Poll: Paying off your mortgage early...
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What's your opinion on mortgages? Specifically paying them off early?
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15-04-2015, 12:16 AM
RE: What's your opinion on mortgages? Specifically paying them off early?
When I bought my house in 1986 on a 30 year note at 10% fixed I immediately began payments with a goal of having it paid for in 11 years. Holding to that schedule would save $100K in interest, and in 1986 $100K was well over twice my salary. Many people and articles advised otherwise, but frankly, I don't have the time or interest to devote to making dollars make dollars, and not paying $100K seemed a large enough dividend to offset whatever I might have managed to accomplish if I had spent time figuring out how to make dollars multiply.

I didn't quite pay it off in 11 years, but by year 15 the only hold the bank had on me was a HELOC, and that balance is 4 figures at 4%. The house 29 years later has on average appreciated 10% a year. But I have spent close to what I paid for it to improve it and maintain it, so the actual net appreciation is about 5%. As far as houses go, mine is something more than just a domicile: it was built in 1912 and has aesthetic touches absent in modern houses, more of a work of art than of raw carpentry.

Psychologically, not having a monthly housing payment is an enormous weight off the mind, for someone like me not wealthy enough to never have to worry about whether I'll be able to sleep indoors. Taxes are due, of course, and insurance, and maintenance, but today they are a fraction of the current rental equivalent for what I have.

I'm shy my 30th year in the house about 18 months, presumably nearly $100K wealthier than I otherwise would be, but I've checked all the cookie jars and if there's $100K somewhere I have no idea where it is. I probably spent it. Would I have missed it, not having it to spend? I doubt it. But as I said, I don't miss having to mail a large check every month either. I don't regret owing it outright one bit.
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15-04-2015, 12:25 AM
RE: What's your opinion on mortgages? Specifically paying them off early?
When you consider how much the interest costs you in the long run, you save a lot in paying it off. To be specific, when I financed my house, longterm, for the duration of the loan, the interest was almost as much as the house. I mean let's say you get a $200,000 home, or a $100,000 home. Would you rather pay someone $400,000 for that item? Or $200,000 for that item? I think if one could save that money, you're far better off. However, if you simply view it as a monthly living expense and are OK with paying the duration of your mortgage I can see how that's fine too. That said, I would rather pay it off early. I refinanced this year, chopped 10 years off, my payment stayed the same, my interest is lower. It's been a good deal. I plan on paying it off as soon as I can.

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15-04-2015, 06:00 AM
RE: What's your opinion on mortgages? Specifically paying them off early?
Depends on personality and financial situation.

My choice was to pay the house (and all other loans) off asap, so that I could engage in risky ventures and withstand the possible losses.

I am glad that this is what I did. You can also retire a lot earlier with a mortgage free house. Not to mention being able to draw a reverse mortgage if you want.

I integrated a bit of house flipping in my strategy, but not the risky, fast kind. I would buy a house with cash (sale of the old one + savings) I would take 5 years or more flipping a house, living there and slowly improving it up to the level of the neighborhood. Then, when I started to get serious about retiring, I built one, so I could have one that was exactly what I wanted and needed. No mortgage.

IMO, the earlier you shed the shackles of financial responsibilities, the better. Debt enslaves.

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15-04-2015, 06:49 AM (This post was last modified: 15-04-2015 07:35 AM by BnW.)
RE: What's your opinion on mortgages? Specifically paying them off early?
I'm also in the "it depends" camp. What is your situation?

The conventional wisdom is that your mortgage is the last debt you should pay off early because of the tax deductions. I also think it depends on what your cashflow is.

Take me for example: In 2012 I refinanced for 20 years fixed at 3.5%. With the tax deduction, right now the mortgage rate is about zero for me. That will change over time as I end up paying more and more principle and less interest. I was originally paying $50 over a month on my mortgage, but then I figured something out - I had other debts that didn't get me the same benefits. I have my wife's student loans and I have car payments. So, I started funnelling the extra money into my wife's student loans.

The other thing to consider is what else is going on in your life. How much are you putting away for retirement? Do you have kids? If so, what are you doing about college? And, do you carry any credit card debt? Floating debt, like on credit cards, is the absolute worst. That is where you priorities need to be. Fixed term debt, like with car payments and houses, gets paid down to zero as you pay off the loan. It's a given. Credit cards, however, can last forever.

So, it really depends on what else is going on. And, factor in your cashflow too. How much extra can you afford to give up each pay period?

Personally, my mortgage is the last thing I worry about. I pay of the fixed amount every month. Don't get me wrong, if I hit the lottery and could pay off all my debts at once, the house would be paid for instantly. I'd much rather not have that hanging over me and would love the freedom of having no mortgage. But, back here in real life, it just doesn't make any sense for me to do it. When I bought this house, I bought less than I could afford and my mortgage payment is very manageable for me. I'm much more focused on paying off student loans, keeping out of credit card debt, paying for the massive home renovation we are now undergoing, and then there is that whole college thing looming in a few years. After all that, there just isn't enough money left to pay down the mortgage early. But ,that's me. You need to figure out your own situation.

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15-04-2015, 08:24 AM
RE: What's your opinion on mortgages? Specifically paying them off early?
I totally agree that if you have other expenses to worry about, especially bad debt like credit card debt, that should take priority over paying off your mortgage early. Also, of course, preparing for your kid's futures can also be more important. In my case, I have no debt aside from the mortgage, and my hope/goal is to be rid of that, or almost rid of that, before I start having kids or make any other big life decisions. I'm still saving approximately 15% of my income for retirement. This number will go up after the house is paid off though.

(14-04-2015 10:53 PM)earmuffs Wrote:  Wait, mortgage rates in the US are 2%!? fucking hell that's low. They're almost 7% here.

Might as well invest in that case. Hell, slap it in a high interest savings account if you're so worried about risk.
I've never seen 2%, but mine is close to 3. Even so, a standard 30 year mortgage for my house would ultimately cost me more than $180,000 in interest if I never did any extra payments or refinancing. Also, high interest savings accounts don't exist in the US any more (as far as I understand). I wish they did though!

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15-04-2015, 08:40 AM
RE: What's your opinion on mortgages? Specifically paying them off early?
We have a very low interest rate on the house. We make as low a payment as possible, taken the extra money and invested in the stock market which has more than paid for itself. We've invested in several companies that make drones, others that make 3-D printers and several other basic stocks. We're making more money this way than trying to pay it off sooner.

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Stigmatical in making, worse in mind.
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15-04-2015, 08:56 AM
RE: What's your opinion on mortgages? Specifically paying them off early?
(14-04-2015 10:53 PM)earmuffs Wrote:  
(14-04-2015 08:51 PM)BryanS Wrote:  Whether paying the mortgage off makes sense depends on the individual.

Mortgage interest in the US is tax deductible. In my case, my effective interest rate is less than 2%. It is possible to lose money on an investment, however, so for some people, that 2% guaranteed return from paying off the debt is more appropriate than the risk that they might lose money on their investment.

Wait, mortgage rates in the US are 2%!? fucking hell that's low. They're almost 7% here.

Might as well invest in that case. Hell, slap it in a high interest savings account if you're so worried about risk.

There are no high interest savings accounts or money markets. Those rates fall as lending rates fall.

http://www.bankrate.com/compare-rates.aspx

Best 1 yr CD (Certificate of Deposit) rate 1.31%
Best 5 yr CD rate 2.27%
Best Money Market rate 1.05%

As you can see the best you can hope for is to break even IF you had the entire amount available to you. Keep in mind that a CD charges penalties for early withdrawal.

If you paid off your house and needed money there is always the option of taking out a home equity loan or even refinancing.

Many people feel they can get a better return in the stock market but that is a crapshoot and those return cannot be counted on.

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15-04-2015, 09:16 AM
RE: What's your opinion on mortgages? Specifically paying them off early?
(15-04-2015 08:40 AM)dancefortwo Wrote:  We have a very low interest rate on the house. We make as low a payment as possible, taken the extra money and invested in the stock market which has more than paid for itself. We've invested in several companies that make drones, others that make 3-D printers and several other basic stocks. We're making more money this way than trying to pay it off sooner.

I did this too - after I paid off the mortgage.

I did however invest very small amounts in stocks that had tumbled periodically while still paying off my first mortgage. This included Amazon back when the "internet bubble" burst - that one made me lots of money.

If looking to the future - you most likely will not want to stay in that house forever. Especially if you are in the child bearing age - you may need to expand, and then down size after the kids are gone. The bigger the house, the more of a nuisance it becomes when you get old. To insure independent living, you should end up in a small, manageable house.

So, if you pay off a mortgage first, you have some time to use the funds you freed up to improve the house before sale - which is also tax deductible.

If you expand into a bigger house for your family, it will cost more than the first one, but if you have little or no mortgage on the first one you should get away with a minimal increase in expenses. When you look at the smaller retirement home, you will end up with a chunk of extra cash, right when you want it most, at retirement. The house will have grown in value, too.

It may seem too far removed from every day reality for you now - but keep in mind, if you set yourself up financially for retirement, the best is yet to come. When you hit the 20 years or so you will spend in retirement, they should be the worry free ones. The ones when you can make your dreams come true...

[Image: dobie.png]Science is the process we've designed to be responsible for generating our best guess as to what the fuck is going on. Girly Man
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15-04-2015, 09:21 AM
RE: What's your opinion on mortgages? Specifically paying them off early?
(15-04-2015 08:56 AM)Full Circle Wrote:  
(14-04-2015 10:53 PM)earmuffs Wrote:  Wait, mortgage rates in the US are 2%!? fucking hell that's low. They're almost 7% here.

Might as well invest in that case. Hell, slap it in a high interest savings account if you're so worried about risk.

There are no high interest savings accounts or money markets. Those rates fall as lending rates fall.

http://www.bankrate.com/compare-rates.aspx

Best 1 yr CD (Certificate of Deposit) rate 1.31%
Best 5 yr CD rate 2.27%
Best Money Market rate 1.05%

As you can see the best you can hope for is to break even IF you had the entire amount available to you. Keep in mind that a CD charges penalties for early withdrawal.

If you paid off your house and needed money there is always the option of taking out a home equity loan or even refinancing.

Many people feel they can get a better return in the stock market but that is a crapshoot and those return cannot be counted on.

Ug of course.

Investing in the stock market without knowing what you're investing in and what you're doing is rather careless IMO. This doesn't mean you can't do it though. Investment funds and likes are a "safer" way of investing in the stock market (or in this case having someone invest for you).

Or if you want to stay clear of the stock market this peer-to-peer lending thing seems to be taking off about now. Seems like it could be a good investment because it's a debt and not equity. Don't go for the 20-30% interest rate ones, but you could be a little risky (like 5-7%) and be fairly safe I would guess. I don't know the ins and outs of this whole peer-to-peer lending thing though.


I think Dom and Airport kid make a very valid point though in that once it's paid off you don't have that burden of having to come up with mortgage payments and it allows for more freedom/risk. Dom's a smart lady, she's been there done that, I'd take her advice on this.
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15-04-2015, 09:45 AM
RE: What's your opinion on mortgages? Specifically paying them off early?
(15-04-2015 09:16 AM)Dom Wrote:  
(15-04-2015 08:40 AM)dancefortwo Wrote:  We have a very low interest rate on the house. We make as low a payment as possible, taken the extra money and invested in the stock market which has more than paid for itself. We've invested in several companies that make drones, others that make 3-D printers and several other basic stocks. We're making more money this way than trying to pay it off sooner.

I did this too - after I paid off the mortgage.

I did however invest very small amounts in stocks that had tumbled periodically while still paying off my first mortgage. This included Amazon back when the "internet bubble" burst - that one made me lots of money.

If looking to the future - you most likely will not want to stay in that house forever. Especially if you are in the child bearing age - you may need to expand, and then down size after the kids are gone. The bigger the house, the more of a nuisance it becomes when you get old. To insure independent living, you should end up in a small, manageable house.

So, if you pay off a mortgage first, you have some time to use the funds you freed up to improve the house before sale - which is also tax deductible.

If you expand into a bigger house for your family, it will cost more than the first one, but if you have little or no mortgage on the first one you should get away with a minimal increase in expenses. When you look at the smaller retirement home, you will end up with a chunk of extra cash, right when you want it most, at retirement. The house will have grown in value, too.

It may seem too far removed from every day reality for you now - but keep in mind, if you set yourself up financially for retirement, the best is yet to come. When you hit the 20 years or so you will spend in retirement, they should be the worry free ones. The ones when you can make your dreams come true...


My husband is a teacher and his retirement will be substantial. We also have other retirement investments that we started when we were first married 26 years ago. The house is small, the interest rate is a little above 2% and we make more money on the stock market than if we paid the house off sooner. Over a long period of time, decades, stocks make money.

I also own a small business which I run out of my house so this gives us tax breaks. We calculated everything out and paying the house off sooner wasn't going to work as well. We've lived in this house for 21 years and have a lot of equity in it. Every person has a different set of circumstances in their life so one size doesn't fit all. We also belong to a local teachers credit union/bank and this is helpful. Anyway, this might not work for others but in our situation it's working well.

Shakespeare's Comedy of Errors.... on Donald J. Trump:

He is deformed, crooked, old, and sere,
Ill-fac’d, worse bodied, shapeless every where;
Vicious, ungentle, foolish, blunt, unkind,
Stigmatical in making, worse in mind.
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