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

[southLA]

My mortgage rate is 3.6%. I can get better value being invested in freaking bonds right now. I have no plan to pay it off early.

 

[Mish-pop]

I dont know of one offhand but I could whip up something in excel pretty quickly that would be pretty close to right. Generally speaking extra payments early make a huge difference though.

Doing super quick and dirty math a 30 year loan on $445k with 4% interest compounding monthly and paying at 2130 per month pays off in 30 years. Rounding up to $2200 takes 22 months off of the loan. Make it $2300 and it takes 4 years off of the loan. Changing interest rates by even 1/10s of a point makes a big difference as well.

My wife did some of the math on our home as well and figured out how much sooner we could pay off our mortgage by putting in a little extra. I don't remember the numbers but that's why we put down extra. But then property taxes increased and cut into the extra we were putting down. Good that we were already paying extra to cover the cost but that was a little gut punch

 

[go_deep]

You didn't answer the questions. Why would I take an action that gives me less runway in the event of job loss and leads to my family having less money?

Your not changing my mind, and I have zero interest in attempting to change yours.

I will add though, my financial advisor has us investing in products that while they create wealth, are also a tax write off to off set not having a mortgage in few months. More than one easy to skin a cat, but my way is better, LOL

Debt free is the way to be, all the cool kids are doing it!

 

[wind gypsy]

I noticed recently that there is an autopay option for bi-monthly (twice a month) payments at 1/2 the typical monthly payment value. It calculated that doing so would result in me paying off my home a year and a half early (I have 15 years left on my 2.95% 20 year mortgage). That seems like a no brainer as that money is going to be in my checking account not earning interest regardless of if it comes out on just the 1st or the half values on 1st and 15th. Seems like something worth looking into that can help lower the cost of a loan without having to reduce $ in investments.

 

[Ram94]

This is a pretty nice mortgage calculator that has lump sum inputs. Will let you figure out how far ahead extra payments gets you.

Mortgage Calculator with Lump Sum Payments - Canada

Canadian mortgage calculator. Compare multiple loans. Enter additional payments, view graphs, calculate CMHC rates, interest, and mortgage payments.

v2.superbrokers.ca

 

[SloppyJ]

I'm in the same boat. We've been in this house for 13yrs. Bought it when we got married. We know we won't be here forever so our plan is to buy some property with our cash, pay it off, then when we are ready, sell our home and build a new one on our land with the 3x equity we have.

We live in one of the fastest growing places in the US and if we don't make moves now, we won't be able to afford to.

The thought has crossed my mind about paying off the home but we are likely going to have to take out a small loan for land to cover the rest and I'd rather pay the 3.5% on the house than take out a bigger loan around 8-10%

 

[Loggerdude]

Not having any payments is freedom beyond comprehension.

 

[Speaks]

My wife did some of the math on our home as well and figured out how much sooner we could pay off our mortgage by putting in a little extra. I don't remember the numbers but that's why we put down extra. But then property taxes increased and cut into the extra we were putting down. Good that we were already paying extra to cover the cost but that was a little gut punch

Yea property tax and insurance increases suck.

I actually did a 15 year mortgage this time, you can get a much lower rate which offsets the payment quite a bit. My all in payment including tax and insurance with a 15 year fixed is around $2400 and for a 30 year on the same balance would have been around $1900 if I recall correctly.

 

[Dos Perros]

Not having any payments is freedom beyond comprehension.

My buddy left his job to start his own gig and the first thing he did was pay off his mortgage. He said it was incredibly freeing. Said that if his new business fails they'd just burn wood and eat deer all winter. He has no regrets.

 

[HornPorn]

Why would I take an action that gives me less runway in the event of job loss and leads to my family having less money?

When you don't have a mortgage bill, your family has more money. The less bills you have, the less need you have for money.

 

[wapitibob]

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

 

[svivian]

No way i would pay off a less than 3% mortgage, youll never get that rate again. While you may not need to borrow right now you dont know if you will in the future and youll be hit at a much higher rate. Id rather have that cash invested in tbills, money markets and CD's(if you wanted to be conservative) at 3.5% -5% growing and available when needed.

I sold a rental property end of 2020 that had a 15yr mortgage at 2.5% with $110,000 left. At the time it felt like the safe move but I would have been way better off keeping that investment. I was able to invest the equity but with appreciation and current rental rates I would have been further ahead long term. Now to get back into a new rental ill have to borrow at 6-7%... almost tripling the payment for the same $110,000 borrowed.

Even if you had a catastrophe and lost your job, those funds are still there to either make payments until you get back on your feet or pay off the mortgage completely if needed. I just dont see the rush to payoff at your current rate.

 

[WhatToHunt]

As others have stated, none of us are convincing the other that "I am right/your are wrong." I would advocate the investing route over paying off the mortgage. Having recently had this same conversation with a good friend, he chose the freeing feeling of no debt. For me, opportunity cost is the simplest reminder of why I invest instead of paying off my 3% mortgage.

 

[svivian]

Ill add something though that is important. There are people(not referring to OP) who are irresponsible with money or have no discipline. If I was to fall into that category I would 100% pay off the mortgage in that situation.

In the industry I work in, I see people get lump sums of money and absolutely blow it on the dumbest stuff. Or make ridiculous money and still live paycheck to paycheck. These are the folks who need Dave Ramsey method and just pay debt aggressively.

 

[hoooogan]

I've been thinking about this as well. I'm trying to balance paying down my 2.75% mortgage to shorten the loan and simultaneously putting enough away to build that positive interest/return. Doesn't make sense for me to push hard in either direction since my mortgage is small and only 15year.

 

[180ls1]

I've been thinking about this as well. I'm trying to balance paying down my 2.75% mortgage to shorten the loan and simultaneously putting enough away to build that positive interest/return. Doesn't make sense for me to push hard in either direction since my mortgage is small and only 15year.

You can always invest outside of a retirement account (flexible withdrawals) that way you can take advantage of higher yields and then choose to pay off your house in a lump sum down the road should you like.

If you fall on hard times (unemployment) you have a large sum of money to work with that's not "locked up" in your house or in a retirement vehicle.

 

[hoooogan]

You can always invest outside of a retirement account (flexible withdrawals) that way you can take advantage of higher yields and then choose to pay off your house in a lump sum down the road should you like.

If you fall on hard times (unemployment) you have a large sum of money to work with that's not "locked up" in your house or in a retirement vehicle.

I have a high yield savings account at ~4.25% as my cash reserve. That's where my extra cash is going. I'm stuck between wanting to look for a second house (renting the first) and doing what you said and lump summing the remaining mortgage when the time is right. I'm early in my journey, so those decisions will come later.

 

[180ls1]

I have a high yield savings account at ~4.25% as my cash reserve. That's where my extra cash is going. I'm stuck between wanting to look for a second house (renting the first) and doing what you said and lump summing the remaining mortgage when the time is right. I'm early in my journey, so those decisions will come later.

Sounds like you're doing great.

Being able to come up with cash instantly affords you a lot of opportunity also. You never know when you'll stumble a Real Estate or Business opportunity for 30-50% off because you can toss cash in their face right then and there. Almost everyone has a few of those stories but only a few can take advantage of it. Just remember high yield savings essentially matches inflation so it really does not build wealth.

 

[Mojave]

Yeah I’m in a similar spot. Sure would be nice to not have a mortgage but with 500k in equity at this point, when we do retire at some point in a couple decades we can downsize and own our home outright going into retirement.

Maybe you can and maybe you can't.

A lot of guys all over, but I am going to pick on a lot of the retirement community crowd, sold houses worth $700,000 to move into apartments and wait until things settle down. That never happened. Now they can't get into a retirement house for $700,00 and their McMansion would have brought $1.2 million.

 

[dreamingbig]

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?

No.

Keep your money invested elsewhere and earn the spread.

BUT if you aren’t investing that extra and instead spending you might benefit from the forced savings of paying off your mortgage.


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