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

[Tahoe1305]

In his defense. I am doing all the math on S&P index and he’s mostly attacking (in a good way) my idea. The S&P has more risk. But it doesn’t matter, any investment that makes more than whatever your mortgage rate is at, is going to make more $. Risk acceptance in that investment is only difference.

I am young and hungry. Feed me the S&P!!!!

 

[CorbLand]

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.

Because the dollar is backed by the US Government. If they fail, the dollar fails and your cash is worthless. Who is going to accept it? It’s literally fire starter and toilet paper at that point.

The deed to your ground and house are also protected by the US Government via States. If the US Government fails, States will fail with them and there will be no one to enforce the deed to your ground. A good ol Colt 45 would be all I need to take it from you and the only thing you could do would be hope that you can shoot me first.

The investments I am talking about using are safe and guaranteed. I buy a TBill, I know how much it costs me to buy it and how much I will get back and when I will get it back. I am loaning the US Government money and they are paying me “interest.” If they default on that, we got way bigger problems.

 

[mxgsfmdpx]

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.

Your situation is unique and I’m glad it’s working for you.

A 4% interest rate mortgage still has you paying considerable amounts of money to a bank. If you have the means to pay extra on the mortgage or invest at a decent return long term then folks need to run the real numbers with a good finance person they can trust and see what is actually coming in and going out, and make a decision. Factor everything in.

 

[Tahoe1305]

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.

Oh man. This really depends on the interest on those student loans (I have no clue if they are mortgage low or CC high numbers).

But sounds like you’re crushing it.

 

[Ucsdryder]

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.

Compound interest…

 

[Tahoe1305]

@mxgsfmdpx its the opportunity cost of the $.

No one is saying having a house paid off and no bills with cash in the bank is bad(or worthless). It’s awesome.

But in the situations proposed you left extra money on the table. Folks will “feel good” about it, but it doesn’t change the fact more could have been made. It’s American capitalism at its finest.

 

[mxgsfmdpx]

@mxgsfmdpx its the opportunity cost of the $.

No one is saying having a house paid off and no bills with cash in the bank is bad(or worthless). It’s awesome.

But in the situations proposed you left extra money on the table. Folks will “feel good” about it, but it doesn’t change the fact more could have been made. It’s American capitalism at its finest.

I agree in general that if someone has the means to earn more interest money than they end up paying in interest over the life of the mortgage loan then they should probably go for it.

I don’t think this is realistic for 80+% of American homeowners though. As I tried to mention earlier haha.

 

[waspocrew]

Oh man. This really depends on the interest on those student loans (I have no clue if they are mortgage low or CC high numbers).

They’re about 6% and again, no payments are required and no interest is accruing on this at all - otherwise I would have wiped them out.

When the pause is lifted, I’ll pay them off. In my simpleton mind, I felt the 100k was better used to help pay down my current mortgage (6.625%) principal each month and also try to keep as much in the HYSA to earn interest.

FWIW - I pay our CCs off completely each month and have no debts other than my current mortgage and student loans.

 

[Tahoe1305]

They’re about 6% and again, no payments are required and no interest is accruing on this at all - otherwise I would have wiped them out at.

When the pause is lifted, I’ll pay them off. In my simpleton mind, I felt the 100k was better used to help pay down my current mortgage (6.625%) principal each month and also try to keep as much in the HYSA to earn interest.

FWIW - I pay our CCs off completely each month and have no debts other than my current mortgage and student loans.

Yup. If you can make more % than you pay then the math is solid.

For some reason I thought student loans were really high like 12-15%.

 

[CorbLand]

They’re about 6% and again, no payments are required and no interest is accruing on this at all - otherwise I would have wiped them out.

When the pause is lifted, I’ll pay them off. In my simpleton mind, I felt the 100k was better used to help pay down my current mortgage (6.625%) principal each month and also try to keep as much in the HYSA to earn interest.

FWIW - I pay our CCs off completely each month and have no debts other than my current mortgage and student loans.

I did the same thing during the forbearance period. Didn’t make a single payment and used that money to build other parts of my finances. I haven’t paid my student loans off because I earn more than I am paying so no need. My average is just below 4%.

Do what your doing and as soon as interest starts back up, pay them off and enjoy the free money you made.

 

[HuntHarder]

I agree in general that if someone has the means to earn more interest money than they end up paying in interest over the life of the mortgage loan then they should probably go for it.

I don’t think this is realistic for 80+% of American homeowners though. As I tried to mention earlier haha.

Realistic or not, this is the scenario being discussed. Nothing more, nothing less.

I'll use $100,000 as a #. You owe $100,000 on your house at 2.50% interest. You have $100,000 in liquid funds. The premise of this discussion is if it makes sense to pay off you mortgage or invest that $100,000 in risk free investments at 4+%. ( Hysa, T-Bills).

 

[MattB]

I agree in general that if someone has the means to earn more interest money than they end up paying in interest over the life of the mortgage loan then they should probably go for it.

I don’t think this is realistic for 80+% of American homeowners though. As I tried to mention earlier haha.

Everyone who has a 4% mortgage has the means to make more than that over a reasonable time horizon by investing the dollars they would otherwise use to pre-pay their mortgage.

I've stayed off this site for months and logged back in specifically to contradict your nonsense lest some confuse the volume of your posting as credibility.

 

[MattB]

Realistic or not, this is the scenario being discussed. Nothing more, nothing less.

I'll use $100,000 as a #. You owe $100,000 on your house at 2.50% interest. You have $100,000 in liquid funds. The premise of this discussion is if it makes sense to pay off you mortgage or invest that $100,000 in risk free investments at 4+%. ( Hysa, T-Bills).

Keep the mortgage, invest the funds. 4.00%>2.50%, some risk-free investments can be tax advantaged, and mortgage interest may be deducible at the state level.

IMO this sort of discussion comes back to the Dave Ramsey disciples (unsophisticated people who are trying to use finance 101 concepts to avoid being poor or bankrupt) versus the financial literate (who want to maximize the income/net worth based on their particular financial situation).

The single worst financial decision I've made was to sell a rental property in order to pay off a 2.5% mortgage in advance of my retirement. I'd be $150K+ to the good (plus future rental cash flow) had I kept the rental and the mortgage.

 

[mxgsfmdpx]

Everyone who has a 4% mortgage has the means to make more than that over a reasonable time horizon by investing the dollars they would otherwise use to pre-pay their mortgage.

Everyone? Really? That's an interesting assumption with little credibility.

I've stayed off this site for months and logged back in specifically to contradict your nonsense lest some confuse the volume of your posting as credibility.

Yeah those 3.4 posts per day average are a real doozy! Better take another few months off and "recover" bud.

 

[mxgsfmdpx]

Realistic or not, this is the scenario being discussed. Nothing more, nothing less.

I'll use $100,000 as a #. You owe $100,000 on your house at 2.50% interest. You have $100,000 in liquid funds. The premise of this discussion is if it makes sense to pay off you mortgage or invest that $100,000 in risk free investments at 4+%. ( Hysa, T-Bills).

OP mentioned 4% and your example is 2.5%? This is where it gets easy to skew numbers to favor one investment/savings plan over another.

Less than half of 1% of all mortgages in the US are under 2.5%. Only 4% of all Americans have $100,000 liquidity to "invest".

 

[bozeman]

If you owe no one, why would they come take your bed from you......wise words from Proverbs 22:27. Pay off your debt (I hate debt and attack it like its the plague). Mine was more of a 'how will I leave my family'. Mortgages are just that, debt. Paid ours off and never looked back. Still invested during that time, but as others have stated, its definitely a relief psychologically.

 

[SWFLhntr]

I mean, even my HYSA is at 3.6%, mortgage at 2.8%. I just can't justify paying extra anymore.
I'll even say this: When we refied at 2.8%, I wish I had borrowed more $$ against the equity. That era of super low interest rates may never come back.....it probably shouldn't.

 

[bozeman]

@mxgsfmdpx its the opportunity cost of the $.

No one is saying having a house paid off and no bills with cash in the bank is bad(or worthless). It’s awesome.

But in the situations proposed you left extra money on the table. Folks will “feel good” about it, but it doesn’t change the fact more could have been made. It’s American capitalism at its finest.

More could have been made, but the flip side is more could have been lost. That is capitalism at its finest. Noone wants to talk about money lost on investments but yet it happens every day. Go look at the rokslide traders thread....market goes down, people lose $$.

 

[Tahoe1305]

More could have been made, but the flip side is more could have been lost. That is capitalism at its finest. Noone wants to talk about money lost on investments but yet it happens every day. Go look at the rokslide traders thread....market goes down, people lose $$.

Yes there is risk. But it is very low. The stock traders thread is discussing individual buys and day trading to a lesser extent.

An index fund in the long run has always increased. Why folks like Warren Buffet recommend them. I am not talking short term elements. Yes the market could go to zero, but it’s never happened and it has always increased in a period of a few years.

It is nearly as secure an investment as a home. Only it pays 2-3x as much on average.

I’m not disagreeing on there being risk. But many feel that risk is worth the reward of making more money. Clearly the OP and others in this thread are at least considering it.

 

[Wrench]

Knowing that I owe nobody anything is worth more that I can explain.

Being wealthy is not having debt and having assets. If the bank owns your assets and life throws you a shit sandwich and you can't pay off the last 10% of your debt.....you forfeit your part.

Keep that in mind. Can you survive a cancer scare or a car accident and keep your payments?