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

[maxx075]

Here I am over here paying over 2x in rent what you guys are for paying for mortgages

 

[Tahoe1305]

Here I am over here paying over 2x in rent what you guys are for paying for mortgages

And we love you for it….keep paying that rent! Someone has to benefit from you not owning that house .

 

[maxx075]

And we love you for it….keep paying that rent! Someone has to benefit from you not owning that house .

As a millennial, we're used to getting ****** by the system - so you're welcome!

 

[CorbLand]

Here I am over here paying over 2x in rent what you guys are for paying for mortgages

My rent for our two bed one half bath apartment was a fifth of what I pay for my mortgage. Sometimes I miss that place but then the AC kicks on and I remember how bad it sucked to not have it.

 

[go_deep]

30 year mortgage, $320k at 3% interest is $165,688 paid in interest. So a $400k house with 20% down.
6% interest in the same mortgage would be $370,682 in interest paid on the life of the loan.

Many comments about not willing to pay extra at a rate like that, it's like free money. What's almost free about repaying 150% to well over 200% of the borrowed amount?

 

[CorbLand]

30 year mortgage, $320k at 3% interest is $165,688 paid in interest. So a $400k house with 20% down.
6% interest in the same mortgage would be $370,682 in interest paid on the life of the loan.

Many comments about not willing to pay extra at a rate like that, it's like free money. What's almost free about repaying 150% to well over 200% of the borrowed amount?

You give me 100K at 3%. I take that 100K and put it in the bank at 5%. I earn the 2% difference. It’s free because I borrowed the money from you. I didn’t have to earn it. It cost me nothing to make the 2%.

Target inflation is 2-3%. If you have a rate in that range, the amount your paying in interest is being inflated away.

 

[robby denning]

I went the Ramsey route and paid off the house.

So glad we did.

 

[cowdisciple]

Accountants would call this an in-substance defeasance.

You put enough money to make the debt payments in an irrevocable trust for that purpose, you get to take both the asset and the liability off your books. That's GAAP, nothing shady about it. The scenario where the risk free rate is higher than the interest rate on the debt is exactly when corporations/municipalities do this kind of defeasance.

 

[Thinkingman]

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.

IF I'm understanding you correctly, this makes no sense.
I'm going to use a real-life example.... a $425k house in a town east of Seattle and put 20% down, I invest $100k and make monthly payments of let's say $1200.00 on a 30 year mortgage...20 years later, it's worth $1.5mm and over the 20 years, I have invested my $100k DP plus 240 payments times $1200= $388k and I have over $1.1mm equity(profit) I have basically tripled my investment PLUS had a place to live for 20 years(in a liberal shitshow).
If I invested an extra $1000/month over the same 20 years in the SP500 instead of making extra payments to payoff the mortgage, I would have an additional $550k.

 

[Thinkingman]

 

[go_deep]

View attachment 868597

What would your tax responsibility be on that?

 

[Tahoe1305]

I think what he’s saying is it’s fantasy because “real” people can’t afford to do that. I’m basing that on a few back and forth posts after mine he responded to.

Others are saying the “piece of mind” of having their house paid off is worth sacrificing the $550k. It’s a valid opinion IF that is more important to them.

 

[cnelk]

Here I am over here paying over 2x in rent what you guys are for paying for mortgages

When you rent you are paying 100% in interest.

 

[Pickettpuncher]

View attachment 868597

Who has an extra grand to pay a month, and if you do, surely putting an extra grand on your mortgage would pay it off quicker than 20 years. I do appreciate your chart tho.

 

[Thinkingman]

What would your tax responsibility be on that?

At the end, my taxes had tripled to $900/mo

 

[mtnbiker208]

A lot of folks have forgot the lessons of the great recession.
It shaped me and how i think and act with money.
For me it is about being debt free and paying for everything with cash, personally and professionally.

Rich Dad, poor Dad versus Dave Ramsey. both have valid points.

 

[maxx075]

When you rent you are paying 100% in interest.

Don't have 100 grand lying around to make the 20% on a 500k starter home at 6.83% right now. Not many options theses days lol. You old guys have it made.

 

[Thinkingman]

A lot of folks have forgot the lessons of the great recession.
It shaped me and how i think and act with money.
For me it is about being debt free and paying for everything with cash, personally and professionally.

Rich Dad, poor Dad versus Dave Ramsey. both have valid points.

In the Recession (financial meltdown of 2008), anyone who owned their home 'free and clear' took 100% of the brunt of the deterioration of the real estate market.
If you were unlucky and had to vacate your home, your only exposure was the amount you had paid up until that point, plus the impact to your credit score. That's why the financial meltdown was caused by banks' exposure to mortgages...If a borrower just decides to walk away, the bank takes the hit, and the borrower's exposure is limited.
I believe in leverage and limiting exposure for home ownership and, in some cases, investing.
Don't forget, a missed tax payment puts you in foreclosure, thus my quotes around 'free and clear'.

 

[Tahoe1305]

What I learned during the “Great Recession” is if you are financially poised, you have amazing opportunities.

When the market tanks (housing/stock/etc), it isn’t sad, it’s a great day for those who are prepared.

If you’ve been saving outside of your house(I.e investing instead of buying down), you’ll have money to snatch up deals on cheap houses or cheap investments.

I lived through 2007-2009. I was 22 years old. I assumed some risk for sure but it paid off. I still own and rent the house I bought in 2006 when the market was peaked before it went down (fwiw that house went down less than 10% in value too to bottom).

Edit: said another way. IF I would have sank all my extra $ into my house it would have come as a loss. But having extra $ to invest in other investments when they were down (including houses) allowed more $ to be made.

 

[CorbLand]

Who has an extra grand to pay a month, and if you do, surely putting an extra grand on your mortgage would pay it off quicker than 20 years. I do appreciate your chart tho.

While I agree that most dont have an extra grand to throw at mortgage, I ran the numbers if I did and its pretty surprising.

Current mortgage is 4.99%.

Minimum payment = total principle and interest = 747000. Pay off is 2052
Minimum plus 1000 = total principle and interest = 584750. Pay off is 2039

Savings between the two is 162300.

Now if I took that 1000 per month and could turn 4% yearly on it. It would be worth 685000 in 30 years which would be 2052.

Contributions = 360000
Interest = 325000

If I waited until my house was paid off and then threw my minimum payment plus 1000 into the same parameters as above from 2039 to 2052. It would be worth 610000.

Contributions = 468000
Interest = 142000

Just some "realistic" numbers for people to look at. Keep in mind that I also have a higher interest rate on my mortgage than what you can earn. Those that have them below what you can earn, go run your numbers.

Numbers are rounded to the nearest hundred for ease. Its also been a day, so if I did the math wrong, please point it out.