Paying down a mortgage - not a debate about whether it makes sense

[Anonymous]

Anonymous wrote:

Anonymous wrote:No need to debate. It's not a good decision.

Usually it isn’t. But my friend in Feb 2000 sold 600k worth of internet stocks and paid off mortgage did well.

People always use examples that they earned more in the stock market than they would have paying off the mortgage. However, they never acknowledge that they could not have known in advance that investing would have been the better outcome. If over the next decade the stock market had a 0 percent real return, they would be posting about how smart the were to have paid down their mortgage. The mortgage is a guaranteed rate of return in the amount of the interest rate on the loan. Investing in stocks could lead to a higher return but there is risk. It's not to say one is better than the other. It is simply to acknowledge that no one knows what the optimal outcome might be in the future.

[Anonymous]

We were paying $1k extra every month towards the principal until the pandemic. With the general uncertainty then, we decided to save it up in a bank account in case of job loss. Now I'm tempted to pay that extra into a brokerage account until we meet the mortgage payoff amount and then just pay off the whole thing whenever that is. Has anyone done this instead of prepaying mortgage every month?

[Anonymous]

Anonymous wrote:Good for you, OP. It's a great feeling when you start to make a dent. If you have enough to pay down the mortgage, you probably have enough to refinance to a slightly more expensive 15-year loan with a lower rate. Here is what we did:
-Bought in 2017 with 4% $385k 30-year loan ($2500/mo) - original maturity date was 2047
-Paid down about $25k between 2017 and 2019 (only about half of that was from monthly mortgage payments, the rest was add'l principal payments we made)
-Refinanced in 2019 to a 3% $360k 15-year loan ($3000/mo) with a maturity date of 2034

Since we refinanced in 2019 we have paid down about $70k and if we made no extra payments we would pay it off in 2032 (15 years after we took out the original 30 yr loan, 13 years after we took out the 15 year loan). I suspect we will continue to make extra payments at the same clip we've been going at and end up paying it off somewhere between 2025 and 2030. I'm a big fan of paying it down because I would probably just keep the money in savings otherwise, and because we've paid down so much, a significant amount ($1500) is going to our remaining principal every month.

Well, that's just dumb.

[Anonymous]

Sometimes stupid is smart. My friend sold his house March 2009 and rented. I thought it was crazy. But he felt although homes are down and will bounce back that stocks were more undervalued.

He put the money into all stocks. My friend rented till January 2020 when he bought a mansion for cash. Literally a house in Malibu on the beach.

Pure luck. But in other hand my brother is 100 percent in stocks at 60. He feels comfortable as as primary home, retirement home are mortgage free, college for kids paid and no car loans. So he feels safer going all in.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Paying a mortgage off early when the interest rate is good is such a middle class thing to do. Rich people don't have a mortgage -- they have two.

Yes, but people who are going to get rich, from a current non-rich condition, don't do it by having two mortgages. Thanks for playing.

Actually, leverage is EXACTLY how the non-wealthy become wealthy.

Speaking as someone who has done it: nope.

Okay then. How about this?


Actually, leverage is EXACTLY how the wealthy become wealthier.

Can work both ways, but you know that.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:No need to debate. It's not a good decision.

Usually it isn’t. But my friend in Feb 2000 sold 600k worth of internet stocks and paid off mortgage did well.

People always use examples that they earned more in the stock market than they would have paying off the mortgage. However, they never acknowledge that they could not have known in advance that investing would have been the better outcome. If over the next decade the stock market had a 0 percent real return, they would be posting about how smart the were to have paid down their mortgage. The mortgage is a guaranteed rate of return in the amount of the interest rate on the loan. Investing in stocks could lead to a higher return but there is risk. It's not to say one is better than the other. It is simply to acknowledge that no one knows what the optimal outcome might be in the future.

I think savvy financial people just look at the available data over the course of the last 100 years and make an informed choice that it's probably not smart to go for barely above inflation returns of 3% when basically all of recorded history of the S&P 500 would indicate over a long time horizon (e.g. a 15-30 year mortgage) dumping your money in VTSAX is a far better (and some might say safer) choice. Not to mention the tax benefits.

Inflation is risk.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We have decided we would like to pay down our mortgage. I know people will debate for days about whether that is a good decision, but we would like to be debt-free so that's what we're doing. We have 27 years/$350k+ left on the mortgage, so this will be a slow process. Would love to hear from people who have done/are doing this to see how long it took you and/or when you started feeling like you were making a dent in it.

I have heard making the payments every two weeks instead of every month can make a significant impact. You need to discuss this with the mortgage company though. Any additional payment you make should be applied towards the Principal and this should be pinned down in writing by the mortgage company.

We do this on both of our properties. Our mortgages are with two mainstream banks and each has a biweekly payment plan program that I set up online. Our loans have no prepayment penalty and are fixed conventional mortgages. It's very convenient and two years in, we are seeing significant reductions in total interest paid over the course of a year. It also makes cash management much easier if you or your spouse are paid biweekly. You can set up the automatic drafts to be paid with each paycheck and never even notice the extra payments.

[Anonymous]

Anonymous wrote:We have an investment property that we plow all profits back into the principal. Starting loan amount 341k/30yr/2.875. Current extra payment is $500. Current savings in interest 64k, shaving off 10.5yrs. Ad we increase rent, we will increase principal payments.

Our goal is to.1032 exchange this into our retirement home and be able to keep all the tax free profits from our primary home and not have to dip into that money for housing.

The net is for renters to fund our future housing costs.

Ahhh...can’t do a 1031 exchange and then move in to make it your personal residence. I guarantee you
will be red flagged for audit. BTDT. BTW, Biden is strongly leaning eliminating 1031 altogether. Better
Have you plan B prepared.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We pay an extra $500 each month to principal.

This is what we do (different amount) we are knocking off amost ten years off the 30 year loan as a result.

Same 500$/ cutting by 10 years. And I know financially it doesn’t make sense but wanted to align end of mortgage payment with 60 yo. We won’t stay in the house When we retire but planning to keep and rent as a source of income.

[Anonymous]

Anonymous wrote:We were paying $1k extra every month towards the principal until the pandemic. With the general uncertainty then, we decided to save it up in a bank account in case of job loss. Now I'm tempted to pay that extra into a brokerage account until we meet the mortgage payoff amount and then just pay off the whole thing whenever that is. Has anyone done this instead of prepaying mortgage every month?

I wouldn’t dump money in stock market right now as it is due for a correction but when it drops yes

[Anonymous]

I love the idea of owning my place outright and having no mortgage. It doesn't really make financial sense to do that, but I love the idea. There's something appealing about reaching an accomplishment that most don't reach until their 60s. And there's something appealing about having no monthly payment.

We refi'd and are now paying extra principal to keep the monthly payment the same. No difference in cash flow for us, but we own the home sooner. Yes, that money is better maximized elsewhere, but it's a nice way to save more while not really changing any habits.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We were paying $1k extra every month towards the principal until the pandemic. With the general uncertainty then, we decided to save it up in a bank account in case of job loss. Now I'm tempted to pay that extra into a brokerage account until we meet the mortgage payoff amount and then just pay off the whole thing whenever that is. Has anyone done this instead of prepaying mortgage every month?

I wouldn’t dump money in stock market right now as it is due for a correction but when it drops yes

This is bad advice. No one knows anything. You can't time the market. Put your money in the S&P as you get it (after setting up emergency fund and maxing tax advantaged accounts) and keep it in there for a long time.

[Anonymous]

Anonymous wrote:I love the idea of owning my place outright and having no mortgage. It doesn't really make financial sense to do that, but I love the idea. There's something appealing about reaching an accomplishment that most don't reach until their 60s. And there's something appealing about having no monthly payment.

We refi'd and are now paying extra principal to keep the monthly payment the same. No difference in cash flow for us, but we own the home sooner. Yes, that money is better maximized elsewhere, but it's a nice way to save more while not really changing any habits.

To each their own. I find it much more satisfying to look at net worth rather than a single component of net worth. I want my net worth to increase as quickly as possible (in a reasonable manner) and I want to counteract inflation risk.

[Anonymous]

Anonymous wrote:I love the idea of owning my place outright and having no mortgage. It doesn't really make financial sense to do that, but I love the idea. There's something appealing about reaching an accomplishment that most don't reach until their 60s. And there's something appealing about having no monthly payment.

We refi'd and are now paying extra principal to keep the monthly payment the same. No difference in cash flow for us, but we own the home sooner. Yes, that money is better maximized elsewhere, but it's a nice way to save more while not really changing any habits.

But the other thing is that your house still isn't free. first there is the opportunity cost of having all that money tied up in your house. But if you don't want to think like an economist, there are still the real costs of property taxes, insurance and repairs/maintenance. So you are still paying something. For us, those costs are about $1200 of our total $4000 monthly payment so we would be paying something anyway. Housing is never really free.

[Anonymous]

We refinanced into a 15 year mortgage from 30 year when our DC1 was 1 years old. Last year we refinanced to 2.38% and calculated how much more to pay to pay it off when DC graduates HS. We are currently awaiting our refinancing to go through and it'll be like 1.99%. We'll have paid off our mortgage about 7 years early.