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

[Grassymike]

Anyway it makes sense. Pays down principal faster. We are paying off our last mortgage right now. 3 down only one to go. Rentals are now paying off our house. This has been an interesting thread. I know it is a great feeling to be totally debt free. My wife and I have built equity in Rental property that is now paid for. I used my trade as a carpenter to build rentals. That is our major investment.

 

[Ucsdryder]

All of this depends on your current financial situation and what stage of life you're in.
I have a 30 yr fixed at 2.65% after we renovated the house and put $400k into it. I could make $500-750k if I put it on the market today in a matter of 48 hours depending on the bidding war that would go on given our current housing market. This is not our final home as our family is growing.

In my situation, it is better for me to pay the low rate as is and take all "MY MONEY" leftover filling up 401ks, IRAs, kids' 529s, HSA and S&P 500 stocks. Reinvest the dividends for the stock, as well as the stock my kids have. The borrowed money doesn't matter to me as long as the note is paid. Investments will outpace and set us up for better retirement. My wife and I are both 38, good health and I have no intention of betting against myself.

To each their own. Consult with a Fiduciary, get a good accountant, work hard and give thanks to God. You'll be ok.

There are bidding wars in South Carolina?

 

[CorbLand]

Anyway it makes sense. Pays down principal faster. We are paying off our last mortgage right now. 3 down only one to go. Rentals are now paying off our house. This has been an interesting thread. I know it is a great feeling to be totally debt free. My wife and I have built equity in Rental property that is now paid for. I used my trade as a carpenter to build rentals. That is our major investment.

It makes sense to do it. I am just making sure that people understand that paying every two weeks versus twice a month is not the same thing.

Down here many mortgages allow for you to pay twice a month. If you do that you are not getting the benefit of making extra payments.

 

[jayhawk]

Bro. Paying off your house IS an investment

 

[HornPorn]

Bro. Paying off your house IS an investment

And the dividends of living life with no mortgage/rent payment are priceless. Work becomes exponentially less stressful when you don't need the job anymore. Lots more money in your pocket each month now do WHATEVER you want with, including invest.

 

[SDHNTR]

And the dividends of living life with no mortgage/rent payment are priceless. Work becomes exponentially less stressful when you don't need the job anymore. Lots more money in your pocket each month now do WHATEVER you want with, including invest.

This thinking dismisses the powerful value of compounding geometric returns and understanding how the time value of money can work in your favor.

 

[Tahoe1305]

This has got to be the most perfectly divided thread I’ve read. Both arguments are sound.

One is based on math, acceptance of risk, and maximizing returns. The other on peace of mind and minimizing risk.

Lots of factors to consider/assume for both. Both will result in happiness/success if implemented correctly.

 

[Mish-pop]

This has got to be the most perfectly divided thread I’ve read. Both arguments are sound.

One is based on math, acceptance of risk, and maximizing returns. The other on peace of mind and minimizing risk.

Lots of factors to consider/assume for both. Both will result in happiness/success if implemented correctly.

It's nice to see this conversation staying true and not going off track.

It's all what people want and what makes them happiest. You could find experts for each way to side with you

 

[AkMtnRunner]

I chose to not make any greater payments since I refinanced in 2016 to 2.5%. Here's my thinking:

I legally own the house one way or another. I'd only lose it if I somehow default on the mortgage. If I am investing in sound methods without unnecessary risk, my financial position is only improved by investing, and I am less likely overall to default.

The mortgage is inflation proofed. The effort to pay that fixed amount decreases the farther into the future it goes.

Banking so much wealth into a home isn't all that it's cracked up to be. Home values are not invincible and it can be difficult to realize the full value of that wealth should you have any reason to invest elsewhere at a time of your choosing.

Again, as long as payments are made on schedule, mortgage free home ownership is certain. Paying extra only saves money at the interest rate. The same effect, and likely more effect with a good interest rate is achieved by putting that same cash towards better investment returns.

 

[dr.mooseknuckles]

There are bidding wars in South Carolina?

For downtown Columbia in the desirable neighborhoods? Absolutely.

There are some major dumps that need to be renovated big time that people are paying 1-1.5 million for because of location and size of home. A few empty lots going for $750k. It's nuts and is a sellers market. We're softly looking to move since our surprise boy Walter came into the world but if we sold our house, which is 5 years old post reno, we wouldn't be able to find a house at a reasonable price to move into. Plus, I don't like the idea of giving up that 2.65%

For example, my wife's business partner bought a home that needed some work, but not much for $1.1 million. Did some painting and after owning for 2 years, put on the marked back in September for $1.6 having done nothing to raise the value by $500k. They got exactly what they asked for it and moved to Summerville, SC.

It's just weird. Lots of MDs and attorneys moving to the area and Columbia is definitely growing. Big International Plant is going in 20 minutes away where' they'll be making electric Scouts. Fabrique National has a plant here, the University is here and a great town to raise kids. Plus a pretty good veterinarian lives here too....

 

[SDHNTR]

While we’re considering factors that are not just quantitative, don’t forget liquidity. Liquidity matters. A home may generate a handsome rate of return and look good on paper, but it’s not easily converted into useable wealth. An investment portfolio, otoh, should generate similar returns, but create wealth that is far more user friendly.


I try to explain this concept to my wife regularly when she wants to sink another chunk of dough into some unneeded home renovation. Her logic, “well it increases the home’s value.” My logic, “for who? The kids?”

 

[bridgerbenson]

Does the opinion change for the folks who have bought in the last year or two and sitting at 6-8% interest mortgage?


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[pirogue]

As long as T bills and notes are paying me higher interest rate than I'm paying on my mortgage, I can’t justify throwing money away by paying off a lower rate mortgage.

 

[AkMtnRunner]

I'll add my own fun conspiracy theory . . . Judging by the general encouragement of big financial institutions and influencers, e.g., Dave Ramsey, it's in their best interest for home owners to pay extra into their mortgages than elsewhere. That safeguards the basis of their investments while lowering the investment pressure in their fields.

 

[mostlybirch]

Does the opinion change for the folks who have bought in the last year or two and sitting at 6-8% interest mortgage?


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That's difficult as you are approaching expected market returns, but it can still be gamed out mathematically.

You are now losing money compared to a HYSA, I-bonds, etc. I would still max retirement accounts first if the capital was available, but at 6-8% paying mortgage early is starting to have a stronger leg to stand on.

 

[AkMtnRunner]

I try to explain this concept to my wife regularly when she wants to sink another chunk of dough into some unneeded home renovation. Her logic, “well it increases the home’s value.” My logic, “for who? The kids?”

And you certainly wouldn't want tax assessors to find a reason to increase the value.

 

[SDHNTR]

Does the opinion change for the folks who have bought in the last year or two and sitting at 6-8% interest mortgage?


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Yes

 

[Tahoe1305]

Does the opinion change for the folks who have bought in the last year or two and sitting at 6-8% interest mortgage?


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Maybe. It’s harder to reliably beat 6-8% vs 4%. I can beat 4% in a money market.

I’m more at risk on 6-8% investments.

 

[CorbLand]

Does the opinion change for the folks who have bought in the last year or two and sitting at 6-8% interest mortgage?


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Yes. You can no longer use near zero risk investments to offset what your paying. At least at the current levels.

That’s for me and my risk appetite.

There may be opportunities to make the spread work at 6 percent plus but it’s not going to be safe.

 

[ianpadron]

Money that cheap might not ever be available again in our lifetimes.

Not a fan of paying off cheap debt on appreciating assets so long as you're disciplined enough to keep stoking the fire investment wise.

If you had a 7.5% mortgage...my take would be different