk tolerance. Either way your expected return is commensurate with the risk.
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Re: anyone regret paying off mortgage early

Post by Admiral »

aristotelian wrote: Wed Jun 09, 2021 1:03 pm Does anyone regret buying bonds? (Wait, don't answer that.) Bonds have lower expected return in exchange for lower risk. Paying down debt is no different than buying bonds. You are exchanging higher expected return with market risk for lower return that is guaranteed. Generally paying down mortgage is even more favorable than buying bonds. Just as asset allocation with stocks and bonds is an individual choice, so is paying down mortgage. Just depends on your situation and risk tolerance. Either way your expected return is commensurate with the risk.
I agree with this generally but an important caveat is that mortgage rates (or perhaps “one’s mortgage rate”) is fixed and today’s mortgages are ridiculously low. That’s a BIG distinction from the past. Bonds rates fluctuate and will go up some day. Your mortgage won’t, if you hold on to it.
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Re: anyone regret paying off mortgage early

Post by lakpr »

Admiral wrote: Wed Jun 09, 2021 1:09 pm
aristotelian wrote: Wed Jun 09, 2021 1:03 pm Does anyone regret buying bonds? (Wait, don't answer that.) Bonds have lower expected return in exchange for lower risk. Paying down debt is no different than buying bonds. You are exchanging higher expected return with market risk for lower return that is guaranteed. Generally paying down mortgage is even more favorable than buying bonds. Just as asset allocation with stocks and bonds is an individual choice, so is paying down mortgage. Just depends on your situation and risk tolerance. Either way your expected return is commensurate with the risk.
I agree with this generally but an important caveat is that mortgage rates (or perhaps “one’s mortgage rate”) is fixed and today’s mortgages are ridiculously low. That’s a BIG distinction from the past. Bonds rates fluctuate and will go up some day. Your mortgage won’t, if you hold on to it.
If you are holding bonds now, and when the rates go up, the value of those bonds shrinks correspondingly. If you pay down your mortgage, the implicit return you get from that action does NOT.
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Re: anyone regret paying off mortgage early

Post by Admiral »

lakpr wrote: Wed Jun 09, 2021 1:17 pm
Admiral wrote: Wed Jun 09, 2021 1:09 pm
aristotelian wrote: Wed Jun 09, 2021 1:03 pm Does anyone regret buying bonds? (Wait, don't answer that.) Bonds have lower expected return in exchange for lower risk. Paying down debt is no different than buying bonds. You are exchanging higher expected return with market risk for lower return that is guaranteed. Generally paying down mortgage is even more favorable than buying bonds. Just as asset allocation with stocks and bonds is an individual choice, so is paying down mortgage. Just depends on your situation and risk tolerance. Either way your expected return is commensurate with the risk.
I agree with this generally but an important caveat is that mortgage rates (or perhaps “one’s mortgage rate”) is fixed and today’s mortgages are ridiculously low. That’s a BIG distinction from the past. Bonds rates fluctuate and will go up some day. Your mortgage won’t, if you hold on to it.
If you are holding bonds now, and when the rates go up, the value of those bonds shrinks correspondingly. If you pay down your mortgage, the implicit return you get from that action does NOT.
Huh? The NAV goes down but the coupon payments rise. And anyway we’re talking about locking in one low return or preserving your option of getting a higher return in the future.
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Re: anyone regret paying off mortgage early

Post by FireFool »

It was long ago that I paid off my mortgage, a time when interest rates were higher than they are now, and on the other hand tax advantages to having a mortgage were greater. There was a certain peace of mind that went with having a paid off house during the inevitable uncertainties of losing a job everyone faces over a long career, but with that said I know that I would have been further ahead financially retaining the mortgage and investing in equities during that time. I've retroactively rationalized paying off the mortgage as the equivalent of having an asset allocation towards bonds/cash with guaranteed returns. With a paid off house I could have what traditional financial advisors would have considered as an over allocation into equities. Our own parents finances were stable, but incapable of providing any safety net to us, so being in a conservative position if anything negative career-wise were to happen was reassuring. For my own kids, if cash flow got out of tilt to the point they couldn't pay their mortgages, they do have a safety net with the bank of Mom & Dad, so for them with the ultra low interest rates I would never advise them to pay off their mortgage early, or for that matter presently have much of a bond/cash allocation. Paying off a mortgage is just a different form of conservatism in your portfolio, with different people needing or wanting differing levels.
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Re: anyone regret paying off mortgage early

Post by goodenyou »

aristotelian wrote: Wed Jun 09, 2021 1:03 pm Does anyone regret buying bonds? (Wait, don't answer that.) Bonds have lower expected return in exchange for lower risk. Paying down debt is no different than buying bonds. You are exchanging higher expected return with market risk for lower return that is guaranteed. Generally paying down mortgage is even more favorable than buying bonds. Just as asset allocation with stocks and bonds is an individual choice, so is paying down mortgage. Just depends on your situation and risk tolerance. Either way your expected return is commensurate with the risk.
If I had to paint and repair bonds, I would regret buying them. Plus, if the County Bond Taxing District continued to raise my taxes on the unrealized gains of my bonds, I would regret buying bonds. But, I digress. :)
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Re: anyone regret paying off mortgage early

Post by grabiner »

solarcub wrote: Wed Jun 09, 2021 9:54 am
Admiral wrote: Wed Jun 09, 2021 8:37 am I agree that at current rates and providing one is not saving for a specific purpose/purchase in a taxable account that pre-payment is better MATHEMATICALLY than buying lower rate bonds.
But I thought the point of paying off the mortgage was the guaranteed return. I take the standard deduction and have a 3% mortgage, so paying extra on that is a guaranteed 3% return. How do I know my Total Market Bond Index won't do better than that over the next 10 years? Maybe not this year, but the next 10 years? I don't have that knowledge. So it's 3% guaranteed vs "I don't know what" somewhere else. It's a guess.
Actually, with bonds, you can know. If you have a 10-year mortgage, you could pay it down to 9 years, or use the money to buy a 10-year bond. Either one would give you a guaranteed amount of money in 10 years; which is better depends on the interest rates (and other benefits such as liquidity). Similarly, if you have enough money to pay off the mortgage, you could instead use the money to buy a 10-year bond ladder which gives an equal dollar amount each year for the next 10 years; again, which is better depends on the interest rates.

Now, you may not choose to hold exactly that bond portfolio, but that gives you a fair comparison. If you buy a bond fund with a longer duration than the liability-matching portfolio, you are taking additional interest-rate risk, and are presumably being fairly compensated for that additional risk. If you buy lower-quality bonds, you are taking additional credit risk, and are again being fairly compensated.

This was my logic when I paid off my own mortgage last year. It had nine years left, and the after-tax mortgage rate was higher than the after-tax yield on a municipal-bond portfolio of the same duration (Vanguard Intermediate-Term Tax-Exempt). Therefore, I had a guaranteed benefit by paying off the mortgage rather than buying the municipal bonds. And I don't hold specifically those bonds; I hold bonds in my employer plan for tax reasons, and stocks in my taxable account. But the muni portfolio made the fair comparison
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Re: anyone regret paying off mortgage early

Post by grabiner »

goodenyou wrote: Wed Jun 09, 2021 2:03 pm
aristotelian wrote: Wed Jun 09, 2021 1:03 pm Does anyone regret buying bonds? (Wait, don't answer that.) Bonds have lower expected return in exchange for lower risk. Paying down debt is no different than buying bonds. You are exchanging higher expected return with market risk for lower return that is guaranteed. Generally paying down mortgage is even more favorable than buying bonds. Just as asset allocation with stocks and bonds is an individual choice, so is paying down mortgage. Just depends on your situation and risk tolerance. Either way your expected return is commensurate with the risk.
If I had to paint and repair bonds, I would regret buying them. Plus, if the County Bond Taxing District continued to raise my taxes on the unrealized gains of my bonds, I would regret buying bonds. But, I digress. :)
You pay the same amount to paint, repair, and pay property taxes on your house whether it has a mortgage or not, so paying down the mortgage is a purely financial move. Paying down any 3% loan gives a risk-free 3% return, which must be weighed against alternative uses of the same money. ]

The mortgage should only be considered differently because the tax law may make the return taxable (if you lose deductible interest) and because the benefit can be realized early if you sell the house.
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Re: anyone regret paying off mortgage early

Post by Oregon Beancounter »

Paid off our residence in 2013 and have never questioned the wisdom of it. But as they, your mileage may vary….
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Re: anyone regret paying off mortgage early

Post by LeslieSmiley »

aristotelian wrote: Wed Jun 09, 2021 1:03 pm Does anyone regret buying bonds? (Wait, don't answer that.) Bonds have lower expected return in exchange for lower risk. Paying down debt is no different than buying bonds. You are exchanging higher expected return with market risk for lower return that is guaranteed. Generally paying down mortgage is even more favorable than buying bonds. Just as asset allocation with stocks and bonds is an individual choice, so is paying down mortgage. Just depends on your situation and risk tolerance. Either way your expected return is commensurate with the risk.
Except that i can always liquidate some of the bonds into cash and use it for whatever i want/need. The fund that you use to pay down or pay off the mortgage is locked into the house. You can’t liquidate part of the house for cash. In other words, you lose liquidity by paying down/off mortgage which can be essential under many circumstances.
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Re: anyone regret paying off mortgage early

Post by JoeRetire »

ensign wrote: Tue Jun 08, 2021 8:11 pm
Afty wrote: Tue Jun 08, 2021 7:29 pm I used to pay extra on my mortgage until we refinanced recently. I kind of regret it. Because of the refinance, the benefit isn’t as much as I thought it would be. It would have been better to invest that money in taxable instead.
Why? Because markets always go up?
Perhaps because the markets DID go up?
What actually happened is the basis for all "regrets".
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Re: anyone regret paying off mortgage early

Post by JoeRetire »

miket29 wrote: Tue Jun 08, 2021 9:51 pm
coachd50 wrote: Tue Jun 08, 2021 8:22 pm To directly answer the OP's question, I don't "regret" it, but Yes, I mathematically I made the suboptimal decisions to pay down my 4% mortgage each month with extra principal payments of around $400 a month and then in January used a very small inheritance from deceased mom and sold some of my taxable funds to pay off the remaining $50,000. You can 100% show on paper that it was not the optimal choice. I am ok with that though.
I don't get it. Knowing the market returns lately, you would have been better off with the mortgage. But decisions should be judged on the information available at the time, not on the results. Annie Duke (poker player, PhD, writer) talks about this in her books. See https://nautil.us/issue/55/trust/the-re ... -decisions
And that's the difference between "regret" (what would have worked out best in the past) and "decisions" (what you should do no).

The question asked was about "regret".
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Re: anyone regret paying off mortgage early

Post by JoeRetire »

mrsgoldilocks wrote: Tue Jun 08, 2021 9:52 pmHonestly speaking, I believe we won't "regret" (which is a strong word as pointed out by a few response) the decision either way.
Agreed.

In spite of a few outliers here, almost nobody actually regrets their big decisions (paying off mortgage, claiming social security, retiring at a particular age, etc.) no matter what choice they make. It's a behavioral issue to prefer whatever we have decided to do.

Good luck! Report back in 15 years and let us know how it worked out.
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Re: anyone regret paying off mortgage early

Post by JoeRetire »

Hyperchicken wrote: Wed Jun 09, 2021 11:52 am
SethJane42 wrote: Wed Jun 09, 2021 9:15 am No one can time the stock, bond, and real estate markets. All could crash at any time. So the invested extra one makes by not paying off the mortgage early is not guaranteed to have a predicted return. If I pay off a mortgage early, those predicted savings are guaranteed and absolute. Freedom from that debt is certain. Sure, property taxes and insurance (my total cost for both is about 2600.00 or 50 bucks a week) are certain as well. But the return on paying it off early is certainly certain. Which is more Bogleheadian? Paying it off early, or gambling on a predicted return in the markets with the money?
By this very logic, no one should invest a penny in the stock market, ever.
Never gamble. Only invest in guaranteed stocks.
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Re: anyone regret paying off mortgage early

Post by socaldude »

Rick Edleman says "no, don't pay off your mortgage.." Suze Orman says, "yes, pay off your mortgage..". It was the best financial move I ever made. I was able to retire early and move on with life. It's different for each person, but I am very happy. ( Not a huge Suze fan but agree with her that life is not always about the numbers. P.S. I will share that my neighbor was not happy with R.Edleman advisor putting him into "the ten funds" and charging $$$ fees and the advisor didn't care about customer service at all. He moved his money to Fidelity and is much happier.)
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Re: anyone regret paying off mortgage early

Post by Admiral »

grabiner wrote: Wed Jun 09, 2021 10:13 pm
goodenyou wrote: Wed Jun 09, 2021 2:03 pm
aristotelian wrote: Wed Jun 09, 2021 1:03 pm Does anyone regret buying bonds? (Wait, don't answer that.) Bonds have lower expected return in exchange for lower risk. Paying down debt is no different than buying bonds. You are exchanging higher expected return with market risk for lower return that is guaranteed. Generally paying down mortgage is even more favorable than buying bonds. Just as asset allocation with stocks and bonds is an individual choice, so is paying down mortgage. Just depends on your situation and risk tolerance. Either way your expected return is commensurate with the risk.
If I had to paint and repair bonds, I would regret buying them. Plus, if the County Bond Taxing District continued to raise my taxes on the unrealized gains of my bonds, I would regret buying bonds. But, I digress. :)
You pay the same amount to paint, repair, and pay property taxes on your house whether it has a mortgage or not, so paying down the mortgage is a purely financial move. Paying down any 3% loan gives a risk-free 3% return, which must be weighed against alternative uses of the same money. ]

The mortgage should only be considered differently because the tax law may make the return taxable (if you lose deductible interest) and because the benefit can be realized early if you sell the house.
This is true as far as it goes. But what's at issue is that prepayment must not only be "weighed against alternative uses of the same money" but also that the weighing is occurring in the particular and highly unusual situation (at least compared to the past) we are in right now: i.e. that mortgage loan rates are either well below inflation or equal to it. If inflation actually returns to historical averages (around 3%) millions of people will be sitting on debt that, each year, costs them less... even if they do absolutely nothing to eliminate/reduce it.

Meanwhile available investment options, and even fixed-rate options, will very likely return more than these mortgages. Is the future return guaranteed? Of course not. But what we have is 80-100 years of inflation and market data to use to make our decisions. And deciding to hold a 2% fixed rate long-debt obligation while investing, based on available historical data, appears to be the rational choice.
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Re: anyone regret paying off mortgage early

Post by sureshoe »

I have always carried a mostly maxed out mortgage since 2009, with rates that ranged from high 4% to a current 2.5%. In my mid-40s now. I simply would not have anywhere near my current net worth if I had paid the mortgage down instead.

The tax law changes made me reconsider because we started taking the standard deduction, but even then. (this year I might get past it, woo)
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Re: anyone regret paying off mortgage early

Post by LeslieSmiley »

sureshoe wrote: Thu Jun 10, 2021 7:38 am I have always carried a mostly maxed out mortgage since 2009, with rates that ranged from high 4% to a current 2.5%. In my mid-40s now. I simply would not have anywhere near my current net worth if I had paid the mortgage down instead.

The tax law changes made me reconsider because we started taking the standard deduction, but even then. (this year I might get past it, woo)
+1

The total amount of debt (mortgages & auto loans with interest rate from 0.9% to 4%) is in the high six figures. The average annual return of a 70/30 portfolio is about 9.4% so the additional growth of my net worth is quite significant. The power of compound return.

Yes the market could tank and it did during the dot.com bubble, 2008 financial crisis and covid-19, but the market recovered and continued to grow. Having enough assets in fixed income to weather out downturn so you don't have to sell at low and stay the course is paramount.
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Re: anyone regret paying off mortgage early

Post by LeslieSmiley »

sureshoe wrote: Thu Jun 10, 2021 7:38 am I have always carried a mostly maxed out mortgage since 2009, with rates that ranged from high 4% to a current 2.5%. In my mid-40s now. I simply would not have anywhere near my current net worth if I had paid the mortgage down instead.

The tax law changes made me reconsider because we started taking the standard deduction, but even then. (this year I might get past it, woo)
+1

The total amount of my debts (mortgages & auto loans with interest rate from 0.9% to 4%) is in the high six figures. The average annual return of a 70/30 portfolio is about 9.4% so the additional growth of my net worth is quite significant. The power of compound return.

Yes the market could tank and it did during the dot.com bubble, 2008 financial crisis and covid-19, but the market recovered and continued to grow. Having enough assets in fixed income to weather out downturn so you don't have to sell at low and stay the course is paramount.
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Re: anyone regret paying off mortgage early

Post by LeslieSmiley »

sureshoe wrote: Thu Jun 10, 2021 7:38 am I have always carried a mostly maxed out mortgage since 2009, with rates that ranged from high 4% to a current 2.5%. In my mid-40s now. I simply would not have anywhere near my current net worth if I had paid the mortgage down instead.

The tax law changes made me reconsider because we started taking the standard deduction, but even then. (this year I might get past it, woo)
+1

The total amount of my debts (mortgages & auto loans with interest rate from 0.9% to 4%) was in the high six figures. The average annual return of a 70/30 portfolio is about 9.4% so the additional growth of my net worth is quite significant by strategically incurring debts with low interest rate and investing in a moderate growth portfolio at 70/30. The power of compound return.

Yes the market could tank and it did during the dot.com bubble, 2008 financial crisis and covid-19, but the market recovered and continued to grow. Having enough assets in fixed income to weather out downturn so you don't have to sell at low and stay the course is paramount.
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Re: anyone regret paying off mortgage early

Post by sureshoe »

mrsgoldilocks wrote: Mon Jun 07, 2021 9:29 pm Currently, I have a mortgage of 30 years at 2.5%. Since the beginning (which is Oct 2020), I have been paying extra so that I will pay off the mortgage in 15 years. And I'm also thinking to have early retirement around that time as well.

However, I'm always thinking if this is the right decision. Given that if I invest the extra payment monthly with 80/20 over stock/bond and my balance at the end of the 15 years, according to simulation, it's almost 100% chance to be able to cover my ending balance of my mortgage even after factoring in capital gain tax.

I understand that this is totally a piece of mind and personal preference thing; and for everyone who had paid off mortgage ahead of schedule, do you regret not investing your extra payment?

I really hate myself always going back to revisit my decision. I just wonder if others' personal experience can help me settle the issue.
Skimmed all the posts, not sure if anyone did the math.

Lets say you have a $300k mortgage (didn't see your actual number). Paying it off in 15 years requires an extra $950/month roughly.

> Paying off early, at the end of 15 years, you have a $300k of extra equity. $0 investment account.
> Paying on schedule, at a conservative market return of 7% (allowing for taxes/variances), you have about $120k equity and $280k in the investment account. So even at that conservative number, you have $100k more. You also have a 2.5% interest rate still locked in for 15 years, which in my opinion has value.

The only other point I might make is that if you're going to pay off in 15 years, why not take out a 15 year loan and get the extra low rate?

Humans are naturally loss averse, so I don't think you'll "regret it". And, there is a chance the market only returns 5% or 4% over the next 15 years, but generally we've done better.
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Re: anyone regret paying off mortgage early

Post by bg5 »

I have a 15 year mortage at 1.99% so I have no plans to pay it off early. I also did not want a 30 year mortage as I want to have the house paid off when I retire. The wife and I max out our retirement accounts and feel comfortable knowing that within 15 years the house will be paid off.

The one thing people never factor in is RISK. Debt is RISK and this pandemic shows that the world may change quickly at any time. Paying off debt is never a bad thing in my opinion but I would be hesitant to pay down a mortage. If I was doing that I would put that money in an account and wait until I had enough to pay the whole thing off.

Good Luck to all.....there is more to life than numbers and at the end of the day whatever you decide and feel comfortable with is the right decision for you. Dont worry about what other people do.....you do you!
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Re: anyone regret paying off mortgage early

Post by goodenyou »

Admiral wrote: Thu Jun 10, 2021 6:30 am
grabiner wrote: Wed Jun 09, 2021 10:13 pm
goodenyou wrote: Wed Jun 09, 2021 2:03 pm
aristotelian wrote: Wed Jun 09, 2021 1:03 pm Does anyone regret buying bonds? (Wait, don't answer that.) Bonds have lower expected return in exchange for lower risk. Paying down debt is no different than buying bonds. You are exchanging higher expected return with market risk for lower return that is guaranteed. Generally paying down mortgage is even more favorable than buying bonds. Just as asset allocation with stocks and bonds is an individual choice, so is paying down mortgage. Just depends on your situation and risk tolerance. Either way your expected return is commensurate with the risk.
If I had to paint and repair bonds, I would regret buying them. Plus, if the County Bond Taxing District continued to raise my taxes on the unrealized gains of my bonds, I would regret buying bonds. But, I digress. :)
You pay the same amount to paint, repair, and pay property taxes on your house whether it has a mortgage or not, so paying down the mortgage is a purely financial move. Paying down any 3% loan gives a risk-free 3% return, which must be weighed against alternative uses of the same money. ]

The mortgage should only be considered differently because the tax law may make the return taxable (if you lose deductible interest) and because the benefit can be realized early if you sell the house.
This is true as far as it goes. But what's at issue is that prepayment must not only be "weighed against alternative uses of the same money" but also that the weighing is occurring in the particular and highly unusual situation (at least compared to the past) we are in right now: i.e. that mortgage loan rates are either well below inflation or equal to it. If inflation actually returns to historical averages (around 3%) millions of people will be sitting on debt that, each year, costs them less... even if they do absolutely nothing to eliminate/reduce it.

Meanwhile available investment options, and even fixed-rate options, will very likely return more than these mortgages. Is the future return guaranteed? Of course not. But what we have is 80-100 years of inflation and market data to use to make our decisions. And deciding to hold a 2% fixed rate long-debt obligation while investing, based on available historical data, appears to be the rational choice.
Right. And the caveat is that "past performance is no guarantee of future results". Or, more specifically, "past performance may not be a guarantee of future results in your time frame". Just like higher risk, lower risk comes at a potential cost.
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Re: anyone regret paying off mortgage early

Post by topper1296 »

I paid mine off early and just enjoyed my 3rd month with no mortgage payment with zero regrets. I could get laid off tomorrow (I've been laid off 3 times in my career) and would have a lot less stress by not having a mortgage payment hanging over my head. I don't care what the math says...you can't put a price on that.
BadgerInBerkeley
Posts: 18
Joined: Thu Jun 10, 2021 8:34 am

Re: anyone regret paying off mortgage early

Post by BadgerInBerkeley »

Tingting1013 wrote: Tue Jun 08, 2021 7:56 am
CoastLawyer2030 wrote: Tue Jun 08, 2021 7:54 am
mrsgoldilocks wrote: Mon Jun 07, 2021 9:29 pm Currently, I have a mortgage of 30 years at 2.5%. Since the beginning (which is Oct 2020), I have been paying extra so that I will pay off the mortgage in 15 years. And I'm also thinking to have early retirement around that time as well.

However, I'm always thinking if this is the right decision. Given that if I invest the extra payment monthly with 80/20 over stock/bond and my balance at the end of the 15 years, according to simulation, it's almost 100% chance to be able to cover my ending balance of my mortgage even after factoring in capital gain tax.

I understand that this is totally a piece of mind and personal preference thing; and for everyone who had paid off mortgage ahead of schedule, do you regret not investing your extra payment?

I really hate myself always going back to revisit my decision. I just wonder if others' personal experience can help me settle the issue.
Admiral wrote: Tue Jun 08, 2021 5:59 am Why not create a dedicated sinking fund and invest the money? In 15 years, you can pay it off, or not. I prefer to have access to liquidity and not lock money into an illiquid asset like my house.

Your current rate is lower than inflation. Pre-paying that rate makes no sense, in my opinion. You're using more valuable current dollars to save inflated dollars in the future, which also makes little sense.
OP, I have weighed this issue over and over and over and over (probably like you), and I always come back to the sinking fund being the best of all worlds.

The basic concept (as I understand it) is to set up a separate brokerage account that is exclusively dedicated to eventually paying off your mortgage. My personal goal is to get this fund to 100% of my mortgage balance. At that time, it is its own mortgage-FI fund -- you can withdraw your yearly mortgage payments every year and the overall balance on the account will keep going up (over the long term). Play with a safe withdrawal rate calculator and you will see how much this fund will grow even while withdrawing your mortgage payments.

This essentially allows you to "FI" your mortgage while enjoying the benefits of that liquidity.

For me, I have customized my net worth statement to have my mortgage balance appear right next to my sinking fund. That peace of mind is growing as the sinking fund grows.
A sinking fund is a fantastic psychological and financial strategy
I second the sinking fund strategy. This is what I use with my 700k mortgage. I’m currently in my mid-30s and have another 30ish years before retirement, which lines up well with my mortgage timeline. I conducted my own simulations and they showed massive gains if I invested and sold every year from that fund to keep paying off the mortgage. The simulation also allowed for up to two years when I don’t sell if the market posted a loss, which helps to mitigate against down markets. This approach was especially lucrative because I was modeling a lump sum of 700k investing over 30 years, which unfortunately didn’t happen. I had a large exit event at my company that looked like it was tracking towards coming up with that money all at once, then it took a devastating turn with the rest of the market churn in March ‘21 that left me a bit short. Still, I like the strategy and will use it going forward.

Interest rate is 2.75%. I still take the mortgage interest deduction, though the SALT cap has certainly made that less advantageous. I expect that cap to go away though (and I like the approach independent of tax deductions associated with the mortgage or property tax).
bg5
Posts: 562
Joined: Mon Jan 15, 2018 10:07 am

Re: anyone regret paying off mortgage early

Post by bg5 »

topper1296 wrote: Thu Jun 10, 2021 8:52 am I paid mine off early and just enjoyed my 3rd month with no mortgage payment with zero regrets. I could get laid off tomorrow (I've been laid off 3 times in my career) and would have a lot less stress by not having a mortgage payment hanging over my head. I don't care what the math says...you can't put a price on that.

Totally agree and people continue to just look at the numbers and not factor in RISK. Nothing wrong with debt but make no mistake about it that debt is RISK and things can change quickly in ones life.
Locked