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

[TaperPin]

Avoiding paying off a house simply because of the interest rate on the mortgage is also flawed because it suggests with ridiculously low 3% Covid rates even 90 year olds should have mortgages as large as possible and that money should be invested. It encourages a perpetual mortgage if the person is aggressive at refinancing whenever the rate is low.

 

[CorbLand]

Sure - that makes perfect sense. At least while life is going well it makes sense.
Getting used to always having a mortgage is very common nowadays, with the assumption is your mortgage frees up money to pay off higher interest loans, or is invested. Makes sense, even to teenagers in an AP economics class penciling out lifelong investments in a simulation. However, when something goes wrong, investments get cashed out, other loans go up and for many folks on the downward side of life the mortgage is still there. Sure, they should have planned better for the unexpected, taken a few fewer expensive vacations, but it is what it is for many old folks. Good decision makers or not, the ones with their house paid for are more secure than those who don’t.

In our family there are a lot of people in the trades. At one time workers comp was a good program - if you’re injured you get fixed and go back to work ASAP. Today’s workers comp will drag each step out as long as legally allowable, even against the recommendation of surgeons and doctors, so it’s not uncommon to have to sue the insurance company if something serious happens. A friend who detached a bicep at work was delayed so long he ended up with a partial disability and 6 months off work. Loosing $75k of income becomes the least of his worries if he gets pressured out of his job previous to the injury, or gets reinjured soon after returning. For a 45 year old, he was lucky to have a reasonable mortgage, because anything that wasn’t paid off became a big deal. This was during the Covid market crash and he had to cash out some stocks and got hammered. By the book investing works great as long as things are going well.

Making any investment decisions have to assume insurance of any kind is less than perfect in todays world.

I really dont understand what you are saying. It makes sense, in good times and in bad.

If one puts the funds in a HYSA, there is no cashing it out. It will not be worth less (outside of inflation) than when you put it in there. If something happens and you need the money, you can get it and use it.

HYSA, CDs and bonds are near zero risk investments and are perfect uses for these situations. If someone has a rate lower than what either of those are paying, they are flat losing money on paying extra on their debts. This is math and 2+2 always equals 4 regardless of what the economy is.

If one wants to pay off their mortgage for the "freedom" of not being in debt, then do it. Not having debt is freeing but having the funds to facilitate your debts is equally as freeing.

 

[Jpsmith1]

A lot of us have mortgages with interest rates sub 4%. If you’re in that situation is there any reason to make additional payments toward the principal, or are you investing that cash with the expectation of earning a high percentage?

Look at the comparison. 2.9% vs the investment return.

I'm putting more into investments

 

[IdahoElk]

We paid ours off several years ago and have never had a regret. Everything we have is paid off, it's nice.

The peace of mind I have made it worth it to me also.

 

[Mojave]

One thing to remember when it comes to downsizing is if you have kids and want them to come home to visit, having room for them to do so is not a bad thing.

I have seen so many people retire, run out and buy some little 2 bed, 1.5 bath house to live in and then they scratch their head wondering why their kids don’t bring the grandkids home to see them.

It is relative.

My parents lived on a nice place in Casper and had a couple spare bedrooms, they were in the country you could sit out side and be comfortable. I think they had 7 or 8 acres. Was a nice place, and everyone was comfortable.

Moved to Cheyenne, bought another similar sized outfit that backs up against the cemetery, is under power lines and next to a transformer station.

My wife and one of my sisters won't stay there for nothing.

My sister that lives in Cheyenne is out there about twice a month with her grand kids. My sister's kids won't come out there at all.

My wife thinks we need some grandiose house when we are older to host people. We don't currently ever host people so I don't know why we would do it then.

 

[180ls1]

Good decision makers or not, the ones with their house paid for are more secure than those who don’t.

No, there is very good reason to believe someone with significant liquid assets + a mortgage is in a better position should adversity strike than someone with no/minimal liquid assets but a paid off house.

 

[wind gypsy]

I wouldn't pay it off.

It's the best deduction you have...and at a 60 year low interest rate.

If he actually itemizes. Lots of people dont now that standard deductions are so high.

 

[wind gypsy]

I was curious and just looked, mine offers a biweekly but they collect the payments ahead of time for the following month and I don't see any indication they apply anything early against the accruing interest. Where it lowers the payment timeframe in what they offer is they collect 26 payments so you make 2 principle only payments during the year.

Bummer cause I'd have liked to have half my payment loaded in for 2 weeks offsetting interest like yours does.

Ha, I didn't do the math, just saw the $/payoff date benefits and clicked go. It's quite possible (likely?) that's what mine is doing too and is functionally doing the same thing as just adding a little more principle on each payment.

 

[TaperPin]

I really dont understand what you are saying. It makes sense, in good times and in bad.

If one puts the funds in a HYSA, there is no cashing it out. It will not be worth less (outside of inflation) than when you put it in there. If something happens and you need the money, you can get it and use it.

HYSA, CDs and bonds are near zero risk investments and are perfect uses for these situations. If someone has a rate lower than what either of those are paying, they are flat losing money on paying extra on their debts. This is math and 2+2 always equals 4 regardless of what the economy is.

If one wants to pay off their mortgage for the "freedom" of not being in debt, then do it. Not having debt is freeing but having the funds to facilitate your debts is equally as freeing.

You’re right on paper it makes sense to be as leveraged as possible if it maximizes returns. However, there are factors outside of the calculated returns that don’t take into account the risks and costs when things go south. You may not believe in them, but I’ve seen a lot of young and old couples and individuals hit hard times and there is a reason why the first question many people ask themselves when hearing about an unfortunate situation is wondering if the house is paid for.

The dude next door was over leveraged and a failed go at being a Realtor lost his home. The trip to poverty is a quick one if things get bad enough to lose a home and someone finds themself paying overpriced rental prices thanks to corporate investment in housing.

I saw many successful family businesses that were profitable for decades go out of business during the Great Recession and the primary difference between those that made it and those that didn’t was often the amount of leverage on assets. A big building and shiney new trucks didn’t mean much when it was all lost, and the guys that were left had a small basic shop and old paid for trucks. On paper it was a better business decision to finance the construction of shop space and hire a bunch of employees equipped with financed tools and trucks.

 

[180ls1]

You’re right on paper it makes sense to be as leveraged as possible if it maximizes returns.

No, that does not make sense either.

 

[camping1601]

We paid our off at around 9 1/2 years. Owning everything debt free is an incredibly satisfying and secure feeling. We do have a business that we've chosen to not pay extra because of the rates but this is going to change soon.

 

[CorbLand]

You’re right on paper it makes sense to be as leveraged as possible if it maximizes returns. However, there are factors outside of the calculated returns that don’t take into account the risks and costs when things go south. You may not believe in them, but I’ve seen a lot of young and old couples and individuals hit hard times and there is a reason why the first question many people ask themselves when hearing about an unfortunate situation is wondering if the house is paid for.

The dude next door was over leveraged and a failed go at being a Realtor lost his home. The trip to poverty is a quick one if things get bad enough to lose a home and someone finds themself paying overpriced rental prices thanks to corporate investment in housing.

I saw many successful family businesses that were profitable for decades go out of business during the Great Recession and the primary difference between those that made it and those that didn’t was often the amount of leverage on assets. A big building and shiney new trucks didn’t mean much when it was all lost, and the guys that were left had a small basic shop and old paid for trucks. On paper it was a better business decision to finance the construction of shop space and hire a bunch of employees equipped with financed tools and trucks.

You are right that I am right but you are not right in that I am saying to be “as leveraged as possible.” I have never said that.

 

[SDHNTR]

This is funny. We are arguing over mathematics. Math solves this argument. To think otherwise is, by definition, illogical.

 

[TaperPin]

No, there is very good reason to believe someone with significant liquid assets + a mortgage is in a better position should adversity strike and someone with no/minimal liquid assets but a paid off house.

I believe most people believe that. Where in the calculations does it address what happens if things don’t work out? It only addresses maximizing returns when things are going well.

As I mentioned above, anyone who made it through the Great Recession knew multiple people and business that lost most of their assets. I knew people that lost their cars, any toys and most of their assets, but owning their house often made the difference between remaining in a neighborhood and rebuilding, or being forced to move to the poor side of town with a much more severe climb out of the bad situation. It was living in their home vs renting an apartment with a roommate.

 

[180ls1]

I believe most people believe that.

Let them believe it. That does not make them correct.

Where in the calculations does it address what happens if things don’t work out? It only addresses maximizing returns when things are going well.

Incorrect.

As I mentioned above, anyone who made it through the Great Recession knew multiple people and business that lost most of their assets. I knew people that lost their cars, any toys and most of their assets, but owning their house often made the difference between remaining in a neighborhood and rebuilding, or being forced to move to the poor side of town with a much more severe climb out of the bad situation. It was living in their home vs renting an apartment with a roommate.

People that were in a bad position financially and made poor choices lost most of their assets. Most Americans did not.

 

[CorbLand]

I believe most people believe that. Where in the calculations does it address what happens if things don’t work out? It only addresses maximizing returns when things are going well.

As I mentioned above, anyone who made it through the Great Recession knew multiple people and business that lost most of their assets. I knew people that lost their cars, any toys and most of their assets, but owning their house often made the difference between remaining in a neighborhood and rebuilding, or being forced to move to the poor side of town with a much more severe climb out of the bad situation. It was living in their home vs renting an apartment with a roommate.

They lost those things because they leveraged themselves to buy those things. They didn’t lose them because they took the extra money they had and put it in an HYSA or other near zero risk investment.

 

[sbaker0029]

I see this misstated a lot. I think you mean bi-weekly?

Mortgage company calls it bimonthly, twice a month. Payments on 3rd and 23rd.
My monthly payment was split in half to be paid on those two days. Results in 24 payments a year.

Biweekly payments would result in 26 payments a year.

Bimonthly can mean both twice a month or every two months. Darn English language lol

 

[sbaker0029]

I see this misstated a lot. I think you mean bi-weekly?

Mortgage company calls it bimonthly, twice a month. Payments on 3rd and 23rd.
My monthly payment was split in half to be paid on those two days. Results in 24 payments a year.

Biweekly payments would result in 26 payments a year.

Bimonthly can mean both twice a month or every two months. Darn English language lol

 

[TaperPin]

You are right that I am right but you are not right in that I am saying to be “as leveraged as possible.” I have never said that.

It can be a hard pill to swallow when non-financial factors are worked into financial decision making. You’ll be ok.

Other non financial factors could be what companies do for or against issues you’re passionate about. If company A kills a large number of aardvarks making widgets and company B making identical long term returns doesn’t kill any, you might make a non financial decision based on if you like aardvarks or not.

Many guys do all the investment planning if their spouse can make heads or tails of it or not. It only works because they understand it well. Step in front of a bus, and the odds of the surviving spouse figuring things out isn’t guaranteed.

 

[Dos Perros]

This is funny. We are arguing over mathematics. Math solves this argument. To think otherwise is, by definition, illogical.

Inputs are different. Everyone has different risk tolerance.