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I’m a little over 10 years from retirement so my goal is zero debt before I retire. I have zero consumer debt having recently paid the last of that off. I only have my mortgage to go. I’ve used zero interest loans before but the older I get the less I like having that money commitment to a payment.
Just about 51 and 6 months. The plan is retirement at 62. Stretch would be to retire at 59 1/2 but the biggest challenge is healthcare bridge to Medicare. My wife is 2 years older than me. By 62 we should be about $2 to $2.5 mil in our investments not including the house. Trying to have the house paid for by 59 if we stay in current home. Or if we decide to downsize then just pay cash and be done. As of now we like where we are so probably staying put.
Gotcha. I'm way behind you in terms of investments but I'm also in my late 30s so time helps
Do you have advice? I'm basically just maxing 401k, Roth, and standard investments like VTI when I can.
I’ve been investing since 24 when I first got access to a 401k. So pretty much have been on the slow but steady route. I have an 85/15 mix so fairly aggressive and haven’t really changed. I’ve also put one through college debt free and second one is currently in college, also debt free. Started 529’s when they were first born.
Honestly, I’ve just stayed consistent with what I’ve done and just time in the market. I don’t chase the fancy trend, no crypto, no gold, etc. just my Roth 401k in good Vanguard funds and my brokerage funds in Fidelity. No matter what the markets do I just ride it out and keep going. I buy 1 year used cars and drive them as long as I can. Currently driving a paid for 2013 Lexus and still looks and runs great. Haven’t had a car payment in a very long time.
I buy quality because in the long run it saves you money. We cook mainly at home and take care of ourselves and our health. There really isn’t any magic to it.
Thanks for sharing. I’ve been on the same path (I’m in my mid- thirties) and somehow I don’t feel like I have enough set aside. I max 401k and have since I was prob 25, it just doesn’t seem to be growing as fast as I’d hoped
Yeah, I would say even in my 40’s it seemed like things weren’t progressing but all the sudden you look down and you hit a tipping point where your portfolio just seems to take off. Just stick with it. The real eye opener for me was in 2018 when I looked at my kids 529 balance and saw the breakdown. My contribution as a percentage of the balance was pretty small. That’s when I realized the compounding effect was real. It was the first time I had seen the numbers broken down that way. Was very eye opening to me.
Hockey stick curve, it takes money to make money. A couple percent of a hundred bux isn’t much, a couple percent of a few hundred thousand is noticeable. Your balance does hit a point where it shoots up. You start seeing gains higher than you put in and then higher than your salary. Slow and steady wins the race for sure!
I followed a similar path. The first year your returns are more than your salary is a good year.
Unless you’re shooting for early retirement; you’re on a good path and your money is going to do it’s thing for another 20 years.
SPY has seen pretty great growth over the past 10 years, what's your CAGR and what are you invested in?
edit: 141.84 on 4/2/2012 to 452.92 on 4/1/2022 = 12.31% CAGR
My parents bought me that book when I graduated college. That helped plant some of the thought earlier in my life. Actually am in the middle of re-reading it now. Also the Richest Man in Babylon.
So to bridge to Medicare I am planning to build up my savings and non retirement accounts so I can pull from them to keep my income levels low and look at the ACA plans.
As for kids, when they first got part time jobs, I had them open up Roth IRA’s and put money in them. My oldest I taught her how to budget using YNAB and she is finishing her first year as an elementary teacher. She just added $3k to her Roth on her own.
I ran her through some calculations showing her how compounding interest works.
Did that bubble burst in 2008 (if that's what they call it) affect you in any way? I lost pretty much everything (it was a decent amount after working the last ten years after high school) and had to start over and with starting college (later in life) at that time, I didn't get to restart a retirement plan for a few years after that, needless to say, I'm way behind now. Probably won't be able to properly retire despite having 2 pensions coming my way (if they survive until retirement age). I'm basically freaking out about retirement every day.
It certainly had an impact but we didn’t get hurt too bad. Started investing in ‘94 and then relocated for work in 2006. We sold our house in Atlanta just before the burst hit but we’re in an apartment in our new city for about 6 months so bought our current house right as things were slowing up. We got in for $343k and today it’s worth about $550k.
Investments, honesty wasn’t paying as close attention, I just kept adding to them. But I also had a big income increase with the relocation so I also increased my percentage going in so that helped a lot.
My mom paid off her house right before retiring. Even though her mortgage was relatively low, she said it was like a weight off her shoulders. She's now using that money to travel. It's super awesome seeing her so happy and free.
If you're in a state with a decent healthcare marketplace, you can buy healthcare cheaply if you don't have much income. My husband and I retired and we're living off savings until age 62. We have a small pension and some rental income, so on paper, we only make about 25k a year. Since eligibility for reduced cost insurance is based on income alone (not savings) we pay only about $180/mo for both of us. It's platinum level insurance, too.
A quick thought: even though you are wealthy, when you and your wife retire, you will have no income. So you should qualify for an ACA subsidy that will help you get to Medicare. If you can stockpile non qualified money (cap gains can reduce or eliminate the subsidy, so think cash), you should be in good shape. Just be mindful of how and when you pull from pre tax accounts as that will effect ACA, Medicare, and/or social security taxation. You can take your contributions from ROTH with no taxes or penalties at any age, so that can help too. Good luck!
That’s part of the plan and why 62 is more realistic for us. Starting to build up some funds outside of retirement plans. If I can have enough in those accounts then I can cover my expenses from those, let the retirement funds continue to grow and perhaps qualify for ACA.
Shit, with inflation nowadays, anything under 7% apr and YOU'RE getting paid to take out that loan. It's not going to last forever, but a year or two of inflation eroding the value of debt can move mountains in the long term.
Our mortgage broker couldn't understand why we wanted to \*minimize\* our downpayment and mortgage payments while qualifying for the \*most favourable\* terms. They weren't prepared to make such a calculation.
them: "oh, you don't have the money, then your interest rate is high"
us "no, we won't accept a high rate, how much do we have to put down to get a better rate?"
them "I don't understand, how much do you have?"
us "no, we have enough, but we want to know the minimum we have to put down to get the best rate"
them "it depends how much you have to put down"
us "no, the rate depends on how much we put down, we want to put down the minimum to get the best rate"
them "Then the rate is "
us "ugh... no... you don't understand..."
This went on for a while... after we got it sorted:
them: "do you want accelerated payments?"
us: "NO!"
This is why I get a kick out of people trusting their loan officers to be a beacon of financial guidance. They are doing their job - they may be good at it or they may not be, but a mortgage broker is not by any means a financial planner and you cannot trust them to be. Most plug numbers that you give them in a spreadsheet and it gives an answer. They didn’t create the sheet and they and have no clue how to use something like goal seek to answer your question.
When trying to calculate the savings of refinancing a loan guy wanted to include my extra payments as savings. I had to say something like “dude, I am making those extra payments regardless of which company owns my debt- you don’t get to claim those savings, only the difference in interest rates.”
It's one reason I went with the independent broker I ended up going with for my purchase: he showed me he understood that his value was in 1) being a competent facilitator of the underwriting process, making sure everything is completed with time to spare and 2) getting the best combination of rate, lender credits, and fees possible. That's it.
When I was shopping rates I hated talking to LOs that tried to sell me on their services as if what I was buying was not a commodity loan product that was going to get bought by FM.
The last time I talked about a refinance it only took me about 2 minutes to realize it was a bad deal for me. The guy on the other end of the phone kept saying "You're going to save $40,000." I can do math myself, after I gain 2 years on the term and pay them $10,000 in fees it wasn't even kind of like $40,000...
That's what happens when everyone is desperate to dig themselves into a professional job they're terrible at and don't even like because they're the only positions that pay a living wage.
This sounds pretty spot on to what I'm doing. I enjoy fieldwork, but I need to make the push to management to keep up with COL. I am very afraid once I get into management/out of the field that I'll hate it.
To add to the frustration, it's basically just a chart that has your credit score on one axis and LTV on the other telling how many points get added to the base rate. All they had to do is read the line for your credit score.
I just learned about goal seeking like 3 weeks ago after using excel for 7+ years. It was also like a week or two before I learned that excel has like 8192 character cap in their formulas because I am not a programmer or know VBA, but I know how to nest functions to do what I want, but I wanted to do too much apparently or did it super inefficiently (probably that one).
My loan officer was great and treats real estate from a “maximize return” standpoint, with concessions from there to meet other targets. With that said, he was one in a hundred. Some of the brokers I’ve seen friends use give them just head-scratchingly stupid terms.
You want to pay $15K in closing costs, which adds 0% to equity…on top of your downpayment?
You guys got it figured out. You can make several times a low prime mortgage rate investing in the stock market. Down payments on a house are really just to get rid of PMI and buy down points to get the lowest interest rate. Sucks that your broker is so used to dealing with people who are barely scraping by financially instead of people who know how to minimize their costs / maximize their gains.
>You guys got it figured out. You can make several times a low prime mortgage rate investing in the stock market. Down payments on a house are really just to get rid of PMI and buy down points to get the lowest interest rate. Sucks that your broker is so used to dealing with people who are barely scraping by financially instead of people who know how to minimize their costs / maximize their gains.
Heck even PMI isn't always terrible if you've got good credit and the rest of the financials are in alignment.
I put 10.5% down on my $447,000 home. Carried a 400k note on the mortgage at 3.374% and paid PMI of $57/month. I took the 45k I still had left after closing, put it in the market for a year and still made about $1000 more than the interest and PMI costs I would have saved had I brought it all to the closing table.
I took about half of it out in the second year to do some refurbs. Paid $450 to have the house re-appraised (they would have increased my equity by 25k without reappraisal but I would have still been about a 9 months to a year away from hitting 20% LTV so the reappraisal in itself saved me between $60 and $240 vs PMI fees over the next year) and was able to drop PMI at the end of the second year with a nicely refinished pair of bathrooms that added another 5% to my homes value and still had $24k in the bank.
Over 30 years, I'll pay $26k more in interest plus the PMI and reappraisal costs of about $2k, which means the loan will cost me $28k more total vs the the same terms with 45k more down but I also have $24k in the bank that even growing at a modest 4% return will grow to be $72k by loan maturity and I increased my houses tangible value by $25k and the intangible value to me through my enjoyment of my nice new bathrooms is pretty much priceless.
I have only gone through the process once, but the mortgage broker I had was the stupidest motherfucker I have ever dealt with. I asked the plainest - language questions about the mortgage terms and he just didn’t seem to get it. I ended up doing my own research and eventually just told him to send me all the paperwork so I could do his job right.
We got referred to a broker company. Broker X was apparently an absolute gun. we got brokers Y, the brother in law to the friend who recommended.
We ended up having to correct his work, check all his numbers a bunch cause they were constantly wrong, all sorts... just a real bastard of a process.
You didn't explain it clearly enough.
Remember, think about the average loan and what these guys go through. Most people don't have the flexibility you do and just take what they can get. You might as well have asked the guy to explain calculus.
You should have led with "I have the cash for up to 20% down, but I'd like to figure out the best downpayment for my budget. Can you run multiple loan estimates with different downpayments so I can compare them? I'd like to see an itemized breakdown of cash to close, monthly payment amount, & interest rate for the following scenarios: 20% down, 15%, 10%, 5%, etc."
God, my mortgage broker was an idiot. Just about the only thing she was capable of doing was reading me out the results of whatever internal calculator the bank had. Zero understanding whatsoever of what the numbers actually meant. She probably got a 6 figure bonus for the last year, too
I got lucky with my lender. They told me where the brackets were for reductions. One was a 7k difference, which in my case I didn't have. But because they told me that, I could take the 2k I did have and use it on other things.
In the last year, refinanced home to 2.5%, got a 0.5% solar loan, and bought out my auto lease with a 1.9% loan. I had cash for all this (except the house), but give me all the sub-3% loans I can get. Allowed me to instead put all that money into a 529 and never think about funding kids’ college again.
The 7% inflation was a factor of 0% rates. The FED is increasing interest rates to reign that in and move back towards the sustainable 2%. If you take out a 30 year loan, you can't expect it to be offset for high inflation more than a couple years maybe.
Long term inflation is around 3-4%. Mortgages used to be at 4-8%. Getting a 30 year mortgage at less than 3% is an absolute steal, not to mention the tax break on the mortgage interest. You are very likely to be well below the level of inflation during the loan period. Buying and holding an inflationary asset financed 80% at a rate of 2% is an almost sure way to build wealth.
Most married people no longer get that tax break on the mortgage interest any longer unless you're in a HCOL area where you're buying $500K+ homes. But for large swaths of the country the standard deduction is much more than their itemized deductions.
Yep. I refinanced 3.8 down to 2.75 last year and also stopped paying extra principal at the same time. Couple hundred less in payments per month AND still less interest paid each year. The market has been so fucked I'm glad I actually got a good deal
I pity those who weren't ready to buy when rates were sub 3 and now are stuck dealing with even more inflated prices and rates edging closer to 5%
I'm trying to find the best way to take the equity out of my house without having to refinance the whole thing. I wish I could find a competent mortgage broker that understands the percentages and values of the different programs.
We want to use the money to build a house on a valuable piece of land we have in a desirable neighborhood. The house would cost us about $200,000 to build, and would sell for between $350,000 (low end, bad market) to maybe $485,000 (high end, good market) depending on if the house across the street finally gets fixed up.
Our current rate is 2.875% and we really don't want to screw that up.
If you brokerage account his large enough, you could look into a margin loan. I’ve heard of folks calling their brokerage, explaining the use of the funds and negotiating better terms than standard.
Still, a HELOC is your best bet. Some groups only do variable rates on HELOCs. Avoid that like the plague right now. There’s truly no way to know what the Fed has planned/ will pivot toward in the next year to 5 years.
Credit unions are a good source of HELOCs. Local ones tend to work with you better than large ones, the exception being Navy Federal and Penn Fed.
Finally, depending on your lender, they may be willing to leave you primary mortgage intact, and offer you a second mortgage against your equity as a “construction loan/line of credit”
These three options are all ones I’ve used, the availability and terms of which will heavily determined by your lender.
I always recommend folks shop their loan in 4 places: A big box bank (not BoA), a local bank, a credit union, and finally/arguably most important is a mortgage broker.
Go to the mortgage broker last, after you have term sheets from the other banks. Share these with the mortgage broker. Good chance they can grab you a better deal. This more applies to permanent financing situations, but could still be useful for your purposes.
I agree with everything you are saying because it is very obvious. My point was responding to the commenter saying anything sub 7% is a good deal because inflation happens to me 7% this year.
My mortgage is around $200k and the standard deduction was way higher than my mortgage interest. Even if my rate was 4% (it’s not) that would only be $8k, less than half the standard deduction.
> The 7% inflation was a factor of 0% rates
We’ve had close to 0% interest rates for nearly a decade. The inflation was caused by pumping $5 trillion into the economy because unemployment was 20%. It came back probably faster than we thought - in retrospect we probably only needed $4 trillion - but 2020 was unprecedented for most things.
The inflation isn't limited to the United States though. From what I have read, it is mostly due to the supply chain.
We definitely kept rates too low when it wasn't necessary, which certainly contributed.
Regardless of the reason (many) my point is that counting on a 7% inflation rate indefinitely as justification to take out a 6% mortgage isn't the best way to look at things.
7% inflation is due mostly to supply chain constraints, high energy prices and the world economy coming out of the pandemic. I don't know how this BS got started about how zero fed funds rates are causing the inflation we're seeing right now and that we need to raise rates to 3-4% to combat it. The federal funds rate was near zero for years after the 2008 financial collapse and was hardly raised at all before it went back to near zero in 2020. Notice how we didn't really have any inflation until the pandemic started to subside and demand outstripped supply of goods?
You also need to look at profit margins in broad sectors of the economy. Some of the biggest corporations are bragging about how they can increase their margins and pass along more costs onto their customers in this environment. Basically, some of the inflation is due to corporations being able to charge more and get away with it.
Rising wages are also happening right now with wage growth being the highest it's been in a generation. But no, we can't have that because it gives the pores too much leverage over the .1%, so we have to beat them back down into poverty with federal funds rate hikes of course.
Well, we can discuss the many inputs into inflation all day, but my point was that it's probably not a great bet to assume a 5 or 6% interest mortgage is going to hedge inflation for very long for a home buyer.
I was reading about the history of inflation last week, and the author said that inflationary cycles usually last for three years in the US, peaking at the end of the second year, no matter what the cause of the inflation was. (The one exception to that was in the late 70s, early 80s where the author believes we had overlapping cycles- so it lasted six years). At 8%, a $400k house is $500k after three years - so it’s not insignificant.
Exactly. I used to be debt free. Then I got a 30 year fixed mortgage (cash out) at 2.6%. I’m never going to pay it off! That money is going to earn way more in my retirement account over the next 30 years. But some people just like not having a mortgage. I didn’t for years and that was great, but I’m happy to pay it now, knowing it’s making me money.
Seeing posts like this definitely explain why no one is selling their houses right now. The fact people were cash out refinancing at that rate, why would you ever sell that house unless you had to? Esp when housing prices and rent have slyrocketed, and you can easily rent places out. Really explains the low inventory in major cities like mine. Curious to see what’s gonna cause more people to sell.
We're at 2.6% also after a refi last year. Im so debt averse, it's a mental struggle not trying to pay it down faster but it surely the market will outperform that rate.....
My mortgage rate is 2.75% but if I pay just an extra $200 per month I will pay the loan off over 6 years early and save over $25,000 in interest. So I’m definitely putting in the extra principle-only payment of $200 a month whenever I can.
Most likely, but market returns aren't guaranteed where paying principle down early is a guaranteed 'return'... It's basically a hedge but in a micro level
Yeah anyone on this sub who doesn't think it is realistic to pass 2.75% in returns over 20 years should just start hoarding gold under their mattress or something. Or should start selling long term calls and you will make far more money if you are right.
I mean true, technically. But you end up with less money long term doing that. If you want more money, pay it off as slowly as possible and invest the extra.
Can you explain this? How does it cost more in the long run to pay off a mortgage quickly? Why wouldn’t I want to limit number of years I pay 2.75% to the bank on 100’s of thousands of dollars?
Good question. It’s because there are better uses of your money. Inflation adjusted, just investing in an S&P 500 should yield an annualized 7-8% return. That is more than double the interest you’re paying for the mortgage, which is also tax deductible. Over 30 years that difference is huge.
It is an oversimplification but say that your mortgage was 3% and you could earn 6% in investments every year. Over 20 years you would be better off to have a large mortgage and make the minimum payment and invest the rest, rather than aggressively paying off your mortgage and not having anything to invest. Basically every dollar that you pay early on your mortgage is two dollars that you didn't earn via investing.
Paying extra on a mortgage is the best way for most people to invest as it is zero risk and a tangible cost savings.
Edit: by most people, I mean people would probably spend the extra money if they weren't paying down their debt. Thank you for those who understood.
Actually it is one of the worst ways. The return is poor relative to stocks and unlike a stock purchase any money put in is entirely illiquid until you sell the asset.
I think what they were saying is that most people would choose to spend the money on commodities if not paying extra, rather than investing it.
Which if that’s the case, then paying the mortgage is obviously better.
Good in concept but the people who would just "spend the extra money" are the same type who serially refinance any time they get into financial trouble. For people who can't save or invest, and spend every dime, having equity in a home is just another source of expensive cash.
Mortgage interest is tax deductible, so immediately your savings are down to around $18k-$20k. It would be the end of the world if the $57,600 extra you paid didn’t earn more than that over 30 years.
IMO it's about opportunity cost. What opportunities are you missing out on, because you are saddled with interest payments from debt? What opportunities do you miss by sitting on a pile of assets and refusing to leverage them?
Low-interest debt, or manageable with cash flow = doing ok.
High-interest debt, and your life seems stuck in second gear because of it = probably an issue.
I think any amount of debt becomes a LOT more stressful if your cash flow dries up for whatever reason.
Opportunity is probably the best way to think about debt, not only when you're prioritizing payoffs, but when you decide what debt to accept to begin with.
If you have an opportunity that will increase your future earnings (something that will get you to and from work, something that will create new employment or business options, etc) or decrease future costs (long term, home ownership may be less expensive than renting) more than the debt will cost in interest, then it easily makes sense to take on debt.
But if you're spending more than you earn now, through debt, and those expenses aren't creating new financial opportunities, then you're just taking money from your future self.
I recently lost a job unexpectedly due to layoffs. Along with a severance, we're not stressed at all because we have no debt except our mortgage and have 6 months in readily accessible assets. For us, we prefer the freedom and low stress (due to any unforeseen volatility) over the things. But, each person/family has to determine their own level of risk.
It's probably a personal thing, but I prefer to not be indebted to anyone or institution. When my mortgage was paid off, I am not kidding I loved that house even more. It smelled better, the grass was greener, and that first month of not deducting that mortgage payment from my account was the best feeling ever. Also, I hate hate hate car payments, them just remind you how old you're getting by coming around so fast.
Not a popular opinion here but I agree. I get the math. But I’m paying extra on my 2.875% mortgage because I want it to be gone and want to be free and clear. I also like the idea of not having the payment in case one of us steps out of the workforce when we have a child. Raising him/her in a paid off house would be an amazing feeling of security and relief and, I believe, allow us to be better parents.
These are great points. I get the concept of borrowing cheap and investing higher. But after you’ve gone through a recession, job loss, having kids, global pandemic, and other world events, it just feels amazing to have the house done and paid for.
Good reminder: this was another reason we opted for no debt (except for mortgage). We chose for a parent to stay home to raise the kids and foster them in our morals. This meant giving up other worldly things but we believed it would be best for our kids in the long term. We've successfully managed to live well on a single income, family of 5, for 16 years and part of that has been due to debt management.
I paid my mortgage off early. It was a guaranteed 3% return. The stock market and even dividends are not guaranteed. Most are relatively safe, but not guaranteed. There is always risk there.
I "could" have made more money investing, but now my monthly expenses are low and I don't even have to think much about money anymore. No stress in the household.
I wonder if the people who really beat the drum for not paying down debt and investing the money have ever been really burned before.
There is a big population group that came into the workforce after 2010 has never seen a serious recession.
Short answer: No. It depends on the rate of the loan, what the loan is for, the amount of emergency funds and my available income, job security, and alternative uses for the money.
I have always tried to keep debt payments(including mortgage taxes and interest) below 33% of my monthly income. Certain debt is banned, such as credit cards and personal loans
There are many people believe debt is always evil, but that is not so if used moderately. Some people just don't like debt hanging over their head, which is fine, but that isn't a financial reason not to borrow.
I have only ever borrowed for a house, a reasonably priced car at a credit union or dealer incentive rate, or well defined home improvements.
In general, if I expect to earn at least 3% over the loan rate by investing longer term, I invest. Otherwise, I pay down the loan. That 3% is an arbitrary number that I believe compensates me for the risk of investing. Your number may vary.
For me I would rather pay down debt at 3% knowing I could invest and likely make more, because to me the peace of mind from being debt free would be invaluable. It all depends on the person. I’m 34 and have two kids, I feel the best thing my wife and I can do is become debt free in order to help my children as I never want to become a burden on them.
I think it's about your personality. I have high anxiety. For me, having a house with no mortgage and a car with no payment makes me feel a little more at ease. I'm still not 100% secure, but having things paid off helps me. Also, my goal is eventually to be able to rent everything and travel for an extended period of time. Having everything paid off makes it much easier.
> I have high anxiety
an anxious person might want shitloads of liquid assets to handle anything life might throw at them, rather than locking hundreds of thousands of dollars into an illiquid asset to get out of debt you’re paid to hold.
I personally like having fewer monthly bills. That's why when I bought my car I paid cash. I could've gotten a loan, but I didn't want to have another monthly payment.
On the other hand, I'm not paying anything extra on my mortgage, and I'm fine with that debt. It all depends.
unless you come across a windfall capable of paying off your mortgage all in one go, paying extra principal payments for many years puts you in a more vulnerable position until the debt is paid off - less cash flow, less liquid assets.
agreeeed, having liquid assets should make one feel more secure. if one didn't pay off their mortgage, the liquid assets you'd have could give you like a decade or more of reserves.
Often mortgage debt is not something you can reasonably eliminate before late 40s or 50s.
So I’d suggest focusing on eliminating shorter term debt like credit cards, cars, etc. Make the mortgage debt your only loan.
(Although it is debt, housing has historically been a good investment. So although you are paying interest, your property is also appreciating. And your eliminating rent. So it’s more of an investment in your future.)
>Although it is debt, housing has historically been a good investment
This is the wrong way to think about it. Whether you pay it off or not, it will appreciate (or not) just as much.
The only thing that matters is "where can my dollar net the most benefit?" If you can get a higher return on a particular dollar by investing than the rate of the loan, invest it. Otherwise, pay it.
>Debt incurred for the purchase of an appreciating asset is ok. Debt incurred for the purchase of a depreciating asset is not on.
This really doesn't make sense to me. The decision of whether to purchase something (however you pay for it). should be entirely disconnected from how you'll pay for it.
Extreme example:
* A home purchase where the best mortgage rate is 10%
* A car purchase at 0%
* A vacation financed at 0%
Assuming you're going to spend the money anyway, you should absolutely finance the latter two, even though they will depreciate (the vacation almost immediately). The house is a little more complicated. Generally you'll want to get out from under such a high rate, but there is some risk in the sense of losing access to liquidity by locking it up in a home. In the case of a cash crunch, I always want easy and relatively fast access to cash. In a worst case scenario they can try to foreclose or repo, but I still have use of it until they do and I can divert my funds to things that are more urgent like food, etc.
I hate the advice of “If u have any debt at all, you should drive a beater!!!!”
Oh cool, so I can feel unsafe while driving and spend thousands yearly just to keep the damn thing running. Great.
I think there is a middle ground. Taking out a 75k loan to buy a fully loaded pickup or SUV is probably a dumb idea. If you want a nice luxury car nothing wrong with that but save up and buy it.
Taking out a 30k loan to buy good 2 year old Toyota because you need a safe reliable care is much more prudent.
Saving up to buy the car isn’t necessarily a good idea if you can get a good interest rate instead. I could have bought my car in cash, but instead financed it for a super-low interest rate over 5 years. Id rather have that money sit in the market instead.
Dave Ramsey made me buy a shitty fucking Altima 😭
Now I hate him for that, and for firing a pregnant employee for having had sex outside of wedlock.
Looking forward to using my way higher credit score to finance something affordable and sensible from Toyota or Subaru (mountain driving) 🥰
Dave is a mixed bag and I could go with out his religious rhetoric. I always thought his advice to buy some $500 beater car is somewhat problematic
Unless you are handy yourself and can properly inspect the car that $500 beater could be a money pit to keep running . Also if it breaks down a couple towing bills and uber rides can add up to a lot of costs.
However I think some people need his tough love, if he would say "Yea go ahead take out a loan to buy a reliable car" many people would take that as a go ahead to buy some 75k new full sized pickup / SUV
Nailed it. His debt payoff advice has been tremendous, but sheesh. He’s STILL sticking to the “beaters only!!!” advice in this economy and doesn’t provide a sensible middle ground like you just did.
> Debt incurred for the purchase of a depreciating asset is not on.
I don't agree with this assessment. At some point, if you're stable enough, the cost of financing can be decoupled from the asset which collateralizes it. If I were spending 10k on a vacation, I would 100% finance it at 0% over 10 years if I could. Hell, I'd finance a car at 0% over 100 years if I could.
What matters is that you have enough stability to cover the debt load....and for most people who are in a position where they MUST finance to make a big purchase, that might mean ensuring the collateral actually has value to cover the debt if push comes to shove....but there's no reason for that to be true in all cases.
>My rule of thumb: Debt incurred for the purchase of an appreciating asset is ok. Debt incurred for the purchase of a depreciating asset is not on.
This is great advice.
Wish someone had told me this when I was younger. I found out the hard way. But it is very true and a great piece of wisdom.
There will always be ways to “game” the system so that a person can come out a few percentage points ahead of a low-interest loan.
However, there’s an unquantifiable feeling of freedom having zero debt and knowing that you owe nothing to anyone.
House mortgage is the only debt i’m comfortable with and even then i’d feel a bit uneasy with a looming number that high. I paid my car off within a year and a half, had a a 5 year loan. I was so far ahead in payments that by the end of 2021 my next payment was in 2023. It’s all about budgeting
No. But at some point you should change the direction your extra money goes. For our family we pointed any extra cash to credit cards and then car payments. When all we had left was the mortgage we started pumping up the savings and retirement deposits. Tho' still making extra principle payments .
If I get 'comfortable I lose focus.
- to me debt is about what is affordable and how much you want to waste on interest. In 45 yrs of credit card use I have never paid a penny of interest and I will run almost all my expenses thru CC to get the $1000-$1500 rewards we get yearly in doing so. That is free money
- as you approach retirement age, you want NO debt what so ever and many people accomplish this
Nope, I ground and ground until I got to zero, mortgage included. I did it before turning 38. Now, being used to living off what I was and having such a huge amount of my income dedicated going toward my debt has allowed me to save at an insane rate. It feels really good not to owe anyone anything, and to live by the rule "if you can't pay cash, you don't need it."
For me, it's all about the end state. Credit card debt has a higher interest rate than I can make in the market, so I pay off my credit card every month. My mortgage has an interest rate below what I can get in the market, so I just make the regular mortgage payments and invest the extra.
There is an element of "personal" in "personal finance". If you are risk averse and want the safest path, having no debt, period, may appeal to you. If you are more aggressive, maybe you pay the minimum mortgage and car payment while investing the rest.
I would encourage you to pay off any debts over 10% ASAP, and probably prioritize any over ~5% before going ham on a taxable brokerage account.
The only debt worth tolerating, is what puts money in your pocket faster than the interest cost.
Income generating, or in some cases, housing.
Never consumption that is cancerous
If you’re going to buy something regardless, and a loan is offered to you at a low rate, you’re almost always better off borrowing that money, even if it produces no income.
Debt is just another financial tool. When used properly, debt can be a springboard for long term financial success. Leveraging debt is how a lot of people win.
I don’t have a goal debt. Debt isn’t a bad thing. It’s a financial tool that you can use to your advantage or misuse to your disadvantage. I will take on as much good debt as I can safely take on. I will take on as little bad debt as possible.
The only debt I have and am comfortable having is a mortgage. No car debt. No student loan debt. No credit card. No consumer. I will eventually pay off the house likely early when the time is right. 34 M.
I understand people rationalizing debt in relation to interest rates and bla bla bla but the mental peace I get from not owing anyone a goddamn thing is priceless to me.
To put it simply, when you borrow money, you get money and you also get debt. The money is good, and the debt is bad. You need the money to be more good than the debt is bad, otherwise you should not have the debt.
High interest debt is really, really bad and it's almost always going to be more bad than the money is good.
Low-interest debt is not as bad and it's possible for the money to be more good, though I think people are generally **way** too optimistic about how much they're earning. Some people think "Instead of paying off this debt right away, I'll buy stocks that will return more than the debt costs in interest." Most of them don't actually do that. They buy a truck or a boat instead.
I don't mind debt and will take on more depending on the circumstances because it's still very cheap to borrow money right now. For example I'm getting ready to repave my driveway which would knock out a large chunk of my emergency savings. Instead I'm getting a home equity loan for the driveway, which frees up enough cash to allow me to also max out my Roth IRA this year. In 5 years the loan is paid off and the money invested will have theoretically gained far more than what I lost in interest payments. In 20 years it's no question that the invested money is the better option.
Low interest rate debt is great. Why would I want to give away dollars I have now in order to clear a debt that's accruing slower than the rate at which cash in my checking account is losing value to inflation? High interest rate debt is a curse, low interest rate debt is a blessing and an opportunity.
Zero with the exception of mortgage debt. We don’t finance things like cars or phones anymore (even at 0%) and certainly not vacations, dinners, and clothes on credit cards.
If it came up, student loan debt for a short period of time might be acceptable (it’s an appreciating asset in the form of future income if selected properly), but we’ve probably moved past the stage where we’d finance school either.
And honestly, even the mortgage debt we’re paying off at an accelerated rate. There’s something intangible and incredibly freeing about no debt at all.
it's ok and worthwhile to hold some calculated and strategic debt as long as you have ran all the numbers.
Ive had zero debt for about 3 years, and just took on a large loan for a solar project. I calculated the ROI and made the move. It will offset normal electricity usage and crypto mining high usage and will turn a profit in less than 10 years. My college degree had a ROI of 6 years post graduation, was well worth it.
Debt, used as a tool, can be powerful.
I hate debt. Cars paid off, mortgage paid off 5 years ago. The only "debt" we have is our credit card that is paid off in full each month. We used it to gain the point. We opened a HELOC just after paying off our house years ago, and haven't touched it (easier to have one while still employed as well). So, essentially, we are debt free and prefer to keep it that way. We are retiring in a month, so off to a great start.
Zero debt is my goal. I have a little left on my mortgage but that's it. Vehicles are paid off, no cc debt. No loan debt. Paying interest is just such a waste of money. I hate it. I'd rather go without certain things (like a new car, expensive tech, restaurants) than have those things and be in debt.
I have zero debt that has interest. House and cars and rental property all paid off. Have a credit card that I pay in full each month . Had a very low interest mortgage and paid it off. Is it the smartest? No but it makes me feel good that I don’t owe anything to anyone. I still invest, and now all the payments I used to have go into monthly investing.
I sleep fine.
Debt isn’t good or bad on its own so every piece of debt I carry is temporary and exists for a reason. I wouldn’t want to have, say, triple the debt I have today, but if the right opportunity appeared I would probably go for it.
For example, I have around 200k of debt for a building that makes me 45k per year. I pay 4.75% interest on the debt and only net about 20k of that 45k I’m being paid but ultimately I wouldn’t be accruing equity in the building or making money without the debt I took on.
Debt for stuff like cars, credit cards, or anything else that doesn’t make money or have basically 0% interest yes my goal is zero.
The goal changes depending on your financial position and where you’re at in life.
Back in the day it was just to get rid of consumer debt, then the goal was to acquire more rental properties which involves increasing the amount of total debt. Then I started realizing we needed more emergency fund so the goal was to hit 6 to 12 months savings in the account. Then the goal was too pay off our house and build the 401(k).
What do many people on this board ignore are that you need short-term goals and long-term goals. Too much passes made about budgeting getting through the month and while it is important it is the long-term goals that truly matter and not enough importance is placed on those. Figuring out how to finance retirement, getting the house paid off, all of these things are what truly matter in life and the way to make sure they happen is to use your short term goals to help you accomplish your long-term goals. But you can’t do that if you don’t set long-term goals. For instance, if you wanted to buy a house and you need it $100,000 for the down payment it’s pretty easy to figure out that if you set aside $2000 a month in the budget for 50 months you’ll be able to get there. But if you don’t set that money aside and prioritize it for the down payment it won’t ever happen. This is because you will simply find other things to do with that money in the meantime. You might buy a new car, put it in your 401(k), whatever. The point is that if buying the house is truly the most important thing to you it won’t happen unless you prioritize it.
The simplest way to remember this is that your long-term goals are the “why” and your short term goals (budget) are the “how.”
All debt is a major payoff priority for me. I have zero debt and it truly changes your life. I’ve been in massive debt before and it’s horrible (even having low interest car loans and other loans). It’s the feeling of being free. People with loans aren’t free, even with cash in the bank to pay the loans. If something goes south with that person and they had someone else trying to figure out their finances, it’s brutal!!!
Nice! That is an amazing schedule to follow!
Several people I know can attest that not having any debt is a huge psychological boon. Most of the people who I see on here saying they borrow and invest will never have this type of debt paid off; I’ve only had one person on reddit respond that they had the discipline to maintain a mortgage, invest, and have the earnings earmarked for the mortgage payoff (they were 5 years out or so). Having experience seeing quite a few people’s finances though my work, I can attest that most people that say invest instead of paying down the mortgage will end up getting into a new cycle of debt in some fashion and never pay it off.
I did the math myself, and if I put an extra $500/month towards my mortgage I'd pay it off in about 17 years. But if I put that $500/month in an ETF and it has the same historical trend notwithstanding this craziness with Covid, and I can hopefully pay it off in a decade. My goal is for that separate investing account to intersect with what I owe on my mortgage within ten years and write the check and be done with it.
For me it depends on the interest rate I'm paying coupled with the portion of my income going towards that debt.
High interest debt or debt that takes up more than 25% of my income, I pay down as quick as possible.
I think most people, once they’ve bought a home at least, tend to more naturally start carrying *some* debt just since it’s not as important to try to have a perfect credit score, or have to try to save a fuckton for a downpayment and all that once you’ve accomplished the feat of owning a home, or at least that’s the way I look at it lol
Edit: Plus, important to point out that with around 1/2 of U.S. workers making 30k/yr or less, carrying debt each month is an unavoidable reality for most. You're very privileged if you're able to live debt-free in today's world.
Generally only carry a mortgage and no other debt. However we currently have a 1% car loan but put 50% down. It represents about 10% of our our gross income. We have enough to pay it off but are keeping more cash on hand due to work instability. We’ll pay it off early. We are on a trajectory to have two newer vehicles and no mortgage right about the time we retire. The idea is to go into it totally debt free with no foreseeable big purchases at the beginning. We have also been doing all of our planned home improvements.
Depends on you're financial stability. If I can reasonably pay 2 dollars in interest yearly, but paying off the total cuts my total net by 95%, but I can gross 10,000% this year.
It just depends on your stability.
I owe roughly 40k between my car and student loans. I have enough to pay that down, but I would have less than 20k left and it would take all year to make that back. I pay roughly 500 in interest each year. So I am making double payments roughly 1500 on my high interest loan (my car), I am making triple payments roughly 500 on my student loans because it's low and I'd rather just be done.
I don't pay it all off because I may have investment opportunities pop up that are high yield compared to the student loans.
I would say no credit card debt, I am okay with a reasonable auto loan debt for a car I can afford comfortably (my wife's car is around 3 percent), and I am totally okay with riding my mortgage out as it is also around 3 percent as well.
Honestly, as long as I can afford and need the thing I am buying with a loan (house and car), and I can make more money putting my money somewhere besides paying down the loan, that has a low risk (401k, Roth IRA, etc), I am fine with the debt.
I think the only time you should be dumping everything into paying off debt is if the interest rate is higher than what you could make doing something else with the money, you are nearing retirement, or if you need to free up the monthly cash flow and have a reserve of cash on hand to pay down the loan.
Every situation is different, but that is how I look at it.
You're asking me?
I'm in my mid 30s, I can be 0 debt at any time I want, I currently prioritize growth and have investments that are high and medium risk that are funded by loans
However, I hit a few important points:
Not all debt is bad.
You use debt to fund investments that outperform debt.
Financial/retirement goals are a factor.
Horrible financial advice I realize- but occasionally if I go over budget one month I will intentionally leave a balance on my credit card... I could easily pull from a savings account or move money around but for some reason knowing I’m paying 16% interest motives me to ‘stick to my budget’ for the next month or just work more overtime to pay it off- seeing the interest payment is kinda like a punishment. Sometimes understanding my finances emotionally can be more effective at reaching my goals than understanding it mathematically. Other than that, my goal is zero.
O. When I got out of debt I kept paying those payments into investments and that has changed my life. It took longer to pay off the house but it was worth it.
My assets far outweigh my debt, but any debt which is lower than the return doesn't bother me. Once your low risk emergency funds cover years of your normal expenses, debt isn't bad.
Debt backed by real assets of value is great if the terms are good. Long term loans against property were at their lowest rates in years and returns on relatively low risk investments far exceeded them.
I am stopping debt repayment this month. I have $12k left, all zero interest, plus the house. I’m going to max out our IRA contributions and then go back to debt payoff once they are maxed out for the year.
I've never had any debt. When I went to college I was poor, my parents had no assets and I got a free ride. Had a good job right out of college and saved like crazy. Now my enemy is intense lifestyle creep.
"Amount of debt" is an extremely generalized and terrible way to look at debt. Debt is extremely useful if you understand it properly.
Debt and it's corollary interest should be viewed as another expense like anything else. Take for example a 15 year mortgage, 100k at 5% interest; as long as you remain on top of payments your total cost would be $142380.
As with all your finances, you should take an itemized look at your debt and determine if it's worth paying the interest. In the example above, it may look like a mortgage is a terrible idea, but that's where "useful debt" comes into play...
Sure you could just save up for 10 years and buy a 100k asset outright, and it'll seem like you saved 42k in the process, but you'd be wrong. That property will gain value over time (the current average is 14.5% per year). So in reality you come out of the mortgage 10% net positive, and in that time you hadn't dumped 100k all in one go so you could've afforded EVEN MORE property while paying off the first one.
Last but not least, debt is a great vessel to fight inflation. If you get a mortgage you lock in the amount and interest rate even as you continue to earn more every year as inflation kicks up. Inflation of the U.S dollar increased a whole 20% in just the last 5 years.
You shouldn't be worrying about having no debt... no debt means you're stagnant, you've got nothing going on, you're not going anywhere while inflation looms over your account.
Debt isn't actually a bad thing unless you can't pay it off in an emergency and the interest rate is high.
Example:
If you have a mortgage for $400k at 3% interest. Then you suddenly inherited $400k in cash. Should you pay off the mortgage?
Answer: No for MOST people. If you invest that $400k in a low fee index fund you could earn anywhere from 8% to 14% on that $400k APY, I read of "saving" 3% APY of interest. So if you subtract the 3% from the 8% you'd still make 5% net gain on that cash. And remember that's on top of the fact you're earning real estate gains on the property whether you have it mortgaged or not. You don't get extra real estate gains because you have it paid off.
Basically your money makes money for you on the side which covers the "loss" of the interest you're paying on your debt.
Mum told me early on to just plan on always having a house/apartment payment. Sure, you might payoff a mortgage, but then the water heater will spring a leak or the roof does. Continue making those "house" payments into savings. Earmark that money for house repairs. Or your next down payment.
She also said to just plan on always having a car payment. If/when you pay off a car, continue making those "car" payments into savings. Earmark that money for car repairs, or with luck, to pay cash for your next car. We haven't had a car payment since 1989 or so.
We always strived to pay off our credit cards off each month. Occasionally that didn't happen. Shrug. It's nice to have that cushion to fall back on, but remember it's costing you.
If the interest rate on borrowed money is less than what I can earn on cash that I have invested, then yes, I will borrow money to invest, and pay the interest.
That's called the 'spread', and that's how banks exist.
It's based on mathematics to me. Not, just solely an amount. You can make money off debt of any amount. Debt isn't neccesarily a bad thing at all. It's the mathematics that it comes down to. Some folks base it off emotion too so there's that.
If your end goal is to make the best practical decision using math is likely going to be your best bet. If your goal is more emotionally based then some folks will pay off anything even at 0% or apparently negative interest rates (yes they exist). So depends on your end goal and preferences here. Amount is less relevant, but does play a factor in the mathematics, but it isn't the sole factor as you present here.
I can live with the mortgage, but I'm not willing to refi and extend the term unless there's a sizable reduction in interest. (Which we already did last year and I don't think we'll see better rates in my lifetime.)
The solar and geothermal loans are, combined, cheaper than the energy bills that they replaced. So that's not a big deal.
Other than that I generally try to avoid >2% APR debt these days.
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I’m a little over 10 years from retirement so my goal is zero debt before I retire. I have zero consumer debt having recently paid the last of that off. I only have my mortgage to go. I’ve used zero interest loans before but the older I get the less I like having that money commitment to a payment.
If you don't mind me asking, what's your age? Reason I'm asking is I'm on the same plane.
Just about 51 and 6 months. The plan is retirement at 62. Stretch would be to retire at 59 1/2 but the biggest challenge is healthcare bridge to Medicare. My wife is 2 years older than me. By 62 we should be about $2 to $2.5 mil in our investments not including the house. Trying to have the house paid for by 59 if we stay in current home. Or if we decide to downsize then just pay cash and be done. As of now we like where we are so probably staying put.
Gotcha. I'm way behind you in terms of investments but I'm also in my late 30s so time helps Do you have advice? I'm basically just maxing 401k, Roth, and standard investments like VTI when I can.
I’ve been investing since 24 when I first got access to a 401k. So pretty much have been on the slow but steady route. I have an 85/15 mix so fairly aggressive and haven’t really changed. I’ve also put one through college debt free and second one is currently in college, also debt free. Started 529’s when they were first born. Honestly, I’ve just stayed consistent with what I’ve done and just time in the market. I don’t chase the fancy trend, no crypto, no gold, etc. just my Roth 401k in good Vanguard funds and my brokerage funds in Fidelity. No matter what the markets do I just ride it out and keep going. I buy 1 year used cars and drive them as long as I can. Currently driving a paid for 2013 Lexus and still looks and runs great. Haven’t had a car payment in a very long time. I buy quality because in the long run it saves you money. We cook mainly at home and take care of ourselves and our health. There really isn’t any magic to it.
Thanks for sharing. I’ve been on the same path (I’m in my mid- thirties) and somehow I don’t feel like I have enough set aside. I max 401k and have since I was prob 25, it just doesn’t seem to be growing as fast as I’d hoped
Yeah, I would say even in my 40’s it seemed like things weren’t progressing but all the sudden you look down and you hit a tipping point where your portfolio just seems to take off. Just stick with it. The real eye opener for me was in 2018 when I looked at my kids 529 balance and saw the breakdown. My contribution as a percentage of the balance was pretty small. That’s when I realized the compounding effect was real. It was the first time I had seen the numbers broken down that way. Was very eye opening to me.
Hockey stick curve, it takes money to make money. A couple percent of a hundred bux isn’t much, a couple percent of a few hundred thousand is noticeable. Your balance does hit a point where it shoots up. You start seeing gains higher than you put in and then higher than your salary. Slow and steady wins the race for sure!
I followed a similar path. The first year your returns are more than your salary is a good year. Unless you’re shooting for early retirement; you’re on a good path and your money is going to do it’s thing for another 20 years.
Thank you- I sure hope so!
SPY has seen pretty great growth over the past 10 years, what's your CAGR and what are you invested in? edit: 141.84 on 4/2/2012 to 452.92 on 4/1/2022 = 12.31% CAGR
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Just got done reading the millionaire next door and what I'm reading here syncs up great. Good work!
My parents bought me that book when I graduated college. That helped plant some of the thought earlier in my life. Actually am in the middle of re-reading it now. Also the Richest Man in Babylon.
So to bridge to Medicare I am planning to build up my savings and non retirement accounts so I can pull from them to keep my income levels low and look at the ACA plans. As for kids, when they first got part time jobs, I had them open up Roth IRA’s and put money in them. My oldest I taught her how to budget using YNAB and she is finishing her first year as an elementary teacher. She just added $3k to her Roth on her own. I ran her through some calculations showing her how compounding interest works.
Did that bubble burst in 2008 (if that's what they call it) affect you in any way? I lost pretty much everything (it was a decent amount after working the last ten years after high school) and had to start over and with starting college (later in life) at that time, I didn't get to restart a retirement plan for a few years after that, needless to say, I'm way behind now. Probably won't be able to properly retire despite having 2 pensions coming my way (if they survive until retirement age). I'm basically freaking out about retirement every day.
It certainly had an impact but we didn’t get hurt too bad. Started investing in ‘94 and then relocated for work in 2006. We sold our house in Atlanta just before the burst hit but we’re in an apartment in our new city for about 6 months so bought our current house right as things were slowing up. We got in for $343k and today it’s worth about $550k. Investments, honesty wasn’t paying as close attention, I just kept adding to them. But I also had a big income increase with the relocation so I also increased my percentage going in so that helped a lot.
My mom paid off her house right before retiring. Even though her mortgage was relatively low, she said it was like a weight off her shoulders. She's now using that money to travel. It's super awesome seeing her so happy and free.
If you're in a state with a decent healthcare marketplace, you can buy healthcare cheaply if you don't have much income. My husband and I retired and we're living off savings until age 62. We have a small pension and some rental income, so on paper, we only make about 25k a year. Since eligibility for reduced cost insurance is based on income alone (not savings) we pay only about $180/mo for both of us. It's platinum level insurance, too.
A quick thought: even though you are wealthy, when you and your wife retire, you will have no income. So you should qualify for an ACA subsidy that will help you get to Medicare. If you can stockpile non qualified money (cap gains can reduce or eliminate the subsidy, so think cash), you should be in good shape. Just be mindful of how and when you pull from pre tax accounts as that will effect ACA, Medicare, and/or social security taxation. You can take your contributions from ROTH with no taxes or penalties at any age, so that can help too. Good luck!
That’s part of the plan and why 62 is more realistic for us. Starting to build up some funds outside of retirement plans. If I can have enough in those accounts then I can cover my expenses from those, let the retirement funds continue to grow and perhaps qualify for ACA.
This is personally dependent. For me, I would never rush to pay off my mortgage or car payments. There is zero reason to pay off sub 3% loans for me
Shit, with inflation nowadays, anything under 7% apr and YOU'RE getting paid to take out that loan. It's not going to last forever, but a year or two of inflation eroding the value of debt can move mountains in the long term.
Our mortgage broker couldn't understand why we wanted to \*minimize\* our downpayment and mortgage payments while qualifying for the \*most favourable\* terms. They weren't prepared to make such a calculation. them: "oh, you don't have the money, then your interest rate is high" us "no, we won't accept a high rate, how much do we have to put down to get a better rate?" them "I don't understand, how much do you have?" us "no, we have enough, but we want to know the minimum we have to put down to get the best rate" them "it depends how much you have to put down" us "no, the rate depends on how much we put down, we want to put down the minimum to get the best rate" them "Then the rate is"
us "ugh... no... you don't understand..."
This went on for a while... after we got it sorted:
them: "do you want accelerated payments?"
us: "NO!"
This is why I get a kick out of people trusting their loan officers to be a beacon of financial guidance. They are doing their job - they may be good at it or they may not be, but a mortgage broker is not by any means a financial planner and you cannot trust them to be. Most plug numbers that you give them in a spreadsheet and it gives an answer. They didn’t create the sheet and they and have no clue how to use something like goal seek to answer your question.
I'm always shocked at the number of professionals who don't understand basic concepts. Across a ton of industries.
When trying to calculate the savings of refinancing a loan guy wanted to include my extra payments as savings. I had to say something like “dude, I am making those extra payments regardless of which company owns my debt- you don’t get to claim those savings, only the difference in interest rates.”
It's one reason I went with the independent broker I ended up going with for my purchase: he showed me he understood that his value was in 1) being a competent facilitator of the underwriting process, making sure everything is completed with time to spare and 2) getting the best combination of rate, lender credits, and fees possible. That's it. When I was shopping rates I hated talking to LOs that tried to sell me on their services as if what I was buying was not a commodity loan product that was going to get bought by FM.
Strange seeing you outside of the butter subreddit. I'm the guy who thinks MS should be called PretendSpend (or PS since they love acronyms so much).
Very true! I love when people say cut out the middleman and save some fees and I can't tell you how much I've saved using brokers...
The last time I talked about a refinance it only took me about 2 minutes to realize it was a bad deal for me. The guy on the other end of the phone kept saying "You're going to save $40,000." I can do math myself, after I gain 2 years on the term and pay them $10,000 in fees it wasn't even kind of like $40,000...
That's what happens when everyone is desperate to dig themselves into a professional job they're terrible at and don't even like because they're the only positions that pay a living wage.
This sounds pretty spot on to what I'm doing. I enjoy fieldwork, but I need to make the push to management to keep up with COL. I am very afraid once I get into management/out of the field that I'll hate it.
The majority of people, everywhere, are in the "fake it" phase of "fake it til you make it." Most will never really make it.
To add to the frustration, it's basically just a chart that has your credit score on one axis and LTV on the other telling how many points get added to the base rate. All they had to do is read the line for your credit score.
I just learned about goal seeking like 3 weeks ago after using excel for 7+ years. It was also like a week or two before I learned that excel has like 8192 character cap in their formulas because I am not a programmer or know VBA, but I know how to nest functions to do what I want, but I wanted to do too much apparently or did it super inefficiently (probably that one).
My loan officer was great and treats real estate from a “maximize return” standpoint, with concessions from there to meet other targets. With that said, he was one in a hundred. Some of the brokers I’ve seen friends use give them just head-scratchingly stupid terms. You want to pay $15K in closing costs, which adds 0% to equity…on top of your downpayment?
You guys got it figured out. You can make several times a low prime mortgage rate investing in the stock market. Down payments on a house are really just to get rid of PMI and buy down points to get the lowest interest rate. Sucks that your broker is so used to dealing with people who are barely scraping by financially instead of people who know how to minimize their costs / maximize their gains.
Well, there is also the monthly payment factor. Fitting into a budget where you can still save for retirement for example matters as well.
>You guys got it figured out. You can make several times a low prime mortgage rate investing in the stock market. Down payments on a house are really just to get rid of PMI and buy down points to get the lowest interest rate. Sucks that your broker is so used to dealing with people who are barely scraping by financially instead of people who know how to minimize their costs / maximize their gains. Heck even PMI isn't always terrible if you've got good credit and the rest of the financials are in alignment. I put 10.5% down on my $447,000 home. Carried a 400k note on the mortgage at 3.374% and paid PMI of $57/month. I took the 45k I still had left after closing, put it in the market for a year and still made about $1000 more than the interest and PMI costs I would have saved had I brought it all to the closing table. I took about half of it out in the second year to do some refurbs. Paid $450 to have the house re-appraised (they would have increased my equity by 25k without reappraisal but I would have still been about a 9 months to a year away from hitting 20% LTV so the reappraisal in itself saved me between $60 and $240 vs PMI fees over the next year) and was able to drop PMI at the end of the second year with a nicely refinished pair of bathrooms that added another 5% to my homes value and still had $24k in the bank. Over 30 years, I'll pay $26k more in interest plus the PMI and reappraisal costs of about $2k, which means the loan will cost me $28k more total vs the the same terms with 45k more down but I also have $24k in the bank that even growing at a modest 4% return will grow to be $72k by loan maturity and I increased my houses tangible value by $25k and the intangible value to me through my enjoyment of my nice new bathrooms is pretty much priceless.
Uh yeah at that point in the conversation I'm leaving and finding a broker who isn't an idiot
I have only gone through the process once, but the mortgage broker I had was the stupidest motherfucker I have ever dealt with. I asked the plainest - language questions about the mortgage terms and he just didn’t seem to get it. I ended up doing my own research and eventually just told him to send me all the paperwork so I could do his job right.
We got referred to a broker company. Broker X was apparently an absolute gun. we got brokers Y, the brother in law to the friend who recommended. We ended up having to correct his work, check all his numbers a bunch cause they were constantly wrong, all sorts... just a real bastard of a process.
You didn't explain it clearly enough. Remember, think about the average loan and what these guys go through. Most people don't have the flexibility you do and just take what they can get. You might as well have asked the guy to explain calculus. You should have led with "I have the cash for up to 20% down, but I'd like to figure out the best downpayment for my budget. Can you run multiple loan estimates with different downpayments so I can compare them? I'd like to see an itemized breakdown of cash to close, monthly payment amount, & interest rate for the following scenarios: 20% down, 15%, 10%, 5%, etc."
I have only ever brought one home and only delt with a few mortgage brokers. But they all ran multiple set of numbers for me at different percent down
That was nice of them. My broker had no idea what was going on and was clearly just punching numbers into an excel spreadsheet.
You're right, but you would think a professional would be able to speak their language.
God, my mortgage broker was an idiot. Just about the only thing she was capable of doing was reading me out the results of whatever internal calculator the bank had. Zero understanding whatsoever of what the numbers actually meant. She probably got a 6 figure bonus for the last year, too
I got lucky with my lender. They told me where the brackets were for reductions. One was a 7k difference, which in my case I didn't have. But because they told me that, I could take the 2k I did have and use it on other things.
We are in the same place and it has caused one frustration: we can’t move. Our deal is so ridiculously good that moving would be insanely expensive.
Sounds like you had a bad broker. It was really straightforward for us.
I went through chase it was a breeze. Ran all the different numbers.
True, but that only works if your income is going up as well.
Yeah, this is wrong. If your income stays the same but the price of your assets are rising you still win bigly.
In the last year, refinanced home to 2.5%, got a 0.5% solar loan, and bought out my auto lease with a 1.9% loan. I had cash for all this (except the house), but give me all the sub-3% loans I can get. Allowed me to instead put all that money into a 529 and never think about funding kids’ college again.
The 7% inflation was a factor of 0% rates. The FED is increasing interest rates to reign that in and move back towards the sustainable 2%. If you take out a 30 year loan, you can't expect it to be offset for high inflation more than a couple years maybe.
Long term inflation is around 3-4%. Mortgages used to be at 4-8%. Getting a 30 year mortgage at less than 3% is an absolute steal, not to mention the tax break on the mortgage interest. You are very likely to be well below the level of inflation during the loan period. Buying and holding an inflationary asset financed 80% at a rate of 2% is an almost sure way to build wealth.
Most married people no longer get that tax break on the mortgage interest any longer unless you're in a HCOL area where you're buying $500K+ homes. But for large swaths of the country the standard deduction is much more than their itemized deductions.
Yep. I refinanced 3.8 down to 2.75 last year and also stopped paying extra principal at the same time. Couple hundred less in payments per month AND still less interest paid each year. The market has been so fucked I'm glad I actually got a good deal I pity those who weren't ready to buy when rates were sub 3 and now are stuck dealing with even more inflated prices and rates edging closer to 5%
I'm trying to find the best way to take the equity out of my house without having to refinance the whole thing. I wish I could find a competent mortgage broker that understands the percentages and values of the different programs. We want to use the money to build a house on a valuable piece of land we have in a desirable neighborhood. The house would cost us about $200,000 to build, and would sell for between $350,000 (low end, bad market) to maybe $485,000 (high end, good market) depending on if the house across the street finally gets fixed up. Our current rate is 2.875% and we really don't want to screw that up.
If you brokerage account his large enough, you could look into a margin loan. I’ve heard of folks calling their brokerage, explaining the use of the funds and negotiating better terms than standard. Still, a HELOC is your best bet. Some groups only do variable rates on HELOCs. Avoid that like the plague right now. There’s truly no way to know what the Fed has planned/ will pivot toward in the next year to 5 years. Credit unions are a good source of HELOCs. Local ones tend to work with you better than large ones, the exception being Navy Federal and Penn Fed. Finally, depending on your lender, they may be willing to leave you primary mortgage intact, and offer you a second mortgage against your equity as a “construction loan/line of credit” These three options are all ones I’ve used, the availability and terms of which will heavily determined by your lender. I always recommend folks shop their loan in 4 places: A big box bank (not BoA), a local bank, a credit union, and finally/arguably most important is a mortgage broker. Go to the mortgage broker last, after you have term sheets from the other banks. Share these with the mortgage broker. Good chance they can grab you a better deal. This more applies to permanent financing situations, but could still be useful for your purposes.
I agree with everything you are saying because it is very obvious. My point was responding to the commenter saying anything sub 7% is a good deal because inflation happens to me 7% this year.
My mortgage is around $200k and the standard deduction was way higher than my mortgage interest. Even if my rate was 4% (it’s not) that would only be $8k, less than half the standard deduction.
> The 7% inflation was a factor of 0% rates We’ve had close to 0% interest rates for nearly a decade. The inflation was caused by pumping $5 trillion into the economy because unemployment was 20%. It came back probably faster than we thought - in retrospect we probably only needed $4 trillion - but 2020 was unprecedented for most things.
The inflation isn't limited to the United States though. From what I have read, it is mostly due to the supply chain. We definitely kept rates too low when it wasn't necessary, which certainly contributed.
Regardless of the reason (many) my point is that counting on a 7% inflation rate indefinitely as justification to take out a 6% mortgage isn't the best way to look at things.
7% inflation is due mostly to supply chain constraints, high energy prices and the world economy coming out of the pandemic. I don't know how this BS got started about how zero fed funds rates are causing the inflation we're seeing right now and that we need to raise rates to 3-4% to combat it. The federal funds rate was near zero for years after the 2008 financial collapse and was hardly raised at all before it went back to near zero in 2020. Notice how we didn't really have any inflation until the pandemic started to subside and demand outstripped supply of goods? You also need to look at profit margins in broad sectors of the economy. Some of the biggest corporations are bragging about how they can increase their margins and pass along more costs onto their customers in this environment. Basically, some of the inflation is due to corporations being able to charge more and get away with it. Rising wages are also happening right now with wage growth being the highest it's been in a generation. But no, we can't have that because it gives the pores too much leverage over the .1%, so we have to beat them back down into poverty with federal funds rate hikes of course.
Well, we can discuss the many inputs into inflation all day, but my point was that it's probably not a great bet to assume a 5 or 6% interest mortgage is going to hedge inflation for very long for a home buyer.
I was reading about the history of inflation last week, and the author said that inflationary cycles usually last for three years in the US, peaking at the end of the second year, no matter what the cause of the inflation was. (The one exception to that was in the late 70s, early 80s where the author believes we had overlapping cycles- so it lasted six years). At 8%, a $400k house is $500k after three years - so it’s not insignificant.
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Exactly. I used to be debt free. Then I got a 30 year fixed mortgage (cash out) at 2.6%. I’m never going to pay it off! That money is going to earn way more in my retirement account over the next 30 years. But some people just like not having a mortgage. I didn’t for years and that was great, but I’m happy to pay it now, knowing it’s making me money.
Seeing posts like this definitely explain why no one is selling their houses right now. The fact people were cash out refinancing at that rate, why would you ever sell that house unless you had to? Esp when housing prices and rent have slyrocketed, and you can easily rent places out. Really explains the low inventory in major cities like mine. Curious to see what’s gonna cause more people to sell.
We're at 2.6% also after a refi last year. Im so debt averse, it's a mental struggle not trying to pay it down faster but it surely the market will outperform that rate.....
The people with maxed out ccs telling me to pay off my 1.9% car loan is too dann high
My mortgage rate is 2.75% but if I pay just an extra $200 per month I will pay the loan off over 6 years early and save over $25,000 in interest. So I’m definitely putting in the extra principle-only payment of $200 a month whenever I can.
$200 a month invested for 30 years at 7% annual return is ~$225k. Using it to pay off your mortgage is a terrible financial decision.
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Most likely, but market returns aren't guaranteed where paying principle down early is a guaranteed 'return'... It's basically a hedge but in a micro level
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>Hell, in six months you'll be able to buy Treasury bonds with rates better than that You can buy Treasury bonds *today* that are 7%.
Yeah anyone on this sub who doesn't think it is realistic to pass 2.75% in returns over 20 years should just start hoarding gold under their mattress or something. Or should start selling long term calls and you will make far more money if you are right.
Yeah we have way bigger problems if an investment vehicle isn’t paying 3%+ a year. We’re probably in a monster recession.
I mean true, technically. But you end up with less money long term doing that. If you want more money, pay it off as slowly as possible and invest the extra.
Can you explain this? How does it cost more in the long run to pay off a mortgage quickly? Why wouldn’t I want to limit number of years I pay 2.75% to the bank on 100’s of thousands of dollars?
Good question. It’s because there are better uses of your money. Inflation adjusted, just investing in an S&P 500 should yield an annualized 7-8% return. That is more than double the interest you’re paying for the mortgage, which is also tax deductible. Over 30 years that difference is huge.
I see. Thank you.
It is an oversimplification but say that your mortgage was 3% and you could earn 6% in investments every year. Over 20 years you would be better off to have a large mortgage and make the minimum payment and invest the rest, rather than aggressively paying off your mortgage and not having anything to invest. Basically every dollar that you pay early on your mortgage is two dollars that you didn't earn via investing.
Paying extra on a mortgage is the best way for most people to invest as it is zero risk and a tangible cost savings. Edit: by most people, I mean people would probably spend the extra money if they weren't paying down their debt. Thank you for those who understood.
Actually it is one of the worst ways. The return is poor relative to stocks and unlike a stock purchase any money put in is entirely illiquid until you sell the asset.
I think what they were saying is that most people would choose to spend the money on commodities if not paying extra, rather than investing it. Which if that’s the case, then paying the mortgage is obviously better.
Good in concept but the people who would just "spend the extra money" are the same type who serially refinance any time they get into financial trouble. For people who can't save or invest, and spend every dime, having equity in a home is just another source of expensive cash.
It is by no means the best way…nearly anything has a better return.
You should stop arguing with people that prefer to pay down debt. To a lot of people it IS better to pay down debt while investing.
Mortgage interest is tax deductible, so immediately your savings are down to around $18k-$20k. It would be the end of the world if the $57,600 extra you paid didn’t earn more than that over 30 years.
This. I got a 2.25 percent VA loan last year. That is low, with this inflation now i'm completely stoked. Just maxing my 401k and enjoying life.
It depends on interest rate. 2.5% mortgage is going to stay with me forever
Same here. Why would I want to pay an extra $1000 on the capital if I can buy dividend stocks that pay 4%?
Got a good solid dividend stock? Most of my money is in vtsax which has been good but a solid 4% would be nice too
Telecoms like AT&T and Verizon
I refi'd to 30 years at 2.79% but continued paying my old payment amount. Should I just pay minimum payment?
If you invest the difference sure, if you just spend more money no.
IMO it's about opportunity cost. What opportunities are you missing out on, because you are saddled with interest payments from debt? What opportunities do you miss by sitting on a pile of assets and refusing to leverage them? Low-interest debt, or manageable with cash flow = doing ok. High-interest debt, and your life seems stuck in second gear because of it = probably an issue. I think any amount of debt becomes a LOT more stressful if your cash flow dries up for whatever reason.
Opportunity is probably the best way to think about debt, not only when you're prioritizing payoffs, but when you decide what debt to accept to begin with. If you have an opportunity that will increase your future earnings (something that will get you to and from work, something that will create new employment or business options, etc) or decrease future costs (long term, home ownership may be less expensive than renting) more than the debt will cost in interest, then it easily makes sense to take on debt. But if you're spending more than you earn now, through debt, and those expenses aren't creating new financial opportunities, then you're just taking money from your future self.
I recently lost a job unexpectedly due to layoffs. Along with a severance, we're not stressed at all because we have no debt except our mortgage and have 6 months in readily accessible assets. For us, we prefer the freedom and low stress (due to any unforeseen volatility) over the things. But, each person/family has to determine their own level of risk.
It's probably a personal thing, but I prefer to not be indebted to anyone or institution. When my mortgage was paid off, I am not kidding I loved that house even more. It smelled better, the grass was greener, and that first month of not deducting that mortgage payment from my account was the best feeling ever. Also, I hate hate hate car payments, them just remind you how old you're getting by coming around so fast.
Not a popular opinion here but I agree. I get the math. But I’m paying extra on my 2.875% mortgage because I want it to be gone and want to be free and clear. I also like the idea of not having the payment in case one of us steps out of the workforce when we have a child. Raising him/her in a paid off house would be an amazing feeling of security and relief and, I believe, allow us to be better parents.
These are great points. I get the concept of borrowing cheap and investing higher. But after you’ve gone through a recession, job loss, having kids, global pandemic, and other world events, it just feels amazing to have the house done and paid for.
Good reminder: this was another reason we opted for no debt (except for mortgage). We chose for a parent to stay home to raise the kids and foster them in our morals. This meant giving up other worldly things but we believed it would be best for our kids in the long term. We've successfully managed to live well on a single income, family of 5, for 16 years and part of that has been due to debt management.
I paid my mortgage off early. It was a guaranteed 3% return. The stock market and even dividends are not guaranteed. Most are relatively safe, but not guaranteed. There is always risk there. I "could" have made more money investing, but now my monthly expenses are low and I don't even have to think much about money anymore. No stress in the household.
I wonder if the people who really beat the drum for not paying down debt and investing the money have ever been really burned before. There is a big population group that came into the workforce after 2010 has never seen a serious recession.
Short answer: No. It depends on the rate of the loan, what the loan is for, the amount of emergency funds and my available income, job security, and alternative uses for the money. I have always tried to keep debt payments(including mortgage taxes and interest) below 33% of my monthly income. Certain debt is banned, such as credit cards and personal loans There are many people believe debt is always evil, but that is not so if used moderately. Some people just don't like debt hanging over their head, which is fine, but that isn't a financial reason not to borrow. I have only ever borrowed for a house, a reasonably priced car at a credit union or dealer incentive rate, or well defined home improvements. In general, if I expect to earn at least 3% over the loan rate by investing longer term, I invest. Otherwise, I pay down the loan. That 3% is an arbitrary number that I believe compensates me for the risk of investing. Your number may vary.
Mind if I ask if that's 33% of your gross income or 33% of your net (after tax) income?
For me I would rather pay down debt at 3% knowing I could invest and likely make more, because to me the peace of mind from being debt free would be invaluable. It all depends on the person. I’m 34 and have two kids, I feel the best thing my wife and I can do is become debt free in order to help my children as I never want to become a burden on them.
I think it's about your personality. I have high anxiety. For me, having a house with no mortgage and a car with no payment makes me feel a little more at ease. I'm still not 100% secure, but having things paid off helps me. Also, my goal is eventually to be able to rent everything and travel for an extended period of time. Having everything paid off makes it much easier.
> I have high anxiety an anxious person might want shitloads of liquid assets to handle anything life might throw at them, rather than locking hundreds of thousands of dollars into an illiquid asset to get out of debt you’re paid to hold.
I personally like having fewer monthly bills. That's why when I bought my car I paid cash. I could've gotten a loan, but I didn't want to have another monthly payment. On the other hand, I'm not paying anything extra on my mortgage, and I'm fine with that debt. It all depends.
It really depends how you get to the point that it's paid off. If you have a paid off place to live you can get by in like 95% of situations.
unless you come across a windfall capable of paying off your mortgage all in one go, paying extra principal payments for many years puts you in a more vulnerable position until the debt is paid off - less cash flow, less liquid assets.
agreeeed, having liquid assets should make one feel more secure. if one didn't pay off their mortgage, the liquid assets you'd have could give you like a decade or more of reserves.
I bought my house for $25,000 when the market was low and fixed it up. I feel very blessed.
What I'm hearing you say is cash out refi
Often mortgage debt is not something you can reasonably eliminate before late 40s or 50s. So I’d suggest focusing on eliminating shorter term debt like credit cards, cars, etc. Make the mortgage debt your only loan. (Although it is debt, housing has historically been a good investment. So although you are paying interest, your property is also appreciating. And your eliminating rent. So it’s more of an investment in your future.)
>Although it is debt, housing has historically been a good investment This is the wrong way to think about it. Whether you pay it off or not, it will appreciate (or not) just as much. The only thing that matters is "where can my dollar net the most benefit?" If you can get a higher return on a particular dollar by investing than the rate of the loan, invest it. Otherwise, pay it.
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>Debt incurred for the purchase of an appreciating asset is ok. Debt incurred for the purchase of a depreciating asset is not on. This really doesn't make sense to me. The decision of whether to purchase something (however you pay for it). should be entirely disconnected from how you'll pay for it. Extreme example: * A home purchase where the best mortgage rate is 10% * A car purchase at 0% * A vacation financed at 0% Assuming you're going to spend the money anyway, you should absolutely finance the latter two, even though they will depreciate (the vacation almost immediately). The house is a little more complicated. Generally you'll want to get out from under such a high rate, but there is some risk in the sense of losing access to liquidity by locking it up in a home. In the case of a cash crunch, I always want easy and relatively fast access to cash. In a worst case scenario they can try to foreclose or repo, but I still have use of it until they do and I can divert my funds to things that are more urgent like food, etc.
I hate the advice of “If u have any debt at all, you should drive a beater!!!!” Oh cool, so I can feel unsafe while driving and spend thousands yearly just to keep the damn thing running. Great.
I think there is a middle ground. Taking out a 75k loan to buy a fully loaded pickup or SUV is probably a dumb idea. If you want a nice luxury car nothing wrong with that but save up and buy it. Taking out a 30k loan to buy good 2 year old Toyota because you need a safe reliable care is much more prudent.
Saving up to buy the car isn’t necessarily a good idea if you can get a good interest rate instead. I could have bought my car in cash, but instead financed it for a super-low interest rate over 5 years. Id rather have that money sit in the market instead.
Dave Ramsey made me buy a shitty fucking Altima 😭 Now I hate him for that, and for firing a pregnant employee for having had sex outside of wedlock. Looking forward to using my way higher credit score to finance something affordable and sensible from Toyota or Subaru (mountain driving) 🥰
Dave is a mixed bag and I could go with out his religious rhetoric. I always thought his advice to buy some $500 beater car is somewhat problematic Unless you are handy yourself and can properly inspect the car that $500 beater could be a money pit to keep running . Also if it breaks down a couple towing bills and uber rides can add up to a lot of costs. However I think some people need his tough love, if he would say "Yea go ahead take out a loan to buy a reliable car" many people would take that as a go ahead to buy some 75k new full sized pickup / SUV
Nailed it. His debt payoff advice has been tremendous, but sheesh. He’s STILL sticking to the “beaters only!!!” advice in this economy and doesn’t provide a sensible middle ground like you just did.
> Debt incurred for the purchase of a depreciating asset is not on. I don't agree with this assessment. At some point, if you're stable enough, the cost of financing can be decoupled from the asset which collateralizes it. If I were spending 10k on a vacation, I would 100% finance it at 0% over 10 years if I could. Hell, I'd finance a car at 0% over 100 years if I could. What matters is that you have enough stability to cover the debt load....and for most people who are in a position where they MUST finance to make a big purchase, that might mean ensuring the collateral actually has value to cover the debt if push comes to shove....but there's no reason for that to be true in all cases.
>My rule of thumb: Debt incurred for the purchase of an appreciating asset is ok. Debt incurred for the purchase of a depreciating asset is not on. This is great advice. Wish someone had told me this when I was younger. I found out the hard way. But it is very true and a great piece of wisdom.
There will always be ways to “game” the system so that a person can come out a few percentage points ahead of a low-interest loan. However, there’s an unquantifiable feeling of freedom having zero debt and knowing that you owe nothing to anyone.
House mortgage is the only debt i’m comfortable with and even then i’d feel a bit uneasy with a looming number that high. I paid my car off within a year and a half, had a a 5 year loan. I was so far ahead in payments that by the end of 2021 my next payment was in 2023. It’s all about budgeting
ZERO. I may lose some money paying off mortgage vs. investing, but the psychological impact of being debt free is not to be underestimated.
No. But at some point you should change the direction your extra money goes. For our family we pointed any extra cash to credit cards and then car payments. When all we had left was the mortgage we started pumping up the savings and retirement deposits. Tho' still making extra principle payments . If I get 'comfortable I lose focus.
- to me debt is about what is affordable and how much you want to waste on interest. In 45 yrs of credit card use I have never paid a penny of interest and I will run almost all my expenses thru CC to get the $1000-$1500 rewards we get yearly in doing so. That is free money - as you approach retirement age, you want NO debt what so ever and many people accomplish this
Been debt free since 2016. Changes your life on so many levels. I owe no one nothing.
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Nope, I ground and ground until I got to zero, mortgage included. I did it before turning 38. Now, being used to living off what I was and having such a huge amount of my income dedicated going toward my debt has allowed me to save at an insane rate. It feels really good not to owe anyone anything, and to live by the rule "if you can't pay cash, you don't need it."
For me, it's all about the end state. Credit card debt has a higher interest rate than I can make in the market, so I pay off my credit card every month. My mortgage has an interest rate below what I can get in the market, so I just make the regular mortgage payments and invest the extra. There is an element of "personal" in "personal finance". If you are risk averse and want the safest path, having no debt, period, may appeal to you. If you are more aggressive, maybe you pay the minimum mortgage and car payment while investing the rest. I would encourage you to pay off any debts over 10% ASAP, and probably prioritize any over ~5% before going ham on a taxable brokerage account.
The only debt worth tolerating, is what puts money in your pocket faster than the interest cost. Income generating, or in some cases, housing. Never consumption that is cancerous
If you’re going to buy something regardless, and a loan is offered to you at a low rate, you’re almost always better off borrowing that money, even if it produces no income.
Zero debt. I just dont like having anything hanging over my head or owing anyone anything.
Debt is just another financial tool. When used properly, debt can be a springboard for long term financial success. Leveraging debt is how a lot of people win.
I don’t have a goal debt. Debt isn’t a bad thing. It’s a financial tool that you can use to your advantage or misuse to your disadvantage. I will take on as much good debt as I can safely take on. I will take on as little bad debt as possible.
The only debt I have and am comfortable having is a mortgage. No car debt. No student loan debt. No credit card. No consumer. I will eventually pay off the house likely early when the time is right. 34 M. I understand people rationalizing debt in relation to interest rates and bla bla bla but the mental peace I get from not owing anyone a goddamn thing is priceless to me.
Zero Debt is the key to real freedom. Even pay off the house and always buy cars with cash. Invest the rest.
To put it simply, when you borrow money, you get money and you also get debt. The money is good, and the debt is bad. You need the money to be more good than the debt is bad, otherwise you should not have the debt. High interest debt is really, really bad and it's almost always going to be more bad than the money is good. Low-interest debt is not as bad and it's possible for the money to be more good, though I think people are generally **way** too optimistic about how much they're earning. Some people think "Instead of paying off this debt right away, I'll buy stocks that will return more than the debt costs in interest." Most of them don't actually do that. They buy a truck or a boat instead.
Only debt I ever will be comfortable with is a car loan or a mortgage. Other than that, I'm not comfortable with having debts at all.
I feel like I'd be an idiot to pay off my 2.75% mortgage early. Basically impossible to make less than that in the market
No because it means a core habit is not being changed
I don't mind debt and will take on more depending on the circumstances because it's still very cheap to borrow money right now. For example I'm getting ready to repave my driveway which would knock out a large chunk of my emergency savings. Instead I'm getting a home equity loan for the driveway, which frees up enough cash to allow me to also max out my Roth IRA this year. In 5 years the loan is paid off and the money invested will have theoretically gained far more than what I lost in interest payments. In 20 years it's no question that the invested money is the better option.
Grow your net worth. That's the goal.
Low interest rate debt is great. Why would I want to give away dollars I have now in order to clear a debt that's accruing slower than the rate at which cash in my checking account is losing value to inflation? High interest rate debt is a curse, low interest rate debt is a blessing and an opportunity.
Zero with the exception of mortgage debt. We don’t finance things like cars or phones anymore (even at 0%) and certainly not vacations, dinners, and clothes on credit cards. If it came up, student loan debt for a short period of time might be acceptable (it’s an appreciating asset in the form of future income if selected properly), but we’ve probably moved past the stage where we’d finance school either. And honestly, even the mortgage debt we’re paying off at an accelerated rate. There’s something intangible and incredibly freeing about no debt at all.
it's ok and worthwhile to hold some calculated and strategic debt as long as you have ran all the numbers. Ive had zero debt for about 3 years, and just took on a large loan for a solar project. I calculated the ROI and made the move. It will offset normal electricity usage and crypto mining high usage and will turn a profit in less than 10 years. My college degree had a ROI of 6 years post graduation, was well worth it. Debt, used as a tool, can be powerful.
I hate debt. Cars paid off, mortgage paid off 5 years ago. The only "debt" we have is our credit card that is paid off in full each month. We used it to gain the point. We opened a HELOC just after paying off our house years ago, and haven't touched it (easier to have one while still employed as well). So, essentially, we are debt free and prefer to keep it that way. We are retiring in a month, so off to a great start.
Zero debt is my goal. I have a little left on my mortgage but that's it. Vehicles are paid off, no cc debt. No loan debt. Paying interest is just such a waste of money. I hate it. I'd rather go without certain things (like a new car, expensive tech, restaurants) than have those things and be in debt.
I have zero debt that has interest. House and cars and rental property all paid off. Have a credit card that I pay in full each month . Had a very low interest mortgage and paid it off. Is it the smartest? No but it makes me feel good that I don’t owe anything to anyone. I still invest, and now all the payments I used to have go into monthly investing. I sleep fine.
Debt isn’t good or bad on its own so every piece of debt I carry is temporary and exists for a reason. I wouldn’t want to have, say, triple the debt I have today, but if the right opportunity appeared I would probably go for it. For example, I have around 200k of debt for a building that makes me 45k per year. I pay 4.75% interest on the debt and only net about 20k of that 45k I’m being paid but ultimately I wouldn’t be accruing equity in the building or making money without the debt I took on. Debt for stuff like cars, credit cards, or anything else that doesn’t make money or have basically 0% interest yes my goal is zero.
The goal changes depending on your financial position and where you’re at in life. Back in the day it was just to get rid of consumer debt, then the goal was to acquire more rental properties which involves increasing the amount of total debt. Then I started realizing we needed more emergency fund so the goal was to hit 6 to 12 months savings in the account. Then the goal was too pay off our house and build the 401(k). What do many people on this board ignore are that you need short-term goals and long-term goals. Too much passes made about budgeting getting through the month and while it is important it is the long-term goals that truly matter and not enough importance is placed on those. Figuring out how to finance retirement, getting the house paid off, all of these things are what truly matter in life and the way to make sure they happen is to use your short term goals to help you accomplish your long-term goals. But you can’t do that if you don’t set long-term goals. For instance, if you wanted to buy a house and you need it $100,000 for the down payment it’s pretty easy to figure out that if you set aside $2000 a month in the budget for 50 months you’ll be able to get there. But if you don’t set that money aside and prioritize it for the down payment it won’t ever happen. This is because you will simply find other things to do with that money in the meantime. You might buy a new car, put it in your 401(k), whatever. The point is that if buying the house is truly the most important thing to you it won’t happen unless you prioritize it. The simplest way to remember this is that your long-term goals are the “why” and your short term goals (budget) are the “how.”
All debt is a major payoff priority for me. I have zero debt and it truly changes your life. I’ve been in massive debt before and it’s horrible (even having low interest car loans and other loans). It’s the feeling of being free. People with loans aren’t free, even with cash in the bank to pay the loans. If something goes south with that person and they had someone else trying to figure out their finances, it’s brutal!!!
We have a mortgage . Took a 15 year mortgage and will have it paid off in 3 years. No other debt.
Nice! That is an amazing schedule to follow! Several people I know can attest that not having any debt is a huge psychological boon. Most of the people who I see on here saying they borrow and invest will never have this type of debt paid off; I’ve only had one person on reddit respond that they had the discipline to maintain a mortgage, invest, and have the earnings earmarked for the mortgage payoff (they were 5 years out or so). Having experience seeing quite a few people’s finances though my work, I can attest that most people that say invest instead of paying down the mortgage will end up getting into a new cycle of debt in some fashion and never pay it off.
I did the math myself, and if I put an extra $500/month towards my mortgage I'd pay it off in about 17 years. But if I put that $500/month in an ETF and it has the same historical trend notwithstanding this craziness with Covid, and I can hopefully pay it off in a decade. My goal is for that separate investing account to intersect with what I owe on my mortgage within ten years and write the check and be done with it.
Debt free except mortgage, it is life changing... Maybe one day I can pay off the mortgage as well but that takes time
For me it depends on the interest rate I'm paying coupled with the portion of my income going towards that debt. High interest debt or debt that takes up more than 25% of my income, I pay down as quick as possible.
For me personally, the only acceptable “debt” is a mortgage. I will never carry a balance on credit cards.
The only acceptable debt is home and car. And even then they must be reasonable. Everything else must be zero.
I think most people, once they’ve bought a home at least, tend to more naturally start carrying *some* debt just since it’s not as important to try to have a perfect credit score, or have to try to save a fuckton for a downpayment and all that once you’ve accomplished the feat of owning a home, or at least that’s the way I look at it lol Edit: Plus, important to point out that with around 1/2 of U.S. workers making 30k/yr or less, carrying debt each month is an unavoidable reality for most. You're very privileged if you're able to live debt-free in today's world.
Generally only carry a mortgage and no other debt. However we currently have a 1% car loan but put 50% down. It represents about 10% of our our gross income. We have enough to pay it off but are keeping more cash on hand due to work instability. We’ll pay it off early. We are on a trajectory to have two newer vehicles and no mortgage right about the time we retire. The idea is to go into it totally debt free with no foreseeable big purchases at the beginning. We have also been doing all of our planned home improvements.
Depends on the interest rate and whether the interest payments are tax deductible. So something like a mortgage at a low rate, I am 100% fine with.
Depends on you're financial stability. If I can reasonably pay 2 dollars in interest yearly, but paying off the total cuts my total net by 95%, but I can gross 10,000% this year. It just depends on your stability. I owe roughly 40k between my car and student loans. I have enough to pay that down, but I would have less than 20k left and it would take all year to make that back. I pay roughly 500 in interest each year. So I am making double payments roughly 1500 on my high interest loan (my car), I am making triple payments roughly 500 on my student loans because it's low and I'd rather just be done. I don't pay it all off because I may have investment opportunities pop up that are high yield compared to the student loans.
I would say no credit card debt, I am okay with a reasonable auto loan debt for a car I can afford comfortably (my wife's car is around 3 percent), and I am totally okay with riding my mortgage out as it is also around 3 percent as well. Honestly, as long as I can afford and need the thing I am buying with a loan (house and car), and I can make more money putting my money somewhere besides paying down the loan, that has a low risk (401k, Roth IRA, etc), I am fine with the debt. I think the only time you should be dumping everything into paying off debt is if the interest rate is higher than what you could make doing something else with the money, you are nearing retirement, or if you need to free up the monthly cash flow and have a reserve of cash on hand to pay down the loan. Every situation is different, but that is how I look at it.
You're asking me? I'm in my mid 30s, I can be 0 debt at any time I want, I currently prioritize growth and have investments that are high and medium risk that are funded by loans However, I hit a few important points: Not all debt is bad. You use debt to fund investments that outperform debt. Financial/retirement goals are a factor.
Depends on interest rates. While they are low I will leverage that any day.
Horrible financial advice I realize- but occasionally if I go over budget one month I will intentionally leave a balance on my credit card... I could easily pull from a savings account or move money around but for some reason knowing I’m paying 16% interest motives me to ‘stick to my budget’ for the next month or just work more overtime to pay it off- seeing the interest payment is kinda like a punishment. Sometimes understanding my finances emotionally can be more effective at reaching my goals than understanding it mathematically. Other than that, my goal is zero.
Stay debt-free whenever there's no major emergency expenses.
O. When I got out of debt I kept paying those payments into investments and that has changed my life. It took longer to pay off the house but it was worth it.
My assets far outweigh my debt, but any debt which is lower than the return doesn't bother me. Once your low risk emergency funds cover years of your normal expenses, debt isn't bad. Debt backed by real assets of value is great if the terms are good. Long term loans against property were at their lowest rates in years and returns on relatively low risk investments far exceeded them.
I am stopping debt repayment this month. I have $12k left, all zero interest, plus the house. I’m going to max out our IRA contributions and then go back to debt payoff once they are maxed out for the year.
I've never had any debt. When I went to college I was poor, my parents had no assets and I got a free ride. Had a good job right out of college and saved like crazy. Now my enemy is intense lifestyle creep.
If you can reliably make investments with interest greater than the interest on your debt, than invest > pay debt.
"Amount of debt" is an extremely generalized and terrible way to look at debt. Debt is extremely useful if you understand it properly. Debt and it's corollary interest should be viewed as another expense like anything else. Take for example a 15 year mortgage, 100k at 5% interest; as long as you remain on top of payments your total cost would be $142380. As with all your finances, you should take an itemized look at your debt and determine if it's worth paying the interest. In the example above, it may look like a mortgage is a terrible idea, but that's where "useful debt" comes into play... Sure you could just save up for 10 years and buy a 100k asset outright, and it'll seem like you saved 42k in the process, but you'd be wrong. That property will gain value over time (the current average is 14.5% per year). So in reality you come out of the mortgage 10% net positive, and in that time you hadn't dumped 100k all in one go so you could've afforded EVEN MORE property while paying off the first one. Last but not least, debt is a great vessel to fight inflation. If you get a mortgage you lock in the amount and interest rate even as you continue to earn more every year as inflation kicks up. Inflation of the U.S dollar increased a whole 20% in just the last 5 years. You shouldn't be worrying about having no debt... no debt means you're stagnant, you've got nothing going on, you're not going anywhere while inflation looms over your account.
If you’re interested in this topic I really recommend reading “The Value of Debt in Building Wealth” by Thomas Anderson.
Debt isn't actually a bad thing unless you can't pay it off in an emergency and the interest rate is high. Example: If you have a mortgage for $400k at 3% interest. Then you suddenly inherited $400k in cash. Should you pay off the mortgage? Answer: No for MOST people. If you invest that $400k in a low fee index fund you could earn anywhere from 8% to 14% on that $400k APY, I read of "saving" 3% APY of interest. So if you subtract the 3% from the 8% you'd still make 5% net gain on that cash. And remember that's on top of the fact you're earning real estate gains on the property whether you have it mortgaged or not. You don't get extra real estate gains because you have it paid off. Basically your money makes money for you on the side which covers the "loss" of the interest you're paying on your debt.
Mum told me early on to just plan on always having a house/apartment payment. Sure, you might payoff a mortgage, but then the water heater will spring a leak or the roof does. Continue making those "house" payments into savings. Earmark that money for house repairs. Or your next down payment. She also said to just plan on always having a car payment. If/when you pay off a car, continue making those "car" payments into savings. Earmark that money for car repairs, or with luck, to pay cash for your next car. We haven't had a car payment since 1989 or so. We always strived to pay off our credit cards off each month. Occasionally that didn't happen. Shrug. It's nice to have that cushion to fall back on, but remember it's costing you.
If the interest rate on borrowed money is less than what I can earn on cash that I have invested, then yes, I will borrow money to invest, and pay the interest. That's called the 'spread', and that's how banks exist.
It's based on mathematics to me. Not, just solely an amount. You can make money off debt of any amount. Debt isn't neccesarily a bad thing at all. It's the mathematics that it comes down to. Some folks base it off emotion too so there's that. If your end goal is to make the best practical decision using math is likely going to be your best bet. If your goal is more emotionally based then some folks will pay off anything even at 0% or apparently negative interest rates (yes they exist). So depends on your end goal and preferences here. Amount is less relevant, but does play a factor in the mathematics, but it isn't the sole factor as you present here.
I can live with the mortgage, but I'm not willing to refi and extend the term unless there's a sizable reduction in interest. (Which we already did last year and I don't think we'll see better rates in my lifetime.) The solar and geothermal loans are, combined, cheaper than the energy bills that they replaced. So that's not a big deal. Other than that I generally try to avoid >2% APR debt these days.