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

[maxx075]

Could it be that a lot of people saying to invest have no choice?
Many people are happy to disclose the low mortgage interest rate they have because they most likely bought in the last 5 yrs, if so they also over paid for their home and have very little if any equity in the house because the housing market has taken a downturn, why would you pay off a house with little to gain?
Also paying off a house you purchased 15yrs ago for $300k is a lot easier than $700k house you purchased in 2020.
Those that say invest should also state how many years they have to go on their mortgage.
I’m probably totally wrong, just had a crazy thought.

 

[svivian]

Could it be that a lot of people saying to invest have no choice?
Many people are happy to disclose the low mortgage interest rate they have because they most likely bought in the last 5 yrs, if so they also over paid for their home and have very little if any equity in the house because the housing market has taken a downturn, why would you pay off a house with little to gain?
Also paying off a house you purchased 15yrs ago for $300k is a lot easier than $700k house you purchased in 2020.
Those that say invest should also state how many years they have to go on their mortgage.
I’m probably totally wrong, just had a crazy thought.

I bought Nov 2020. My home has appreciated $160k and my rate is 2.75%

I don’t know where you live but there has been absolutely zero downturn in my area.

Anyone who didn’t purchase or refinance in 2020 and 2021 missed out on a historic opportunity and I do feel bad for the younger guys coming out of college. But even so, home ownership is not impossible.

 

[tebanks]

Invest it. Sub 4% loan. You can get a little bit better than that in bonds right now. Set up a bond ladder and you don’t even have to worry about risk of it dropping.

 

[mostlybirch]

Could it be that a lot of people saying to invest have no choice?
Many people are happy to disclose the low mortgage interest rate they have because they most likely bought in the last 5 yrs, if so they also over paid for their home and have very little if any equity in the house because the housing market has taken a downturn, why would you pay off a house with little to gain?
Also paying off a house you purchased 15yrs ago for $300k is a lot easier than $700k house you purchased in 2020.
Those that say invest should also state how many years they have to go on their mortgage.
I’m probably totally wrong, just had a crazy thought.

I say to invest because the mathematics show you come out ahead, and you have more liquidity in emergencies or for opportunities that come up.

Per your disclosure request: I have no mortgage, built my house out of pocket as I could afford it.

 

[Tahoe1305]

I say to invest because the mathematics show you come out ahead, and you have more liquidity in emergencies or for opportunities that come up.

Per your disclosure request: I have no mortgage, built my house out of pocket as I could afford it.

Agree with this. It doesn’t matter if the math supports the decision (based on whatever assumptions folks want to make).

I’ve owned my homes for well over 5 years. BUT happily refinanced in 2021 when rates were at a historic low. I didn’t take cash out like some choose to do. At the time I could have paid them off. But I elected to invest the money elsewhere due to the rate being so low.

People who bought in the last 5 years are not upside down likely. I bought in 2020 (was freaked out!) and sold two years later in 2022. I made 50% profit in that two year investment. None of it was my money btw…all the banks (maybe a small amount of principal). But the profit was all mine (and tax free).

Now if you said the last two years I’d agree the market has stepped back a bit (10% maybe) in some areas.

 

[HuntHarder]

Painting with a broad brush is rarely a good thing. There might be some guys in this thread that are bs'n, but the fact still remains. Very low interest rates on mortgage is a mistake to pay off, in this day and age. There are multiple 0 risk investments, that are much smarter financially. Remove all the "feel good" feelings and look at it strictly from a financial POV.

It is highly unlikely that we ever see this scenario play out again imo. Those interests rates are probably a thing of the past. Also rare to have multiple, risk free, short term investment options at 4-6%. A year ago, 5.5% risk free, short term was available in multiple investments.

 

[Ucsdryder]

Could it be that a lot of people saying to invest have no choice?
Many people are happy to disclose the low mortgage interest rate they have because they most likely bought in the last 5 yrs, if so they also over paid for their home and have very little if any equity in the house because the housing market has taken a downturn, why would you pay off a house with little to gain?
Also paying off a house you purchased 15yrs ago for $300k is a lot easier than $700k house you purchased in 2020.
Those that say invest should also state how many years they have to go on their mortgage.
I’m probably totally wrong, just had a crazy thought.

If that makes you feel better I guess you could believe it. I bought in 2020 and my house is up almost 300k. I think a lot of people, intelligent ones, refinanced during that time. Sooooo…. Sure…. lol

 

[NRA4LIFE]

Start investing anything you can early in life. Then marry a girl who makes more than you do. That worked out well.

 

[Jimmy_Fallon]

I would invest myself. It’s easy to make more than 3-5%. The s&p500 has done me well! Voo and QQQ

 

[humvee8]

Still have a bit to pay off here but refinanced in 2019 at 3%. Making almost 4% in a capital one account so makes sense to invest if even in just that.

Any rec’s for stocks ?!

 

[svivian]

I remember in 2019 we were living in a little townhome looking to buy a house. Everyone was saying we were due for a recession and that we were in a housing bubble.

The whole year went buy and still no burst, yet the same story kept getting told about a crash. Here we are 6 years later and if I would have waited I would have spent a lot more money and my rate would be 6-7%

 

[Dave_]

The main issue with threads like these...."I could pay cash, but I'd rather invest it" is.....

I don't believe the regular guy making monthly payments on anything, is putting the exact X amount of dollars into stocks or ETF's on the 15th of every month instead.

Now, if you have a mortgage balance of $200K, and you also have $200K+ in your taxable brokerage account that is liquid, then OK, you can pat yourself on the back....I guess. But the reality is, you are in the top 2% of people in the United States, and are really just humble bragging. Most guys anywhere, therefore here, are not in that situation, so this conversation is nothing more than a circle jerk for a few, and for the rest who don't have what you do....a theoretical rationalization to affirm having debt, which anyone who has been on the other side of it knows is not preferrable to being debt free.

It's not really just for the elite circle jerk. Like~60% of current mortgages have a rate below 4%. Even Dave Ramsey says on a limited budget you should do everything you can to pay off early once you have a stable budget and built an emergency fund, even if it's only 100 bucks a month.

What other folks are saying is if you have the ability and self control to put that extra money in retirement or brokerage account it adds up. If you put that $100 monthly towards a 400k 30yr mortgage at 4%, you save $30k in interest and still takes 27+ years to pay off. That $100 a month earning 8% interest is $57k after 20 years and $141k after 30 years. A much better return on investment.

Sent from my SM-G975U using Tapatalk

 

[Beendare]

Its all a out being smart with your money.

Its a bit off track from this but I know a guy- on the advice of his idiot mom- that just sold his nice house he had owned for about 7 years with a 3% mortgage that had appreciated about $400k to buy a more expensive house that is slightly bigger.

Yes, he and his wife got the profit tax free but he now has a 6.7% loan on a higher amount plus much higher tax basis for property taxes. A much higher mortgage pmt and much higher prop taxes of $20k a year plus higher insurance.

He and his wife make a lot of $$ so they have flexibility but still….

I told him 4 years ago to keep the house and its low 30yr fixed mortgage pmt and rent it. Buy another house with the 60 yr low mortgage and live in that. Even if he had to take a small second to help with DP, the rent money more than covered it. Plus they make a lot so he could have paid off the second fairly fast if he didn’t want to be that leveraged. His mom who is terrible with her money said no.

I think we will all look back and see what a deal those low mortgage payments were.

 

[Ucsdryder]

I had to be mean to him too....

Welp…I should have seen that coming…

 

[nphunter]

I think about this often. At least a sort of similar circumstance.

I owe about 100K or a little less on my house, 5% mortgage. House as is would fetch close to 400K, once I finish the remodel it will bring around 600K.

I also have about 400K in retirement at the moment and am 43. Currently my only debt is 34K in my wife’s student loans and the house.

I often think about just drawing out some of my retirement and paying off the house. My mortgage is under 1K so I technically could work a minimum wage job and make my payment. I know the 400K will most likely have me financially set if I don’t touch it as long as I leave it until I’m 65 even if I stop contributing.

It would be so nice to be 100% debt free though. If my wife goes back to work once the kids are graduated in 2 years we should easily be able to take that income and pay everything off pretty quickly.

 

[G&W]

What a great thread, and timely for me. Thank you @CorbLand and many others for your non-emotional financial insights. I love learning about the workings of money.

There is something I need clarification on. I purchased a new primary residence in October of 23. Hated to do it due to rising interest rates but life happened. So I locked in a 20 year at 4.875%. I immediately began paying an extra $500 per month towards my principal. My thinking was that since the interest is amortized, paying down the loan quicker in the beginning until I reach the tipping point would pay larger “dividends” on the total $ than putting the same $500 per month into my E*Trade brokerage account. Now that I have reached the tipping point in the mortgage I have stopped paying extra on the house and will be diverting this money into 2 pots: a HYSA at 4% and into my brokerage account with an unknown but hopefully positive % long term yield. (I am already maxing out my ROTH.)

Was this flawed thinking in regards to making aggressive principal monthly mortgage payments early on?

 

[Beendare]

What a great thread, and timely for me. Thank you @CorbLand and many others for your non-emotional financial insights. I love learning about the workings of money.

There is something I need clarification on. I purchased a new primary residence in October of 23. Hated to do it due to rising interest rates but life happened. So I locked in a 20 year at 4.875%. I immediately began paying an extra $500 per month towards my principal. My thinking was that since the interest is amortized, paying down the loan quicker in the beginning until I reach the tipping point would pay larger “dividends” on the total $ than putting the same $500 per month into my E*Trade brokerage account. Now that I have reached the tipping point in the mortgage I have stopped paying extra on the house and will be diverting this money into 2 pots: a HYSA at 4% and into my brokerage account with an unknown but hopefully positive % long term yield. (I am already maxing out my ROTH.)

Was this flawed thinking in regards to making aggressive principal monthly mortgage payments early on?

My take, you are on the bubble. It depends a lot on your age.

The positive; It is nice to have your home paid off when you retire with less income coming in. Paying it down you will be collecting a no risk, guaranteed 4.8%.

 

[G&W]

My take, you are on the bubble. It depends a lot on your age.

The positive; It is nice to have your home paid off when you retire with less income coming in. Paying it down you will be collecting a no risk, guaranteed 4.8%.

Thank you. I am 51 with $113k still owed on the house. Truck is scheduled to be paid off this fall leaving me debt free minus the mortgage.