Paying off the morgatge, good or bad idea?

[Anonymous]

Anonymous wrote:Being debt free is priceless. Priceless.

That's not true. Price = [amount you'd have at the end of your mortgage term if you'd just paid the principal and invested any extra funds] - [amount you'd have at the end of your mortgage term if you pay off early and then invested].

There's no way to know what the price is. And you might even come out ahead paying it off early (though historically, over a 25 year term, you probably wouldn't). And it may be the right decision to pay it off early - heck, I probably would if I could. But to say it's priceless is simply not true, and borders on idiotic.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:There are two considerations: emotional and financial. For many people there is a sense of pride and security in owning a house outright, and that is fine.
The financial side is a little more complicated. Essentially it makes sense if you are very conservative in your assessment of likely returns in the market.

I think it is often more complex.

Our retirement and post tax investment accounts are healthy (about $2.5 million) but we thought our mortgage debt ($800k at the time) was a limiting factor if we wanted to step off the hamster wheel and try a new career or retire early. Although we are still putting the max away in our 401k accounts and a very limited amount in our post tax accounts, all extra funds are being directed to our mortgage to get that off the books.

I am not saving money for the sake of saving money. I am saving money so that I have financial freedom. A large monthly bill limits that freedom.

But that's only an issue if you have problems pulling from your investment account. Personally I tend to lean towards the pay it down side, but mathematically the calculation doesn't change based on the reason you are saving money. It might change based on your discipline for saving money or your time horizon for withdrawing.

I hear what you are saying, but in a downturn I don’t want to be in a position where I have to pull money from my investment account because I am locking in losses. Maybe i’m skittish because of ‘08 and I think we are looking at a recession in the next several years, but putting everything in the market except for my emergency fund doesn’t seem like a balanced approach. What am I missing?

[Anonymous]

Anonymous wrote:Everyone that says paying off a mortgage is dumb, has a mortgage. The people that don’t have one say it’s a great thing, I’d listen to them. I’ll take money advice from people that don’t have bills over people that do.

The holes in this logic are stunning. Seriously, PP, you should be ashamed of yourself.

[Anonymous]

Anonymous wrote:Math wise it doesn’t make sense to payoff the house but the peace of mind is priceless.

To us the peace of mind is in having more liquid assets in case of job loss because we are over 50 - much harder to find a new job.

[Anonymous]

All of this goes to show is that there are rigid extremists on all sides, and they're all wrong. There is no one right answer here. For some people, the opportunity to maximize returns is paramount; for others, the peace of mind of paying off the mortgage is most important. Everyone's got to decide for themselves.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Math wise it doesn’t make sense to payoff the house but the peace of mind is priceless.

To us the peace of mind is in having more liquid assets in case of job loss because we are over 50 - much harder to find a new job.

Meant to add that the house is worth 3x the balance on the mortgage, so if we decided to move and downsize, we'd be fine.

[Anonymous]

Pro-mortgage people are always citing the risk of having money tied up in an illiquid asset. What if you lose your job and need cash?

My response: At least you don't have a mortgage payment to worry about.

[Anonymous]

Anonymous wrote:Pro-mortgage people are always citing the risk of having money tied up in an illiquid asset. What if you lose your job and need cash?

My response: At least you don't have a mortgage payment to worry about.

Right. I live debt free. If s#*t hit the fan I can flip hamburgers to cover living expenses without tapping into any investments

[Anonymous]

I'm not a CFA, but I did stay at a Holiday Inn last night.

- Paying off a mortgage is not a risk-free return. I don't need to tell you that real estate can decrease (dramatically) in value, and paying extra principal can lead to losses in the event of a bankruptcy, foreclosure, or short sale. Most people probably think this wouldn't or couldn't happen to them, but as we learned in 2008, it can affect a sizable portion of the population, including the wealthy.

- The liquidity point is a valid one. Real Estate is a relatively illiquid asset. Yes, you can borrow against equity with a HELOQ, or you can sell the house, but both of those incur costs. It shouldn't be the only determining factor, but it should be a consideration.

- I didn't read every post in the thread, but the most important point should be diversification. The average American has way too much of their net worth tied up in their primary residence. Paying down a mortgage increases your concentration in real estate and your exposure to risk in that asset class. If you are sufficiently diversified elsewhere, it might be a great move. If not, it might not be advisable.

[Anonymous]

I live debt free and would never consider taking a loan for anything ever again. Do you realize how fast you can pile up cash when you don't owe anyone any money?

[Anonymous]

Anonymous wrote:I live debt free and would never consider taking a loan for anything ever again. Do you realize how fast you can pile up cash when you don't owe anyone any money?

Sure, you could pay off your house and then start "piling up cash." Or you can "pile up cash" and use it to pay off your house whenever you feel like it. It's more about where you feel comfortable parking your money and how tolerant you are of risk. But as PP mentioned, real estate is not a risk-free investment. And neither is sitting around with loads of money stuffed under your mattress.

[Anonymous]

Anonymous wrote:Pro-mortgage people are always citing the risk of having money tied up in an illiquid asset. What if you lose your job and need cash?

My response: At least you don't have a mortgage payment to worry about.

That’s true once the house is paid off, yes. But not during the period when you’ve been plowing all your cash into paying it off but it isn’t paid off yet. That could be a long period of time.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Pro-mortgage people are always citing the risk of having money tied up in an illiquid asset. What if you lose your job and need cash?

My response: At least you don't have a mortgage payment to worry about.

That’s true once the house is paid off, yes. But not during the period when you’ve been plowing all your cash into paying it off but it isn’t paid off yet. That could be a long period of time.

That’s why you create an emergency fund before paying off your your mortgage or or investing outside of your retirement accounts.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Everyone that says paying off a mortgage is dumb, has a mortgage. The people that don’t have one say it’s a great thing, I’d listen to them. I’ll take money advice from people that don’t have bills over people that do.

That literally makes no sense. You'd take advice from someone just because they paid off their house? You don't care what else they're invested in, or what kind of returns they've gotten? And who says all people who pay off their mortgage have no bills? They could just as well have a lot of credit card debt, or student loans. I'm not against paying off your home, but it doesn't make you some sort of financial savant. And even when you pay it off, you still have to pay property taxes, repairs and upkeep. It's not like it's $0 for the rest of your life.

I have no mortgage, no credit card debt, no student loan debt. Do you?

Same here. I wonder if this is pretty common for people who paid off the mortgage.

I suspect it is. We too have no mtg, no cc debt, no car loans, not student debt. We have a nice HHI, (200K roughly), so of course, that helps. But, I think there are people who are debt-friendly and debt-averse, and it flows into everything you do. In some ways, it is an orientation toward risk. DH and I are pretty risk-averse people. I think people who are more comfortable with risk are probably more comfortable with carrying debt.

Sure, but I think what PP was saying is: just because someone paid off their mortgage, it doesn't mean you should necessarily listen to their financial advice. You made a decision that was best for you. Congrats. But plenty of others have carried a mortgage, invested heavily in the market or used that cash to buy up other properties. And they may have come out well ahead of you. You guys act as if the ONLY sane decision is paying off the house.

[Anonymous]

Anonymous wrote:I'm not a CFA, but I did stay at a Holiday Inn last night.

- Paying off a mortgage is not a risk-free return. I don't need to tell you that real estate can decrease (dramatically) in value, and paying extra principal can lead to losses in the event of a bankruptcy, foreclosure, or short sale. Most people probably think this wouldn't or couldn't happen to them, but as we learned in 2008, it can affect a sizable portion of the population, including the wealthy.

- The liquidity point is a valid one. Real Estate is a relatively illiquid asset. Yes, you can borrow against equity with a HELOQ, or you can sell the house, but both of those incur costs. It shouldn't be the only determining factor, but it should be a consideration.

- I didn't read every post in the thread, but the most important point should be diversification. The average American has way too much of their net worth tied up in their primary residence. Paying down a mortgage increases your concentration in real estate and your exposure to risk in that asset class. If you are sufficiently diversified elsewhere, it might be a great move. If not, it might not be advisable.

Once you buy the house with a mortgage, you are already exposed to the full risk in the real estate asset class. Paying your mortgage off or not does not change the fact that you are on the hook for the full value of the mortgage. Same with your comment about real estate decreasing in value.... you aren't protected from a decline in value just b/c you still have a mortgage... unless you plan to file bankruptcy or default on the loan. If the market value goes down and you sell, you still have to come up with the amount of the loan.