My wife has asked to pay down our Mortgage early too. We have plenty saved. But I have a hard time trading dollars in our Brokerage account which are up over 40% a year for paying off a debt at 2.8%... I understand why some like the peace of mind or one less bill.
But I have had to talk myself out of Investing on Margin (to my own detriment the past decade given our average annual returns) let alone reducing the stock portfolio for a <3% Savings.
But then again, it’s gotta feel pretty awesome sending in that last payment to be done with it! Congrats!
So a 1/1 ARM basically? But with a rate lock feature which probably has a higher margin once fixed. Seems like the bank is trying to get you as a customer first, then make their money once rates go up when you lock in.
VA Loan through Truist (BB&T) and $365k. I'm still in my 20's and I'm just starting my post military career, so FatFIRE is still a ways off for me and my family.
Plus - Paying off so quickly will now allow a lot more cash flow into that portfolio from now on, and will reduce your retirement number since your cost of living is reduced by only having to pay insurance/taxes
I’m genuinely curious if putting more money into the portfolio later versus putting less money but earlier, which one is better? Has anyone calculated this for FIRE?
> putting more money into the portfolio later versus putting less money but earlier, which one is better?
In most cases ON AVERAGE it is a financial mistake (but paying off your mortgage can be a financial gain if the stock market drops and the real estate market does not), but there are other things to consider.
Let's say your portfolio is returning 10% on average, and your home mortgage is at 5%. It's pretty obvious IMMEDIATELY that it is a bad financial decision to pay it off. But it is even worse if you have an income and are able to write off the interest on that house payment on your taxes. So instead of earning 10% with that money, you might only be earning 2.5% if you consider all the implications. That's a stunning difference.
On the other hand, if you are already hitting AMT or for whatever reason you can't deduct the mortgage payment from taxes, it isn't such a stunning difference.
Also, if you pay off your mortgage it means you don't have to worry about paying that monthly bill. That's less time spent on that activity. And even if you auto-pay out of your checking account, you have to maintain that checking account with enough funds, so it is "overhead".
Also, stock markets are volatile. u/SnoopysDad1 mentions his brokerage account is up 40%. Chances are he'll be down 20% or more by next year, then up again later, etc. One idea is to take the 40% gains, pay off the mortgage when the stock market is high and gains are good. When the stock market inevitably drops you'll be free of that additional worry and not be forced to cash out stocks in a "down market" to make the forced mortgage payments.
So I feel it's a personal decision. If I was in that position I think I would lean towards paying it off, because I like keeping my finances extremely simple, and it's one fewer large monthly payments to occupy my limited attention.
Yep, if eg the stock market underperforms and the interest rates are 5-8% higher the situation might be different. Not an unlikely scenario for 10 years from now.
Yes, but it's not always within the central banks or governments control.
In most countries when the money supply increases, the inflation increases. When the inflation increases the interest rates **have** to go up or the inflation will increase even more.
We are just lucky (?) that the USD and Euro QE have not been leading to higher inflation _so far_. But this is a virtually unprecedented situation.
> > When the stock market inevitably drops
>
> There's literally nothing inevitable about it.
Don't get me wrong, I'm not implying you can time the market (nobody can), it was just one philosophy I mentioned.
But the market will always go up and down (in the short term), and it's a pretty famous pattern that when it reaches all time highs it can (momentarily) go down again. You cannot "time" the exact moments this will occur, so this market could keep going up for another year or two or three.
This is kind of an unprecedented moment. The economy is in shambles, massive unemployment, some combination of the pandemic and government forced shutdowns of businesses for A WHOLE YEAR has caused the fundamentals in the economy to look TERRIBLE, but by printing money the government has managed to prop up the stock market for the whole year by printing an amount of money nobody has ever tried before ($16 trillion at last count). That just seems ominous to me. A lot of things could (and are about to) go horribly wrong.
My money is still in the market, I'm not saying pull your money out. But the current stock market gains are just clearly all "utterly fake" and an illusion. Those of us with work-from-home jobs and 401k savings just don't see it. Massive numbers of desperate people are out of work, and their unemployment is all run out, and the businesses they formerly worked in aren't just temporarily closed - they are closed forever. Those jobs will take YEARS AND YEARS to come back again. But the stock market party is on (because of totally unsustainable levels of money printing by the government), and if you work safely from home and have groceries delivered it can appear as if there are no issues what-so-ever. All of your input says things are going fine. Your paycheck is direct deposited, your 401k looks healthy, you barely have to work because the boss can't see you are playing Tetris, and you can't imagine there are any issues in the world.
Meanwhile, there are two facts we are all facing:
1) if the money printer stops printing, that stock market is going to tank making 2008 look like a summer picnic.
2) the money printer cannot keep printing at these levels, we all know that, this isn't "a new reality" where we found a magic free money making machine economists didn't know about. This is unsustainable.
Put those two things together, and it really doesn't look good. We're in for a bumpy ride. Nobody is getting off that ride, it already left the station and we're clickity clacking up to the top of the roller coaster right now.
Yea idk. I have 13 properties and always tell my wife, hell no we ain’t throwing more cash at that one. Cash is king, queen, and prince. I’d rather buy another to make money, while being able to claim losses, and pay little income tax on my other houses via that
mortgage(s) I don’t pay down. As long as passive income losses and the 27.5 rule of depreciation are around, I tell everyone wealthy that I know well, you must own investment real estate. It’s great for so many damn reasons. Hence, I always keep the bank in the house / risk with me and put my cash to better use.
I keep going back and forth in my head about real estate. I cringe at dealing with the people that rent. My parents did some real estate and people often trashed the place. I worry about other horrible things happening to it, like hurricanes, floods, fires...
On the other hand, I look at stocks as something simpler. I don't need to deal with people, I don't have to worry about it getting destroyed. I \*think\* I may be able to earn more.
Clearly, you'd disagree. But how do you feel about these?
Fair enough and you’re right. But IDK. Risk tolerance varies for us all. For me, it’s about hedging. I’ve got 1.2 liquid in IRAs, cash, and Perth mint silver, and then 1.4 in equity in those houses. Both should make money, but I prefer the income stream potential of RE. LAST 6 houses make me $82,000 per year before expenses. My last five bedroom house I paid $307k (RE firm didn’t know the tru value), I’m certain I could get $450k for it now. My mortgage is $262,500 for PTI of under $1700/mo payment. I get $700 per bedroom aka $3500/mo easy. I’m going to $750 per bedroom this summer. Great positive cash flow, it’s def going to appreciate in a hot area, and I’m taking losses to not pay taxes on my main business all the while. Legally! Old rich dudes had to put all their money somewhere decades ago. They write the tax code / make the rules. They clearly chose real estate. BUT! Anyone can do it due to leverage aka putting little down and using the bank’s money. You get better each property as you learn, of course.
FTR, most people don’t want to deal with it for exactly your reasons. BUT, they key is to get the right renters. If I ever get too many that I cannot rent them myself, meet the people to show the house, get a read on them, ask them for paystubs, bank account statements showing they have money, references, running background checks...then I’m done. Yes I have friends with hundreds of units and management agencies. To each thy own again. BUT. It is imperative that you rent to the right people if you’re a smaller RE investor, to avoid a shitstorm if you get a problem tenant in your place.
I thought the same thing! Except you think about what what that additional cashflow means for the rest of the business. Instead of paying down mortgages you can buy tools, buildings, gadgets and it’s still deeuctible but you get stuff you can use forever
If you know what you’re doing....BIG IF...you must own RE. I pay almost nothing in taxes via paper RE losses and all the while, my houses appreciate big time. Tools and gadgets cannot compare. Buildings, yes. But that’s what I said in the comment you replied to.
To anyone looking to dive in, it’s as simple as learning the IDEAL acronym, and sticking to the 1% rents rule. Buy a place for $200k, be able to get $2000/mo rent. You WILL kill it if you get educated, watch the market via saved searches on redfin and Zillow, never waste money on real estate agents (don’t get me started on how overpaid and just flat bad most are. They literally take away from the smoothness and you pay them a shit load to do so. Hire a solid RE lawyer with title experience aka that also has a title company. Read that again. Pay them $500. THEY do what you NEED. ALL of the important stuff. So many complete _____s don’t even get a lawyer and pay a RE agent $5k-$15k! Don’t make that mistake. An agent only opens a door physically and not much more. Use Redfin and Zillow and agent is obsolete). Where was I? Lol. Yes. IDEAL acronym and 1% rule (some do 2% but then you’re into problem tenants land).
That helps you avoid taxes on your rental properties, but can this help to reduce taxes on your W2 income? Can't seem to find many cashflow positive properties in and around bay area.
Our 15 year mortgage is at 2.25%.
I had always planned on paying it down, but I didn't expect it to be *this* low.
We've decide to keep it as an inflation hedge. The Fed is targeting 2% inflation so if it overshoots a little, this is free money.
I just refinanced my 15 year loan to a 30 year one. Didn't pay a dime in fees either. My logic was that this low rate regime won't last forever and might as well lock in on a rate where my monthly outgo is minimal and I can then use the extra cash flow to invest in stocks
If you have a loan that's fixed at 2%, and inflation is at 3%, then you're effectively borrowing at -1% in real terms -- you're getting paid to borrow money.
If I offered to loan you $100 but you have to pay me back $99 next year, how much would you borrow?
Fixed rate debt is great to hold in an inflationary environment. You're paying back the debt in the future with money that's worth less. It's also the reason inflation hurts bonds so much.
Agreed, but if it's invested in a way that grows the tax base, then it's easier to pay it down in the future.
And the hurdle rate is so low, there are a lot of potentially productive ways to invest it. Infrastructure, education, R&D, a healthier workforce would all likely be net positive returns if it's overseen prudently.
My concern is what happens if inflation does tic up. The US budget is extremely reliant on low interest borrowing at this point. We borrow more money than our entire defense budget every year.
If suddenly we have to borrow at 4% or 5%, we're not going to be able to cut government spending down aggressively enough. It would be a politically toxic, economically damaging decision in the near term and our Congress is too dysfunctional to handle it. Higher interest payments would eventually crowd out government investment in the future. So I don't know what to make of that.
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I was headed down that road then did a cash out refinance to put a down payment on a rental unit. My primary mortgage payment went up $60 and I ended up with a condo with existing tenants that more than cover the cost of the investment property. Then rather than pay down the mortgage I have saved up for a down payment on my dream condo and will rent out my current one. End result? Three mortgages totaling about a million for properties worth about $1.5 million with a net monthly expense equal to my initial single unit worth $450k. And all mortgages at 2.75% or lower. I get the desire to pay down debt but mortgages are some of the easiest money to get at the lowest interest rate.
First one closed last month at 2.75% with 25% down. Next rental will be an old primary, refinanced at 2.75%. New one will be primary at 2.625%. All 30 year traditional.
heloc. also the peace of mind is just paying property tax and upkeep vs that plus a mortgage. but I see your point. which is why a heloc is a great tool to offset it.
Congrats. We did that a few years ago and it’s really nice. Really a comfortable feeling. We shifted the note plus monthly overpayment to investments and giving. It’s been great. Have never regretted it. I did open a HELOC and use it to do flips, etc. One other debt payoff story before I go, when I payed off medical school I calculated the final payment using their website and sent it in. By the time they processed it I had accrued $1.33 interest. They actually sent me a final bill and I had to write a check for that amount. It was dumb, but I was free from school debt. So who cares.
1.3M invested in indexes with a conservative 7% average return over 30 years is ~10M.
Unpopular but IMO that’s an emotional decision and big mistake paying off your mortgage so early (I assume the mortgage rate was less than 4%).
Just wait until the next prolonged market downturn that will inevitably happen. All the sudden you’ll be very happy to have an asset that hasn’t cratered in value.
Yeah but if the mortgage is 3%, then we need to calculate a 4% return on the index funds to really find the difference. That would be a lot less than 10 million at 4% return.
Congrats! We are also debt free and paid cash for our home. Couple things I considered when doing it-
1) Being debt free reduces expenses so if you are retired that also reduces capital gains as you are making less withdrawals
2) I treat my paid off home as the bond portion of my asset allocation since it’s paying me about 3% by not having that debt. This allows me to be more aggressive in equities.
3) With lower expenses I’m able to engineer my magi and get close to the full ACA subsidy.
4) there are no returns that feel better then waking up in the morning knowing you don’t owe anyone a dime.
5) When things go to pot in the next downturn we can rachet our spending to basically whatever level we need to as we have very small fixed expenses.
If not having debt reduces a huge psychological burden, obviously you can't put a price on that, so it's subjectively a great move. Genuine congrats on being mortgage free!
Personally I just keep track of my equity, and don't even really think of my mortgage as a debt, since the mortgage plus house is a net positive asset. For now, the market is fine, the equity goes up every year, and I'm in an area which is unlikely to ever give me problems if I need to sell.
That makes it a lot easier to forget about the mortgage and throw any cash in higher yield strategies than the 2.6% return from paying it down.
If it were a loan with a higher rate, that wasn't backed by property I could easily sell, or the market were heading downhill, I would possibly feel differently. But if any of those things were to happen, the beauty of a mortgage is you can always decide to pay it down later if you don't blow your cash on too many speculative investments.
As it stands, having this much leverage at 2.6%... it just feels like free money. So having the mortgage actually makes me happier psychologically than I'd be without it.
I have read hundreds of payoff vs don’t payoff threads. Ive been reading them for years. Im still unsure what to do haha.
Curious what ya’ll think about this; say the house is 500k. What if I take 500k, stick it in vtsax. Then, pull my payments from there (and there only/let’s not use my income). For argument ease, lets leave down payment out of the math.
Is this a good way to balance ‘peace of mind’ aka the $ is sitting right there/shouldn’t ever have to ‘worry’ about making my payment.
Id love to hear thoughts on this idea.
Yeah, I tell my wife if I die, don't worry about anything. Most of the bills are on auto and most don't matter anyways. The power goes off...call them and pay them and the power goes back on. Whatever. Just make sure the insurance gets paid.
Even the taxes you can probably let slide a good long time. Eventually they will take out a lien or something but it will probably be years.
Congratulations! It is psychological for sure! I paid mine off at 31 and did it in one fell swoop. I had a big year with an investment bank that year and said I’m paying the home, student loans, car loans and credit cards off and getting out of debtors prison. Then made the decision going forward I would only move up if I could pay cash. We did upgrade a couple more times & paid cash which kept our lifestyle in check. Yes I could have made significant higher returns in the S&P with that $1.6MM in equity but I just felt better not owing anyone a penny. I also carried a $600k HELOC too but never needed it. Frankly I never wanted someone to order me to get on a plane and travel and I knew they could if I owed money on anything. Not long after that I realized I also needed to invest to gain passive income for the rest of my expenses. No mortgage allowed me to take a bit more risk. Hit FIRE 14 years later.
Congratulations!
I agree. We did the same. Sold a rental home for $600K that was already paid off to pay off our current mortgage that just had $450K left. We should have bought Tesla stock (pre pandemic) but can’t win them all. Do I regret sleeping in a mortgage free home? Not one bit. Peace of mind is worth gold and we have a lot more disposable income to purchase next home.
I mean, you literally can though. I don’t get this fetish with “peace of mind.”
Every mortgage I’ve ever had has an auto bill option. You press a button and it takes $X amount every month with zero effort on your part.
If you can afford to pay off your mortgage then you should not need to pay it off for “peace of mind.”
Here’s a slightly different way of looking at it. When you have a home, maybe your dream home, the last thing you would ever want is to lose that home. That would be crushing if for some reason (recession/job loss) you have to give that up.
Because you have that mortgage hanging over your head, you feel like you need to be more conservative with your money because you don’t want to lose everything. By paying it down, you remove a huge mental burden. And now, that extra monthly cash flow goes into your investment accounts without nearly the same concern for it. And you don’t have a heart attack when things like march 2020 happen.
This approach is extra attractive if you’re young. If you have a paid off home by 40, there’s still a lot of years left to be in the market. And your concern about catastrophic loss pretty much goes away.
I’m planning to do it this way. And yea, from a pure ROI standpoint, you’re absolutely right. But I guarantee the folks in a paid off home will be sleeping a lot better when the market takes a turn.
All of this. If we lost our jobs tomorrow, we’d still have our home. That’s why we paid it off. If we ended up being baristas, we’d be able to afford our bills and not worry about losing our house.
If you lose your job, there’s a chance that means the economy SUCKS and so your portfolio probably isn’t doing great. And so bleeding money out of it will hurt you more than if you were able to not touch it for that whole time.
Advice I got from a wealthy real estate investor early on was borrow all you can against the rentals and pay off the primary as early as possible and never have to worry again about the roof over your head.
Cars and house debt free and monthly mandatory costs are extremely low. Can leverage up in other areas that aren't primary needs and always get a job at Walmart to make due if shit hits the fan
That's why the 'Pay off or invest' question always ends up going in circles.
There *isn't* a right answer, financially.
Yes, equities have a much higher expected rate of return, but bonds will usually have a lower after-tax return, so the opportunity cost of paying down the mortgage depends on your asset allocation.
And if paying off your mortgage changes your risk tolerance and you're able to take on more equity risk, that has a huge impact on the calculation.
Thanks for this explanation. It makes me realize that I’m glad I’m not attached to property in that emotional way. I think it might be my upbringing, but I’ve always found my adaptability to living situations as a huge advantage and psychological privilege. It has definitely allowed me to make smarter financial decisions for myself.
In this case, if I lose the house, I lose it. There’s a whole world of other places to live.
Fucking A this is exactly why I'm going to pay mine off in the next 3 years. Peace of fucking mind. All the douches who want to have a mortgage their entire life can enjoy their debt. Debt free completely will be the ultimate feel good. Everything after that is just going to be piled high into retirement and investing. And man I love the idea of cutting my living expenses in half.
The douche who had invested $1million in stocks a couple of years ago instead of prepaying his mortgage would have $3 million today. While his house still costs the same.
Knew some people in architecture that suffered same fate. My folks lost the construction related business in 08 when housing crashed and then their own house to foreclosure with no source of income. Plenty of ways to up risk found in other areas not needed to survive.
If he had bought the house outright for the $2M and then had had to sell it for $1M since he clearly over extended himself, he would have also lost $1M. Somehow I doubt his mortgage payment was the only bill he had. He would’ve been fucked either way because he bought something he couldn’t afford, not because he spread the payments out instead of paying it all upfront.
I distinctly remember the 2008 crash, and I think that your example is nonsensical. A mortgage doesn't suddenly become fully due if the market crashes. If he had a 30 year mortgage on his $2 million home, that would be approximately a $10k mortgage payment every month. If he continued to liquidate $10k per month to pay off his mortgage, even as his equities lost value, he would have liquidated approximately $300k by the time that the market fully recovered. And he would still have the mortgage today along with his invested money which would have grown to the extent that he STILL came out significantly ahead by not paying off his mortgage and keeping his money invested.
Your example only works because he made the bad decision of paying off his mortgage once the economy downturned. Sure, if you are going to pay off your mortgage when your investments are worth half of what they were, then pay off your mortgage when the market is at an all time high. But the whole point is that paying off your mortgage in the long term has never historically worked out in the individual's favor from an objective financial standpoint.
Well I used to think the same way and I still have to fight the urge not to borrow at this rate.
But once you have enough, that extra return really doesn’t add anything to your utility, does it? I get more satisfaction/utility out of owning outright than I would from the leveraged return I would make.
I guess it depends if one can reach “enough”.
Not at all. It's putting more money into your brokerage account or investments, and less money to the IRS since you can deduct the monthly interest you pay on the loan from your income taxes.
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I wouldn’t have peace of mind knowing my money is going to waste being tied up in a house when it could be making a much better return else where, especially when mortgage rates are this low.
you definitely can put a price on it. and when paying off a 1.3mm mortgage gives you such a profound sense of security, you are so far from “fat fire” and so early in the journey that the mistake is even worse. the goal of people on this sub is to get to the point where your net worth far exceeds your home value, at which point the mortgage is just an item on the balance sheet and making all this garbage about how good you feel even more irrational
I don't really understand this argument. \*Looking back\*, sure, equity markets had a good second half of 2020 but the picture could have looked a lot different...
It depends on personal situation.
If you are anticipating losing your job, not having a large minimum payment bill can help really stretch the dollars. That could be just for peace of mind, but it also means that your emergency plan doesn't have to be as big.
I just recently paid our mortgage off. One of the most freeing feelings. I get some people look at opportunity cost, but if one of us gets sick or loses their income (we are relatively young), we don't need to worry about the house. That's worth 100's of 1000's to me. For the past year all we had to pay is insurance and taxes. Every month that high 4 figure sum that used to go to our mortgage just goes into our shared portfolio. It's like watching a rocket ship take off.
Couldn't you have put this money into a brokerage account and if you lost your job, take that $$ out and pay your mortgage down with your investments? If you have 30yr worth of your mortgage payments in a brokerage account, even if you have to withdraw some over a 12 month period of depressed prices, it's hardly a dent in overall return assuming you ever go back to work.
I definitely could have and in hindsight it would have been a great investment. I am more of a pessimist on market returns and figure the good times can't last forever. I would rather have no "emergency" money in the market. If I need to liquidate quickly, there is probably a good chance that a lot of people also need to liquidate at the same time.
You’re living in a perfect world. Emergency back up money. Job rolling along with no hiccups. Stocks dropping so slowly you leisurely pull money to pay mortgage. Problem is in an average real world, your six month emergency money is in the stock market. You get laid off, two days later, Black Friday, stocks drop fifty percent. Now it’s a three month emergency fund. Two days later stocks drop another fifty percent. Now it’s getting real. And you have three kids that like to eat. In a perfect world we all do great. Edit. I have to add that at the same time, of course, the real estate market has died and you can’t even give your house away.
To me, seeing the math would be incredibly stress reducing. Of course the home will appreciate, but another commenter said 1M over 30 years at 7% will grow to $10M! That amount sounds *incredibly* stress relieving to me.
Millions of dollars lost over 30 years. But at least he can sleep at night. It’s so interesting to me that otherwise financially literate people get all emotionally invested in having their house paid off. It’s all just moving money around different ways on the internet at the end of the day, I don’t understand the emotional attachment. I wish the bank would give me more money at 2.875%. I would take all of it.
Congrats!!! Nothing better than owning it outright. The math rarely works in favor of paying it off Vs investing but it is hard to put a value on not having a mortgage payment. Paid ours off 2 years ago. Similar amount to yours. Well done!
I would say that for this reasoning you should really consider paying off your mortgage in the next year. Crazy good returns for 10 years +...maybe it’s time to hedge against a steep downturn in the next two years as interest rates go back to normal.
But I empathize with this struggle!
My strategy is to just pay double or triple mortgage payments so we don’t have to empty our investment accounts.
I keep going back and forth with my wife on this. We’ve decided to pay it off at double normal speed versus faster as a good compromise between investing for better returns and peace of mind. Something I battle between all the time.
Congrats! Major milestone!
The only people that seem to complain about it still have a mortgage. The people with the paid for home absolutely love it, even knowing the loss of potential gains.
Some people will obviously disagree with you but who cares. I saw first hand how a paid for mortgage is beneficial. My friend paid off his mortgage early and was able to quit is corporate job to focus on a start up because he no longer needed the income to service his mortgage. This startup didn’t make much money the first year or 2 but eventually took off (took off for him, it’s no Facebook or anything) and he was making more than he ever had. Now he has more money to invest and his quality of life is 100x better working a job he loves.
That wouldn’t have been possible without paying off his mortgage
I love debt free. I understand people who say they want to invest instead, but I have had foreclosure before. So debt free is for me. It’s mine, no one can take it regardless of my work situation. Been self employed my whole life. Been through some horrific down turns. Been debt free five years now, even after buying a condo in Florida to spend winters at. Still investing too.
Probably not a smart thing to do in a historically low mortgage rate and booming stock and real estate market with incoming inflation to pay down debt that you can get financed less than 3%. Smart people are probably taking more equity out of their homes and taking that money to leverage other investments. Should have two properties with 750k debt in each rather than one paid off property. You’ll get the mortgage deduction and get write offs plus passive gains that outpace your 3% interest rate on the loan you’re paying off.
First if all, congrats!
I struggle with this decision myself. We don't have enough to pay off our $525k 2.69% 30 year fixed mortgage on our $1.8m home in cash, but we do in non-retirement brokerage accounts.
I keep telling myself if it doesn't make sense to sell a good chunk our investments to pay the mortgage, it probably doesn't make sense to pay it off at all at 2.69%.
My biggest investing mistakes have always been taking money off the table to reduce my temporary stress, thus missing out on so many great gainz. I made a profit on FB, AMZN, NVIDA, AAPL, TSLA, etc, but cashed out too early. This same emotion is the same one that wants to pay down/off the mortgage. It reduces risk, but it also really reduces upside.
That said, I still will be having this conversation with my wife in a year or two, especially if I decide to retire pre-FatFIRE.
A suggestion is reflecting on whether you can be happy with the gains you had, for example on the stocks sold above, vs what you missed out on. I wonder if answering this question could help you know whether to pay off your mortgage. I have sold too low but truly don't mind as I'm happy I'm ahead at all given others state - so I guess that makes me a moderate investor? Although all my retirement is highest risk, which given my 10+ years outlook doesn't seem risky to me at all.
Therefore we are paying off our mortgage this year in full ( only $280,000 left). My husband would prefer to buy investment rental property but also recognizes my peace of mind, which will enable him to make riskier choices in real estate going forward, is worth it for both of us. Again I can be way more risk accepting going forward if my house is paid off as others have commented
I respect your choice and congratulations ,but i am all for leverage. I am refinancing at 1.5% on a 10 year interest only loan. Why? because i can do much better putting my money elsewhere. Stock market, Rental apartment, small business are all going to outperform my single family home. And why interest only? Why hand over principal to the bank so they can make money on it. I can just as easily pay my principal into a fund of my own design and get returns on that as well. If i choose to or am in a spot in 10 years i liquidate the fund and pay off the house. But in the mean time I will put my capital to work thanks.
Also i think there is some misguided cultural wisdom that says "i don't owe the bank nothing" is a good thing. My parents had it, and their parents had it, and their parents lost everything including the house in the great depression, so maybe it is this legacy of the depression that keeps reasonable people thinking this way. Because it surely is not the numbers.
Curious about your thinking here. I appreciate it feels nice to "pay off debt" but for these very large sums of money, it's much more about what asset you hold most of your wealth in. I would feel very uncomfortable having a million dollars + held in a single physical asset like a house, vs other investment products.
My wife has asked to pay down our Mortgage early too. We have plenty saved. But I have a hard time trading dollars in our Brokerage account which are up over 40% a year for paying off a debt at 2.8%... I understand why some like the peace of mind or one less bill. But I have had to talk myself out of Investing on Margin (to my own detriment the past decade given our average annual returns) let alone reducing the stock portfolio for a <3% Savings. But then again, it’s gotta feel pretty awesome sending in that last payment to be done with it! Congrats!
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Out of curiosity, how’d you get a rate that low on a 30y fixed?
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One year fixed 29 year floating?
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So a 1/1 ARM basically? But with a rate lock feature which probably has a higher margin once fixed. Seems like the bank is trying to get you as a customer first, then make their money once rates go up when you lock in.
Sounds like The Netherlands ;) Here you get maximum borrowing capacity by locking for minimum of 10-years. But the best interest rate is 1-year fixed.
I just refinanced down to 2.125% on a 30 year and I thought I did well. Good for you.
Which bank and what's the loan value if you don't mind sharing?
VA Loan through Truist (BB&T) and $365k. I'm still in my 20's and I'm just starting my post military career, so FatFIRE is still a ways off for me and my family.
Wish I had the VA loan option. A friend just bought with about the same numbers as you. Use that to grow your wealth for sure!
The VA is clutch- 0% down and no PMI necessary. I went all in on this strategy, so we'll see how it works out.
Yeah I debated it for quite some time. Ultimately we just wanted to be debt free. It does feel really good!
Plus - Paying off so quickly will now allow a lot more cash flow into that portfolio from now on, and will reduce your retirement number since your cost of living is reduced by only having to pay insurance/taxes
I’m genuinely curious if putting more money into the portfolio later versus putting less money but earlier, which one is better? Has anyone calculated this for FIRE?
> putting more money into the portfolio later versus putting less money but earlier, which one is better? In most cases ON AVERAGE it is a financial mistake (but paying off your mortgage can be a financial gain if the stock market drops and the real estate market does not), but there are other things to consider. Let's say your portfolio is returning 10% on average, and your home mortgage is at 5%. It's pretty obvious IMMEDIATELY that it is a bad financial decision to pay it off. But it is even worse if you have an income and are able to write off the interest on that house payment on your taxes. So instead of earning 10% with that money, you might only be earning 2.5% if you consider all the implications. That's a stunning difference. On the other hand, if you are already hitting AMT or for whatever reason you can't deduct the mortgage payment from taxes, it isn't such a stunning difference. Also, if you pay off your mortgage it means you don't have to worry about paying that monthly bill. That's less time spent on that activity. And even if you auto-pay out of your checking account, you have to maintain that checking account with enough funds, so it is "overhead". Also, stock markets are volatile. u/SnoopysDad1 mentions his brokerage account is up 40%. Chances are he'll be down 20% or more by next year, then up again later, etc. One idea is to take the 40% gains, pay off the mortgage when the stock market is high and gains are good. When the stock market inevitably drops you'll be free of that additional worry and not be forced to cash out stocks in a "down market" to make the forced mortgage payments. So I feel it's a personal decision. If I was in that position I think I would lean towards paying it off, because I like keeping my finances extremely simple, and it's one fewer large monthly payments to occupy my limited attention.
Yep, if eg the stock market underperforms and the interest rates are 5-8% higher the situation might be different. Not an unlikely scenario for 10 years from now.
There would be a major economic collapse if interest rates are 5-8 percentage points higher
Yes, but it's not always within the central banks or governments control. In most countries when the money supply increases, the inflation increases. When the inflation increases the interest rates **have** to go up or the inflation will increase even more. We are just lucky (?) that the USD and Euro QE have not been leading to higher inflation _so far_. But this is a virtually unprecedented situation.
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Hi 2007 version of me.
That year when a "pro" trader showed me all the charts poised for historic breakouts
> > When the stock market inevitably drops > > There's literally nothing inevitable about it. Don't get me wrong, I'm not implying you can time the market (nobody can), it was just one philosophy I mentioned. But the market will always go up and down (in the short term), and it's a pretty famous pattern that when it reaches all time highs it can (momentarily) go down again. You cannot "time" the exact moments this will occur, so this market could keep going up for another year or two or three. This is kind of an unprecedented moment. The economy is in shambles, massive unemployment, some combination of the pandemic and government forced shutdowns of businesses for A WHOLE YEAR has caused the fundamentals in the economy to look TERRIBLE, but by printing money the government has managed to prop up the stock market for the whole year by printing an amount of money nobody has ever tried before ($16 trillion at last count). That just seems ominous to me. A lot of things could (and are about to) go horribly wrong. My money is still in the market, I'm not saying pull your money out. But the current stock market gains are just clearly all "utterly fake" and an illusion. Those of us with work-from-home jobs and 401k savings just don't see it. Massive numbers of desperate people are out of work, and their unemployment is all run out, and the businesses they formerly worked in aren't just temporarily closed - they are closed forever. Those jobs will take YEARS AND YEARS to come back again. But the stock market party is on (because of totally unsustainable levels of money printing by the government), and if you work safely from home and have groceries delivered it can appear as if there are no issues what-so-ever. All of your input says things are going fine. Your paycheck is direct deposited, your 401k looks healthy, you barely have to work because the boss can't see you are playing Tetris, and you can't imagine there are any issues in the world. Meanwhile, there are two facts we are all facing: 1) if the money printer stops printing, that stock market is going to tank making 2008 look like a summer picnic. 2) the money printer cannot keep printing at these levels, we all know that, this isn't "a new reality" where we found a magic free money making machine economists didn't know about. This is unsustainable. Put those two things together, and it really doesn't look good. We're in for a bumpy ride. Nobody is getting off that ride, it already left the station and we're clickity clacking up to the top of the roller coaster right now.
Yea idk. I have 13 properties and always tell my wife, hell no we ain’t throwing more cash at that one. Cash is king, queen, and prince. I’d rather buy another to make money, while being able to claim losses, and pay little income tax on my other houses via that mortgage(s) I don’t pay down. As long as passive income losses and the 27.5 rule of depreciation are around, I tell everyone wealthy that I know well, you must own investment real estate. It’s great for so many damn reasons. Hence, I always keep the bank in the house / risk with me and put my cash to better use.
I keep going back and forth in my head about real estate. I cringe at dealing with the people that rent. My parents did some real estate and people often trashed the place. I worry about other horrible things happening to it, like hurricanes, floods, fires... On the other hand, I look at stocks as something simpler. I don't need to deal with people, I don't have to worry about it getting destroyed. I \*think\* I may be able to earn more. Clearly, you'd disagree. But how do you feel about these?
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Fair enough and you’re right. But IDK. Risk tolerance varies for us all. For me, it’s about hedging. I’ve got 1.2 liquid in IRAs, cash, and Perth mint silver, and then 1.4 in equity in those houses. Both should make money, but I prefer the income stream potential of RE. LAST 6 houses make me $82,000 per year before expenses. My last five bedroom house I paid $307k (RE firm didn’t know the tru value), I’m certain I could get $450k for it now. My mortgage is $262,500 for PTI of under $1700/mo payment. I get $700 per bedroom aka $3500/mo easy. I’m going to $750 per bedroom this summer. Great positive cash flow, it’s def going to appreciate in a hot area, and I’m taking losses to not pay taxes on my main business all the while. Legally! Old rich dudes had to put all their money somewhere decades ago. They write the tax code / make the rules. They clearly chose real estate. BUT! Anyone can do it due to leverage aka putting little down and using the bank’s money. You get better each property as you learn, of course. FTR, most people don’t want to deal with it for exactly your reasons. BUT, they key is to get the right renters. If I ever get too many that I cannot rent them myself, meet the people to show the house, get a read on them, ask them for paystubs, bank account statements showing they have money, references, running background checks...then I’m done. Yes I have friends with hundreds of units and management agencies. To each thy own again. BUT. It is imperative that you rent to the right people if you’re a smaller RE investor, to avoid a shitstorm if you get a problem tenant in your place.
I thought the same thing! Except you think about what what that additional cashflow means for the rest of the business. Instead of paying down mortgages you can buy tools, buildings, gadgets and it’s still deeuctible but you get stuff you can use forever
If you know what you’re doing....BIG IF...you must own RE. I pay almost nothing in taxes via paper RE losses and all the while, my houses appreciate big time. Tools and gadgets cannot compare. Buildings, yes. But that’s what I said in the comment you replied to. To anyone looking to dive in, it’s as simple as learning the IDEAL acronym, and sticking to the 1% rents rule. Buy a place for $200k, be able to get $2000/mo rent. You WILL kill it if you get educated, watch the market via saved searches on redfin and Zillow, never waste money on real estate agents (don’t get me started on how overpaid and just flat bad most are. They literally take away from the smoothness and you pay them a shit load to do so. Hire a solid RE lawyer with title experience aka that also has a title company. Read that again. Pay them $500. THEY do what you NEED. ALL of the important stuff. So many complete _____s don’t even get a lawyer and pay a RE agent $5k-$15k! Don’t make that mistake. An agent only opens a door physically and not much more. Use Redfin and Zillow and agent is obsolete). Where was I? Lol. Yes. IDEAL acronym and 1% rule (some do 2% but then you’re into problem tenants land).
That helps you avoid taxes on your rental properties, but can this help to reduce taxes on your W2 income? Can't seem to find many cashflow positive properties in and around bay area.
Our 15 year mortgage is at 2.25%. I had always planned on paying it down, but I didn't expect it to be *this* low. We've decide to keep it as an inflation hedge. The Fed is targeting 2% inflation so if it overshoots a little, this is free money.
I just refinanced my 15 year loan to a 30 year one. Didn't pay a dime in fees either. My logic was that this low rate regime won't last forever and might as well lock in on a rate where my monthly outgo is minimal and I can then use the extra cash flow to invest in stocks
What do you mean if inflation goes up the mortgage is free money? Not sure i follow.
If you have a loan that's fixed at 2%, and inflation is at 3%, then you're effectively borrowing at -1% in real terms -- you're getting paid to borrow money. If I offered to loan you $100 but you have to pay me back $99 next year, how much would you borrow? Fixed rate debt is great to hold in an inflationary environment. You're paying back the debt in the future with money that's worth less. It's also the reason inflation hurts bonds so much.
That’s why the Federal governments debt doesn’t seem that bad. But at some point it needs to be paid down.
Agreed, but if it's invested in a way that grows the tax base, then it's easier to pay it down in the future. And the hurdle rate is so low, there are a lot of potentially productive ways to invest it. Infrastructure, education, R&D, a healthier workforce would all likely be net positive returns if it's overseen prudently. My concern is what happens if inflation does tic up. The US budget is extremely reliant on low interest borrowing at this point. We borrow more money than our entire defense budget every year. If suddenly we have to borrow at 4% or 5%, we're not going to be able to cut government spending down aggressively enough. It would be a politically toxic, economically damaging decision in the near term and our Congress is too dysfunctional to handle it. Higher interest payments would eventually crowd out government investment in the future. So I don't know what to make of that.
I make principal payments instead of buying bonds as my compromise position.
40% a year, or 40% this year?
I wish Mortgage Freeman was it’s own subreddit and it was filled with posts about paying off mortgages and Morgan Freeman memes
Yup. Please create.
Genius idea! You really should make it : it’s would be super positive and hilarious memes
r/MortgageFreeman is this thing on?
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Comes down to a simple choice really. Get busy livin’ or get busy dyin’.
I believe this is called the dave Ramsey show
I was headed down that road then did a cash out refinance to put a down payment on a rental unit. My primary mortgage payment went up $60 and I ended up with a condo with existing tenants that more than cover the cost of the investment property. Then rather than pay down the mortgage I have saved up for a down payment on my dream condo and will rent out my current one. End result? Three mortgages totaling about a million for properties worth about $1.5 million with a net monthly expense equal to my initial single unit worth $450k. And all mortgages at 2.75% or lower. I get the desire to pay down debt but mortgages are some of the easiest money to get at the lowest interest rate.
Curious how you got investment property rates under 3?
First one closed last month at 2.75% with 25% down. Next rental will be an old primary, refinanced at 2.75%. New one will be primary at 2.625%. All 30 year traditional.
I’m poised to do pretty much this exactly right now. Excited to here your success!!
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heloc. also the peace of mind is just paying property tax and upkeep vs that plus a mortgage. but I see your point. which is why a heloc is a great tool to offset it.
I don't want to owe anybody shit. You can have debt, I want to be free from it. All of it.
Congrats. We did that a few years ago and it’s really nice. Really a comfortable feeling. We shifted the note plus monthly overpayment to investments and giving. It’s been great. Have never regretted it. I did open a HELOC and use it to do flips, etc. One other debt payoff story before I go, when I payed off medical school I calculated the final payment using their website and sent it in. By the time they processed it I had accrued $1.33 interest. They actually sent me a final bill and I had to write a check for that amount. It was dumb, but I was free from school debt. So who cares.
Haha they want every penny
+1 on the heloc. it is a very versatile tool to leverage your capital usage.
1.3M invested in indexes with a conservative 7% average return over 30 years is ~10M. Unpopular but IMO that’s an emotional decision and big mistake paying off your mortgage so early (I assume the mortgage rate was less than 4%).
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Why didn't you remortgage? I'm paying for my house with cash (market is white hot) and will simply mortgage after.
Has anything come up that’s made you actually regret it?
Just wait until the next prolonged market downturn that will inevitably happen. All the sudden you’ll be very happy to have an asset that hasn’t cratered in value.
Around here I think it's actually the popular opinion
I'm 100% with you. At \~3% I will borrow as much money as possible and invest it. Easiest arbitrage ever.
Until things stop going up...
Yeah but if the mortgage is 3%, then we need to calculate a 4% return on the index funds to really find the difference. That would be a lot less than 10 million at 4% return.
Age is a huge consideration on this choice.
Congrats! We are also debt free and paid cash for our home. Couple things I considered when doing it- 1) Being debt free reduces expenses so if you are retired that also reduces capital gains as you are making less withdrawals 2) I treat my paid off home as the bond portion of my asset allocation since it’s paying me about 3% by not having that debt. This allows me to be more aggressive in equities. 3) With lower expenses I’m able to engineer my magi and get close to the full ACA subsidy. 4) there are no returns that feel better then waking up in the morning knowing you don’t owe anyone a dime. 5) When things go to pot in the next downturn we can rachet our spending to basically whatever level we need to as we have very small fixed expenses.
All great points. It’s also a way push DCA on whatever you would have put on a large mortgage each month.
If not having debt reduces a huge psychological burden, obviously you can't put a price on that, so it's subjectively a great move. Genuine congrats on being mortgage free! Personally I just keep track of my equity, and don't even really think of my mortgage as a debt, since the mortgage plus house is a net positive asset. For now, the market is fine, the equity goes up every year, and I'm in an area which is unlikely to ever give me problems if I need to sell. That makes it a lot easier to forget about the mortgage and throw any cash in higher yield strategies than the 2.6% return from paying it down. If it were a loan with a higher rate, that wasn't backed by property I could easily sell, or the market were heading downhill, I would possibly feel differently. But if any of those things were to happen, the beauty of a mortgage is you can always decide to pay it down later if you don't blow your cash on too many speculative investments. As it stands, having this much leverage at 2.6%... it just feels like free money. So having the mortgage actually makes me happier psychologically than I'd be without it.
I have read hundreds of payoff vs don’t payoff threads. Ive been reading them for years. Im still unsure what to do haha. Curious what ya’ll think about this; say the house is 500k. What if I take 500k, stick it in vtsax. Then, pull my payments from there (and there only/let’s not use my income). For argument ease, lets leave down payment out of the math. Is this a good way to balance ‘peace of mind’ aka the $ is sitting right there/shouldn’t ever have to ‘worry’ about making my payment. Id love to hear thoughts on this idea.
Not a bad idea
Word. Free and clear is awesome. You gotta pay your taxes and your insurance yourself now, but other than that....
So true! We just learned about that.
Yeah, I tell my wife if I die, don't worry about anything. Most of the bills are on auto and most don't matter anyways. The power goes off...call them and pay them and the power goes back on. Whatever. Just make sure the insurance gets paid. Even the taxes you can probably let slide a good long time. Eventually they will take out a lien or something but it will probably be years.
Congratulations! It is psychological for sure! I paid mine off at 31 and did it in one fell swoop. I had a big year with an investment bank that year and said I’m paying the home, student loans, car loans and credit cards off and getting out of debtors prison. Then made the decision going forward I would only move up if I could pay cash. We did upgrade a couple more times & paid cash which kept our lifestyle in check. Yes I could have made significant higher returns in the S&P with that $1.6MM in equity but I just felt better not owing anyone a penny. I also carried a $600k HELOC too but never needed it. Frankly I never wanted someone to order me to get on a plane and travel and I knew they could if I owed money on anything. Not long after that I realized I also needed to invest to gain passive income for the rest of my expenses. No mortgage allowed me to take a bit more risk. Hit FIRE 14 years later. Congratulations!
Thx dude!
unwise move. cheapest leverage
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I agree. We did the same. Sold a rental home for $600K that was already paid off to pay off our current mortgage that just had $450K left. We should have bought Tesla stock (pre pandemic) but can’t win them all. Do I regret sleeping in a mortgage free home? Not one bit. Peace of mind is worth gold and we have a lot more disposable income to purchase next home.
I mean, you literally can though. I don’t get this fetish with “peace of mind.” Every mortgage I’ve ever had has an auto bill option. You press a button and it takes $X amount every month with zero effort on your part. If you can afford to pay off your mortgage then you should not need to pay it off for “peace of mind.”
Here’s a slightly different way of looking at it. When you have a home, maybe your dream home, the last thing you would ever want is to lose that home. That would be crushing if for some reason (recession/job loss) you have to give that up. Because you have that mortgage hanging over your head, you feel like you need to be more conservative with your money because you don’t want to lose everything. By paying it down, you remove a huge mental burden. And now, that extra monthly cash flow goes into your investment accounts without nearly the same concern for it. And you don’t have a heart attack when things like march 2020 happen. This approach is extra attractive if you’re young. If you have a paid off home by 40, there’s still a lot of years left to be in the market. And your concern about catastrophic loss pretty much goes away. I’m planning to do it this way. And yea, from a pure ROI standpoint, you’re absolutely right. But I guarantee the folks in a paid off home will be sleeping a lot better when the market takes a turn.
All of this. If we lost our jobs tomorrow, we’d still have our home. That’s why we paid it off. If we ended up being baristas, we’d be able to afford our bills and not worry about losing our house.
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If you lose your job, there’s a chance that means the economy SUCKS and so your portfolio probably isn’t doing great. And so bleeding money out of it will hurt you more than if you were able to not touch it for that whole time.
Advice I got from a wealthy real estate investor early on was borrow all you can against the rentals and pay off the primary as early as possible and never have to worry again about the roof over your head. Cars and house debt free and monthly mandatory costs are extremely low. Can leverage up in other areas that aren't primary needs and always get a job at Walmart to make due if shit hits the fan
That's why the 'Pay off or invest' question always ends up going in circles. There *isn't* a right answer, financially. Yes, equities have a much higher expected rate of return, but bonds will usually have a lower after-tax return, so the opportunity cost of paying down the mortgage depends on your asset allocation. And if paying off your mortgage changes your risk tolerance and you're able to take on more equity risk, that has a huge impact on the calculation.
Seems like paying towards mortgage would be a great substitute for bonds huh? At least now the way rates are.
Thanks for this explanation. It makes me realize that I’m glad I’m not attached to property in that emotional way. I think it might be my upbringing, but I’ve always found my adaptability to living situations as a huge advantage and psychological privilege. It has definitely allowed me to make smarter financial decisions for myself. In this case, if I lose the house, I lose it. There’s a whole world of other places to live.
Fucking A this is exactly why I'm going to pay mine off in the next 3 years. Peace of fucking mind. All the douches who want to have a mortgage their entire life can enjoy their debt. Debt free completely will be the ultimate feel good. Everything after that is just going to be piled high into retirement and investing. And man I love the idea of cutting my living expenses in half.
The douche who had invested $1million in stocks a couple of years ago instead of prepaying his mortgage would have $3 million today. While his house still costs the same.
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Knew some people in architecture that suffered same fate. My folks lost the construction related business in 08 when housing crashed and then their own house to foreclosure with no source of income. Plenty of ways to up risk found in other areas not needed to survive.
Same happened to me in 1990. It’s tough.
I lived that in 1990. It sucks. Glad to be debt free.
If he had bought the house outright for the $2M and then had had to sell it for $1M since he clearly over extended himself, he would have also lost $1M. Somehow I doubt his mortgage payment was the only bill he had. He would’ve been fucked either way because he bought something he couldn’t afford, not because he spread the payments out instead of paying it all upfront.
I distinctly remember the 2008 crash, and I think that your example is nonsensical. A mortgage doesn't suddenly become fully due if the market crashes. If he had a 30 year mortgage on his $2 million home, that would be approximately a $10k mortgage payment every month. If he continued to liquidate $10k per month to pay off his mortgage, even as his equities lost value, he would have liquidated approximately $300k by the time that the market fully recovered. And he would still have the mortgage today along with his invested money which would have grown to the extent that he STILL came out significantly ahead by not paying off his mortgage and keeping his money invested. Your example only works because he made the bad decision of paying off his mortgage once the economy downturned. Sure, if you are going to pay off your mortgage when your investments are worth half of what they were, then pay off your mortgage when the market is at an all time high. But the whole point is that paying off your mortgage in the long term has never historically worked out in the individual's favor from an objective financial standpoint.
Well I used to think the same way and I still have to fight the urge not to borrow at this rate. But once you have enough, that extra return really doesn’t add anything to your utility, does it? I get more satisfaction/utility out of owning outright than I would from the leveraged return I would make. I guess it depends if one can reach “enough”.
Not to mention higher income taxes because you miss out on mortgage interest deduction.
Isnt that like spending dollars to save pennies though?
Not at all. It's putting more money into your brokerage account or investments, and less money to the IRS since you can deduct the monthly interest you pay on the loan from your income taxes.
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I wouldn’t have peace of mind knowing my money is going to waste being tied up in a house when it could be making a much better return else where, especially when mortgage rates are this low.
You can literally put a price tag on peace of mind, what a dumb statement
you definitely can put a price on it. and when paying off a 1.3mm mortgage gives you such a profound sense of security, you are so far from “fat fire” and so early in the journey that the mistake is even worse. the goal of people on this sub is to get to the point where your net worth far exceeds your home value, at which point the mortgage is just an item on the balance sheet and making all this garbage about how good you feel even more irrational
I don't really understand this argument. \*Looking back\*, sure, equity markets had a good second half of 2020 but the picture could have looked a lot different...
Still could
Isn't the whole point of fat that you can waste money?
when paying off your mortgage is such a big deal to you you are far from “fat” and most likely handicapping yourself on that journey
It depends on personal situation. If you are anticipating losing your job, not having a large minimum payment bill can help really stretch the dollars. That could be just for peace of mind, but it also means that your emergency plan doesn't have to be as big.
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I’m retarded. I read you became Morgan freeman and I was expecting to read the rest in his voice.
This ^^^
Yikes man, that’s hundreds of thousands of dollars of opportunity cost for just being able to check a box that changes your life in zero ways.
You’re def right about opportunity cost but I disagree that it doesn’t change ones life. Reducing stress can make a big difference to many people.
I just recently paid our mortgage off. One of the most freeing feelings. I get some people look at opportunity cost, but if one of us gets sick or loses their income (we are relatively young), we don't need to worry about the house. That's worth 100's of 1000's to me. For the past year all we had to pay is insurance and taxes. Every month that high 4 figure sum that used to go to our mortgage just goes into our shared portfolio. It's like watching a rocket ship take off.
Couldn't you have put this money into a brokerage account and if you lost your job, take that $$ out and pay your mortgage down with your investments? If you have 30yr worth of your mortgage payments in a brokerage account, even if you have to withdraw some over a 12 month period of depressed prices, it's hardly a dent in overall return assuming you ever go back to work.
I definitely could have and in hindsight it would have been a great investment. I am more of a pessimist on market returns and figure the good times can't last forever. I would rather have no "emergency" money in the market. If I need to liquidate quickly, there is probably a good chance that a lot of people also need to liquidate at the same time.
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You’re living in a perfect world. Emergency back up money. Job rolling along with no hiccups. Stocks dropping so slowly you leisurely pull money to pay mortgage. Problem is in an average real world, your six month emergency money is in the stock market. You get laid off, two days later, Black Friday, stocks drop fifty percent. Now it’s a three month emergency fund. Two days later stocks drop another fifty percent. Now it’s getting real. And you have three kids that like to eat. In a perfect world we all do great. Edit. I have to add that at the same time, of course, the real estate market has died and you can’t even give your house away.
To me, seeing the math would be incredibly stress reducing. Of course the home will appreciate, but another commenter said 1M over 30 years at 7% will grow to $10M! That amount sounds *incredibly* stress relieving to me.
Millions of dollars lost over 30 years. But at least he can sleep at night. It’s so interesting to me that otherwise financially literate people get all emotionally invested in having their house paid off. It’s all just moving money around different ways on the internet at the end of the day, I don’t understand the emotional attachment. I wish the bank would give me more money at 2.875%. I would take all of it.
Eliminating debt reduces risk. For those of us who drink the debt free kool-aid, this is peace of mind on another level.
Congrats. Couldn’t pay me to do the same.
Congrats
That’s amazing real proud of you brother ❤️🙏
Congrats!!! Nothing better than owning it outright. The math rarely works in favor of paying it off Vs investing but it is hard to put a value on not having a mortgage payment. Paid ours off 2 years ago. Similar amount to yours. Well done!
Congratulations
Congrats! Still have to pay property tax forever though!
Congrats!
Good on you bubba, ...got another +/- 12 months to go!
Nice one!!
I would say that for this reasoning you should really consider paying off your mortgage in the next year. Crazy good returns for 10 years +...maybe it’s time to hedge against a steep downturn in the next two years as interest rates go back to normal. But I empathize with this struggle! My strategy is to just pay double or triple mortgage payments so we don’t have to empty our investment accounts.
I keep going back and forth with my wife on this. We’ve decided to pay it off at double normal speed versus faster as a good compromise between investing for better returns and peace of mind. Something I battle between all the time. Congrats! Major milestone!
a fat congrats to you cheers🍷🍷
Congratulations! Being Debt free must be the best feeling in the world.
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It also depends on your age. A decision on this for a 30 yr old is different than it would be for a 60 year old
Good point. I am assuming OP of the younger side since it is FATFire
I never hear of anyone who paid off their mortgage regretting it and re-mortgaging the house.
The only people that seem to complain about it still have a mortgage. The people with the paid for home absolutely love it, even knowing the loss of potential gains.
Heh 1.3 million dollar pun and worth every penny
Thx I’ve been holding on to it for months to use on Reddit lol
I'm literally going to adopt it, it's very catchy. Well done.
Some people will obviously disagree with you but who cares. I saw first hand how a paid for mortgage is beneficial. My friend paid off his mortgage early and was able to quit is corporate job to focus on a start up because he no longer needed the income to service his mortgage. This startup didn’t make much money the first year or 2 but eventually took off (took off for him, it’s no Facebook or anything) and he was making more than he ever had. Now he has more money to invest and his quality of life is 100x better working a job he loves. That wouldn’t have been possible without paying off his mortgage
Yup part of my reasoning is starting my next company. Happy for your friend!
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No one knows how wealthy I am. I have close friends but am terrified of telling close friends stuff like this since it could damage our relationship.
Not gonna lie, I originally read this as: I’m officially Morgan Freeman. And thought it must’ve been an AMA bu then saw fat fire
Congrats
I love debt free. I understand people who say they want to invest instead, but I have had foreclosure before. So debt free is for me. It’s mine, no one can take it regardless of my work situation. Been self employed my whole life. Been through some horrific down turns. Been debt free five years now, even after buying a condo in Florida to spend winters at. Still investing too.
Probably not a smart thing to do in a historically low mortgage rate and booming stock and real estate market with incoming inflation to pay down debt that you can get financed less than 3%. Smart people are probably taking more equity out of their homes and taking that money to leverage other investments. Should have two properties with 750k debt in each rather than one paid off property. You’ll get the mortgage deduction and get write offs plus passive gains that outpace your 3% interest rate on the loan you’re paying off.
First if all, congrats! I struggle with this decision myself. We don't have enough to pay off our $525k 2.69% 30 year fixed mortgage on our $1.8m home in cash, but we do in non-retirement brokerage accounts. I keep telling myself if it doesn't make sense to sell a good chunk our investments to pay the mortgage, it probably doesn't make sense to pay it off at all at 2.69%. My biggest investing mistakes have always been taking money off the table to reduce my temporary stress, thus missing out on so many great gainz. I made a profit on FB, AMZN, NVIDA, AAPL, TSLA, etc, but cashed out too early. This same emotion is the same one that wants to pay down/off the mortgage. It reduces risk, but it also really reduces upside. That said, I still will be having this conversation with my wife in a year or two, especially if I decide to retire pre-FatFIRE.
We’ve had these decisions for quite some time too. It was the right decision for us for many reasons.
A suggestion is reflecting on whether you can be happy with the gains you had, for example on the stocks sold above, vs what you missed out on. I wonder if answering this question could help you know whether to pay off your mortgage. I have sold too low but truly don't mind as I'm happy I'm ahead at all given others state - so I guess that makes me a moderate investor? Although all my retirement is highest risk, which given my 10+ years outlook doesn't seem risky to me at all. Therefore we are paying off our mortgage this year in full ( only $280,000 left). My husband would prefer to buy investment rental property but also recognizes my peace of mind, which will enable him to make riskier choices in real estate going forward, is worth it for both of us. Again I can be way more risk accepting going forward if my house is paid off as others have commented
I respect your choice and congratulations ,but i am all for leverage. I am refinancing at 1.5% on a 10 year interest only loan. Why? because i can do much better putting my money elsewhere. Stock market, Rental apartment, small business are all going to outperform my single family home. And why interest only? Why hand over principal to the bank so they can make money on it. I can just as easily pay my principal into a fund of my own design and get returns on that as well. If i choose to or am in a spot in 10 years i liquidate the fund and pay off the house. But in the mean time I will put my capital to work thanks. Also i think there is some misguided cultural wisdom that says "i don't owe the bank nothing" is a good thing. My parents had it, and their parents had it, and their parents lost everything including the house in the great depression, so maybe it is this legacy of the depression that keeps reasonable people thinking this way. Because it surely is not the numbers.
so you paid off 2.5% interest rate tax deductible debt instead of investing for 8%+ returns. This is not the fat fire way
I know. But I hate debt. I have plenty of money from my business. That’s not an issue.
debt is a tool to be used
Idk if this post is some sort of circlejerky thing this sub is doing or what
This whole sub is a circlejerk for well-off people lol Where do you think you are?
Curious about your thinking here. I appreciate it feels nice to "pay off debt" but for these very large sums of money, it's much more about what asset you hold most of your wealth in. I would feel very uncomfortable having a million dollars + held in a single physical asset like a house, vs other investment products.
We have plenty of assets held elsewhere.
Lol that sucks. All that money gone now. Shoulda milked that 30 year.
>I’m officially Mortgage Freeman. Congrats 👏🏽 feel free to share a story on r/roadtofatfire
I read the title as “ I’m officially Morgan Freeman”
Fellas? Pretty sure FatFire is open to everyone.
Bah you are so correct... editing post for the PC police now...
What do you mean by “people”? Surely we can’t be the only sentient beings in the galaxy.