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

[mxgsfmdpx]

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.

What money though?

You’re talking about a second mortgage? The money is tied up in the value of the house. They aren’t giving you a check for that money to invest is what I’m saying. Unless you take out a large second mortgage or have substantial funds to put towards the investment portfolios, this “plan” doesn’t work at all.

 

[CorbLand]

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.

It is harder, especially for those just getting started but honestly I think that is why people are going to have to learn to leverage themselves to get ahead.

The likelihood that younger people can pay a significant amount extra towards their mortgage to really make a dent is pretty small. That’s why I advocate for using it to make you more money because its the best option for many.

 

[Ucsdryder]

What money though?

You’re talking about a second mortgage? The money is tied up in the value of the house. They aren’t giving you a check for that money to invest is what I’m saying. Unless you take out a large second mortgage or have substantial funds to put towards the investment portfolios, this “plan” doesn’t work at all.

I’m not tracking…

To pay off a 30 year in 10 years, you’re throwing significant money at your mortgage monthly. If you’d have invested that “extra” money, you’d be in a better financial situation. Especially over the last 15 years.

 

[mxgsfmdpx]

I’m not tracking…

To pay off a 30 year in 10 years, you’re throwing significant money at your mortgage monthly. If you’d have invested that “extra” money, you’d be in a better financial situation. Especially over the last 15 years.

It’s not “significant” money. Def not enough to lump a sum into investments and diversify it well enough to make “more” money in 10 years. The numbers in the example above from Tahoe are fantasy land is what I’m saying.

 

[Tahoe1305]

What money though?

You’re talking about a second mortgage? The money is tied up in the value of the house. They aren’t giving you a check for that money to invest is what I’m saying. Unless you take out a large second mortgage or have substantial funds to put towards the investment portfolios, this “plan” doesn’t work at all.

yes you have to have money to make money on money.

That’s is the assumption… if you have extra money to pay towards a loan that is extra money (what the op original asked).

My example just assumes you have a lump sum of money (some people have that from either a) selling a house during Covid craziness or b) leveraging money to make money).

 

[mxgsfmdpx]

It is harder, especially for those just getting started but honestly I think that is why people are going to have to learn to leverage themselves to get ahead.

The likelihood that younger people can pay a significant amount extra towards their mortgage to really make a dent is pretty small. That’s why I advocate for using it to make you more money because its the best option for many.

So use your real current salary, your real current amount owed on house versus the appraised value of the house (what you’re able to borrow against). And take your actual mortgage payment and what you think you have lest over to “invest”.

You’ll find that the number is likely not substantial.

Borrowing more money against a single asset that could burn down tomorrow or market collapse and be upside down, and then pay even more interest to another bank, to gain potential interest earnings on long term capital gains that are then also taxed when cashed out on…

I guess what I’m saying is, when I ran the numbers last, unless somebody is grossly overstating their salary or potential capital in the home, it ain’t mathing.

 

[Tahoe1305]

So use your real current salary, your real current amount owed on house versus the appraised value of the house (what you’re able to borrow against). And take your actual mortgage payment and what you think you have lest over to “invest”.

You’ll find that the number is likely not substantial.

Borrowing more money against a single asset that could burn down tomorrow or market collapse and be upside down, and then pay even more interest to another bank, to gain potential interest earnings on long term capital gains that are then also taxed when cashed out on…

I guess what I’m saying is, when I ran the numbers last, unless somebody is grossly overstating their salary or potential capital in the home, it ain’t mathing.

It doesn’t matter if it’s $1 extra.

That $1 will earn 5.6% more earning 9.6% vs 4%. It scales perfectly.

The $550k example used is just more money to make more money on. That is how you get wealthy. The more money you have the more money it makes (% gain stays the same).

The more you are able and willing to make money on other people’s money, the even more you’ll make.

 

[CorbLand]

So use your real current salary, your real current amount owed on house versus the appraised value of the house (what you’re able to borrow against). And take your actual mortgage payment and what you think you have lest over to “invest”.

You’ll find that the number is likely not substantial.

Borrowing more money against a single asset that could burn down tomorrow or market collapse and be upside down, and then pay even more interest to another bank, to gain potential interest earnings on long term capital gains that are then also taxed when cashed out on…

I guess what I’m saying is, when I ran the numbers last, unless somebody is grossly overstating their salary or potential capital in the home, it ain’t mathing.

I am not advocating for people to pull money out of their house and then invest it in things that are subject to market collapse. If you read what I have posted it has all been HYSA, Tbills and CDs. I also don’t let the fear of paying taxes get in the way of making me money. If a market collapses so hard that my money in any three of those doesn’t get returned to me. Paying my mortgage next month is the least of my concerns.

I actually wouldn’t advocate many people pull equity from their house to invest. I am saying, if you can earn more money in a near zero risk investment avenue than you are paying…why would one pay extra on their house?

Also, I pay insurance every month. If my house burns down…I get to build a new one.

 

[Tahoe1305]

Concur, I haven’t seen a single post advocating taking a second mortgage out to invest.

We are talking about having extra money and whether to buy down the loan or do something else with it. (Again my example is intentionally extreme to show the math better).

Concur on taxes too. If you are paying taxes you are making money.

I hear people say I don’t want to bump up into the next tax bracket because I’ll owe more tax. Due that math. You’ll take home more money every single time. Still winning.

 

[mxgsfmdpx]

It doesn’t matter if it’s $1 extra.

That $1 will earn 5.6% more earning 9.6% vs 4%. It scales perfectly.

The $550k example used is just more money to make more money on. That is how you get wealthy. The more money you have the more money it makes (% gain stays the same).

The more you are able and willing to make money on other people’s money, the even more you’ll make.

This is true and I’m all for folks trying to make money wherever they can. However, it’s not realistic for most folks current situation.

The current “American dream” is mortgage, second mortgage, 2 or 3 car payments, credit card payments, and both parents having to work and not even raise their own kids. All so they can look great on social media with their “stuff”. Marriages are over 50% divorce now because of financial strain and social media garbage.

The whole “borrowing money to make money” flat out does not work for most at all.

 

[CorbLand]

This is true and I’m all for folks trying to make money wherever they can. However, it’s not realistic for most folks current situation.

The current “American dream” is mortgage, second mortgage, 2 or 3 car payments, credit card payments, and both parents having to work and not even raise their own kids. All so they can look great on social media with their “stuff”. Marriages are over 50% divorce now because of financial strain and social media garbage.

The whole “borrowing money to make money” flat out does not work for most at all.

Yea, nobody in this thread is advocating for what your saying man.

 

[Tahoe1305]

I see your point here and don’t disagree but it makes me sad nonetheless. It starts with youth, they need to be educated on stuff like this in college IMO. Not saying you or anyone else here wasn’t. There’s a ton that goes into it and luck and timing are definitely two things that we can’t control.

 

[Casinocow]

I focus on investing with the thought one day I’ll write a check to pay my mortgage off when I’m ready for the peace of mind.

 

[mxgsfmdpx]

Yea, nobody in this thread is advocating for what your saying man.

Your “investment” is a risk with no guarantee. Paying off your mortgage guarantees the bank gets no more free money from you is what I’m saying.

If the OPs hypothetical is true and they have, let’s say, $1,000 per month extra they could invest at the end of every month. I don’t think it’s a terrible idea to see if someone can help you invest it wisely enough to make some decent money after a long period of time. It’s also not a bad idea at all to use that to pay a 30 year mortgage off in 10-15 years and save yourself hundreds of thousands of dollars in interest.

Folks don’t always factor in the full picture when looking at finances.

 

[Ucsdryder]

This is true and I’m all for folks trying to make money wherever they can. However, it’s not realistic for most folks current situation.

The current “American dream” is mortgage, second mortgage, 2 or 3 car payments, credit card payments, and both parents having to work and not even raise their own kids. All so they can look great on social media with their “stuff”. Marriages are over 50% divorce now because of financial strain and social media garbage.

The whole “borrowing money to make money” flat out does not work for most at all.

You just changed the rules. The original post defined the rules clearly. Should you throw extra money at the house or investments. You’re getting down in the weeds for no reason.

 

[CorbLand]

Your “investment” is a risk with no guarantee. Paying off your mortgage guarantees the bank gets no more free money from you is what I’m saying.

If the OPs hypothetical is true and they have, let’s say, $1,000 per month extra they could invest at the end of every month. I don’t think it’s a terrible idea to see if someone can help you invest it wisely enough to make some decent money after a long period of time. It’s also not a bad idea at all to use that to pay a 30 year mortgage off in 10-15 years and save yourself hundreds of thousands of dollars in interest.

Folks don’t always factor in the full picture when looking at finances.

But the investments that I am saying to use are guaranteed, by the full faith of the US Government and if the US Government fails having a paid off mortgage is going to utterly worthless.

I have also never said that paying off your mortgage early is a bad thing just that if you have a lower interest rate than what you can make in a HYSA, bond or CD, your smarter to not pay extra.

I am not to worried about giving the bank free money when the bank is giving me more free money than I am giving them.

Seriously, go back and read what people are saying not what you think or want them to be saying.

 

[waspocrew]

This is true and I’m all for folks trying to make money wherever they can. However, it’s not realistic for most folks current situation.

The current “American dream” is mortgage, second mortgage, 2 or 3 car payments, credit card payments, and both parents having to work and not even raise their own kids. All so they can look great on social media with their “stuff”. Marriages are over 50% divorce now because of financial strain and social media garbage.

The whole “borrowing money to make money” flat out does not work for most at all.

That’s not the attitude of this thread at all.

I have around 100k in med student loans, they were placed on deferment maybe 6-9 months ago (no payments required and no interest accruing). I checked recently and this will end later this year.

I have the ability to pay this off in a lump sum, but why would I at this point? I just kept that money in a high yield savings account and let it work. When the loans are due again, I’ll knock it out, but until then, I’ll let interest work in my favor.

I kept the majority of my funds in this high yield account last year and I earned 22k in interest doing absolutely nothing.

 

[mxgsfmdpx]

But the investments that I am saying to use are guaranteed, by the full faith of the US Government and if the US Government fails having a paid off mortgage is going to utterly worthless.

Seriously, go back and read what people are saying not what you think or want them to be saying.

I’ve only read the posts you and others have quoted me directly sorry.

How is a paid off mortgage and zero debt with cash on hand going to be worthless? I’m confused.

 

[nomadicbohunk]

After almost 20 years, I paid the last of my student loans off this year. They were at like 3% so I milked them along as long as I could. I finally just did it to be done as I was sick of thinking about them. It made zero financial sense.

As they were at like inflation, I invested a lot instead of paying those ones down hard. I lost my butt in 2008 on the little I had done that with at that point. It stressed me out. I stuck with it and came out in the end.

Similarly, our mortgage now is a 15 year one at 3 something I think. Again, we invest instead of paying that off early. Again, I lost my butt this year, but it's not stressing me out as hard.

On a side note, I almost did a 30 on the house, but figured we'd be moving within 10 years. I figured ehh, we got enough saved, I'd rather play it safe. Well, I'm happy I did because it's been 6 years and we might sell this year. It went way up with covid. We got a super good deal to begin with and we'll double our money if you ignore taxes and I had to do about 10% worth of that profit of work on the place. So sometimes you just never know. That made zero sense to do outside of playing it safe if the markets drop hard.

Personal finances are that. Personal. Do what feels right to you. My partner gets anxiety if she doesn't have like 30k in her savings account at the credit union at like .01 interest. I just let that go.

 

[dirtytough]

I skipped the last half of the thread. But I’m not understanding something. Peace of mind.

If I have liquid assets that will cover my mortgage how is that not peace of mind?

If a person is paying off their house asap instead of saving the extra in a HYSA. You are paying off a loan @3% instead of saving @4%.

If you put your extra principal in a HYSA you would pay off your loan faster since you would be getting higher returns than you are saving. Hence peace of mind sooner.

Now let’s say worse case scenario happens. Recession, you lose you job. You owe $200k on your house. You have $60k in your account.

Or you owe $140k on your house and have $0 in your account.

I would much rather have $60k and buy food, gas, etc for a year than struggle to eat. Your house isn’t paid off so you still might end up homeless.


I personally quit paying extra on the house. I can’t fathom how it’s anything but stupid if you can get a higher return in something as safe as a savings account than your mortgage rate is.

I started putting the extra in a HYSA. Next thing you know we have enough in the HYSA to pay off the mortgage. But why would I throw money away and pay it off early?