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

[texag10]

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.

Isn't that the entire premise of the thread though? Whether I can put a few hundred a month into paying down principal or investing or I have the entire outstanding mortgage amount available, the relationship stays the same.

 

[IdahoElk]

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?

I decided after 08 to focus on getting the mortgage(4.7%) payed off first (I plan on being in this house forever) and then invest, for some reason in my situation and my mentality having no mortgage was a huge weight off my shoulders and gave me piece of mind.
I'm not savvy enough or motivated to watch my money 24/7 so my investments are pretty sound but not getting me a lot of %% and I'm ok with that.

 

[CorbLand]

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?

HYSA, CDs and bonds are paying mid 3s to low 4s. All of those are near zero risk investments that keep your money at your fingertips. If you put extra payments there, the absolute worst thing that can happen is that you would use that money to make your payment in the event that you need it.

Being able to continue to make payments in bad times is an even stronger case for not paying extra, especially if your mortgage rate is lower than bonds, CDs and HYSA. The bank doesnt care that you have paid extra if you cant continue to make payments, you still have to pay. Keeping your money where you can use it is worth something and its worth even more when you are getting paid more to do it.

 

[jkoehle1]

Has anyone mentioned where he is in ammorization?

Focusing only on interest rates as the only metric misses all of the context of when you pay the interest.

 

[HuntHarder]

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".

No doubt that 2.5% is not the norm. The premise of this whole discussion is mortgage rate lower than 100% safe investment rate. Do you pay off mortgage or invest?

Great to know that I fall into both your categories. I'm not sure if your percentage's are correct, but i do know that a big problem with the housing market is lots of Americans being locked into a low interest rate and not wanting to sell because of it. If you sell, your new rate will likely be in the 6's..

 

[ODB]

No doubt that 2.5% is not the norm. The premise of this whole discussion is mortgage rate lower than 100% safe investment rate. Do you pay off mortgage or invest?

Great to know that I fall into both your categories. I'm not sure if your percentage's are correct, but i do know that a big problem with the housing market is lots of Americans being locked into a low interest rate and not wanting to sell because of it. If you sell, your new rate will likely be in the 6's..

It’s such a pathetic game. Manipulate things to get people to buy…then manipulate them to get them to sell…

Does anyone wonder why people want to pay off their house asap as to not financially feed that monster via interest for 30 years?

It’s interesting that people wanting to stay in houses (i.e. being stable) is seen as a bad thing.

 

[svivian]

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.

Are the monthly contributions to my 401k not signifcant? I guess ill be broke by 65

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.

Similar to a caliber thread, it helps to read the entire thing before posting

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

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

He said everyone who... not everyone. You seem to be getting worked up and not reading carefully. The premise of this conversation is someone with a low 1st mortgage rate with a lump some of available cash. Is it better to invest and keep the low rate mortgage or to pay it off.

So far this debate has been civil with both sides sharing their opinion. doesn't need to be an argument. Glad you paid your three mortgages off and and its working for you!

 

[mxgsfmdpx]

Are the monthly contributions to my 401k not signifcant? I guess ill be broke by 65

If you are getting a company match and putting into a 401K I would say that's a good opportunity at free money.

Similar to a caliber thread, it helps to read the entire thing before posting

This is wise advice. I should have read more posts before replying.

He said everyone who... not everyone. You seem to be getting worked up and not reading carefully. The premise of this conversation is someone with a low 1st mortgage rate with a lump some of available cash. Is it better to invest and keep the low rate mortgage or to pay it off.

So far this debate has been civil with both sides sharing their opinion. doesn't need to be an argument. Glad you paid your three mortgages off and and its working for you!

I'm not worked up at all. Sorry if I seemed "un-civil"... "Tone" is 100% impossible to tell on the internet. Anyone who has met me or knows me in real life will likely tell you the opposite.

If somebody's brain when they read something on the internet immediately goes into "negative" or "argumentative" that's a reflection of their personal mindset and/or how they interpret the text. Having an open discussion regarding finances is always an interesting topic to me, that's why I clicked through here.

My "take" on this is coming at it from all angles and situations. I now realize the original question is quite specific and OP is looking for advice for his exact situation, which got lost on me a bit (mainly by not reading any of the posts as you mentioned).

 

[Beendare]

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.

I have a pot to Pee in...does that count? - grin.

Reading through this thread, The good advice is easily differentiated from the bad....and there isn't much bad.

High interest rate debt= bad
Low interest rate debt that also has other benefits like tax write off= not so bad

 

[Wrench]

I've owned my home outright since I was in my mid 40's. I've inherited zero and work a day job that makes 150k which supports 5 kids. I've also been able to build a machine shop most would be jealous of, bought multiple cars and trucks, atv's, bikes and a 24' jet boat and a travel trailer.....all owned outright all paid for with cash.

I can't tell you what the best way is, but it's nice knowing that I can get fired tomorrow and have my bills paid for the next two years right now with liquid.

Objects are getting more expensive by the second.....so is $100 today, tomorrow and yesterday the same?

 

[CorbLand]

Objects are getting more expensive by the second.....so is $100 today, tomorrow and yesterday the same?

Which is another solid argument for not paying your house off early, especially in periods of high inflation. Even more so when your rate is below the inflation rate. You are giving the bank dollars today that are worth more than the dollars of tomorrow.

 

[SWFLhntr]

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 $$.

Nobody loses money on money markets, HYSA’s or CD’s. It’s literally zero risk going that route.

 

[Wrench]

Which is another solid argument for not paying your house off early, especially in periods of high inflation. Even more so when your rate is below the inflation rate. You are giving the bank dollars today that are worth more than the dollars of tomorrow.

You literally cannot put a price on financial freedom. I'm investing 3-5k a month now and don't have to worry about what tomorrow brings. The relief of sending your last mortgage payment is something you'll never forget.

 

[CorbLand]

You literally cannot put a price on financial freedom. I'm investing 3-5k a month now and don't have to worry about what tomorrow brings. The relief of sending your last mortgage payment is something you'll never forget.

One can have financial freedom while having a mortgage. They are not mutually exclusive.

Having no debt is freeing. Having the funds to facilitate your debts is also freeing.

You also can put a price on financial freedom. I give up my time, energy and wants to build financial freedom. I am giving my now to be financially free. I am just doing it in a way that pays me the most for doing it.

 

[Tahoe1305]

You literally cannot put a price on financial freedom. I'm investing 3-5k a month now and don't have to worry about what tomorrow brings. The relief of sending your last mortgage payment is something you'll never forget.

You’re right.

Financial freedom for some is owing $200k on a house (where they make a monthly payment) and having $1M in investments that could easily pay off that note any day but instead is making money.

I’d argue true financial freedom is having options. Options are earned by taking some risks and being able to move assets where you like given the current situation.

You will have less options if you leave more money on the table.

 

[Dos Perros]

Freedom isn't having options, freedom is not needing options.

 

[dreamingbig]

You literally cannot put a price on financial freedom. I'm investing 3-5k a month now and don't have to worry about what tomorrow brings. The relief of sending your last mortgage payment is something you'll never forget.

You still have taxes and insurance which is a form of a monthly payment. I guess you could roll the dice and skip the insurance.

If you bought money at sub 3% why wouldn’t you put that money in a most riskless money market or CD at 4+ % and earn the spread? There are better options to expand that spread but it requires more risk.


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[SWFLhntr]

I'm going to cry the day my 2.8% mortgage is done
It literally is like free money.

 

[NRA4LIFE]

You literally cannot put a price on financial freedom. I'm investing 3-5k a month now and don't have to worry about what tomorrow brings. The relief of sending your last mortgage payment is something you'll never forget.

I did this on June 6th, 2008, my 45th birthday. Retired at 53. IMO, early retirement is only possible with your house paid off.

 

[cowdisciple]

I did this on June 6th, 2008, my 45th birthday. Retired at 53. IMO, early retirement is only possible with your house paid off.

Why would you need to pay the house off? Certainly I would want to have relatively safe, liquid assets in the amount of the mortgage in addition to whatever I felt was the necessary amount to FIRE myself. And in fact that is exactly my plan - 30x annual expenses in liquid financial assets, PLUS any remaining mortgage balance, is my target for when I can consider myself work-optional. I'm getting pretty close.