Anyone regret paying off mortgage early?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Anyone regret paying off mortgage early?

Post by Apathizer »

corn18 wrote: Sat May 14, 2022 7:19 pm
international001 wrote: Sat May 14, 2022 6:51 pm
corn18 wrote: Sat May 14, 2022 6:13 pm

I’m doing 3 now. 2.25% fixed rate mortgage with 29 years left. I could build a bond ladder at Fidelity with a 10 year duration (same as the mortgage) earning just over 3%. Not complicated at all. Not any more risky than having the mortgage.

Does not work at todays mortgage rates.
How much of that 3% is after-tax?
It sits in my 401k brokerage link account. It will get taxed at 12% when I withdraw it. I cannot deduct my mortgage interest. So I guess the comparison is 2.25% mortgage interest vs. 3% x .88 = 2.64% after tax in bond ladder.
Again, that seems like quite a bit of trouble for 0.4%, and isn't an option for some of us. Again, my mortgage rate is 4.2%, so such a ladder wouldn't work. It seems simpler and better in the long-term to pay off the mortgage and invest based on desired allocation.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
Tom_T
Posts: 4836
Joined: Wed Aug 29, 2007 2:33 pm

Re: Anyone regret paying off mortgage early?

Post by Tom_T »

Starfish wrote: Sat May 14, 2022 8:21 pm
Tom_T wrote: Sat May 14, 2022 9:54 am Once someone says "paying off the mortgage makes me feel better", then the discussion is over, and that's fine. How many times has it been said around here that when Bogleheads disagree on something, then it probably doesn't matter much one way or the other? Paying off the mortgage early isn't going to ruin one's financial life. I prefer to keep mine, and that's not going to ruin my life, either. Sometimes it feels like certain threads are arguing just for the sake of arguing. :happy
Maybe it does not ruin one's life but one additional year of freedom has enormous value because life is short and precious.
Otherwise it's very hard to discuss with people who try contradict basic math because "they feel better".
Whatever. You're right and all those other people are wrong.
coachd50
Posts: 1778
Joined: Sun Oct 22, 2017 10:12 am

Re: Anyone regret paying off mortgage early?

Post by coachd50 »

Apathizer wrote: Sat May 14, 2022 9:48 pm
corn18 wrote: Sat May 14, 2022 7:19 pm
international001 wrote: Sat May 14, 2022 6:51 pm
corn18 wrote: Sat May 14, 2022 6:13 pm

I’m doing 3 now. 2.25% fixed rate mortgage with 29 years left. I could build a bond ladder at Fidelity with a 10 year duration (same as the mortgage) earning just over 3%. Not complicated at all. Not any more risky than having the mortgage.

Does not work at todays mortgage rates.
How much of that 3% is after-tax?
It sits in my 401k brokerage link account. It will get taxed at 12% when I withdraw it. I cannot deduct my mortgage interest. So I guess the comparison is 2.25% mortgage interest vs. 3% x .88 = 2.64% after tax in bond ladder.
Again, that seems like quite a bit of trouble for 0.4%, and isn't an option for some of us. Again, my mortgage rate is 4.2%, so such a ladder wouldn't work. It seems simpler and better in the long-term to pay off the mortgage and invest based on desired allocation.
I don't think anyone is trying to tell you that you are wrong in your specific choice. I think most of the replies to your comments, and HMS Victory's comments are because their tone is that your choices are universally "correct".

HMS Victory's comments focus on the awesomeness of the newfound cashflow that can be invested while seemingly never considering the large cash expenditure (or previous loss of cashflow) that COULD have been invested.
Your comments seem to mention the word "risk" a lot, but as a singular concept without addressing the fact that their are multiple risks, and some risks can be increased by concentrating cash into a single relatively illiquid asset (house).

It really comes down to the difference between the interest rate on the mortgage and the other opportunities available. That's about it. In your case, 4.2% is better than the alternatives you are comfortable with, and so the choice makes sense to you.
Ivygirl
Posts: 1212
Joined: Sun Apr 06, 2014 1:36 pm

Re: Anyone regret paying off mortgage early?

Post by Ivygirl »

Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
stoptothink
Posts: 15368
Joined: Fri Dec 31, 2010 8:53 am

Re: Anyone regret paying off mortgage early?

Post by stoptothink »

Ivygirl wrote: Sun May 15, 2022 7:40 am Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
Depends on how much you are willing to pay (or financial upside you are willing to give up) to eliminate that risk. As a homeowner who got rid of the mortgage in 4.5 years and now kind of regrets it, I'm still wondering if that "risk" is relevant to me. I do kind of see your perspective, but given the choice again, I would have held onto that mortgage. Nobody is right or wrong.
coachd50
Posts: 1778
Joined: Sun Oct 22, 2017 10:12 am

Re: Anyone regret paying off mortgage early?

Post by coachd50 »

Ivygirl wrote: Sun May 15, 2022 7:40 am Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
Since you were the "metaphor police" earlier, I would say I don't believe calling a creditor a partner really fits the common definition of partner in most senses. Under this definition, I guess the Home Owners association is "a partner", or if you own a house in a neighborhood with covenants, they are all "partners". Clearly the local, state, and federal governments are "partners" as they have say in what you do regarding your home, and there are decisions one can not make because those "partners" want something different.
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: Anyone regret paying off mortgage early?

Post by Admiral »

coachd50 wrote: Sun May 15, 2022 8:07 am
Ivygirl wrote: Sun May 15, 2022 7:40 am Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
Since you were the "metaphor police" earlier, I would say I don't believe calling a creditor a partner really fits the common definition of partner in most senses. Under this definition, I guess the Home Owners association is "a partner", or if you own a house in a neighborhood with covenants, they are all "partners". Clearly the local, state, and federal governments are "partners" as they have say in what you do regarding your home, and there are decisions one can not make because those "partners" want something different.
And let's not forget the spouse: They are the true "partner" if/when it's time to divorce! Looks like we all have more "partners" than Big Law.
59Gibson
Posts: 1386
Joined: Mon Dec 07, 2020 7:41 am

Re: Anyone regret paying off mortgage early?

Post by 59Gibson »

My mindset in paying off the mortgage was

My career entails working a commission-only sales job with little security and income fluctuations
My wife owns a small business with same characteristics
I wanted something "locked in", rightly or wrongly
I did not want everything riding on the stock market, I've always had enough "risk assets", and did not need leverage to get to the promised land
I know many others would be fine taking the highest LTV mortg one could qualify for in the same situation, and to each their own.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Anyone regret paying off mortgage early?

Post by grabiner »

corn18 wrote: Sat May 14, 2022 7:19 pm
international001 wrote: Sat May 14, 2022 6:51 pm
corn18 wrote: Sat May 14, 2022 6:13 pm
I’m doing 3 now. 2.25% fixed rate mortgage with 29 years left. I could build a bond ladder at Fidelity with a 10 year duration (same as the mortgage) earning just over 3%. Not complicated at all. Not any more risky than having the mortgage.

Does not work at todays mortgage rates.
How much of that 3% is after-tax?
It sits in my 401k brokerage link account. It will get taxed at 12% when I withdraw it. I cannot deduct my mortgage interest. So I guess the comparison is 2.25% mortgage interest vs. 3% x .88 = 2.64% after tax in bond ladder.
The right comparison is 2.25% versus 3%. If you contribute $10K to your 401(k) rather than paying down your mortgage, that costs you $8800 out of pocket, and you will lose 12% of the account to taxes when you withdraw. This is equivalent to investing $8800 tax-free with a 3% after-tax return.

Or, if you are already old enough to withdraw, you can withdraw $10K from your 401(k) now and spend $8800, or earn $300 in interest in one year and then spend $9064. This is again a 3% return on the $8800 you could spend.

The comparison would be 2.64% if the money were in a taxable account. Now, if $10K earns $300 in interest in one year, it grows to $10,264.
Wiki David Grabiner
Admiral
Posts: 5039
Joined: Mon Oct 27, 2014 12:35 pm

Re: Anyone regret paying off mortgage early?

Post by Admiral »

Apathizer wrote: Sat May 14, 2022 5:02 pm
Admiral wrote: Sat May 14, 2022 4:59 pm
Apathizer wrote: Sat May 14, 2022 4:56 pm
Admiral wrote: Sat May 14, 2022 4:49 pm
Apathizer wrote: Sat May 14, 2022 2:23 pm
With those resources I don't see any benefit in financing a car. Borrowing to pay for depreciating consumer items is always less efficient than just paying outright. Then again, with your resources it probably won't make much difference.
What's the meaning of your use of "efficient"? All that matters is the interest rate spread. That is the benefit. It's math. I could pay $30k for a car in cash, or I could get a car loan at x% and invest the $30k of cash at x+1%. If it's a CD, or some other form of fixed income, the risk is zero and I have made money by not paying cash. Lots of people take loans when they are not forced to. That's the point of arbitrage.
That doesn't account for car depreciation. Cars typically depreciate about 50% in the first 5 years. Also, depending on circumstance, there's also potential repossession if the loan become delinquent. These are all things to consider, and why borrowing is more complicated than just paying outright.
Depreciation has nothing to do with it. As another poster said, the car depreciates if you pay with cash, a loan, or jelly beans. Please explain how the loan becomes delinquent if you have the money in a CD.
What is the CD duration? If you need the money before it retires don't you lose money?
No. You forfeit interest only.
User avatar
grabiner
Advisory Board
Posts: 35307
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Anyone regret paying off mortgage early?

Post by grabiner »

JBTX wrote: Sat May 14, 2022 7:16 pm Keep the mortgage and invest the funds in ibonds or TIPS if in tax advantaged. There is zero risk in doing that.

This idea that debt by itself has risk doesn’t make sense. The risk is in how the funds are invested. If you put them in stocks, yes there is risk. If you put them in inflation adjusted bonds, there is no risk. Also the notion that you can reduce your risk by depleting your cash to pay off a low rate mortgage also doesn’t make any sense.
It is better to use nominal bonds for comparison, not I-Bonds or TIPS. While TIPS may be a better investment, holding a nominal-dollar debt and inflation-adjusted bonds may result in a loss if inflation is less than expected. In contrast, holding a nominal bond ladder which pays exactly enough every year to make your mortgage payment has no risk, as your payment will always be made. If the current yield on these bonds is higher than the mortgage rate, then you have a net gain by keeping the bonds and mortgage, regardless of what happens to interest rates. (If rates fall, you can choose to pay off the mortgage then, as your bonds will be worth more than the mortgage balance.)
Wiki David Grabiner
User avatar
corn18
Posts: 2867
Joined: Fri May 22, 2015 6:24 am

Re: Anyone regret paying off mortgage early?

Post by corn18 »

grabiner wrote: Sun May 15, 2022 8:31 am
corn18 wrote: Sat May 14, 2022 7:19 pm
international001 wrote: Sat May 14, 2022 6:51 pm
corn18 wrote: Sat May 14, 2022 6:13 pm
I’m doing 3 now. 2.25% fixed rate mortgage with 29 years left. I could build a bond ladder at Fidelity with a 10 year duration (same as the mortgage) earning just over 3%. Not complicated at all. Not any more risky than having the mortgage.

Does not work at todays mortgage rates.
How much of that 3% is after-tax?
It sits in my 401k brokerage link account. It will get taxed at 12% when I withdraw it. I cannot deduct my mortgage interest. So I guess the comparison is 2.25% mortgage interest vs. 3% x .88 = 2.64% after tax in bond ladder.
The right comparison is 2.25% versus 3%. If you contribute $10K to your 401(k) rather than paying down your mortgage, that costs you $8800 out of pocket, and you will lose 12% of the account to taxes when you withdraw. This is equivalent to investing $8800 tax-free with a 3% after-tax return.

Or, if you are already old enough to withdraw, you can withdraw $10K from your 401(k) now and spend $8800, or earn $300 in interest in one year and then spend $9064. This is again a 3% return on the $8800 you could spend.

The comparison would be 2.64% if the money were in a taxable account. Now, if $10K earns $300 in interest in one year, it grows to $10,264.
Thank you for the clarification. I always get cornfused when comparing rates like this. And don't get me started on real vs. nominal dollars. That makes my head explode and I always get them mixed up.
Consistently sets low goals and fails to achieve them.
Ivygirl
Posts: 1212
Joined: Sun Apr 06, 2014 1:36 pm

Re: Anyone regret paying off mortgage early?

Post by Ivygirl »

coachd50 wrote: Sun May 15, 2022 8:07 am
Ivygirl wrote: Sun May 15, 2022 7:40 am Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
Since you were the "metaphor police" earlier, I would say I don't believe calling a creditor a partner really fits the common definition of partner in most senses. Under this definition, I guess the Home Owners association is "a partner", or if you own a house in a neighborhood with covenants, they are all "partners". Clearly the local, state, and federal governments are "partners" as they have say in what you do regarding your home, and there are decisions one can not make because those "partners" want something different.
Now don't get bent out of shape about the metaphor police, I was called the grammar police (implying that my point did not have substantive merit and was a mere quibble about words), which annoyed me enough to respond in kind, and now here we are.

I was not using the word "partner" as a metaphor, but in its general meaning, as in two independent entities with their own capacities for action who have joined together in an agreement meant to be mutually beneficial.

Not every partner is an equal partner. Sometimes there is a power inequality. Mr. Dave Ramsey often quotes the proverb "the borrower is slave to the lender" because he is a proud man, and being forced to do what he does not want to do, and being humbled, is terrible to him. It seems terrible to some of the rest of us too.

If one partner is rich enough to wait years for determination in their favor, and has the advantage of experience in many thousands of these "partnerships," and has the ability to take action on its own to thwart or complicate the matter when it looks like you may be benefiting from the relationship more - well isn't that risk?

Your mortgage lender could sell your mortgage to another servicer without asking you. With rates rising it might not be so easy to get from under the new arrangement by refinancing, if the servicer is incompetent, does not respond to communications, does not pay your taxes or insurance timely, or any of the other potential miseries. Isn't that risk?

Thirty years is a long time. Just in the last three years we have witnessed events happen that could never come true, and now here we are. This week there is a 40% shortage of baby formula in American stores.

Do you want a partner who can make you do what you do not want to do, and humble you?
coachd50
Posts: 1778
Joined: Sun Oct 22, 2017 10:12 am

Re: Anyone regret paying off mortgage early?

Post by coachd50 »

Ivygirl wrote: Sun May 15, 2022 10:11 am
coachd50 wrote: Sun May 15, 2022 8:07 am
Ivygirl wrote: Sun May 15, 2022 7:40 am Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
Since you were the "metaphor police" earlier, I would say I don't believe calling a creditor a partner really fits the common definition of partner in most senses. Under this definition, I guess the Home Owners association is "a partner", or if you own a house in a neighborhood with covenants, they are all "partners". Clearly the local, state, and federal governments are "partners" as they have say in what you do regarding your home, and there are decisions one can not make because those "partners" want something different.
Now don't get bent out of shape about the metaphor police, I was called the grammar police (implying that my point did not have substantive merit and was a mere quibble about words), which annoyed me enough to respond in kind, and now here we are.

I was not using the word "partner" as a metaphor, but in its general meaning, as in two independent entities with their own capacities for action who have joined together in an agreement meant to be mutually beneficial.

Not every partner is an equal partner. Sometimes there is a power inequality. Mr. Dave Ramsey often quotes the proverb "the borrower is slave to the lender" because he is a proud man, and being forced to do what he does not want to do, and being humbled, is terrible to him. It seems terrible to some of the rest of us too.

If one partner is rich enough to wait years for determination in their favor, and has the advantage of experience in many thousands of these "partnerships," and has the ability to take action on its own to thwart or complicate the matter when it looks like you may be benefiting from the relationship more - well isn't that risk?

Your mortgage lender could sell your mortgage to another servicer without asking you. With rates rising it might not be so easy to get from under the new arrangement by refinancing, if the servicer is incompetent, does not respond to communications, does not pay your taxes or insurance timely, or any of the other potential miseries. Isn't that risk?

Thirty years is a long time. Just in the last three years we have witnessed events happen that could never come true, and now here we are. This week there is a 40% shortage of baby formula in American stores.

Do you want a partner who can make you do what you do not want to do, and humble you?
Suffice it to say that I believe most here think you are REALLLLLLLLY trying to stretch that definition to fit your argument. To each their own.

What does Mr. Dave Ramsey say about "partnership" practice of relieving thousands of people of their hard earned money through his ELPs? Raking in tremendous amounts of income to provide knowledge that could literally be written on a large index card.

In a discussion such as this, risk is indeed an important consideration. I would suggest however that making a financial decision based on the risk of the loan service provider's quality might be a bit out there.
User avatar
CRC_Volunteer
Posts: 568
Joined: Fri Sep 10, 2021 10:57 am
Location: Southeast USA

Re: Anyone regret paying off mortgage early?

Post by CRC_Volunteer »

Any regrets? Nope, Nada, Zippo, Zilch...

Best and easiest decision ever made...
"Let me explain. No, there is too much. Let me sum up." (Inigo Montoya) | | 65/30/05 | 53% VTSAX | 12% VTIAX | 30% VAIPX | 5% CASH
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Anyone regret paying off mortgage early?

Post by JoeRetire »

Ivygirl wrote: Sun May 15, 2022 7:40 am Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
The only thing this particular "partner" wants you to do is to pay your monthly mortgage and maintain your insurance and taxes.

If you want to give this "partner" a bunch of money so that you aren't "forced to do things you don't want", you can always do so. Then you'll still have plenty of other "partners" remaining. Your tax "partner" will always remain. And you would be silly (not to mention risky) to dismiss your insurance "partner". I suppose it would be possible (if rather unlikely) to get rid of your electricity "partner", your water "partner", your telephone "partner", your internet "partner", etc, etc, etc.

You can attempt to become "partner free", but you will always fail.
This isn't just my wallet. It's an organizer, a memory and an old friend.
JBTX
Posts: 11227
Joined: Wed Jul 26, 2017 12:46 pm

Re: Anyone regret paying off mortgage early?

Post by JBTX »

grabiner wrote: Sun May 15, 2022 8:37 am
JBTX wrote: Sat May 14, 2022 7:16 pm Keep the mortgage and invest the funds in ibonds or TIPS if in tax advantaged. There is zero risk in doing that.

This idea that debt by itself has risk doesn’t make sense. The risk is in how the funds are invested. If you put them in stocks, yes there is risk. If you put them in inflation adjusted bonds, there is no risk. Also the notion that you can reduce your risk by depleting your cash to pay off a low rate mortgage also doesn’t make any sense.
It is better to use nominal bonds for comparison, not I-Bonds or TIPS. While TIPS may be a better investment, holding a nominal-dollar debt and inflation-adjusted bonds may result in a loss if inflation is less than expected. In contrast, holding a nominal bond ladder which pays exactly enough every year to make your mortgage payment has no risk, as your payment will always be made. If the current yield on these bonds is higher than the mortgage rate, then you have a net gain by keeping the bonds and mortgage, regardless of what happens to interest rates. (If rates fall, you can choose to pay off the mortgage then, as your bonds will be worth more than the mortgage balance.)
But you can always sell ibonds at minimal to no loss and use to pay off if inflation rates drop substantially. TIPS involve a bit more risk, but worth taking at this point.
Ivygirl
Posts: 1212
Joined: Sun Apr 06, 2014 1:36 pm

Re: Anyone regret paying off mortgage early?

Post by Ivygirl »

JoeRetire wrote: Sun May 15, 2022 11:54 am
Ivygirl wrote: Sun May 15, 2022 7:40 am Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
The only thing this particular "partner" wants you to do is to pay your monthly mortgage and maintain your insurance and taxes.

If you want to give this "partner" a bunch of money so that you aren't "forced to do things you don't want", you can always do so. Then you'll still have plenty of other "partners" remaining. Your tax "partner" will always remain. And you would be silly (not to mention risky) to dismiss your insurance "partner". I suppose it would be possible (if rather unlikely) to get rid of your electricity "partner", your water "partner", your telephone "partner", your internet "partner", etc, etc, etc.

You can attempt to become "partner free", but you will always fail.
Why have more of this kind of risk than you have to?
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Anyone regret paying off mortgage early?

Post by Apathizer »

Admiral wrote: Sun May 15, 2022 8:34 am
Apathizer wrote: Sat May 14, 2022 5:02 pm
Admiral wrote: Sat May 14, 2022 4:59 pm
Apathizer wrote: Sat May 14, 2022 4:56 pm
Admiral wrote: Sat May 14, 2022 4:49 pm

What's the meaning of your use of "efficient"? All that matters is the interest rate spread. That is the benefit. It's math. I could pay $30k for a car in cash, or I could get a car loan at x% and invest the $30k of cash at x+1%. If it's a CD, or some other form of fixed income, the risk is zero and I have made money by not paying cash. Lots of people take loans when they are not forced to. That's the point of arbitrage.
That doesn't account for car depreciation. Cars typically depreciate about 50% in the first 5 years. Also, depending on circumstance, there's also potential repossession if the loan become delinquent. These are all things to consider, and why borrowing is more complicated than just paying outright.
Depreciation has nothing to do with it. As another poster said, the car depreciates if you pay with cash, a loan, or jelly beans. Please explain how the loan becomes delinquent if you have the money in a CD.
What is the CD duration? If you need the money before it retires don't you lose money?
No. You forfeit interest only.
So in other words you lose all the benefit relative to accelerated mortgage payments. So again, you're making things really complex for the sake of essentially chasing about 0.4% of difference, and you also have the rigidity of CD structure. That doesn't seem worth it.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
JBTX
Posts: 11227
Joined: Wed Jul 26, 2017 12:46 pm

Re: Anyone regret paying off mortgage early?

Post by JBTX »

Apathizer wrote: Sun May 15, 2022 1:00 pm
Admiral wrote: Sun May 15, 2022 8:34 am
Apathizer wrote: Sat May 14, 2022 5:02 pm
Admiral wrote: Sat May 14, 2022 4:59 pm
Apathizer wrote: Sat May 14, 2022 4:56 pm
That doesn't account for car depreciation. Cars typically depreciate about 50% in the first 5 years. Also, depending on circumstance, there's also potential repossession if the loan become delinquent. These are all things to consider, and why borrowing is more complicated than just paying outright.
Depreciation has nothing to do with it. As another poster said, the car depreciates if you pay with cash, a loan, or jelly beans. Please explain how the loan becomes delinquent if you have the money in a CD.
What is the CD duration? If you need the money before it retires don't you lose money?
No. You forfeit interest only.
So in other words you lose all the benefit relative to accelerated mortgage payments. So again, you're making things really complex for the sake of essentially chasing about 0.4% of difference, and you also have the rigidity of CD structure. That doesn't seem worth it.
Some people value having additional liquidity to hedge against life’s unexpected events. If you can borrow and invest at no net cost, you have additional liquidity. You may choose to use part of that that liquidity as emergency fund, and then invest part of your current emergency fund. In other words it allows you to invest more with no or minimal additional liquidity risk. Or as I said put as much as you can in ibonds and actually have a positive spread and an inflation hedge.

If that is too much of a hassle or makes you feel worse then obviously don’t do it. But don’t misrepresent that the interest cost on the mortgage is an incremental cost and you are taking on additional risk simply by having the mortgage.
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Anyone regret paying off mortgage early?

Post by Apathizer »

coachd50 wrote: Sun May 15, 2022 7:38 am
Apathizer wrote: Sat May 14, 2022 9:48 pm
corn18 wrote: Sat May 14, 2022 7:19 pm
international001 wrote: Sat May 14, 2022 6:51 pm
corn18 wrote: Sat May 14, 2022 6:13 pm

I’m doing 3 now. 2.25% fixed rate mortgage with 29 years left. I could build a bond ladder at Fidelity with a 10 year duration (same as the mortgage) earning just over 3%. Not complicated at all. Not any more risky than having the mortgage.

Does not work at todays mortgage rates.
How much of that 3% is after-tax?
It sits in my 401k brokerage link account. It will get taxed at 12% when I withdraw it. I cannot deduct my mortgage interest. So I guess the comparison is 2.25% mortgage interest vs. 3% x .88 = 2.64% after tax in bond ladder.
Again, that seems like quite a bit of trouble for 0.4%, and isn't an option for some of us. Again, my mortgage rate is 4.2%, so such a ladder wouldn't work. It seems simpler and better in the long-term to pay off the mortgage and invest based on desired allocation.
I don't think anyone is trying to tell you that you are wrong in your specific choice. I think most of the replies to your comments, and HMS Victory's comments are because their tone is that your choices are universally "correct".

HMS Victory's comments focus on the awesomeness of the newfound cashflow that can be invested while seemingly never considering the large cash expenditure (or previous loss of cashflow) that COULD have been invested.
Your comments seem to mention the word "risk" a lot, but as a singular concept without addressing the fact that their are multiple risks, and some risks can be increased by concentrating cash into a single relatively illiquid asset (house).

It really comes down to the difference between the interest rate on the mortgage and the other opportunities available. That's about it. In your case, 4.2% is better than the alternatives you are comfortable with, and so the choice makes sense to you.
Whether you own or mortgage your home this doesn't affect its property value. There are two relevant factors: home value and mortgage debt. Home equity is the latter subtracted from the former. Regardless of its value debt reduces net home equity and increases the likelihood of negative equity.

When you have a mortgage most of the interest paid is unrecoverable and in some cases all of it is. This is a massive expenditure of having a large mortgage that is eliminated when it's paid off. You have to pays this interest in some form, so why not eliminate it sooner rather than later? If you plan to sell soon (me) you'll net more from the sale. If you don't plan to sell soon you'll reduce or eliminate the mortgage payment, thus enabling greater potential for higher net wealth accumulation.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Anyone regret paying off mortgage early?

Post by Apathizer »

JBTX wrote: Sun May 15, 2022 1:09 pm
Apathizer wrote: Sun May 15, 2022 1:00 pm
Admiral wrote: Sun May 15, 2022 8:34 am
Apathizer wrote: Sat May 14, 2022 5:02 pm
Admiral wrote: Sat May 14, 2022 4:59 pm

Depreciation has nothing to do with it. As another poster said, the car depreciates if you pay with cash, a loan, or jelly beans. Please explain how the loan becomes delinquent if you have the money in a CD.
What is the CD duration? If you need the money before it retires don't you lose money?
No. You forfeit interest only.
So in other words you lose all the benefit relative to accelerated mortgage payments. So again, you're making things really complex for the sake of essentially chasing about 0.4% of difference, and you also have the rigidity of CD structure. That doesn't seem worth it.
Some people value having additional liquidity to hedge against life’s unexpected events. If you can borrow and invest at no net cost, you have additional liquidity. You may choose to use part of that that liquidity as emergency fund, and then invest part of your current emergency fund. In other words it allows you to invest more with no or minimal additional liquidity risk. Or as I said put as much as you can in ibonds and actually have a positive spread and an inflation hedge.

If that is too much of a hassle or makes you feel worse then obviously don’t do it. But don’t misrepresent that the interest cost on the mortgage is an incremental cost and you are taking on additional risk simply by having the mortgage.
Whenever you borrow there is always more risk and complexity. When yo don't everything is much simpler and more straight-forward. Sure you can chase pennies with all these elaborate schemes but that's all you're really doing; creating complexity for a negligible interest benefit.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
JBTX
Posts: 11227
Joined: Wed Jul 26, 2017 12:46 pm

Re: Anyone regret paying off mortgage early?

Post by JBTX »

Apathizer wrote: Sun May 15, 2022 1:41 pm
JBTX wrote: Sun May 15, 2022 1:09 pm
Apathizer wrote: Sun May 15, 2022 1:00 pm
Admiral wrote: Sun May 15, 2022 8:34 am
Apathizer wrote: Sat May 14, 2022 5:02 pm
What is the CD duration? If you need the money before it retires don't you lose money?
No. You forfeit interest only.
So in other words you lose all the benefit relative to accelerated mortgage payments. So again, you're making things really complex for the sake of essentially chasing about 0.4% of difference, and you also have the rigidity of CD structure. That doesn't seem worth it.
Some people value having additional liquidity to hedge against life’s unexpected events. If you can borrow and invest at no net cost, you have additional liquidity. You may choose to use part of that that liquidity as emergency fund, and then invest part of your current emergency fund. In other words it allows you to invest more with no or minimal additional liquidity risk. Or as I said put as much as you can in ibonds and actually have a positive spread and an inflation hedge.

If that is too much of a hassle or makes you feel worse then obviously don’t do it. But don’t misrepresent that the interest cost on the mortgage is an incremental cost and you are taking on additional risk simply by having the mortgage.
Whenever you borrow there is always more risk and complexity. When yo don't everything is much simpler and more straight-forward. Sure you can chase pennies with all these elaborate schemes but that's all you're really doing; creating complexity for a negligible interest benefit.
Having a low interest mortgage on autopay is near zero risk and complexity.

I always laugh when I hear people dismiss non preferred strategies as having negligible benefits.

If you had invested in ibonds in April you were guaranteed about 8% for a year. Let’s make that 6% after tax. That is a 3% spread. A married couple could easily invest $40k in ibonds. That is a $1200 net benefit.

Compare that to all the people jumping through hoops to do a backdoor Roth IRA. Say both spouses do that, $12k, and assume 10% gain per year. Compared to taxable, that is a $1200 gain, less about a $1000 gain in taxable, so roughly a $200 tax savings the first year, and probably actually less assuming you don’t sell.


Let’s do the same for a 401k and assume both spouses max. That’s $41k saved. Assume Roth because it is a cleaner calculation. That’s about a $700 tax benefit in the first year. So the benefits of an ibond /fixed mortgage spread would have exceeded the tax benefits of maxing out 401k and Roth IRA, at least for the first year.
User avatar
corn18
Posts: 2867
Joined: Fri May 22, 2015 6:24 am

Re: Anyone regret paying off mortgage early?

Post by corn18 »

Apathizer wrote: Sun May 15, 2022 1:00 pm
Admiral wrote: Sun May 15, 2022 8:34 am
Apathizer wrote: Sat May 14, 2022 5:02 pm
Admiral wrote: Sat May 14, 2022 4:59 pm
Apathizer wrote: Sat May 14, 2022 4:56 pm
That doesn't account for car depreciation. Cars typically depreciate about 50% in the first 5 years. Also, depending on circumstance, there's also potential repossession if the loan become delinquent. These are all things to consider, and why borrowing is more complicated than just paying outright.
Depreciation has nothing to do with it. As another poster said, the car depreciates if you pay with cash, a loan, or jelly beans. Please explain how the loan becomes delinquent if you have the money in a CD.
What is the CD duration? If you need the money before it retires don't you lose money?
No. You forfeit interest only.
So in other words you lose all the benefit relative to accelerated mortgage payments. So again, you're making things really complex for the sake of essentially chasing about 0.4% of difference, and you also have the rigidity of CD structure. That doesn't seem worth it.
You should consider the time value of money. My $1910 monthly mortgage payment today is only $900 in the last year of my mortgage (2051). If inflation is the same as my mortgage rate, then the interest is free in real terms. If it's higher than my mortgage rate (like it is now), then I am paying less for my house every month in real terms. Combine that with earning more than my mortgage rate using bonds or CDs and the real cost of the house is much lower than the mortgage balance.

We did this all the time in the business world. Borrow money at 2% and invest it in the business. If inflation was 2% or higher, then the cost of money was 0%.

This point always gets lost in the risk noise.
Consistently sets low goals and fails to achieve them.
nydoc
Posts: 540
Joined: Mon Jul 22, 2019 5:57 pm

Re: Anyone regret paying off mortgage early?

Post by nydoc »

But in business loan you start earning on the entire loan while paying less interest on that loan. In mortgage one is paying interest on the entire loan while earning only on whatever money was saved by not paying down the mortgage. House itself is not generating any income unless it’s a rental business.
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Anyone regret paying off mortgage early?

Post by Apathizer »

nydoc wrote: Sun May 15, 2022 2:35 pm But in business loan you start earning on the entire loan while paying less interest on that loan. In mortgage one is paying interest on the entire loan while earning only on whatever money was saved by not paying down the mortgage. House itself is not generating any income unless it’s a rental business.
Exactly. Some homeowners think of it as generating income when it doesn't. A home is an expense. Sure you'll get money when you sell it, but as long as you own it costs money rather than generating it, so it's not like a business that at least potentially generates income.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
User avatar
corn18
Posts: 2867
Joined: Fri May 22, 2015 6:24 am

Re: Anyone regret paying off mortgage early?

Post by corn18 »

nydoc wrote: Sun May 15, 2022 2:35 pm But in business loan you start earning on the entire loan while paying less interest on that loan. In mortgage one is paying interest on the entire loan while earning only on whatever money was saved by not paying down the mortgage. House itself is not generating any income unless it’s a rental business.
What if the entire mortgage amount was earning money? That’s where I am. I could pay it off tomorrow but choose not to for 2 reasons: I am earning more on the money with no additional risk and the cost of the money is currently -5.75% net of interest. You would have to be an idiot to pay that off in today’s environment.
Consistently sets low goals and fails to achieve them.
nydoc
Posts: 540
Joined: Mon Jul 22, 2019 5:57 pm

Re: Anyone regret paying off mortgage early?

Post by nydoc »

corn18 wrote: Sun May 15, 2022 2:45 pm
nydoc wrote: Sun May 15, 2022 2:35 pm But in business loan you start earning on the entire loan while paying less interest on that loan. In mortgage one is paying interest on the entire loan while earning only on whatever money was saved by not paying down the mortgage. House itself is not generating any income unless it’s a rental business.
What if the entire mortgage amount was earning money? That’s where I am. I could pay it off tomorrow but choose not to for 2 reasons: I am earning more on the money with no additional risk and the cost of the money is currently -5.75% net of interest. You would have to be an idiot to pay that off in today’s environment.
Then I agree with you. You can only earn more than mortgage interest if you have money equaling mortgage.
Not before that.
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: Anyone regret paying off mortgage early?

Post by KlangFool »

Apathizer wrote: Sun May 15, 2022 2:41 pm
nydoc wrote: Sun May 15, 2022 2:35 pm But in business loan you start earning on the entire loan while paying less interest on that loan. In mortgage one is paying interest on the entire loan while earning only on whatever money was saved by not paying down the mortgage. House itself is not generating any income unless it’s a rental business.
Exactly. Some homeowners think of it as generating income when it doesn't. A home is an expense. Sure you'll get money when you sell it, but as long as you own it costs money rather than generating it, so it's not like a business that at least potentially generates income.
Apathizer,

Except when it is significantly cheaper than renting. Aka, you lowered your current housing expense by buying.

If you were renting a house at $2,500 per month, then you bought the house and the PITI was $1,800 per month, you save $700 per month. Then, you do not need to sale the house in order to save/earn money.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Anyone regret paying off mortgage early?

Post by Apathizer »

KlangFool wrote: Sun May 15, 2022 2:52 pm
Apathizer wrote: Sun May 15, 2022 2:41 pm
nydoc wrote: Sun May 15, 2022 2:35 pm But in business loan you start earning on the entire loan while paying less interest on that loan. In mortgage one is paying interest on the entire loan while earning only on whatever money was saved by not paying down the mortgage. House itself is not generating any income unless it’s a rental business.
Exactly. Some homeowners think of it as generating income when it doesn't. A home is an expense. Sure you'll get money when you sell it, but as long as you own it costs money rather than generating it, so it's not like a business that at least potentially generates income.
Apathizer,

Except when it is significantly cheaper than renting. Aka, you lowered your current housing expense by buying.

If you were renting a house at $2,500 per month, then you bought the house and the PITI was $1,800 per month, you save $700 per month. Then, you do not need to sale the house in order to save/earn money.

KlangFool
That doesn't account for the usually significantly higher carrying costs of ownership. Maintenance, higher utilities, insurance, maybe an HOA, etc. When you account for these expense differences, the cost between renting and owning in this case is closer than you portray.

In any case, even if owning is slightly less expensive, it's still not generating income unless it's a rental property. Slightly less expense is still an expense; not income.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: Anyone regret paying off mortgage early?

Post by KlangFool »

Apathizer wrote: Sun May 15, 2022 3:15 pm
KlangFool wrote: Sun May 15, 2022 2:52 pm
Apathizer wrote: Sun May 15, 2022 2:41 pm
nydoc wrote: Sun May 15, 2022 2:35 pm But in business loan you start earning on the entire loan while paying less interest on that loan. In mortgage one is paying interest on the entire loan while earning only on whatever money was saved by not paying down the mortgage. House itself is not generating any income unless it’s a rental business.
Exactly. Some homeowners think of it as generating income when it doesn't. A home is an expense. Sure you'll get money when you sell it, but as long as you own it costs money rather than generating it, so it's not like a business that at least potentially generates income.
Apathizer,

Except when it is significantly cheaper than renting. Aka, you lowered your current housing expense by buying.

If you were renting a house at $2,500 per month, then you bought the house and the PITI was $1,800 per month, you save $700 per month. Then, you do not need to sale the house in order to save/earn money.

KlangFool
That doesn't account for the usually significantly higher carrying costs of ownership. Maintenance, higher utilities, insurance, maybe an HOA, etc. When you account for these expense differences, the cost between renting and owning in this case is closer than you portray.

In any case, even if owning is slightly less expensive, it's still not generating income unless it's a rental property. Slightly less expense is still an expense; not income.
Apathizer,

"In any case, even if owning is slightly less expensive,"

But that does not change the fact that if the housing expense is significantly lowered than current housing expense, the owner would save money. Hence, the owner is making money from imputed rent. If PITI of $1,800 per month is not low enough, the PITI of $1,500 or $1,000 may be low enough.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
international001
Posts: 2748
Joined: Thu Feb 15, 2018 6:31 pm

Re: Anyone regret paying off mortgage early?

Post by international001 »

grabiner wrote: Sun May 15, 2022 8:31 am
corn18 wrote: Sat May 14, 2022 7:19 pm
international001 wrote: Sat May 14, 2022 6:51 pm
corn18 wrote: Sat May 14, 2022 6:13 pm
I’m doing 3 now. 2.25% fixed rate mortgage with 29 years left. I could build a bond ladder at Fidelity with a 10 year duration (same as the mortgage) earning just over 3%. Not complicated at all. Not any more risky than having the mortgage.

Does not work at todays mortgage rates.
How much of that 3% is after-tax?
It sits in my 401k brokerage link account. It will get taxed at 12% when I withdraw it. I cannot deduct my mortgage interest. So I guess the comparison is 2.25% mortgage interest vs. 3% x .88 = 2.64% after tax in bond ladder.
The right comparison is 2.25% versus 3%. If you contribute $10K to your 401(k) rather than paying down your mortgage, that costs you $8800 out of pocket, and you will lose 12% of the account to taxes when you withdraw. This is equivalent to investing $8800 tax-free with a 3% after-tax return.

Or, if you are already old enough to withdraw, you can withdraw $10K from your 401(k) now and spend $8800, or earn $300 in interest in one year and then spend $9064. This is again a 3% return on the $8800 you could spend.

The comparison would be 2.64% if the money were in a taxable account. Now, if $10K earns $300 in interest in one year, it grows to $10,264.
Or you can just think it's a Roth investment to see the equivalence

If you haven't maxed-out your TDA, that may be an option. If you invest like this for let's say 30 years, while keeping the mortgage for 30 years, you'll end up even. But who wants to invest for 30 years in bonds?
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Anyone regret paying off mortgage early?

Post by JoeRetire »

Ivygirl wrote: Sun May 15, 2022 12:56 pm
JoeRetire wrote: Sun May 15, 2022 11:54 am
Ivygirl wrote: Sun May 15, 2022 7:40 am Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
The only thing this particular "partner" wants you to do is to pay your monthly mortgage and maintain your insurance and taxes.

If you want to give this "partner" a bunch of money so that you aren't "forced to do things you don't want", you can always do so. Then you'll still have plenty of other "partners" remaining. Your tax "partner" will always remain. And you would be silly (not to mention risky) to dismiss your insurance "partner". I suppose it would be possible (if rather unlikely) to get rid of your electricity "partner", your water "partner", your telephone "partner", your internet "partner", etc, etc, etc.

You can attempt to become "partner free", but you will always fail.
Why have more of this kind of risk than you have to?
Partner risk isn't a thing.
This isn't just my wallet. It's an organizer, a memory and an old friend.
User avatar
corn18
Posts: 2867
Joined: Fri May 22, 2015 6:24 am

Re: Anyone regret paying off mortgage early?

Post by corn18 »

international001 wrote: Sun May 15, 2022 7:12 pm
grabiner wrote: Sun May 15, 2022 8:31 am
corn18 wrote: Sat May 14, 2022 7:19 pm
international001 wrote: Sat May 14, 2022 6:51 pm
corn18 wrote: Sat May 14, 2022 6:13 pm
I’m doing 3 now. 2.25% fixed rate mortgage with 29 years left. I could build a bond ladder at Fidelity with a 10 year duration (same as the mortgage) earning just over 3%. Not complicated at all. Not any more risky than having the mortgage.

Does not work at todays mortgage rates.
How much of that 3% is after-tax?
It sits in my 401k brokerage link account. It will get taxed at 12% when I withdraw it. I cannot deduct my mortgage interest. So I guess the comparison is 2.25% mortgage interest vs. 3% x .88 = 2.64% after tax in bond ladder.
The right comparison is 2.25% versus 3%. If you contribute $10K to your 401(k) rather than paying down your mortgage, that costs you $8800 out of pocket, and you will lose 12% of the account to taxes when you withdraw. This is equivalent to investing $8800 tax-free with a 3% after-tax return.

Or, if you are already old enough to withdraw, you can withdraw $10K from your 401(k) now and spend $8800, or earn $300 in interest in one year and then spend $9064. This is again a 3% return on the $8800 you could spend.

The comparison would be 2.64% if the money were in a taxable account. Now, if $10K earns $300 in interest in one year, it grows to $10,264.
Or you can just think it's a Roth investment to see the equivalence

If you haven't maxed-out your TDA, that may be an option. If you invest like this for let's say 30 years, while keeping the mortgage for 30 years, you'll end up even. But who wants to invest for 30 years in bonds?
Or you sell a house without a mortgage and then buy another house with a mortgage at ridiculously low rates. No need to wait 30 years.

I paid off my previous house and it felt great. I took out a 2.25% 30 year fixed rate mortgage on my new house and it is great.
Consistently sets low goals and fails to achieve them.
User avatar
snackdog
Posts: 3102
Joined: Wed Nov 12, 2014 3:57 am
Location: PNW

Re: Anyone regret paying off mortgage early?

Post by snackdog »

We paid off a low rate mortgage on a second house in 2019. Then the market shot up. And now we sold the house in question. We should have kept the mortgage. We probably lost $100,000 vs investing $200k in VTSAX. :shock:
BH Consumer FAQ: | Car? Used Toyota, Lexus or Miata. | House? 20% down and 3x salary. | Vacation house? No. | Umbrella? $1 million. | Goods? Costco.
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Anyone regret paying off mortgage early?

Post by Apathizer »

snackdog wrote: Sun May 15, 2022 11:13 pm We paid off a low rate mortgage on a second house in 2019. Then the market shot up. And now we sold the house in question. We should have kept the mortgage. We probably lost $100,000 vs investing $200k in VTSAX. :shock:
But you only know that afterwards and it was predetermined. As I mentioned previously, I got lucky selling most of my taxable investments earlier this year to pay off most of my mortgage a few weeks prior to a massive drop. While I knew this could happen I didn't expect it, but just got lucky.

To me investing strategy is about maximizing the likelihood of a positive outcome and minimizing the likelihood of a negative one. Investing with leverage is the antithesis of this. It might work really well if the market skyrockets, but it can be disastrous if it plummets.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
aklanche
Posts: 73
Joined: Wed Jul 17, 2019 9:01 pm

Re: Anyone regret paying off mortgage early?

Post by aklanche »

Apathizer wrote: Sun May 15, 2022 11:30 pm
snackdog wrote: Sun May 15, 2022 11:13 pm We paid off a low rate mortgage on a second house in 2019. Then the market shot up. And now we sold the house in question. We should have kept the mortgage. We probably lost $100,000 vs investing $200k in VTSAX. :shock:
But you only know that afterwards and it was predetermined. As I mentioned previously, I got lucky selling most of my taxable investments earlier this year to pay off most of my mortgage a few weeks prior to a massive drop. While I knew this could happen I didn't expect it, but just got lucky.

To me investing strategy is about maximizing the likelihood of a positive outcome and minimizing the likelihood of a negative one. Investing with leverage is the antithesis of this. It might work really well if the market skyrockets, but it can be disastrous if it plummets.
From what I read most are not advocating investing the money that they could use to pay off their mortgage completely and putting it into the market. Rather they are parking in low/no risk things like HYSA, TIPS, iBonds and benefiting from the interest difference on what those accounts are making in interest vs. what one is paying in interest on the mortgage. These are KNOWN returns just like the known return of paying off the mortgage. This isn't like investing in the market for unknown returns.

For myself I am earning $12K a annually in interest from using such accounts while only paying $6K annual in interest on my mortgage. Why would I want to pull the money out and lock it up in my house right now? If things change and the rates fall to where I can't make the same as what I pay in the mortgage each month sure then its time to reconsider but why be in a rush to pay it off other than "it just feels good", which I get for some it does and thats important. For me I like knowing I have half a decade of total life expenses (including the mortgage) in no/low risk accounts earning more than what my mortgage is costing me. And should I lose my employment I don't have to go tapping my taxable account in a down market for a long time either. A mortgage makes up a small portion of our monthly budget so using all the funds to just pay off one line item doesn't make sense. Even if I was making the same amount of interest from the money as what I was paying on my mortgage (after taxes of course) I wouldn't put that money into the house to never be used again unless I HELOC at an even higher rate or sell.
Last edited by aklanche on Mon May 16, 2022 7:28 am, edited 1 time in total.
CloseEnough
Posts: 1290
Joined: Sun Feb 14, 2021 7:34 am

Re: Anyone regret paying off mortgage early?

Post by CloseEnough »

Does anyone regret reading this entire thread? I don't, because I have not. An executive summary would be helpful. But I can guess some of the comments and responses.

I paid off two mortgages in around 2010, mortgages were about 4%. I am sure that, with the benefit of 20/20 hindsight, and the strong market performance in the 10 years up until recently, that investing that money and not paying off the mortgage would be better financially. Likely substantially better, although I have not run the numbers. No point.

I do not regret it, however. For one thing, I did not have the hindsight knowledge at the time I made the decision. It was a guaranteed return, and I liked that at the time as compared to the uncertainty of investing in the market (recent market activity should support that statement, for anyone that thinks markets always go up). I have enjoyed not having the debt. The tax deduction which had been a significant benefit, has gone away for me due to changes in law and lower income job, so that's another factor.
nigel_ht
Posts: 4742
Joined: Tue Jan 01, 2019 9:14 am

Re: Anyone regret paying off mortgage early?

Post by nigel_ht »

HMSVictory wrote: Fri Apr 15, 2022 12:22 pm
Ivygirl wrote: Sun Mar 27, 2022 7:12 am
If "home" means your refuge, the place you have made your own, the place your children can always come back to, the edifice that secures your place in the world whose borders you would defend, the place that everything you love is there - a mortgage is a worry and an irritant and best gone ASAP.

Most people are the second kind, which is why Realtors cynically call every thing they sell a "home" and not a "house" which would be more accurate.
Well said. My home is not an option I look to leverage to invest the proceeds somewhere else.

I think almost everyone is the second kind but some people want to fool themselves they are "outsmarting", "leveraging" or "optimizing" the market and interest rates by borrowing to invest elsewhere. Same kind of smarter than the average bear stuff lead to the GFC of 2007-2009.
That had very little to do with the GFC. It was folks buying more house than they could be usually afford…hence sub-prime mortgage crisis.

You do you. No need to cast shade on other BH’s with a different opinion as we can always talk about folks that over “invest” into their forever “home” only to have to sell at a loss later on.
59Gibson
Posts: 1386
Joined: Mon Dec 07, 2020 7:41 am

Re: Anyone regret paying off mortgage early?

Post by 59Gibson »

CloseEnough wrote: Mon May 16, 2022 6:20 am Does anyone regret reading this entire thread? I don't, because I have not. An executive summary would be helpful. But I can guess some of the comments and responses.
Haha..BH Executive Summaries should be a thing w/ threads over a few pages
nigel_ht
Posts: 4742
Joined: Tue Jan 01, 2019 9:14 am

Re: Anyone regret paying off mortgage early?

Post by nigel_ht »

JoeRetire wrote: Sun May 15, 2022 7:16 pm
Ivygirl wrote: Sun May 15, 2022 12:56 pm
JoeRetire wrote: Sun May 15, 2022 11:54 am
Ivygirl wrote: Sun May 15, 2022 7:40 am Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
The only thing this particular "partner" wants you to do is to pay your monthly mortgage and maintain your insurance and taxes.

If you want to give this "partner" a bunch of money so that you aren't "forced to do things you don't want", you can always do so. Then you'll still have plenty of other "partners" remaining. Your tax "partner" will always remain. And you would be silly (not to mention risky) to dismiss your insurance "partner". I suppose it would be possible (if rather unlikely) to get rid of your electricity "partner", your water "partner", your telephone "partner", your internet "partner", etc, etc, etc.

You can attempt to become "partner free", but you will always fail.
Why have more of this kind of risk than you have to?
Partner risk isn't a thing.
Ah what? Sure it’s a thing. You can even Google it and it states:

“Partner risk is the potential that a partner will fail to deliver on their obligations to you resulting in losses and business disruptions. The potential that a partner will fail to meet obligations to you. A supplier that fails to deliver a critical component for a production process.”

https://simplicable.com/new/partner-risk

More commonly called counterparty risk.

In a mortgage situation the bank holds more counterparty risk than you do since they’ve already leant the money and you’re the one that might not pay it back and who knows if the house is still worth what’s left on the mortgage. But you still have risk of foreclosure even if you maintain payments depending on what’s in the actual terms. Any failure to meet any contractural requirements and they could start foreclosure on you.

It’s a small risk though…not one worth worrying about because the risk is mostly on the other side.
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Anyone regret paying off mortgage early?

Post by JoeRetire »

nigel_ht wrote: Mon May 16, 2022 8:03 am
JoeRetire wrote: Sun May 15, 2022 7:16 pm
Ivygirl wrote: Sun May 15, 2022 12:56 pm
JoeRetire wrote: Sun May 15, 2022 11:54 am
Ivygirl wrote: Sun May 15, 2022 7:40 am Another way of looking at it is, Do you want a partner?

A creditor is your partner - in your home, in your car, in your future earnings. Partners have a say in what you do, there are decisions you cannot make because your partner wants something different.

Sometimes the partner has the power to force you to do things you don't want. If that partner has billions of dollars, lawyers, and pages of fine print, maybe if your interests diverge those things could be brought into play.

Having a partner is risk.
The only thing this particular "partner" wants you to do is to pay your monthly mortgage and maintain your insurance and taxes.

If you want to give this "partner" a bunch of money so that you aren't "forced to do things you don't want", you can always do so. Then you'll still have plenty of other "partners" remaining. Your tax "partner" will always remain. And you would be silly (not to mention risky) to dismiss your insurance "partner". I suppose it would be possible (if rather unlikely) to get rid of your electricity "partner", your water "partner", your telephone "partner", your internet "partner", etc, etc, etc.

You can attempt to become "partner free", but you will always fail.
Why have more of this kind of risk than you have to?
Partner risk isn't a thing.
Ah what? Sure it’s a thing.
Sure. Partner risk as defined in the context of this thread isn't a thing.

(Can't believe I actually had to clarify that...)
This isn't just my wallet. It's an organizer, a memory and an old friend.
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Anyone regret paying off mortgage early?

Post by Apathizer »

aklanche wrote: Sun May 15, 2022 11:43 pm
Apathizer wrote: Sun May 15, 2022 11:30 pm
snackdog wrote: Sun May 15, 2022 11:13 pm We paid off a low rate mortgage on a second house in 2019. Then the market shot up. And now we sold the house in question. We should have kept the mortgage. We probably lost $100,000 vs investing $200k in VTSAX. :shock:
But you only know that afterwards and it was predetermined. As I mentioned previously, I got lucky selling most of my taxable investments earlier this year to pay off most of my mortgage a few weeks prior to a massive drop. While I knew this could happen I didn't expect it, but just got lucky.

To me investing strategy is about maximizing the likelihood of a positive outcome and minimizing the likelihood of a negative one. Investing with leverage is the antithesis of this. It might work really well if the market skyrockets, but it can be disastrous if it plummets.
From what I read most are not advocating investing the money that they could use to pay off their mortgage completely and putting it into the market. Rather they are parking in low/no risk things like HYSA, TIPS, iBonds and benefiting from the interest difference on what those accounts are making in interest vs. what one is paying in interest on the mortgage. These are KNOWN returns just like the known return of paying off the mortgage. This isn't like investing in the market for unknown returns.

For myself I am earning $12K a annually in interest from using such accounts while only paying $6K annual in interest on my mortgage. Why would I want to pull the money out and lock it up in my house right now? If things change and the rates fall to where I can't make the same as what I pay in the mortgage each month sure then its time to reconsider but why be in a rush to pay it off other than "it just feels good", which I get for some it does and thats important. For me I like knowing I have half a decade of total life expenses (including the mortgage) in no/low risk accounts earning more than what my mortgage is costing me. And should I lose my employment I don't have to go tapping my taxable account in a down market for a long time either. A mortgage makes up a small portion of our monthly budget so using all the funds to just pay off one line item doesn't make sense. Even if I was making the same amount of interest from the money as what I was paying on my mortgage (after taxes of course) I wouldn't put that money into the house to never be used again unless I HELOC at an even higher rate or sell.
So you don't know if you'll ever sell? That's the only practical financial reason to buy a house in the first place. If you never sell, you might as well save yourself the trouble of homeownership and just rent. If you do intend to sell, paying off the mortgage sooner means you reap more proceeds upon sale.

You're also forgetting about potential home deprecation. I don't know if this will happen, but it can, and paying interesting on a depreciating asset is double jeopardy.
Last edited by Apathizer on Mon May 16, 2022 8:54 am, edited 1 time in total.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
Tom_T
Posts: 4836
Joined: Wed Aug 29, 2007 2:33 pm

Re: Anyone regret paying off mortgage early?

Post by Tom_T »

59Gibson wrote: Mon May 16, 2022 7:45 am
CloseEnough wrote: Mon May 16, 2022 6:20 am Does anyone regret reading this entire thread? I don't, because I have not. An executive summary would be helpful. But I can guess some of the comments and responses.
Haha..BH Executive Summaries should be a thing w/ threads over a few pages
Here's the summary: Some people don't regret paying off the mortgage early; one person said he does; others who haven't paid it off said they don't plan to do so early. There you are!
lazydavid
Posts: 5155
Joined: Wed Apr 06, 2016 1:37 pm

Re: Anyone regret paying off mortgage early?

Post by lazydavid »

Ivygirl wrote: Sun May 15, 2022 10:11 am Your mortgage lender could sell your mortgage to another servicer without asking you.
No they can't. It's written into the contract. My Credit Union can (but in practice never does) sell the ownership of the loan, but they must always remain the servicer. So that's not risk.
Ivygirl wrote: Sun May 15, 2022 10:11 amWith rates rising it might not be so easy to get from under the new arrangement by refinancing, if the servicer is incompetent, does not respond to communications, does not pay your taxes or insurance timely, or any of the other potential miseries. Isn't that risk?
Why in the hell would someone who has the resources to pay off their mortgage be escrowing taxes and insurance through their lender? I've never done this once in my lifetime. So no, that's not risk either.

And again, since the decision to not pay off the mortgage is predicated on having the resources to do so in the first place, some squishy, not well-defined "need to refinance" isn't a risk either. Changed your mind and don't want this mortgage anymore, for any reason? Fine, pay it off. Yes I know this argument doesn't work when working from a baseline where the original decision is based on paying off the mortgage with money that magically materializes solely for that purpose, and immediately vanishes if that option is not chosen.
Ivygirl wrote: Sun May 15, 2022 10:11 amThirty years is a long time. Just in the last three years we have witnessed events happen that could never come true, and now here we are. This week there is a 40% shortage of baby formula in American stores.
Right, and no mater how much inflation rages, and no matter how worthless the dollar becomes, my payment stays the same in nominal dollars--and becomes dramatically cheaper in real dollars. My interest rate will ALWAYS be 2.5%, until the final scheduled payment.
Ivygirl wrote: Sun May 15, 2022 10:11 amDo you want a partner who can make you do what you do not want to do, and humble you?
Aside from "I no longer like having this mortgage, I guess I'll pay it off after all", you have not identified any ways in which my mortgagor can make me do what I don't want to do.
Last edited by lazydavid on Mon May 16, 2022 9:09 am, edited 1 time in total.
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Anyone regret paying off mortgage early?

Post by Apathizer »

Tom_T wrote: Mon May 16, 2022 8:52 am
59Gibson wrote: Mon May 16, 2022 7:45 am
CloseEnough wrote: Mon May 16, 2022 6:20 am Does anyone regret reading this entire thread? I don't, because I have not. An executive summary would be helpful. But I can guess some of the comments and responses.
Haha..BH Executive Summaries should be a thing w/ threads over a few pages
Here's the summary: Some people don't regret paying off the mortgage early; one person said he does; others who haven't paid it off said they don't plan to do so early. There you are!
Since only one says they regret it, I think it's fair to say most don't. Whether paying it off early makes sense depends on a number of complex, highly variable, and oft unpredictable factors.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
Tom_T
Posts: 4836
Joined: Wed Aug 29, 2007 2:33 pm

Re: Anyone regret paying off mortgage early?

Post by Tom_T »

Apathizer wrote: Mon May 16, 2022 9:02 am
Tom_T wrote: Mon May 16, 2022 8:52 am
59Gibson wrote: Mon May 16, 2022 7:45 am
CloseEnough wrote: Mon May 16, 2022 6:20 am Does anyone regret reading this entire thread? I don't, because I have not. An executive summary would be helpful. But I can guess some of the comments and responses.
Haha..BH Executive Summaries should be a thing w/ threads over a few pages
Here's the summary: Some people don't regret paying off the mortgage early; one person said he does; others who haven't paid it off said they don't plan to do so early. There you are!
Since only one says they regret it, I think it's fair to say most don't. Whether paying it off early makes sense depends on a number of complex, highly variable, and oft unpredictable factors.
+1. One size does not fit all.
User avatar
JupiterJones
Posts: 3623
Joined: Tue Aug 24, 2010 3:25 pm
Location: Nashville, TN

Re: Anyone regret paying off mortgage early?

Post by JupiterJones »

Apathizer wrote: Mon May 16, 2022 9:02 am
Tom_T wrote: Mon May 16, 2022 8:52 am
59Gibson wrote: Mon May 16, 2022 7:45 am
CloseEnough wrote: Mon May 16, 2022 6:20 am Does anyone regret reading this entire thread? I don't, because I have not. An executive summary would be helpful. But I can guess some of the comments and responses.
Haha..BH Executive Summaries should be a thing w/ threads over a few pages
Here's the summary: Some people don't regret paying off the mortgage early; one person said he does; others who haven't paid it off said they don't plan to do so early. There you are!
Since only one says they regret it, I think it's fair to say most don't. Whether paying it off early makes sense depends on a number of complex, highly variable, and oft unpredictable factors.
And after all, the title of this thread is not "Is paying off the mortgage early the correct/best/mathematically-optimal thing to do?". It's just asking if anyone has regretted doing it. That's a very different question--which was a point made by the OP in the first post, in fact!

Heck, I've made several decisions in my life that I don't regret, even though they were not even remotely close to being good ideas. :beer

But yes, despite the dozens of pages of people arguing over something else, I don't think there's any argument over the conclusion of the actual question: Very few Bogleheads regret paying off their mortgage. (Or if they do, they're not willing to admit it in this thread.)
"Stay on target! Stay on target!"
lazydavid
Posts: 5155
Joined: Wed Apr 06, 2016 1:37 pm

Re: Anyone regret paying off mortgage early?

Post by lazydavid »

Apathizer wrote: Mon May 16, 2022 8:50 am So you don't know if you'll ever sell? That's the only practical financial reason to buy a house in the first place. If you never sell, you might as well save yourself the trouble of homeownership and just rent. If you do intend to sell, paying off the mortgage sooner means you reap more proceeds upon sale.
This is a pretty silly statement coming from somebody who talks at such great lengths about how desirable eliminating a monthly housing payment is.

The primary financial reason to purchase a house is imputed rent. If you own a home that you never sell, you never have to pay rent. Ever. You'll have to explain to me why paying continuously-escalating rent for 50, 60, 80 years (or even across generations) is better than, well NOT.
User avatar
corn18
Posts: 2867
Joined: Fri May 22, 2015 6:24 am

Re: Anyone regret paying off mortgage early?

Post by corn18 »

I can tell you the wrong thing to do is buying a house every time the military moves you. They pay no transaction costs and when you have to move every 2-3 years, that adds up quick.
Consistently sets low goals and fails to achieve them.
Locked