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Lets say you owe $100K on your mortgage. According to the SWR, this is worth $4k/yr - plus you get to increase it for inflation.

Your annual mortgage payment is $10K/year, for the next 12 years.

Is it better to pay off the mortgage, or keep the $100K and pay it for 10 years.

Let's suppose:
Mortgage interest rate - 3.5%
Investment returns - 7%
Inflation - 2%
Just the standard deduction, not enough to itemize.

I think I know the answer (pay it off over time), but I want to see if I'm missing anything. This excludes all the psychological factors like the peace of having a paid for house, etc.

V
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Mortgage interest rate - 3.5%
Investment returns - 7%


That's everything you need to know. Your only issue is being sure you can make the monthly payments.
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There a people who think this mortgage is a good idea. Other folks think it is not a good idea.

If you favor the mortgage, why not get more debt. Lots of folks will be happy to sell you more/bigger houses.
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There are certainly psychological issue which could factor in. But one other issue is cash flow and a down market.


I don't know where your investments are sitting right now which you would use to pay off the mortgage. I am going to assume in the stock market. Stocks are at a pretty high point right now (I don't know and will not even try to predict the actual high).

Here is one scenario for you. Stocks decline as part of a recession. If you had sold some stocks to pay for the mortgage at the high, you could reduce your withdrawal rate during the down market to a greater extent because you do not have a mortgage payment.

One common piece of advice is to minimize withdrawals during bear markets. That is much easier to do with no mortgage payment.

So in a way, you could view paying off the mortgage as method to minimize risk of a near term recession.


c
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If you favor the mortgage, why not get more debt. Lots of folks will be happy to sell you more/bigger houses.

No reason to buy more house than you need. However, investing in income property, a common way to wealth.
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"Lets say you owe $100K on your mortgage. According to the SWR, this is worth $4k/yr - plus you get to increase it for inflation.

Your annual mortgage payment is $10K/year, for the next 12 years.

Is it better to pay off the mortgage, or keep the $100K and pay it for 10 years.

Let's suppose:
Mortgage interest rate - 3.5%
Investment returns - 7%
Inflation - 2%
Just the standard deduction, not enough to itemize.

I think I know the answer (pay it off over time), but I want to see if I'm missing anything. This excludes all the psychological factors like the peace of having a paid for house, etc.

V "
***************************************************************************

Presumably, you have $100,000. on hand with which you could pay off the debt?
So you wonder if you should pay off the debt or invest the $100,000 versus possibly
investing the $10,000 annually over the next 10 years.

The assumptions of the return and inflation play a large role. What if the market
turns bearish? What if inflation rises? What if some situation occurs where you
cannot pay the $10,000 mortgage?

Generally, the built in assumptions are the factors that change the conclusions - or
change the impact of risk in the scenarios. What changes might occur if you
had to sell the property before paying down the mortgage for instance?
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Mortgage interest rate - 3.5%
Investment returns - 7%

That's everything you need to know. Your only issue is being sure you can make the monthly payments.


Agree with Ray. In theory.
The fly in the ointment would be finding investments that guarantee 7% return. I will even settle for long-term 7% return with large fluctuations (as happens with stocks.)
And the 7% should be within a reasonable horizon. Don't give me 80-year histories - I don't plan to invest for 80 years! Rolling 10-15 years history max.
And add to that the high valuation of stocks today.
So it's not black-and-white. Still, 3.5% (with possible tax breaks) sounds like a low hurdle that specific stocks (Berkshire Hathaway) or even a broad fund, even starting now, should beat. But don't get hung up on 7%. 5%, maybe?
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The fly in the ointment would be finding investments that guarantee 7% return.

Asking for a guaranteed 7% is asking for the impossible. If you want a guaranteed return you have to invest in T-bills....which don't pay anywhere near 7%.


I will even settle for long-term 7% return with large fluctuations (as happens with stocks.)
And the 7% should be within a reasonable horizon. Don't give me 80-year histories - I don't plan to invest for 80 years! Rolling 10-15 years history max.


Now we're talking!

Consult the "Rolling N yr" tab in my S&P 500 spreadsheet. https://www.dropbox.com/s/cbzvg74iyeyfwt6/SPX-monthly-1950-2...

For all rolling 10 year periods (actually all rolling 120 month periods) from Jan 1950 to Jan 2016, the return statistics are:
Avg  10.5%
Med 10.4%
Min -3.5%
Max 19.4%


The average and median are well above 7%, but that worst case of -3.5% would be nasty.
Obviously we'd like to know the likelihood of getting less than X%.
At the low end of the percentile range:
percentile*    This table gives a picture of the worst-case performances.
0% -3.5%
5% 2.2%
10% 3.6%
20% 5.9%
25% 7.0%


So, 3/4'rd of the 10 year periods returned more than 7% and 1/4'th returned less than 7%. The odds are 3 to 1 in your favor.

But he was talking about a 3.5% mortgage. That's just a tad under the 10'th percentile. So.....odds 9 to 1 in your favor.

I'm a great believer in the simple timing scheme that is mentioned in the spreadsheet. With that, the percentiles are:
0% 3.9%
1% 6.3%
2% 7.6%
3% 8.6%

Much better. Much, much better. Here, the *worst* 10 year period was more than the 3.5% mortgage.

This is all historical statistics, of course. There is no way to predict what the next 10 years will bring.
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One thing that I didn't see mentioned is whether or not you have sufficient guaranteed source of income to pay the mortgage for the next 12 years. I consider Social Security and pension income to be guaranteed sources. I might be too conservative and would prefer not to rely solely on my investments to provide the needed income.
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Another way of looking at the decision. Your mortgage is your mortgage is 3.5% for 12 remaining years. Would you purchase a note at 3.5% for 12 years. This is essentially, with the exception of risk, be what you are doing by paying down the mortgage.

If you would buy such a note, then paying down the mortgage may be reasonable. If you wouldn't buy such a note, then paying down the mortgage is less reasonable.
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One thing that I didn't see mentioned is whether or not you have sufficient guaranteed source of income to pay the mortgage for the next 12 years. I consider Social Security and pension income to be guaranteed sources.

I always assume that nobody would even be considering this unless they were pretty sure that they could make the monthly payments.
You can't insist on "guaranteed" though. Nothing is guaranteed. For example, people take out mortgages based on their paycheck being large enough, even though they could lose their job (and paycheck) at any time. You just need to be pretty sure.

I figure that if someone is thinking about taking $100,000 cash and paying off the mortgage, that they have much more than $100K at hand.


I might be too conservative and would prefer not to rely solely on my investments to provide the needed income.

A point that was brought home to me at a Finance/Investing dinner seminar we attended sometime around 2001. I spoke to the FA presenter after the talk, and he said that a large number of people that came to him had quit their well-paying jobs based on the huge investment returns they were getting in the dot-com boom. They thought those returns were going to continue, so they quit their day job. Came the bust, and there were a lot of 40-50 year old professionals trying to get another similar high-paying job back.
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I spoke to the FA presenter after the talk, and he said that a large number of people that came to him had quit their well-paying jobs based on the huge investment returns they were getting in the dot-com boom. They thought those returns were going to continue, so they quit their day job. Came the bust, and there were a lot of 40-50 year old professionals trying to get another similar high-paying job back.

I seriously doubt that. Most people I know kept their high-paying jobs while playing the market (and laughing at slowpokes like me). Came the bust, and huge tech layoffs, and that's how the highly-paid 40-50 YOs lost their jobs. IIRC AT&T laid off all PhDs from Bell Labs. Any tech company announcing layoffs got a temporary reprieve in the market. Who needs R&D when the stock market is melting and the CEO's options are worthless? Need to juice stock returns!
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Thanks for the replies and opinions. I've calculated it out 3 different ways and all 3 said don't pay the mortgage.

It's not a huge difference, but enough to matter.

About $250K over 30 years, if I live that long, the world doesn't end, armgeddon doesn't happen, etc. If the stock market doubles in 3 years, I'm golden. That might be overly optimistic, but there are some pretty pessimistic people on these RE boards.
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{{Thanks for the replies and opinions. I've calculated it out 3 different ways and all 3 said don't pay the mortgage.}}

Just out of curiosity, what 3 scenarios did you use?






{{That might be overly optimistic, but there are some pretty pessimistic people on these RE boards. }}


I think I gave you one of the more pessimistic possibilities. I am a fairly optimistic person. However, when it comes to money, particularly FIRE aspects of money, I tend to be more conservative. I would rather work longer than run out of money.


c
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I think I gave you one of the more pessimistic possibilities. I am a fairly optimistic person. However, when it comes to money, particularly FIRE aspects of money, I tend to be more conservative. I would rather work longer than run out of money.


I didn't mean this conversation in particular, I just meant in general.
I agree, working is better than poverty. But, after a certain point why save all this money? It won't do me much good when I dead.

V
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Just out of curiosity, what 3 scenarios did you use?


Simple Future value.

Future value - 4% SWR, with mortgage payment subtracted from 4% until pay off. Net total available spending over 30 years. Neglecting Social Security.

Different ROR, 4%, 5%, 7%, 8%.

More than 3 I guess
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Volucris,

One aspect not mentioned in this thread - liquidity. With that $100K invested, it is easy to liquidate if you need cash. if the $100K is locked up in home equity, it is more difficult and a HELOC is usually more expensive than a mortgage.

Another aspect is what is your return on your home equity. The higher your equity, the lower the rate of return. In a hot market with less than 25% equity, your return can be pretty high. Just mentioning it to complicate the discussion. :)

paul
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Throw taxes into the mix (deductions or payments)

Something to be said for the peace of mind living in a paid off house too. Haven’t had a mortgage payment in 10 years...
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Something to be said for the peace of mind living in a paid off house too. Haven’t had a mortgage payment in 10 years...

It doesn't provide me with peace of mind.

PSU
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It doesn't provide me with peace of mind.

It does for my DH, and so we paid our house off last December.

The mortgage was at the point that it was about $100k, we had saved the money to pay it off around my retirement, our ARM was about to adjust upwards from 2.75 to 4.75, and so it became marginal on if it made more sense to keep it or pay it off. DH's peace of mind with a paid off house was enough to tip the scales.

Different strokes for different folks.
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It does for my DH, and so we paid our house off last December.

The mortgage was at the point that it was about $100k, we had saved the money to pay it off around my retirement, our ARM was about to adjust upwards from 2.75 to 4.75, and so it became marginal on if it made more sense to keep it or pay it off. DH's peace of mind with a paid off house was enough to tip the scales.

Different strokes for different folks.


Does it provide you peace of mind?

You will note the word "me" in what I posted. It does not provide "me" with peace of mind. As you recall, I paid off my mortgage last year. It was around $100k like your loan amount. It would not have been my preference to pay it off. I did it because my wife wanted it paid off.

PSU
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Does it provide you peace of mind?

Actually, I do prefer having it paid given that it was marginal from my perspective to have kept it. It makes my life just a tad simpler, and as I keep saying I want to simplify our finances, is one way to do that.
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Simple Future value.

Future value - 4% SWR, with mortgage payment subtracted from 4% until pay off. Net total available spending over 30 years. Neglecting Social Security.

Different ROR, 4%, 5%, 7%, 8%.

More than 3 I guess


You can model it using cfiresim. Go down to "extra spending" and click "non-inflation adjusted" to simulate the mortgage.

http://www.cfiresim.com/

It has been awhile since I last looked into it and the details might be a little foggy, but the parameters I used strongly favored not paying off the mortgage. IIRC, there are some scenarios where holding a mortgage will cause you to go bust, but you would go bust anyway, holding the mortgage just causes the bust sooner.
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One common piece of advice is to minimize withdrawals during bear markets. That is much easier to do with no mortgage payment.

Another couple nuances that exist but most people won't want to (or be able to) calculate:
-If you are in a different tax rates in different years because of working now then retirement later, or whatever, it might be advantageous to draw from your IRA/401k to pay off the mortgage in a low tax period to avoid having to withdraw the amount of the payments from your IRA/401k in high tax years (if you're living off that IRA/401k). Another way to get bumped from a low tax rate to a high tax rate is if you hit 70.5 and have high RMDs.
-If your income needs are being satisfied by a combination of taxable and tax-free sources (regular IRA and Roth, or maybe your income needs are just low), it could be that drawing more money from a regular IRA to cover the mortgage payments (along with the extra money needed to pay the taxes on the regular IRA withdrawals) could push your social security from untaxed to taxed (or from 50% taxed to 85%).
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One common piece of advice is to minimize withdrawals during bear markets. That is much easier to do with no mortgage payment.

Historical simulators show that the opposite is actually true. When bear markets hit, all of your investments tend to decline in value - the amount you owe on your mortgage as well as the rest. But when good times return, that amount you owe on your mortgage (minus the losses during the bear) contribute to your portfolio recovery and then continue to add additional dollars to your recovered portfolio. So you recover faster and more with a mortgage than if you chose to pay it off.
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sgeeeee writes,

When bear markets hit, all of your investments tend to decline in value - the amount you owe on your mortgage as well as the rest.

</snip>


Don't most people have fixed 30-year mortgages? How does the amount of your monthly mortgage payment decline in a bear market for stocks?

intercst
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"Don't most people have fixed 30-year mortgages? How does the amount of your monthly mortgage payment decline in a bear market for stocks?

intercst "

*************************************

In a sense the interest portion of your payment declines over time and the principle
you owe decreases with time.

Yeah, t'is a stretch.

Howie52
Who paid off the mortgage when the kiddos went off to college. We shifted funds around
to put into college funding.
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I guess I wasn’t clear. I meant to refer to the part of your portfolio that you would have had to use to pay off the mortgage.
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How does the amount of your monthly mortgage payment decline in a bear market for stocks?

intercst "

In a sense the interest portion of your payment declines over time and the principle
you owe decreases with time.

Yeah, t'is a stretch. Howie52


When people lose a lot of money, some of them stop paying their bills. It saves a bundle.
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" How does the amount of your monthly mortgage payment decline in a bear market for stocks?

intercst "

In a sense the interest portion of your payment declines over time and the principle
you owe decreases with time.

Yeah, t'is a stretch. Howie52

When people lose a lot of money, some of them stop paying their bills. It saves a bundle"

********************************************************************

There is a difference between the way loan payments function and stealing.

Howie52
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""When bear markets hit, all of your investments tend to decline in value - the amount you owe on your mortgage as well as the rest. But when good times return, that amount you owe on your mortgage (minus the losses during the bear) contribute to your portfolio recovery and then continue to add additional dollars to your recovered portfolio. So you recover faster and more with a mortgage than if you chose to pay it off.""


I am not sure how this math works. Is that assuming a constant withdrawal that once set never is reduced?

Because if during a bear market, I drastically cut my withdrawal rate so that I sell fewer shares while the prices are down, I will have more shares when the market recovers.


c
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""I guess I wasn’t clear. I meant to refer to the part of your portfolio that you would have had to use to pay off the mortgage.""


My original advice was to pay off the mortgage as a risk management technique not as an investment maximization technique. If you pay off the mortgage by selling stocks when their price is high, it will take fewer shares to pay off the mortgage than if you have to continue making withdrawals during a bear market. Then when the market recovers, if you had paid off the mortgage, you may have more shares to benefit from the recovery.


c
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You have to consider how you get to a position of a paid off mortgage as well. Instead of paying down the mortgage over a period years, you could have been investing in stocks. That means you have a higher initial portfolio balance to draw from.
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Instead of paying down the mortgage over a period years, you could have been investing in stocks.

And that assumes a static basis of investment knowledge and experience, too. If I only knew now what I knew then!

Also, if your mortgage is such that throwing a few hundred bucks a month extra on it while simultaneously investing several thousand a month in the market gets you to a better psychological place (as it did for me), then go for it. Again, there **is** something to be said for not having a mortgage payment each month. Comfort and joy and all that v. having a bigger portfolio at retirement.

Pete
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Replaying to my own post here. Let's say you had a $200,000, 5% 30-year mortgage back in 2004 and intended to pay it off in 15 years by 2019.

To do that, you'd have to pay an extra $505 in principal each month. If you did so, you'd save $102,000 in interest. A non-trivial sum, for sure.

Instead, if you took that $505 and invested in VTSAX, you'd wind up with $268,000. That would be enough to wipe out the mortgage balance, and still be money ahead by a substantial amount.
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Replaying to my own post here. Let's say you had a $200,000, 5% 30-year mortgage back in 2004 and intended to pay it off in 15 years by 2019.

To do that, you'd have to pay an extra $505 in principal each month. If you did so, you'd save $102,000 in interest. A non-trivial sum, for sure.

Instead, if you took that $505 and invested in VTSAX, you'd wind up with $268,000. That would be enough to wipe out the mortgage balance, and still be money ahead by a substantial amount.


Hard to argue with a spread sheet.
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Replaying to my own post here. Let's say you had a $200,000, 5% 30-year mortgage back in 2004 and intended to pay it off in 15 years by 2019.

To do that, you'd have to pay an extra $505 in principal each month. If you did so, you'd save $102,000 in interest. A non-trivial sum, for sure.

Instead, if you took that $505 and invested in VTSAX, you'd wind up with $268,000. That would be enough to wipe out the mortgage balance, and still be money ahead by a substantial amount.


Taking a look...

By paying the extra $505.00 per month, the $200K loan will be paid off in 15 years and 1 month. It is 14 years and 11 months earlier than the original payoff schedule of the 30 year mortgage. This results in savings would be $101,565.60 in interest.

If you pay an extra $505.00 per month
Monthly Pay -- $1,578.64
Total Payments -- $284,945.96
Total Interest -- $84,945.96

The Original Payoff Schedule
Monthly Pay -- $1,073.64
Total Payments -- $386,511.57
Total Interest -- $186,511.57

Placing the $505 into VTSAX instead...

$505 per month x 12 months = $6060 per year
$6060 per year x 15 years = $90,900 paid in principal via VTSAX

Sell VTSAX $268,000 - $90,900 principal = $177,100 capital gains (don't forget the taxes along the way for dividends if held in a taxable account, and the expense ratio fees).

Assuming one's tax on the capital gains is 15%, $26,565 goes to the IRS leaving $241,435 remaining to pay off the remaining mortgage balance of $129,531.80 after 15 years of paying on the original schedule. Don't forget how that amount of capital gains will impact your AGI for the year you sell the shares of VTSAX to payoff the mortgage and how it may impact your finances that year.

$241,435.00 after cap gains removed
-129,531.80 remaining mortgage balance after 15 years of original schedule payments

Difference of $111,903.20 remaining compared to having paid off the mortgage in 15 years by adding $505 per month for 15 years which would have saved a total of $101,565.60 on interest.

$111,903.20 difference of VTSAX proceeds after cap gains and leftover from paying balance
-101,565.60 amount of interest saved by adding $505 to principal over 15 years

Where does that leave us?

A $10,337.60 difference == before we account for taxes and expense ratios paid along the way for holding VTSAX in a taxable account during those 15 years. Feel free, anybody, to run the calculations on the ordinary income taxes for the dividends over 15 years with such a DCA investing in VTSAX if held in taxable using a MFJ tax rate.

Point being - unless I am way off base - the difference between the two scenarios you point out: paying an extra $505 on the principal each month for 15 years compared to skipping that method and investing $505 per month into VTSAX to use for paying off the mortgage 15 years later may not be all the different in the time period you selected. Plenty of tax implications to incorporate, not to mention we are looking in retrospect. Market returns going forward the next 15 years may be vastly different. I'm sure I've overlooked several things, but just thinking out loud with regard to one scenario over another.
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if your mortgage is such that throwing a few hundred bucks a month extra on it while simultaneously investing several thousand a month in the market gets you to a better psychological place

Just realize that throwing a few hundred bucks a month extra to the mortgage doesn't do anything substantive. It doesn't reduce your required payment or reduce your risk of foreclosure.

What it does is pay your *last* principal amount sooner---today instead of 20-30 years from today. You only see the benefit at the end of the mortgage, when it gets fully paid off sooner than scheduled.
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Difference of $111,903.20 remaining compared to having paid off the mortgage in 15 years by adding $505 per month for 15 years which would have saved a total of $101,565.60 on interest.

$111,903.20 difference of VTSAX proceeds after cap gains and leftover from paying balance
-101,565.60 amount of interest saved by adding $505 to principal over 15 years

Where does that leave us?

A $10,337.60 difference == before we account for taxes and expense ratios paid along the way for holding VTSAX in a taxable account during those 15 years.


First, you don't have sell the entire $268K, right? You only have to sell enough to cover the remaining mortgage balance and taxes.

But neglecting that for the moment, remember in both scenarios you wind up with a paid off mortgage in year 15. So both scenarios get the future interest savings.

So, would you rather have $111,903 cash in your bank account right now and save $101,565 over the next 15 years?

Or just save $101,565 over the next 15 years?

That's a non-trivial difference.

If you like, you can simulate holding a mortgage over different time periods using cfiresim. Just use the non-inflation adjusted spending tab to represent that mortgage.

But it doesn't really matter. Assuming today's low interest rates, the higher initial balance at the start of retirement along with the declining withdrawal rate (because the mortgage is losing to inflation) means there is substantial advantage to not paying down your mortgage.
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Let's say you had a $200,000, 5% 30-year mortgage back in 2004 and intended to pay it off in 15 years by 2019.

To do that, you'd have to pay an extra $505 in principal each month. If you did so, you'd save $102,000 in interest. A non-trivial sum, for sure.

Instead, if you took that $505 and invested in VTSAX, you'd wind up with $268,000. That would be enough to wipe out the mortgage balance, and still be money ahead by a substantial amount.



We started seriously investing sometime in the mid-90's. We were doing a refi on the house to get a lower interest rate, and I noticed that we could either do a flat refi and get a lower payment or pull out $20K and the payment would be the same. My wife said that since we were having no trouble with the current payment, there was no reason to not take the $20K and invest it the Motley Fool way.

I decided to track the investment growth and the declining mortgage balance, with the idea that in 10-15 years the investment account would have grown enough to pay off the mortgage 15-20 years early.

Before the 10 years was up, this happened--the investment account was larger than the remaining mortgage balance.

I brought this up with my wife, expecting that she would want to pay off the mortgage. Instead, she looked at me and said, "Are you nuts?? Keep it invested. We are easily making the monthly payment, and I want to retire younger than 65."


Which we did. And when we bought our retirement house and applied for the mortgage on it, the loan officer looked over our paperwork and said, "You don't even need a mortgage, you can just buy the house for cash."
"Yup, we know."

**stamped APPROVED**
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Assuming one's tax on the capital gains is 15%, $26,565 goes to the IRS leaving $241,435 remaining to pay off the remaining mortgage balance of $129,531.80 after 15 years of paying on the original schedule. Don't forget how that amount of capital gains will impact your AGI for the year you sell the shares of VTSAX to payoff the mortgage and how it may impact your finances that year.

Stipulating that your math is correct...

Why in the world would you cash in the VTSAX to pay off the mortgage?

Paying off the mortgage does not change your net worth, you are just moving the assets & liabilities around.
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{{Why in the world would you cash in the VTSAX to pay off the mortgage?}}

Why I would personally cash in the VTSAX now to pay off the mortgagte if I were retired? Because I believe the current bull market is getting very old. I expect a recession in the near term. I would rather reduce down side risk in my hypothetical retirement. That down side risk would be reduced by lowering withdrawals from my portfolio during the bear market.



In contrast, if this decision were 8 years ago, I would definitely not pay off the mortgage.



c
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BB wrote: "Assuming one's tax on the capital gains is 15%, $26,565 goes to the IRS leaving $241,435 remaining to pay off the remaining mortgage balance of $129,531.80 after 15 years of paying on the original schedule. Don't forget how that amount of capital gains will impact your AGI for the year you sell the shares of VTSAX to payoff the mortgage and how it may impact your finances that year."

Rayvt wrote: "Stipulating that your math is correct...

Why in the world would you cash in the VTSAX to pay off the mortgage?

Paying off the mortgage does not change your net worth, you are just moving the assets & liabilities around.


Nothing was mentioned about net worth - at least from me. It was about the OP's two scenarios of paying off the note.

I was just going along with the OP's exercise of looking at paying off the mortgage early by 15 years via extra payments of $505 per month for 15 years vs. sticking to the original 30 year schedule and investing the $505 per month into Vanny's Total Stock Market Index to use at the end of the time period noted of 2004 to 2019 for retiring the remaining balance on the note.

Either way, the mortgage has to be paid off at some point whether it is through the sale of the house, paying the schedule on the original terms, advancing the schedule with extra payments/amount, or using another source of asset/income flow. I guess the alternative would be to pass away and let the beneficiaries retire the note via the usual methods.

Obviously, paying off the mortgage removes the expense of the PI- portion of PITI, and the money that previously had been going towards the PI- could then be used to invest into other assets on a monthly basis. Many reach a stage in their lives that regardless of all the nuts and bolts involved, they simply prefer the peace of mind of not having a PI- payment. That with the predictable return, and the savings on interest - provided one has a fully funded retirement account, emergency fund, and no other debt - most likely prefer to pay it off regardless of any opportunity lost with that capital.

I've posted on the board before about the question of pay it off or not (typical Rick Edelman vs. Dave Ramsey argument). We have been in the camp of being somewhat agnostic about it all, erring on the side of Edelman. Perhaps, due to a layoff last year, the agnostic thought has tipped us over the edge of now doing both - leaving all the investments to work on their own along with our continued automatic investment contributions, as well as paying extra each month on the mortgage from our cash flow as empty nesters to speed up paying off the note early. If using Ramsey's 7 baby steps, that means we put step #6 (payoff home early) behind step #7 over the past 16 years. I don't think we thought we would stay more than 5 years and continually have had an ARM. Maybe we are finally unpacking. ;-)

The market certainly caused our portfolio to fluctuate a lot more than the remaining balance on our mortgage between September to December and back up again until now. Could be a good time to think about doing a rebalance via trading one asset for another if we tire of cash flowing additional payments.
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{{Why in the world would you cash in the VTSAX to pay off the mortgage?}}

Why I would personally cash in the VTSAX now to pay off the mortgagte if I were retired? Because I believe the current bull market is getting very old. I expect a recession in the near term. I would rather reduce down side risk in my hypothetical retirement. That down side risk would be reduced by lowering withdrawals from my portfolio during the bear market.


That's short-term thinking. A recession lasts how long? 2-3 years? Compared to how long you will be retired -- 20-30 years, right? It doesn't make sense to me to make a long-term decision based on short-term hiccups.

Of course, you need to SURVIVE the short term! Easy way to do that, if you fear an imminent recession, is to cash in enough VTSAX now (before the crash) to cover 2-3 years of mortgage payments. Leave that in an interest bearing savings account to be tapped only when & if a recession occurs.

But paying off the mortgage is not the only thing that would happen if you cashed in $230K of investments. You would also have the expense of capital gains tax.
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was just going along with the OP's exercise of looking at paying off the mortgage early by 15 years via extra payments of $505 per month for 15 years vs. sticking to the original 30 year schedule and investing the $505 per month into Vanny's Total Stock Market Index to use at the end of the time period noted of 2004 to 2019 for retiring the remaining balance on the note.

Yeah, lotsa movng parts in these scenarios.
My fundamental outlook on these things is "If it's not worth doing, it's not worth doing well." That colors the way I look at these things.

Back in the day when I was doing distressed real-estate investing, I ran across many instances where somebody was getting foreclosed with only a small outstanding mortgage balances. The worst I saw was a $50,000 house with a $5,000 balance. That's why I am a firm believer that if you want to pay the mortgage off early, don't make extra principal payments but put the money into a "Mortgage Freedom" (savings) account until you have enough to completely pay off the entire balance.

Helped along by seeing what happened to a neighbor. Neighborhood of $500K-$600K houses, he had a high-paying professional job. Driving to work one day he got hit by a uninsured driver. Severely injured, he lost his job, they couldn't make the mortgage payments and the house got foreclosed. Everything he paid on principal to the mortgage was gone. Any extra payments he made -- gone.

typical Rick Edelman vs. Dave Ramsey argument

Edelman comes at it from the financal standpoint.
Ramsey's audience is people who are so buried in debt that they can't even see daylight from the bottom of the hole they are in.


The market certainly caused our portfolio to fluctuate a lot more than the remaining balance on our mortgage.

Heh, me too.

Could be a good time to think about doing a rebalance via trading one asset for another if we tire of cash flowing additional payments.

We handle it by setting up an automatic bill pay, from a dedicated account. All automatic, we never even see anything or touch anything, except to check maybe once a year to see if it needs to be topped up. Oh, but I do have to touch it once a year whenever the T&I escrow changes, to adjust for the updated monthly payment.

If you ever get to the point where you have to take more RMD from your IRA than you need, that's a convenient place to put it.

It's an interesting thing when you go to fill out a credit application and they ask how much is your house payment.....and you say "I don't know, it's all done automatically and I never see it."
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rayvt: "Helped along by seeing what happened to a neighbor. Neighborhood of $500K-$600K houses, he had a high-paying professional job. Driving to work one day he got hit by a uninsured driver. Severely injured, he lost his job, they couldn't make the mortgage payments and the house got foreclosed."

High paying professional with no uninsured motorist coverage? Idiot. For a few hundred bucks a year he would have had more than enough money to pay off his entire mortgage.
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It's an interesting thing when you go to fill out a credit application and they ask how much is your house payment.....and you say "I don't know, it's all done automatically and I never see it."

I would imagine all of us use automatic bill pay for our monthly mortgage payments. I have been doing the additional principal payments manually at the website of the company currently holding our note, but I could easily alter the process to automation.

If you ever get to the point where you have to take more RMD from your IRA than you need, that's a convenient place to put it.

Good idea. For us, that's 10-13+ years away for our traditional IRA/401k/403b plans meaning our mortgage will be paid off by then whether we continue to do it with additional payments to speed it up, or a lump sum payment. We could, however, currently do what you suggest with the required RMD's we have to take each year from the BDA IRA's we inherited from our parents. We have been funneling those RMD's (after taxes) into our Roth IRA's and taxable investments to build up our "gap years" accounts in the event of retiring earlier than planned. We are also reinvesting all dividends in the taxable accounts. To keep current taxes low in prior years, that strategy has required maxing out all pre-tax plans that we can to keep MAGI low enough to qualify to make Roth IRA contributions. However, the new MAGI levels have now risen high enough - and our salaries not as much - that we have a bit more wiggle room. We could also just back off maxing out all three plans for 18 months, turn on the dividend spigot - instead of reinvesting them - and cash flow enough additional payments to extinguish the mortgage balance. We also have a partial investment in a commercial property that is on the market. We could use the proceeds to cover the capital gains we will owe as well as pay the remaining balance on our primary residence note. It's nice to have options even though I've been slow to pull any triggers other than jaw boning about it for at least 2+ years.

We have been so agnostic about it the past decade as even though we had an ARM, the interest rate had continually been moving lower until the past two years and keeping money in investments through the course of a bull market has proven to be a nice benefit. However, the ARM we do have finally jumped up to an interest rate of 5% with the latest adjustment which is what caused me to finally move from jaw boning to start giving in and paying additional payments over the past 7 months. Feels like dipping water out of the ocean with a teaspoon up to this point unless I bump up the amount of the additional payments to a more significant amount.

Edelman comes at it from the financal standpoint. Ramsey's audience is people who are so buried in debt that they can't even see daylight from the bottom of the hole they are in.

As mentioned earlier, we have been somewhat agnostic up to this point about the scenarios of paying off the mortgage and can see the value/emotions of both methods. I've been, for the most part, unaware of Dave Ramsey all these years outside of negative/positive mentions of him on message boards here at the Fool as well as the Boglehead forums (his name comes up a lot over there). Recently - as in the past couple of months - I tune in during my commute to listen to a portion of the previous day's show. He seems somewhat entertaining as a host, and as you mention there are a percentage of callers that call in who are indeed in a deep hole with CC debt, auto loans, student loans, etc... that take your breath away to hear about their plight and how they got there. There is also a percentage of callers who "get it" or have "gotten it" and are not in a deep hole as they are doing everything right.

I align with much of his premise as I paid off all my student loans during the first 5-6 years of my working career while I lived and ate on the cheap, have always purchased vehicles with cash (used and new), keep an emergency fund, have never carried any debt outside of the mortgage, never believed in anything outside of term life insurance, and my wife and I believe in giving. Those premises have been around long before Ramsey emerged and were passed on from our parents. It's nice to see someone is "preaching" it, and it sure sounds like he has built a nice financial empire for himself on the back of age old advice. If anything, listening the past couple of months from time to time re-enforces our dedication to passing on good financial habits through continued parental advice to our adult children who are early in their working careers and learning to live on a budget from their income, save/invest, and keep out of debt.

Most likely all of us following this board are very well positioned whether we are already retired, or are in the near years leading up to it. In our case, we are 4-9 years away from what had been our planned full retirement (we will stagger into it as a couple due to having a 4 year gap between our ages) and the one remaining piece seems to revolve around the remaining balance on the mortgage.
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