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

[Coopsdaddy]

Nothing replaces being debt free.Especially in time of trials.Its a proven fact that money issues leads to marriage problems.Why not get ahead of that.
Nothing makes you a better worker than being able to walk if need be.
Look around and you’re surrounded by ass suckers and back stabbers.Make the path as enjoyable as possible and for me that’s debt free.
I may not have as nice a home as some but it’s mine.

 

[Mike Islander]

I'm in the pay it off camp. Debt free if you have plenty of income is nice. If you somehow take an income hit, it's priceless. You don't have to liquidate investments "on demand", during what may be a market downturn.

Math does favor investing if your mortgage rate is very low. But peace of mind is more important...to me. I do have the luxury of already having retirement taken care of.

 

[dreamingbig]

Only to invest the savings at a higher rate!

Depends on the cost of the money (interest rate) and your risk tolerance.

Side note - for all of you that paid off your mortgage. A HELOC (don’t have to draw or carry a balance) is cheap insurance to access your equity in case life happens and you need cash.


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[maxx075]

You could get a FHA loan at 96.5% or a HomePossible (Freddie) or HomeReady (Fannie) at 95%. Lots of options north of 80% for first time home buyers.


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Thanks for the info, but I'm disqualified from a lot of (if not all) the first time home buyer programs.

 

[dreamingbig]

There are some options with no income limits. Not as many but a few.

For example, FHA with 3.5% DPA with no income limitations. The kicker is a slightly higher rate but that is what refinances are for.


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[NevadaMike]

I only read your initial post. I chose to pay off my house when I had the chance. I have zero regrets and would do it again.

 

[Rich M]

I guess we have

Some folks who would rather have say $250k less earning interest to have paid off house.

Vs

Some folks w say $250k more in retirement account earning compounding interest.

I never did agree w Ramsy.

Yeah, i dont get how paying everything you got to be debt free beats having a savings account that can pay off your debts if you need to, and accumulates interest to offset the interest you are paying on house, car, etc.

Both take discipline and achieve the same result. There are several diff ways to skin this cat.

Just have to resist urge to incur additional debt. This is the biggest factor.

 

[Tahoe1305]

I guess we have

Some folks who would rather have say $250k less earning interest to have paid off house.

Vs

Some folks w say $250k more in retirement account earning compounding interest.

I never did agree w Ramsy.

Yeah, i dont get how paying everything you got to be debt free beats having a savings account that can pay off your debts if you need to, and accumulates interest to offset the interest you are paying on house, car, etc.

Both take discipline and achieve the same result. There are several diff ways to skin this cat.

Just have to resist urge to incur additional debt. This is the biggest factor.

I ran some math yesterday. I have a simple theory that I think differentiates my pool of peers who have money and those that live paycheck to paycheck.

It’s new cars. If folks look at that one element alone it’s fascinating. A good group of my friends at least have one new car every few years. Assuming that is $600 a month for a majority of their adult life….

That’s $1.2M invested over a 30 year (mortgage) timeframe.

Sounds crazy, but think how many of your buddies are all rocking new rigs all the time. Most of mine have 2!

 

[NevadaMike]

I ran some math yesterday. I have a simple theory that I think differentiates my pool of peers who have money and those that live paycheck to paycheck.

It’s new cars. If folks look at that one element alone it’s fascinating. A good group of my friends at least have one new car every few years. Assuming that is $600 a month for a majority of their adult life….

That’s $1.2M invested over a 30 year (mortgage) timeframe.

Sounds crazy, but think how many of your buddies are all rocking new rigs all the time. Most of mine have 2!

It sounds like you need to read "The Millionaire Next Door." You may have already. I was a solid D student and for whatever reason I read this book as a teenager. It stuck with me and I bribed my kids to read it too.


I drove a Honda Accord to work at the fire department and all my coworkers had jacked up diesel trucks with nothing to tow. I traveled and had tons of fun but I also socked away money early and retired early.

Leverage in the real estate world is a real money making strategy as well as investing in the markets as early as possible in life.

As to money invested vs paying off the house it should have a lot to do with your age and plan. My plan was always to retire early and I invested accordingly and paid off my house while still having a deferred comp nest egg for emergencies.

 

[Snowwolfe]

There is no feeling in the world like owning a house free and clear. Sometimes it may not make better financial sense but it sure does make for a less stressful life.

 

[Fujicon]

Pay once bray once.
Pay it off. Live debt free. ANY interest paid is money out of pocket, and that is never the smart option.

 

[NevadaMike]

There is no feeling in the world like owning a house free and clear. Sometimes it may not make better financial sense but it sure does make for a less stressful life.

Especially if one of them is a little place on the water in Alaska.

 

[maxx075]

There is no feeling in the world like owning a house free and clear. Sometimes it may not make better financial sense but it sure does make for a less stressful life.

I don't own a home, nor even have a mortgage, but this is the exact point that people are missing. Yes, there is a difference in opinion and having that compounding interest in the bank and seeing the number that is more than likely a multiple of what it would take to pay off the mortgage would be an awesome feeling. However, that weight of not actually having to make a payment and the mental/physical load that is lifted because of that can sometimes be greater than having that number showing in the account.

 

[CorbLand]

I don't own a home, nor even have a mortgage, but this is the exact point that people are missing. Yes, there is a difference in opinion and having that compounding interest in the bank and seeing the number that is more than likely a multiple of what it would take to pay off the mortgage would be an awesome feeling. However, that weight of not actually having to make a payment and the mental/physical load that is lifted because of that can sometimes be greater than having that number showing in the account.

I dont think people are really missing that point. It would drive me off a cliff to know that I paid off a house when I could have used that money to make me money. Having money to pay my bills is far more important to me than not having bills.


Edit to add.

Personally I think the biggest assumption that is being made in this thread is that those that have debt are living paycheck to paycheck. Just because I am leveraging myself doesn’t mean that I am one unexpected expense from bankruptcy. I have an emergency fund and all of my payments are included in that.

 

[SDHNTR]

30 year mortgage, $320k at 3% interest is $165,688 paid in interest. So a $400k house with 20% down.
6% interest in the same mortgage would be $370,682 in interest paid on the life of the loan.

Many comments about not willing to pay extra at a rate like that, it's like free money. What's almost free about repaying 150% to well over 200% of the borrowed amount?

Anyone paying attention can turn that into free money.

 

[SDHNTR]

I don't own a home, nor even have a mortgage, but this is the exact point that people are missing. Yes, there is a difference in opinion and having that compounding interest in the bank and seeing the number that is more than likely a multiple of what it would take to pay off the mortgage would be an awesome feeling. However, that weight of not actually having to make a payment and the mental/physical load that is lifted because of that can sometimes be greater than having that number showing in the account.

No one has missed that point. In fact it’s the mortgage payer offers that are mathematically missing a point.

Those who choose to invest instead of paying off a mortgage have consciously and intelligently chosen to do so knowing that a larger bank account and greater liquidity is a far more liberating feeling than having a house paid off.

Same for same, anyone thinking rationally would much prefer $500k earning more than 4% in safe and liquid investments over paying off a $500k mortgage costing less than 4%. and tax deductible.

 

[mostlybirch]

I ran some math yesterday. I have a simple theory that I think differentiates my pool of peers who have money and those that live paycheck to paycheck.

It’s new cars. If folks look at that one element alone it’s fascinating. A good group of my friends at least have one new car every few years. Assuming that is $600 a month for a majority of their adult life….

That’s $1.2M invested over a 30 year (mortgage) timeframe.

Sounds crazy, but think how many of your buddies are all rocking new rigs all the time. Most of mine have 2!

Again gets back to the vast majority of the country doesn't embrace the magic of compounding interest. Anytime someone tells me they can "afford" a new pickup just because they want it I can't help but think, I'd rather have $400k in 25 years than a $60k new truck today. I keep it to myself though because it's their money. But I have also seen enough broke old folk that I am making sure I am not in that situation because I am sure not betting on SS when I come of age. So I have never owned a car newer than about 10-15 years.

Paying a low interest mortgage off early versus investing aggressively may be the difference between a spartan retirement and a very comfortable one, for the luxury of the the good-feels of being debt-free. There is another danger which others have mentioned, which is having most of your wealth tied in a paid-off but non-liquid asset may be more hazardous than investments and a mortgage when disaster (unemployment, medical debt) strikes.

 

[Felix40]

I’m surprised so many people say they feel “free” because they paid off their house. To me, it would be a lot more freeing to have the money to pay off the house sitting somewhere and making free money for me. There’s nothing more freeing than a fat stack of cash in the bank. Having a paid off house and little savings would scare the heck out of me.

 

[juju]

I only read the first page. Perhaps someone suggested angling your excess into a rental property investment. You really want both equity and real investments to hedge one against the other.

 

[Northern Safari]

We paid off our home right before the 5 year renewal. The rate was “only” 3.5% but I’m of the mind that every dollar going to the bank is a dollar too much.