How much is your mortgage payment (principal and interest only)?

[corn18]

The effective rate on my mortgage is 2.3% (3.75% and deduction @ 39.6% marginal tax rate). If I keep it for the next 26 years (what's left on it), there is a very high probability that I can do better than that investing elsewhere. Especially if I do what Texas has done. Math says I'm an idiot to pay it off.

I want to pay it off. Just fits better with my psychology.

[sv2007]

But that's the problem with hypothetical scenarios: we don't live there. In actuality, where we do live, investments go up and down and up and down on their own schedule, not on ours.

Well, we do try the best we can to live within acceptable risk levels.

If having no guaranteed return is outside of a person's risk level, then that some investments may not suit that person.

You may think the above is meaningless, but it is not. The risk takers, making more money can drive up inflation to the point where the guaranteed return investment loses purchasing power.

Now, there are products like I-bond that is catered to the non-risk takers, but I'm not sure if CPI is really reflective of the whole nation. I.e. I don't want to move to the middle of nowhere to have purchasing power that's not able to purchase aything I want.

[sv2007]

The effective rate on my mortgage is 2.3% (3.75% and deduction @ 39.6% marginal tax rate). If I keep it for the next 26 years (what's left on it), there is a very high probability that I can do better than that investing elsewhere. Especially if I do what Texas has done. Math says I'm an idiot to pay it off.

I want to pay it off. Just fits better with my psychology.

I'm not passing judgement on the benefits of paying off the mortgage early (I also decided to just pay off my mortgage last year just to not have to bother with setting up an autopay in my new account). So, there is benefit.

What I'm responding to is a poster's assertion that there is no downside to paying off mortgage early. I wanted to point out the obvious downside esp it is a significant amoutn for most people (i.e. one that can hinder many people's long term wealth building).

[corn18]

I'm not passing judgement on the benefits of paying off the mortgage early (I also decided to just pay off my mortgage last year just to not have to bother with setting up an autopay in my new account). So, there is benefit.

What I'm responding to is a poster's assertion that there is no downside to paying off mortgage early. I wanted to point out the obvious downside esp it is a significant amoutn for most people (i.e. one that can hinder many people's long term wealth building).

I agree completely.

[parafly]

The problem with pure mathematics is that it simplifies and glosses over hard realities like actually finding investments that consistently return 10% per annum.

Today's mortgage rates are in the 3-4% range. You can come out ahead financially without needing anywhere near 10% returns on investments.

I think paying off a mortgage early is great. A 3.5% guaranteed return in the current environment is rock solid. I just think it's a mistake for people to put everything they have into it. There is an associated opportunity cost in terms of building long term wealth.

For the record, I pay extra on my mortgage AND invest extra funds as well. It doesn't have to be all or nothing.

[sv2007]

I think we can all agree that we (frequent posters) are sincerely here to help each other.

Our lifestyles differ; also our income levels. And I'd say even our knowledge and openness to learning, shaped by how we are brought up and our experiences in life.

In my first first 401k allocation, back when I first started working, I actually had 50% assets in fixed-income. It took some convincing from wife to move that to something most would consider more sensible for somebody in his 20s. Wife is somebody I trust a great deal; now imagine if the advice had come from some financial advisor : )

Here's the thing. Everything we post is what we think is the best course of action for ourselves, but this may not be the best for any other person. It is important to do your own research can come up with an acceptable course of action. Even working with financial planners, you've got to think for yourself.

[Singuy]

There are absolutely times when your mortgage payoff can beat the market and by a wide margin. It's all about how fast you can pay off the mortgage.

Say you make enough to either invest the next 3 years or pay off your mortgage the next 3 years.

Well if you decided to pay off your mortgage from 2013-2016..then you have essentially beat the market. Not one person made 10% returns on their money..and most not even a 1% return..infact as of today..if you invested in the dow in late 2013 to now will yield a big fat 0%..while your mortgage drain 3-4% interest from you.

On the flip side, if we did the same from 2010-2013, the market would of crushed your mortgage payoff.

The chances of you coming out ahead with a mortgage payoff is higher if you are planning on paying it off 5 years or less like one poster have stated.

Mortgage payments give you a better return than Bonds and CDs. Investing in stocks short term is very risky. If you feel like the stock market is over valued..such as today..8 years post crash..then go dump that money into your mortgage. Months after crash, invest your free cash into the stock market if you want...

[corn18]

I have heard people mention that paying off a mortgage is like a reverse bond. That sound like a good thing to me.

[Jluke]

Well if you decided to pay off your mortgage from 2013-2016..then you have essentially beat the market. Not one person made 10% returns on their money..and most not even a 1% return..infact as of today..if you invested in the dow in late 2013 to now will yield a big fat 0%..while your mortgage drain 3-4% interest from you.

Thank you for mentioning that - that is exactly what I did with my mortgage; I finally "timed" something right! June 2013 to May 2016.

[Nutria]

Well if you decided to pay off your mortgage from 2013-2016..then you have essentially beat the market. Not one person made 10% returns on their money..and most not even a 1% return..infact as of today..if you invested in the dow in late 2013 to now will yield a big fat 0%..while your mortgage drain 3-4% interest from you.

Note that you'd show a net gain if using dollar cost averaging (which is essentially what "invest what you'd have used to accelerate the mortgage pay-down" means), since whatever shares that you purchased in the slump have appreciated in value.

[sv2007]

...
Well if you decided to pay off your mortgage from 2013-2016..then you have essentially beat the market. Not one person made 10% returns on their money..and most not even a 1% return..infact as of today..if you invested in the dow in late 2013 to now will yield a big fat 0%..while your mortgage drain 3-4% interest from you.
.

Even then it is not 0%. If you pick and choose 0-dividend stocks, then sure. I can also pick and choose a stock that returns 100%.

Some time is needed to read up a bit on investing or just have to learn it the hard way (and lose some money as tuition). Now, let's not even think about that a stock paying you 4% dividend already gave you 4% ROI even it's its price didn't change; the biggest "loss" when the mortgage gets paid off is probably still to come for most people with modest means.

[Singuy]

Note that you'd show a net gain if using dollar cost averaging (which is essentially what "invest what you'd have used to accelerate the mortgage pay-down" means), since whatever shares that you purchased in the slump have appreciated in value.

Even then it is not 0%. If you pick and choose 0-dividend stocks, then sure. I can also pick and choose a stock that returns 100%.

Some time is needed to read up a bit on investing or just have to learn it the hard way (and lose some money as tuition). Now, let's not even think about that a stock paying you 4% dividend already gave you 4% ROI even it's its price didn't change; the biggest "loss" when the mortgage gets paid off is probably still to come for most people with modest means.

Both correct

However, it's all about timing. We had a market correction end of last year which drove our returns down to the negatives if compared to end of 2013..so it's all about the timing. The longer your mortgage payoff time is, the less "timing" the market matters.

[Nutria]

the biggest "loss" when the mortgage gets paid off is probably still to come for most people with modest means.

Can you clarify that?

[sv2007]

Both correct

However, it's all about timing. We had a market correction end of last year which drove our returns down to the negatives if compared to end of 2013..so it's all about the timing. The longer your mortgage payoff time is, the less "timing" the market matters.

Well, people invest differently.
From my own experience, I've stopped timing the market with my main investments.

After a few years (like 10-20), I think most figures out the type of investor he is because experience will have taught him how to make money in his style. It can very well be that stock market isn't for him.

[sv2007]

Can you clarify that?

Very common and probably even on this very board there are examples of cash squeezes for modest means people. There're tons, just do a bit of search.

Even when somebody posts that mortgage is 4% while invest return is 10%, you still have a problem. Was it also you that thinks home equity line is cheaper than mortgage?

I don't know what to say to you but this would be a situation to agree to disagree. Maybe you'll learn the truth later.