Pay off mortgage or make monthly payments and invest the rest?

[CorbLand]

For this conversation, it would be great to have each poster's net worth and age listed alongside their opinion.

It's akin to 50 financial advisors posting advice to a reddit question, but not being able to tell who just got their S7 at Edward Jones and is knocking on doors, and who has $300M AUM across 20 or so clients and turns people down regularly.

Yea, that’s really none of anyones business, especially on an open forum.

I will state my age though. I am 33. I work a mid level government job.

I am an open book on what I do with my finances but it doesn’t matter how much money I do it with. The concept still holds the same.

 

[Sccritterkiller]

That’s crazy. It’s mellowed out here. Prices have increased a little in the last year or so and houses are selling still but it’s not bidding wars. At least that’s what I have been told.

Buddy at work put his house on the market last Friday morning, they are downsizing...had an offer 15k over list with in an hour of listing..they still did the open house over the weekend got 6 more offers on Sat all above list. They went with the all cash offer 10k over list...3 bedroom 2 story 2800sq ft 3 bed 2.5 bath home on quarter acre in a planned community with a special tax assest that is make the property taxes in that development 5x my house 2 miles away list $755k...
2 bedroom town houses start at 400k around here.
1 bedroom apartments are 1600-1800 a month.
Price have been going up here since '15ish, covid was a boost and it's just kept going.

 

[Sccritterkiller]

You must be in the up state by me.

No way I could buy my farm today compared to 2021. Land prices alone have gone bonkers in the last 10 years around here honestly.

Between Columbia and Charlotte...more piedmont than upstate...Its nuts up there too...seems like we get a lot of Yankees that lean conservative and are tired of the cost of living in blue states. Draconian state covid mandates pushed a lot folks here too...
Not much different than the folks fleeing CA for ID, UT, MT, TX, ect. out west.

 

[CorbLand]

Buddy at work put his house on the market last Friday morning, they are downsizing...had an offer 15k over list with in an hour of listing..they still did the open house over the weekend got 6 more offers on Sat all above list. They went with the all cash offer 10k over list...3 bedroom 2 story 2800sq ft 3 bed 2.5 bath home on quarter acre in a planned community with a special tax assest that is make the property taxes in that development 5x my house 2 miles away list $755k...
2 bedroom town houses start at 400k around here.
1 bedroom apartments are 1600-1800 a month.
Price have been going up here since '15ish, covid was a boost and it's just kept going.

Goodness. There’s about six houses for sale within a 1.5 mile radius of me. I could use some good neighbors.

 

[Marble]

Yup that’s a strategy too. What it isn’t doing is leveraging the bank’s money as well. The banks are setup to loan up to 80% of a home value. They won’t do that with ETFs.

Yup probably a lot of stress in both strategies and a lot of risk….but that’s how big money is made unfortunately. Theres other ways too.

I had a few friends who operated similar to what you described. They did rather well until 2008. Then they didn't. I'm not in contact with any of them anymore, but the last I spoke to them, they were all short selling properties and trying to avoid bankruptcy. Not sure how it worked out.

I think your method can work really well, but it also depends on outside influences you have no control over, like the 08' thing.

Sent from my SM-S918U using Tapatalk

 

[bowhuntercoop]

Between Columbia and Charlotte...more piedmont than upstate...Its nuts up there too...seems like we get a lot of Yankees that lean conservative and are tired of the cost of living in blue states. Draconian state covid mandates pushed a lot folks here too...
Not much different than the folks fleeing CA for ID, UT, MT, TX, ect. out west.

Ya not to far, I’m in Ninety Six.

I’m a yank, born in pa. Left for the Marines and never really went back. Loved the Carolina’s when I was stationed here and when I retired my wife and I knew that’s where we would end up. Crazy to see how fast it’s grown state wide the last 10 years.

Like you said most the people from the north I know that moved her are very conservative and god loving.

 

[mxgsfmdpx]

Do the math on your mortgage interest you’re paying over the life of loan (see how much you actually paid for your house after 30 years).

If you have the means to pay it off it’s very freeing.

 

[KyleR1985]

I’ve always wondered what about carrying a mortgage precluded a person from earning and saving and investing aggressively just as if they had paid off the mortgage early ?

It always seems like “it’s liberating” and “relieves pressure” comes up.

You can accomplish the same thing carrying the mortgage, and earning saving and investing aggressively.

And provided you don’t take risks out of proportion to your ability to recover from them, you end up in most certainly a better financial position of security.

Also, shouldn’t the logic lead you to “don’t ever get a mortgage. Save enough cash to pay for a house outright”. I don’t see that advised often. But it’s just a more efficient version of “get a 30 year mortgage then pay it off in 6 years”.

 

[Tahoe1305]

Do the math on your mortgage interest you’re paying over the life of loan (see how much you actually paid for your house after 30 years).

If you have the means to pay it off it’s very freeing.

It will “feel good.” But will cost you.

Math complete. See example below. If you bought a $550k home with zero down at 6%.

Interest paid over 30 years - $637k (crazy)!

Same money invested in S&P 500 over last 20 year average for 30 years. Earns ~$9M.

Edit: I adjusted S&P % down to 9.6%.

Another add: ran same mortgage at 2% for those COVID house buyers to see how much is lost then (it’s even more).

Edit for clarification. This assumes you have $550k cash in a checking account. You have two choices. Use it to pay off a $550k balance (or buy new) or finance the house and use the same $550k to invest while paying monthly payments. It’s an exaggerated situation to show the math point. The % delta is the same for any value of money and any timeframe.

 

[ODB]

Take a more realistic look based on the original question.

250K and 20 years left on a 3.375% loan (1433/mo) = 344K total inc. interest.

Keep paying the loan and invest the 250k at your 9.6% = 1.5 mil but you still have to pay off your house over the 20 years so 1.5 mil - 344k = 1.15 mil at the end of 20 years

or

Pay off house and start over at $0 and add the equivalent monthly amount each month at 9.6% = 950K at the end.

I think to a lot of people 20 years with NO house payment is better than the extra 200K you'll see at the end.

Of course people will stand in line to what if, or coulda woulda shoulda, but the basic question is one of two directions - all else being relatively equal.

 

[Pickettpuncher]

It will “feel good.” But will cost you.

Math complete. See example below. If you bought a $550k home with zero down at 6%.

Interest paid over 30 years - $637k (crazy)!

Same money invested in S&P 500 over last 20 year average for 30 years. Earns ~$9M.

Edit: I adjusted S&P % down to 9.6%.

Another add: ran same mortgage at 2% for those COVID house buyers to see how much is lost then (it’s even more).

You invested the whole purchase price of the loan, not paying the loan off early. So basically you're showing homeless, but investing all that money you’d put toward a home.

 

[cowdisciple]

It all seems to come down to whether you see a zero mortgage balance the same as a (+250k - 250k) mortgage balance.

I'd (jokingly!) suggest to those who don't that it's going to be easier to change the way you feel about the math than it is to change the math.

That said, it's your money and you should definitely do whatever you want with it. Paying a low rate mortgage off early is suboptimal by a little bit, but if you're saving enough to do either of these you're probably going to do just fine.

 

[Tahoe1305]

You invested the whole purchase price of the loan, not paying the loan off early. So basically you're showing homeless, but investing all that money you’d put toward a home.

How are you homeless? You are paying a mortgage like most americas. At the initial purchase you can choose to take $550k and buy the home free and clear. Or take the $550k loan and invest $550k.

It was in response to “look how much interest is paid in 30 years on a new home”.

Take $250k payoff amount at 4% and do the same math. It’s not close.

The post 3 above I agree is a more realistic approach the the OP original question. This was done to demonstrate the other question about how much more can be earned on an initial purchase in current rates.

 

[Pickettpuncher]

How are you homeless? You are paying a mortgage like most americas. At the initial purchase you can choose to take $550k and buy the home free and clear. Or take the $550k loan and invest $550k.

It was in response to “look how much interest is paid in 30 years on a new home”.

Take $250k payoff amount at 4% and do the same math. It’s not close.

You missed what I’m trying to say, and maybe it’s the way I’m wording it. But we all have to have a place to live. The context of this thread is to pay off early or invest what you’d use to pay off early. But he decided to show what would happen if you invested the whole home amount, which obviously is pretty substantial.


I’m not in the all debt is bad debt camp, but I certainly don’t wanna pay on house 30 years, regardless of what my interest rate is.

 

[Tahoe1305]

It is interesting how we all think differently. I’d happily take a 1% interest only loan (infinite time span, they do exist just not that low these days) and never pay it off…and make 8% delta a year on it and never worry.

I teach in a place where the students get an optional $35k loan at 1% before they graduate. They often ask if it is wise to take. Of course it depends, but these are smart kids (financially responsible) and I advise that if they believe the can comfortably make more that 1% it’s a sound financial decision.

I took the same loan 20 years ago. I’d take it again at any increment they’d allow me today.

I actually discussed this thread in both my classes today. Not my viewpoint, just how perfectly split the opinions were in a “hunting forum”. They were as fascinated as I.

 

[SWFLhntr]

Kind of did both. Paid a bunch extra for several years to lower the principle. Now I pay the min. payment and invest the rest. 55 yo. Interest rate is 2.8%. I have no problem paying my $935/mo mortgage for the rest of my life honestly. I love me some cheap money.

 

[UKwildcatfan]

Invest it.

 

[mxgsfmdpx]

It will “feel good.” But will cost you.

Math complete. See example below. If you bought a $550k home with zero down at 6%.

Interest paid over 30 years - $637k (crazy)!

Same money invested in S&P 500 over last 20 year average for 30 years. Earns ~$9M.

Edit: I adjusted S&P % down to 9.6%.

Another add: ran same mortgage at 2% for those COVID house buyers to see how much is lost then (it’s even more).

They’d have to own the house outright or take out a second mortgage to have the money to invest in the first place though. Most folks are not “up” on their mortgage despite what the internet will tell you. Especially not enough to “invest” and make a large return.

You really think average Joe has the means for this and is getting that interest rate with 0 down on a house? You are leaving out lots of details like PMI, insurance, property tax, etc.

I understand the idea here but I don’t think it’s as feasible as you are making it sound for most folks living paycheck to paycheck with current house prices and cost of living.

 

[mxgsfmdpx]

Kind of did both. Paid a bunch extra for several years to lower the principle. Now I pay the min. payment and invest the rest. 55 yo. Interest rate is 2.8%. I have no problem paying my $935/mo mortgage for the rest of my life honestly. I love me some cheap money.

This is what we did. Paid a 30 year mortgage in 10 years.

I now own 3 properties outright and don’t pay interest to any banks at all.

This is when you can really start using your salary to make extra money in the market if desired.

 

[Ucsdryder]

This is what we did. Paid a 30 year mortgage in 10 years.

I now own 3 properties outright and don’t pay interest to any banks at all.

This is when you can really start using your salary to make extra money in the market if desired.

I think the whole point is that’s not true. If you’d have kept those mortgages, assuming you refi around 2.5-3%, and put that extra money in investments, you’d have more money.

In the end it might not matter, and it sounds like you’re happy with your financial situation, but to say “you can really start using your salary to my money” isn’t accurate because you gave up a lot of money over the past X years.