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

[Ucsdryder]

I’m getting the itch to move. Sure would be nice to rollover a paid off house into another one, especially with current interest rates. Kind of locked into where I’m at now. Yes I could pull money out of investments but I can’t bring myself to do it.

 

[Tahoe1305]

I’m getting the itch to move. Sure would be nice to rollover a paid off house into another one, especially with current interest rates. Kind of locked into where I’m at now. Yes I could pull money out of investments but I can’t bring myself to do it.

Funny. Almost considered doing this today too. Would have involved selling nearly all my investments to pay cash for a house.

Couldn’t do it. That money has made too much money to justify.

@WaWox I’m on the other side of the fence, but the argument I’ve seen most in this thread for paying off early is “things change” and that’s one less payment to worry about and paying it off guarantees a safe shelter for the fam. It’s a valid argument, we all don’t have to agree with it.

 

[mostlybirch]

Can the people who say the "peace of mind was worth it" for paying off early explain their reasoning? I am not trying to come across as combative, I am legit wondering if I am missing something that should rob me of peace of mind

Mid thirties, putting every cent into ETFs, paying off the minimum and taking out second mortgages for major renovations [as rate still lower than what I am expecting to make in the market]

It's been done over and over and over in this thread. It is the emotional benefit over the financial. I would choose to be more liquid than not.

 

[Pharmseller]

Can the people who say the "peace of mind was worth it" for paying off early explain their reasoning? I am not trying to come across as combative, I am legit wondering if I am missing something that should rob me of peace of mind

Mid thirties, putting every cent into ETFs, paying off the minimum and taking out second mortgages for major renovations [as rate still lower than what I am expecting to make in the market]

Read post #8.

I don’t know what more you’d be looking for.



P

 

[WaWox]

Read post #8.

I don’t know what more you’d be looking for.



P

But if you are laid off and have the cash in easy to liquidate investments instead -- can't you just use those to pay for the mortgage?

 

[wyosam]

But if you are laid off and have the cash in easy to liquidate investments instead -- can't you just use those to pay for the mortgage?

Potential downside if you’re having to pull those funds during a major economic downturn (that resulted in being laid off). Selling while it’s in the tank instead of riding it out isn’t a great solution. I’ve had friends that really took a beating by having too high of a percentage of their assets invested in high volatility ways that really took a beating in 2008-2009 and other big downturns. Neither is perfect.


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[WaWox]

Sure it sucks to be in selling mode in a real down turn but it's not like you have to sell everything. Just the mortgage amount times months of unemployment. Which, unless you were almost done paying anyway, will be a small percentage of the total invested assete

 

[go_deep]

But if you are laid off and have the cash in easy to liquidate investments instead -- can't you just use those to pay for the mortgage?

In 2008 I bought a 2004 Ran 1500 crew cab with 40k miles on it for a meer $10,500, with a Hemi. Why so cheap? Because everyone was in fire sale mode.
Lots of people sold stuff, just deeply discounted.

 

[WaWox]

In 2008 I bought a 2004 Ran 1500 crew cab with 40k miles on it for a meer $10,500, with a Hemi. Why so cheap? Because everyone was in fire sale mode.
Lots of people sold stuff, just deeply discounted.

Sure! But I don't think those people had 300k on their mortgage and those 300k (now worth maybe 180k) in their investment accounts ?

 

[Pharmseller]

But if you are laid off and have the cash in easy to liquidate investments instead -- can't you just use those to pay for the mortgage?

We chose to max 401(k) and IRA contributions rather than fund investment accounts.

 

[go_deep]

Sure! But I don't think those people had 300k on their mortgage and those 300k (now worth maybe 180k) in their investment accounts ?

Didn't ask his financials, he was desperate to sell it for at least enough money to pay it off and NOT have a truck payment.

 

[Ucsdryder]

I imagine someone said it somewhere in the 500 plus posts but a downside of a mortgage that nobody has talked about is that the banks front load all the interest, so unless you plan on paying the full 30 years, you’re paying a lot more than the interest rate on your loan.

 

[WaWox]

I imagine someone said it somewhere in the 500 plus posts but a downside of a mortgage that nobody has talked about is that the banks front load all the interest, so unless you plan on paying the full 30 years, you’re paying a lot more than the interest rate on your loan.

That's not how this works. You don't "front load" the interest.

A mortgage is calculated to have constant payments.

When you have 100k in debt and 6% interest, in the first month you pay 0.5% (12×0.5=6) interest on the full 100k. So that's $500. Lets say your payment rate is $1000/month. That means $500 is left for principal (ignore taxes, insurance here .. they make it worse!). Now next month you owe .5% on 99.5k. So $497.5 in interest. Great! You can now pay $502.5 on the principal! Repeat .. repeat.. repeat .. at some point you are down to 50k principal. Now your $1000 goes into $250 interest and $750 principal!

If everything was calculated correctly, your last payment will be almost entirely principal!

So yeah, "interest is frontloaded" is indeed how it looks or feels, but it's not a mischievous mortgage lender trick. That's how interest always works.

And in no way does this imply you are better off paying down the principal!

Because the same compounding also happens on the savings side. If you managed to invest $1000 at 10%, instead if throwing it in as extra principal in month1, you earn compounding interest on this over the 30 year life of the mortgage. So on net you win 4% in this optimistic example, compounding!

 

[Kimber7man]

That's not how this works. You don't "front load" the interest.

A mortgage is calculated to have constant payments.

When you have 100k in debt and 6% interest, in the first month you pay 0.5% (12×0.5=6) interest on the full 100k. So that's $500. Lets say your payment rate is $1000/month. That means $500 is left for principal (ignore taxes, insurance here .. they make it worse!). Now next month you owe .5% on 99.5k. So $497.5 in interest. Great! You can now pay $502.5 on the principal! Repeat .. repeat.. repeat .. at some point you are down to 50k principal. Now your $1000 goes into $250 interest and $750 principal!

If everything was calculated correctly, your last payment will be almost entirely principal!

So yeah, "interest is frontloaded" is indeed how it looks or feels, but it's not a mischievous mortgage lender trick. That's how interest always works.

And in no way does this imply you are better off paying down the principal!

Because the same compounding also happens on the savings side. If you managed to invest $1000 at 10%, instead if throwing it in as extra principal in month1, you earn compounding interest on this over the 30 year life of the mortgage. So on net you win 4% in this optimistic example, compounding!

That’s assuming you let the $1000 ride for 30 years. Who does that????

 

[Kimber7man]

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?

Mine is at 4.25% and I’m aggressively paying it down. But that’s my situation and is different than others, I’m sure.

 

[WaWox]

That’s assuming you let the $1000 ride for 30 years. Who does that????

I mean, anyone who funds their 401k tends to do just that right?

 

[Kimber7man]

I mean, anyone who funds their 401k tends to do just that right?

Sorry, I assumed the $1000 was outside of retirement accounts. IMO the 401k investment is an automatic, the $1000 is an extra “what would you do with it”.

 

[neil.hansford]

Don't use all of your liquidity to pay off a mortgage. Build up some kind of emergency fund before you go down that road. If you've got $100k in savings and use it to pay off your $100k mortgage, then lose your job the next day, you've made a big mistake. Sure, you've got a house to live in, but you've also got utility bills, groceries, taxes, insurance, gas, etc. If u didn't pay it off and lost your job, that $100k would go a long way in floating you (including making the mtg payment) until you got another source of income. Once you have a reasonable amount of living expenses saved in low risk liquid assets, do whatever make you comfortable.

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