Money in the bank vs paying down/off the mortgage (move, state)
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Pretty easy to calculate the 'gain' on your primary residences over the yrs. But it might be pretty painful.
My current primary home is assessed at 10x my cost basis (sounds good), but evaluated as an 'investment'... the returns are dismal (<5%).
But... many do not consider their home as an investment, or a wealth building strategy (me included).
So... the answer, as usual... It depends!
Not the point of the thread. The Thread is about whether it every worth paying off a mortgage versus investing the excess cash. The answer stands. Unless your mortgage interest is greater than 10%. It never makes sense, financially, to pay off a mortgage.
Not the point of the thread. The Thread is about whether it every worth paying off a mortgage versus investing the excess cash. The answer stands. Unless your mortgage interest is greater than 10%. It never makes sense, financially, to pay off a mortgage.
It depends .
If not 70-100% equities it is a very questionable decision because sequence risk is big when thousands a month in interest is added in retirement while spending down to live .
the risk with a balanced portfolio may not be worth the additional sequence risk
If not 70-100% equities it is a very questionable decision because sequence risk is big when thousands a month in interest is added in retirement while spending down to live .
the risk with a balanced portfolio may not be worth the additional sequence risk
The article in the link was written in 2012 and yes, 2008 through 2011 during the Great Recession there were many that advocated a cash-based investment strategy w/ the push to go back to the cash in the mattress method. But the facts don't support the premise. Even in the years when the market went negative, the following years not only covered your mortgage interest but resulted in significant gains. Those are just the facts.
The S&P index has average over 10% SINCE IT'S INCEPTION.
2021 13.29%
2020 16.26%
2019 28.88%
2018 -6.24%
2017 19.42%
2016 9.54%
2015 -0.73%
2014 11.39%
2013 29.60%
2012 13.41%
2011 0.00%
2010 12.78%
2009 23.45%
To keep discussing risk without assigning it a mathematical definition equates to a baseless fear as the history of the S&P bears out. It does not merit further discussion.
Like I said high level equity levels are worth it .
Would I do it as a retiree with Wellesley income which is a 40/60 and bonds are near zero ? Nope , not at all .
Not only do the returns have to be good but the new added risk is they need to be in the right sequence too when spending down .
The year when kitces wrote that is irrelevant, the advice is timeless .
We are not just investing , we are investing with borrowed money …
That requires enough of a a risk premium over and above the rate of the mortgage and a risk free treasury bond so that is not enough for me to borrow money while spending down unless I was at a high level of equities .
There is a trade off between risk vs reward and the reward to use borrowed money needs to be higher than many retiree portfolios will provide because they are lower equity levels..
I would not borrow money to clear 1 to 2% with a balanced portfolio…a 4% mortagage and risk free long term treasuries are at 2.25% would require at least a nice spread as a risk premium and that is not going to be enough for me with a balanced portfolio.
Remember we are talking not only market risk but also sequence risk which is the biggest risk when spending down . So there needs to be plenty of reward in this and that is not going to happen with lower levels of equities and 1 and 2% on bonds
It is not just about beating the mortgage , it is about taking on the risk of using borrowed money to beat the mortgage and a risk free govt bond.
Not a do in my opinion with 40-50% equities at record highs
Last edited by mathjak107; 06-15-2021 at 04:21 PM..
It's funny; I was planning on dumping some funds into the mortgage but I like seeing it in the bank.
Anyone feel equity rich (home paid off) but cash poor? Do you wish you had kept some aside?
It's kind of like when you have a car payment; somehow, you always make it. But, when you do not have that payment, do you save it? Generally, no.
If you did pay it off, did you tap into the equity later?
Better,
As one poster noted, there is a "divide" on this subject.
We bought our house in Nov '15, and from payment #1, I paid extra on our fixed 3.785% 30y fixed mortgage.
But we also accumulated a lot of debt updating and upgrading the house, including taking a barely enclosed porch and turning it into a 4 season finished room.
(I did it bass-ackward, should have paid regular mortgage, and paid the cash for updates)
Now, 5.5 y later, we own 60% of the house!
And all the debt is about to be paid off.
I stopped extra mortgage halfway through'18, though to concentrate on all that debt.
With debt paid off, the question is: do we resume extra on mortgage? Or invest it for Retirement?
(Basically same as you)
I'd like to have it paid for in 9 years, reducing 30y to 15y.
I've decided that tax refund; a discount we get on state school taxes come back as a refund; soon my spouse will be 65, so property tax discount; my profit sharing bonus at work (not a lot) will all be thrown at the mortgage, PLUS an extra$124.12 a month will all go to pay off mortgage early. (That rounds mortgage up to next $100, plus an extra $100 to mortgage)
In short anything extra that is routine salary will go to mortgage.
We should have it paid for in 5 years, so our 30y mortgage will be paid for in 11 y!
AND we get to keep putting the Roth, 401k and IRA out of salary away.
So: you are looking for an "Either" or an "Or" proposal.
Why not do both??
Pay some extra, and dedicate "found $" to pay off by a target date you select, and invest or keep invested the rest.
It's funny; I was planning on dumping some funds into the mortgage but I like seeing it in the bank.
Anyone feel equity rich (home paid off) but cash poor? Do you wish you had kept some aside?
It's kind of like when you have a car payment; somehow, you always make it. But, when you do not have that payment, do you save it? Generally, no.
If you did pay it off, did you tap into the equity later?
We actually put some cash on our mortgage rather than keeping it in the bank. Not whole lot but I feel it is safer now - fears of hacking (happened to us last year) put the fear of God in us and the anxiety of being hacked again was just too much.
I would never cash out my equity. My husband is 75 and most likely I will be a widow and I have no desire to make a mortgage payment forever. We hope to pay off our home in 3 years.
Car will be paid off this year - will put in savings.
Once you pay off your mortgage it is easy to invest the large sums of money you previously paid to the bank. It is amazing how quickly money invested increases in value as opposed to how slowly money borrowed gets paid off. Having no longterm debt also allows one to look at how they invest their money differently as well since they can take more risk.
The problem here is your biggest friend in investing is time ….the longer the time frame you give that money the less pressure there is on a shorter time frame having to be a good one …imagine waiting until right before the lost decade to first start throwing more substantial amounts in .
So I would never cut my time frame shorter .. as it becomes riskier and riskier the shorter you give it. I want maximum amounts to grow over as long as possible reducing the pressure on my time frame
Last edited by mathjak107; 06-15-2021 at 05:53 PM..
It's funny; I was planning on dumping some funds into the mortgage but I like seeing it in the bank.
Anyone feel equity rich (home paid off) but cash poor? Do you wish you had kept some aside?
It's kind of like when you have a car payment; somehow, you always make it. But, when you do not have that payment, do you save it? Generally, no.
If you did pay it off, did you tap into the equity later?
I look at what my mortgage is at interest-rate wise. Which is very low, like two point some thing at this point, and I only owe about 40,000 on it. And then I look at how much my 40,000 is getting me in the market. My house payment at this point is 260 bucks a month. Kind of stupid to pay it off with money that’s getting let’s say 8% and there I am putting it on 2% money — that’s a bad decision. I’m also not too far away from selling this, and making a really tidy profit, and the next house will be paid off. And very probably some remodeling all of which I’ll have the money from this house to do it with.
__________________ Solly says — Be nice!
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Solly says — Be nice!
