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

[Dos Perros]

Is someone willing to say that the day you pay off your mortgage you should take out all the equity in it and invest?

 

[Reburn]

You know my friends better than I do apparently.

The comment definitely shows you are quit detached from the realities of what many folks went through, you read ARM mortgages are to blame and assume everyone who lost a job or was cut way back automatically also had an ARM. Those that already had their houses paid off were in a much better position to not lose it. That only takes freshman economics to understand.

The same dynamics occurred during Covid when many folks lost their jobs for a year and lived off Covid checks and hand outs. We watched a number of friends just not be able to keep up with their mortgage and they lost the house. But you want to say they just don’t understand money? Every one of them wished their house was already paid off.

We refinanced a house at 3% thanks to Covid, but we’ll pay it off way early.

You have no idea what I do and where I was in 08. I couldnt have been more attached in 08.

You proved my point. If you friends had the CASH to pay off the house they would not have lost it.

You are talking about people that were financed to the hilt which is EXACTLY who lost their house in 08.

You are arguing a paid off house with no cash pile is better then a not paid off house with no cash pile. Yea I think everyone here understands that. Again. If you friends ACTUALLY had the cash pile = to their note they wouldnt have lost their house.

As normal we are so far past you what you are speaking about and your comments arent germaine to the converstation.

 

[Predator_SD]

Pay everything off, house, trucks, etc.

 

[Tahoe1305]

Is someone willing to say that the day you pay off your mortgage you should take out all the equity in it and invest?

It’s a strategy…..depending on interest rates and market returns.

One could argue the best way to get rich in that scenario is take the equity (say $500k), and use it to buy 10x $50k down payments on $250k houses financing the rest. Rent them out and in a bit (20-30 years) you’ll have $5M assuming they appreciate over the life of the loan.

Folks may not want to admit it, but leveraging other people’s money is how wealthy people get wealthy. I have friends that did the above, then did it again. Now own 400 unit complexes worth $50M. It’s sad, but just like the monopoly game.

Think about every “rich” famous person…..most got there with real estate (and assuming a good amount of risk). Even those who got there as movie stars are investing in real estate.

 

[go_deep]

Is someone willing to say that the day you pay off your mortgage you should take out all the equity in it and invest?

Why stop there? Paid for car or truck, take a 5% interest loan out on it and get you a 8% return on it!

 

[KyleR1985]

It’s a strategy…..depending on interest rates and market returns.

One could argue the best way to get rich in that scenario is take the equity (say $500k), and use it to buy 10x $50k down payments on $250k houses financing the rest. Rent them out and in a bit (20-30 years) you’ll have $5M assuming they appreciate over the life of the loan.

Folks may not want to admit it, but leveraging other people’s money is how wealthy people get wealthy. I have friends that did the above, then did it again. Now own 400 unit complexes worth $50M. It’s sad, but just like the monopoly game.

Think about every “rich” famous person…..most got there with real estate (and assuming a good amount of risk). Even those who got there as movie stars are investing in real estate.

This isn’t antagonistic - I’m curious here.

What do you do when the 500k only buys you 5 houses not 10, and the interest rate makes the monthly carrying cost higher than the rent coming in, and appreciation is not enough to make up the difference ?

Is this model dead at current interest rates/rent rates? Or are there still places in this country where a rental property is cash flow even at minimum, with 6.5% interest rates?

 

[Dos Perros]

It’s a strategy…..depending on interest rates and market returns.

One could argue the best way to get rich in that scenario is take the equity (say $500k), and use it to buy 10x $50k down payments on $250k houses financing the rest. Rent them out and in a bit (20-30 years) you’ll have $5M assuming they appreciate over the life of the loan.

Folks may not want to admit it, but leveraging other people’s money is how wealthy people get wealthy. I have friends that did the above, then did it again. Now own 400 unit complexes worth $50M. It’s sad, but just like the monopoly game.

Think about every “rich” famous person…..most got there with real estate (and assuming a good amount of risk). Even those who got there as movie stars are investing in real estate.

Instead of doing the house thing couldn't one just buy highly leveraged ETFs? That way you maintain your enhanced liquidity.

My larger point is that some stuff doesn't show up on a spreadsheet. How do you put a value on piece of mind, or not giving a shit about anything?

 

[Tahoe1305]

This isn’t antagonistic - I’m curious here.

What do you do when the 500k only buys you 5 houses not 10, and the interest rate makes the monthly carrying cost higher than the rent coming in, and appreciation is not enough to make up the difference ?

Is this model dead at current interest rates/rent rates? Or are there still places in this country where a rental property is cash flow even at minimum, with 6.5% interest rates?

Time is what makes this all work. As an example. My third rental (in FL that’s 18 years old…only one I still own currently), when I bought it my mortgage was $1300. At that time I couldn’t break even (rent was close to $1100 but I was living in it). After I moved out of state a few years later rents were up to $1800. I happened to refi when rates went down and my payment dropped to $800. So I had $1k cash flow. Current day (after another refi) my payment is $650. Rent is $2600. It’s worth twice as much as what I paid as well if I elected to sell. I’ve personally paid very little towards principal (renters have paid almost all of it).

There are really good tax write offs when renting too (expenses, depreciation, interest, taxes, insurance) so often you don’t have to pay tax on the positive cash flow (or at least all of). When you are negative cash flow these “can” decrease your income tax burden and that value should be considered as well. If you practice real estimate (professionally) you can deduct even more.

BL: to make money on real estate you need patience and time.

 

[Tahoe1305]

Instead of doing the house thing couldn't one just buy highly leveraged ETFs? That way you maintain your enhanced liquidity.

My larger point is that some stuff doesn't show up on a spreadsheet. How do you put a value on piece of mind, or not giving a shit about anything?

Yup that’s a strategy too. What it isn’t doing is leveraging the bank’s money as well. The banks are setup to loan up to 80% of a home value. They won’t do that with ETFs.

Yup probably a lot of stress in both strategies and a lot of risk….but that’s how big money is made unfortunately. Theres other ways too.

 

[Tahoe1305]

@KyleR1985 to use another example if you are truly interested.

We just moved to crazy expensive CO for work and purchased. Our rate isn’t horrible at 6% but not great (my first home in 2005 was 6.15%….so this isn’t the worst rate obviously).

In my market, if I wanted to rent I’d eat $1000 a month currently (negative cash flow). However “assuming” these houses appreciate in the near term (they will), and if I factored in the tax write offs of renting, I’d still be ahead today.

I also bought this house to live in and rent in the future for that reason. There were better options to just buy and rent (lower income housing make better rentals….middle income is what I try and target).

My personal strategy is to buy, live in, fix up, then rent when I want to upgrade to something nicer. I don’t want to deal with the stress of having too many rentals at my age.

 

[wind gypsy]

I have a 3.7% rate on the house. I was working to pay it off but a couple years ago I realized that putting the extra money in a 5% savings account was way smarter. Investing that money might work out even better but I don’t want to go all in on that until I have a really nice safety net built up.

This whole discussion made me look more into current rates and savings/money market accounts. Money market accounts are currently at higher rates than savings accounts. In looking into this more yesterday, i saw it pointed out that something like a treasury money market fund might even be more optimal as interest from federal treasuries is not subject to state/local income tax. Here in MN, they take a good chunk out of us with state income tax too. I read it on the internet - not 100% positive on validity.

Vanguard Money Market Funds: Claim Your State Income Tax Exemption (Updated 2025)

Updated February 2025. As the brokerage 1099 forms for the 2024 Tax Year are coming out, here is a quick reminder for those subject to state and/or local income taxes. If you earned interest from a…

www.mymoneyblog.com

 

[HornPorn]

Here’s another crazy take: when you don’t care about losing your job you do your job differently. I’ve begun to speak my mind and take riskier positions. And wouldn’t you know it people like and respect me more and I’ve been asked to apply for higher up positions. One could leverage that into larger paychecks, enough to cover the yield delta y’all are debating.

Bingo. They have no clue

 

[wind gypsy]

Bingo. They have no clue

People you're arguing with have a clue. Feeling comfortable and secure in your current financial condition is about the holistic condition much more than having zero significant debt.

Example: Say I have a sub 3% mortgage and owe about $230k on it and could pay it off today. If I did pay it off today and lost my job tomorrow, I'd have MORE financial stress because i'd have $230k less in liquid financial assets. I have less job security/financial stress because if I lost my job i have a significant cushion to cover emergencies and living expenses.

Were I paying a higher interest rate on mortgage, the balance of what makes sense might shift.

 

[svivian]

You know my friends better than I do apparently.

The comment definitely shows you are quit detached from the realities of what many folks went through, you read ARM mortgages are to blame and assume everyone who lost a job or was cut way back automatically also had an ARM. Those that already had their houses paid off were in a much better position to not lose it. That only takes freshman economics to understand.

The same dynamics occurred during Covid when many folks lost their jobs for a year and lived off Covid checks and hand outs. We watched a number of friends just not be able to keep up with their mortgage and they lost the house. But you want to say they just don’t understand money? Every one of them wished their house was already paid off.

We refinanced a house at 3% thanks to Covid, but we’ll pay it off way early.

Sounds like your friends are terrible with money then... I dont know a single person who lost their homes during covid. Especially since the GOVT was putting in affect forbearances on mortgages to prevent exactly that. IF they still lost their homes, that just tells me they were a sinking ship well before covid.

90% of people i know got way ahead after/during covid.... not behind.

*chuckles*

 

[CorbLand]

Instead of doing the house thing couldn't one just buy highly leveraged ETFs? That way you maintain your enhanced liquidity.

My larger point is that some stuff doesn't show up on a spreadsheet. How do you put a value on piece of mind, or not giving a shit about anything?

Here is the part I don’t understand.

If I have 100,000 debt costing me 3% and I have 100,000 sitting in the bank earning me 5%. How do I have more peace of mind not having the debt?

Yea, I have debt but I have the ability to facilitate every penny of that debt.

 

[CorbLand]

Is someone willing to say that the day you pay off your mortgage you should take out all the equity in it and invest?

I will say I would do that if the spread is large enough.

For the 1-3% spread that has been available in the last couple years. Yes, I would absolutely do it.

For a smaller than 1%, probably not.

Why stop there? Paid for car or truck, take a 5% interest loan out on it and get you a 8% return on it!

Give me the 2-3% auto loans with 5% Tbills again and you better believe I would do just that.

If you have a line on 5% auto loans and near zero risk with guaranteed 8% returns…share the wealth.

 

[wind gypsy]

Here is the part I don’t understand.

If I have 100,000 debt costing me 3% and I have 100,000 sitting in the bank earning me 5%. How do I have more peace of mind not having the debt?

I've looked at it much the same but to play devils advocate - if the 5% earnings on interest are taxed (fed/state/local) at 40% and the 3% on a mortgage gets included in an itemized deduction, you're losing with the 5%.

 

[CorbLand]

I've looked at it much the same but to play devils advocate - if the 5% earnings on interest are taxed (fed/state/local) at 40% and the 3% on a mortgage gets included in an itemized deduction, you're losing with the 5%.

Yes, but where I live it is taxed as ordinary income. I am far far from a 40% tax bracket. I also do Tbills so I don’t pay state taxes on it.

I also cycle most of my extra money through an HSA, further decreasing my taxable income.

 

[cowdisciple]

Why stop there? Paid for car or truck, take a 5% interest loan out on it and get you a 8% return on it!

Ignoring whether there's actually anyone willing to loan money at 5% secured by a vehicle (there absolutely isn't)...

This pretty much just happened. I needed a new vehicle. I could either sell investments to free up enough cash to pay in full (for which the dealer offered no additional price concessions) or, alternatively, take a zero percent, zero down payment 72 month level payment loan.

I absolutely took the loan, it would be crazy to pay up front on those terms. I made a special portfolio allocation to bonds in the amount of the loan to avoid inadvertently leveraging myself. This was in January, so that's looking pretty good.

The guy at the dealer actually asked me how much money I wanted to put down up front on this zero interest loan! Uh, zero dollars, my man.

 

[fatlander]

Talk to a financial advisor. Everyone has different goals, incomes, debts, etc. and everyone is at different stages of life.


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