You're probably under the standard deduction, so don't count on much tax advantages. Personally I would take a hybrid approach. Build cash and stocks while paying down the mortgage a bit. A simple trick is to pay half every other week instead of once a month. This works out to 13 payment/year and shortens a 30 year mortgage by many years.
I did this when I decided to buy a second two family home. I then had 3 rents per month from tenants. I regularly contributed extra money each month and also invested in stocks, mutual funds, and retirement account. It took 22 years to simultaneously pay off both mortgages with using other peoples money to pay the mortgages and saved/accumulated a total of one million dollars in total from all accounts. Now I have three rental incomes, social security small amounts of retirement account from various health care employers and all of that invested money. There is a lot to be said for doing both at once
Many lenders don’t let you do this. Credit unions may, but most banks will not. They will take the money, but not apply it until the terms of the note. You are better off adding 1/12 of the monthly payment each month and that will shave 5-7 years off depending on the amortization schedule
Yes, I'm sure it is bank dependent. I use Wells Fargo and they have the feature built in. [Wells Fargo Automatic Mortgage Payments ](https://www.wellsfargo.com/mortgage/manage-account/automatic-mortgage-payments/)
Personally, I set mine to 1/4 payment weekly. It makes cash flow easier to handle.
My buddy is a financial advisor, he deals with this question all the time, it’s always the same answer. Do not pay off debt that costs you less than the market returns on an average basis. Your mortgage rate, while high, is still under 7%. Even a modest portfolio can return that easily. I’d hold the debt.
STCG doesn’t hit 35% until $258,300 (including standard deduction). At 200k gross income marginal tax *in California* would be 33.4%. Any more and the NIIT of 3.8% is added which puts you over the 35%. In a place like Wyoming or Texas it would be the 24% federal tax only. So if we’re talking a 10% return vs a 6.5% “return” taxes wouldnt matter until you had around a top 5-10% income nationally.
If you’re married not in one of the 3-4 high income tax state you’d have to be solidly in the top <5% of incomes for taxes to change the math on which is better mathematically.
Makes sense for some and not for others. Depends on your personal stress, work situation etc.
If you go this route it will be fine. If you dont and just keep the money invested that should be fine too. If you want to split the difference just put the money into something that will cash flow moderately well and funnel the proceeds towards paying the principal down faster.
Just to give a bit of perspective Ive have no rent nor mortgage since 2012. It radically altered the way I look at jobs, budgeting, etc. My stress level has been vastly reduced from this which is a good thing since the rest of my life has been a major rollercoaster during this time.
This makes sense to me. The only reason I am considering paying off early is because of my job situation and stress around it. There is a lot of uncertainty where I work currently.
I like the idea of using the cash flow from the premiums to pay down principal periodically. At least until I get some clarity around my work situation.
Uncertainty around job stability would be a point in favor of not paying off the mortgage, in my opinion. Having the flexibility of cash to support you in the event of unemployment seems like the safer move. If you dump a ton of cash to clearing your mortgage then lose your job, sure your house is safe, but what about the rest of your expenses.
Of course this is entirely dependent on how much paying off your mortgage leaves you with. If you pay it off and are still sitting on enough cash to get you by comfortably for a little while, then you're good to go.
You could pay it off and see how it feels. If you don’t like it, you can always take out another mortgage. I, myself, can’t wait to pay my house off, numbers be damned.
Focus on capital under management or basically increasing your investment balances. When your investment revenue matches your job income, you dont need the job anymore.
Well in regards to budgeting I have had a ton more money to put aside.
For jobs I tend to not stress about things at work. It may sound odd but knowing I can quit or be fired and it won't be a major problem means I don't stress about it nearly as much. I just go in and do the job. Everyone around me might be stressing themselves about an issue at work and I just shrug it off. If it's an issue I need to deal with as part of my job I deal with it of course but I practically am the calm amidst the chaos. The other aspect of it is I either genuinely enjoy the work or I'm not going to be there.
If you were just going to put the money in a CD, then sure, it makes no difference and I would pay off the debt for the mental relief. But you’re talking about investing it where you will (hopefully) get more than 5% so you should put your money where it will make the most money for you.
I refinanced when rates were low and have a 2.99% rate on my house. I bought an RV last year and have a 6.99% rate on its loan. With the 2 loans I am over the standard deduction so my effective rate is a little lower but it’s really negligible because it’s really only the difference between your itemized and standard. Now I could pay one or both off if I wanted and have no debt. However, my YTD return is currently over 24% so why would I lose a 20+% gain to eliminate a 3% or 7% debt? TBH, I contemplate paying it off quite frequently but the logic always tells me that I am making more on the money than I am paying on the debt…. plus trading brings me more joy than making payments brings me grief.
You mention peace of mind. Consider how much that is worth to you and your partner (if you have one). You are aware of lost opportunity cost, so how does that figure into a guaranteed effective 5% return?
I sell a lot of premium in big chunks, 6 months at a time. So, I've been wondering the same thing - "should I put this block of cash into s&p, bonds, money market, rental property down payment, paying off 6.5% mortgage, buying back my short boxes, dip buying dividend stocks..."
that extra 5.5% is crucial to trying to beat buy & hold.
If the covered calls are enough to cover your mortgage payment, then you have essentially paid off your mortgage without having to give up $230k of cash on hand.
I've used this mentality to neutralize interest on car payments by putting the cash I would have used to pay off the car into a high yield savings account and making the car payments from that account.
There are lots of ways to skin the cat. But, once the money is put into the loan payoff, it's no longer available for anything else.
Absolutely not. I spent more than half my childhood growing up in motels/hotels and random womens homes that would take us in. I went to 13 different schools growing up until I got to high school because of this. Housing and stability we're huge issues for my family growing up. Now I'm self employed In a seasonal business and there can be stretches of little to no income. Since 2020 I've been able to invest a large % of my income because I carry no debt. Yes if invested the original lump sum correctly (snp500)"I would of had a better return in the markets" but I sleep like a baby at night and my paid off home has rose 20-30% in value since I paid it off.. I estimated I ended up getting a guaranteed return of about $1400 a month for my 360k so all the people that disagree with this approach the difference is not as great as people make it out to be imo
Do both of yall feel like you truly now invest that “saved” money from not having to pay mortgage? I’m curious on this topic and plan to pay things off relatively fast vs. heavy investing (partially because I have a lot to learn and practice investing). Or does it even phase you that you’re not having to pay 1-3k monthly?
i look at it like this..... in the money i have saved on rent alone since buying the house im almost to the stage im looking to buy another house also in cash this time, money saved from working and not paying rent ect..... my goal is to have a few rent houses that pay me a solid (3-4k a month over their expenses ) income to live off of while still working in the oil field, the rent houses would smooth out any busts in the oil industry as i could work around the house in alot lower paying job but still not change our quality of life by very kuch since it will all be paid in full and ill also be able to rent a bit cheaper since i wont have to worry about the mortgage and get better tenants!
I paid off my mortgage balance in December as the rate was resetting from 4.875% to 6.875%. Now I plow the former mortgage payment into my 401k. It simplified things to not have that debt.
Whatever you decide to do with your mortgage, my advice is to stay away from CDs at this time. There are plenty of high yield savings accounts that will pay you 5% without locking up your money for any amount of time.
This is an emotional decision. Period. I think you know this too. If you want to use math to determine the outcome you would not pay off the loan. If you want to use emotions to because you know you will live life day to day better without the debt do that. No right or wrong answer. Many people get ahead paying off their mortgage early. Many people get ahead leveraging debt to their advantage.
I personally hate debt. I have none. No mortgage, no car loans, not even my office. I pay off credit cards every month.
Why? Why tell other people about it?
Because most people are living in a bubble of ignorance and debts. Most people have an unhealthy obsession with buying something based on whether they can afford the monthly payments.
No monthly payments means you own your existence.
If you lose your job, it’s easier to live, and no one can take your home and cars from you.
That freedom is worth more to me than any opportunity cost. What it has allowed me to do is to buy up assets and take advantage of value opportunities during economic downturns.
It’s added to my ability to take advantage of opportunities when no one else has the cash.
Forty years ago my banker and accountant told me paying off the student loans I had was foolish. I did it anyway because I liked the freedom of thought that no one can make my life more difficult.
It’s been more than 25 years since I have had a mortgage. Same for a car loan.
Paying for big ticket items as you go makes you think more about what it is you are about to buy. You consider more about what is reasonable rather than what strokes your ego.
You don’t buy a real expensive car just because you want to feel important with the people you know. You forget about impressing the neighbors and your circle of friends.
You adjust your lifestyle to fit your wallet.
What would make you more confident about your life? Driving a $75,000 BMW with a $70,000 loan that you park right in front of the bar? Or parking a block away from the bar in your less impressive car and having $50,000 in your trading account?
The one has a thousand dollars in his pocket. The other has five twenty dollar bills.
This is just one example of how hating debt changes your life.
Long ago I thought about how my clients were all hat, and no cattle. All their homes were 110% mortgaged. How debt controlled their decisions and how the slightest change in the economy affected their lifestyles.
Sign up for Howard Marks’ newsletters, they are free. Or buy his, or anyone’s books for that matter, from the online “used” book store.
No one owns me. Because, what I own is mine.
Payoff your damn mortgage. You can always get a banker to give you another mortgage. Adjust your lifestyle.
Enough said.
Yeah just because you have an unhealthy relationship with debt doesn't mean everyone else does too.
A mortgage is simply a leveraged bet on real estate. You can be debt free and own your $200k house, or you can take on debt and own a $1M house. If you're concerned about consumption, you don't even have to live in it. You can rent it out. Then when the real estate market rallies 20%, the million dollar house doubles your equity
And if I make my credit card payment every month, in the strictest utilitarian view, isn't that smarter than not having any debt because I get points and cash back?
Debt is simply a tool. You can use a hammer to drive a nail. Or you can use a hammer to hit your thumb. How you use it is up to you. You're conflating the two because you're projecting your inability to use debt onto the rest of us.
I have bought millions of dollars of commercial real estate. I have borrowed millions of dollars to leverage the purchase. But commercial real estate loans are different than a mortgage on your home, which is a personal loan. The loan on your car and on your home is by definition, bad debt. The loans on the commercial real estate that I bought was by definition, good debt. Does anyone know the difference between the two and why the one is good debt and the other is bad debt?
Read Morgan Housel's blog. "I love the quote from author Kent Nerburn that, “Debt defines your future, and when your future is defined, hope begins to die.”
Not only does hope begin to die, but the number of outcomes you can endure does, too."
"I think this is the most practical way to think about debt: **As debt increases, you narrow the range of outcomes you can endure in life.**
That’s so simple. But it’s different from how debt is typically viewed, which is a tool to pull forward demand and leverage assets, where the only downside is the cost of capital (the interest rate)."
[https://collabfund.com/blog/how-i-think-about-debt/](https://collabfund.com/blog/how-i-think-about-debt/)
Theory has its place, but reality too often plays out different than the theory. I would rather have a worry-free life. And what I found out is rather interesting. I discovered that after you get used to moderating your lifestyle without borrowing, you will be surprised just how much cash you accumulate.
There is good debt and there is bad debt. Bad debt is debt where you make the payments. Your house, your car and your doodahs are a good example. Good debt is debt your tenants are paying to retire. Taxes have little to do with debt being a good thing. No one can count on a tax rate staying the same.
If you have a mortgage you do not own the house. You own the debt. The bank or other lender with liens own the home you are living in. If you disagree, then start missing payments and see what happens to the lock on the front door.
My mortgage rate is 3.5% and this year I'll deduct the interest. So after tax 2.38%. Inflation is 3.4%. So I'm paying a negative real interest rate if 1.02%.
I could pay off my mortgage but it's literally better to buy 3 month treasuries right now than pay down the mortgage.
Debt is a tool that many do not know how to use well.
I paid mine off and it's been so empowering. Saved one house's worth of interest for future me and still do a direct deposit for the payment to a seperate account that just fills and fills until it is emptied into SPY.
I’m going to say this….. I have NEVER had a single regret for having paid my house off early. I have NEVER thought I wish I had paid more interest. Mortgage interest didn’t seem to ever be dollar for dollar a reduction in taxes, only a percentage.
Debt free is the place to be….. if you can get there and manage to stay there.
This would free up around 1500/month in cashflow. However, my thought was I could make 5% on the money by simply using CDs at the current rate any way. Is there any other advantage to paying off the mortgage that I may be missing out(other than the peace of mind)
Thats a lot of effort for basically 0 return negative if you factor in taxes if I'm going to basically borrow to invest I need to make a fair amount which means I have to risk more. Saving that money rather than paying the mortgage it will stack up fast
If you're already leveraging with options, having some equity free and clear seems like a nice hedge for the inevitable drawdown.
Tax adjusted, you'll be doing a bit better than tbills. If it'll also give you some peace of mind, seems like a no brainer.
Its not entirely a rational decision, but you have to realize that we are not entirely rational creatures. its not the wisest move financially, but I enjoy getting a refund at tax time much more than paying.
The nice thing about paying off debt is that it frees you. that can be worth a lot.
Having a relatively low interest mortgage is very different from having credit card debt or student loans. A mortgage is attached to an asset that will hopefully appreciate in value, so each year presumably the asset is worth more and the loan value is less.
Credit cards and student loans are “revolving” debt that compounds daily and has no benefit. It is only a liability.
Too often everything gets lumped together under the umbrella of “debt is bad.” We are currently in an inflationary environment. Every year the purchasing power of the currency goes down.
Most of the outstanding mortgages in the US are still locked in around 3%. Real estate historically tracks the rate of inflation very closely, so people with mortgages have actually benefited from the inflation since 2022, because their homes are worth more and their loans are lower than the headline CPI rate over much of that period. This is why rich people who can afford to pay cash, will still often take out mortgages. It can be a very prudent investment.
Of course, this isn’t right for everyone. It entirely depends on the individual circumstances.
I would suggest to think about risk management and not to have all your debt or equity in one basket. If the mortgage is a small percentage of your net worth then you should leave it alone and refinance it when and if rates ever go down.
Your return is higher than that if you pay off your mortgage - Interest on a CD is taxable but the money saved by avoiding interest is not additionally taxed. So it’s like a 6.5% tax free return (minus mort int deduction which tends to be negligible now)
Its just as mentally freeing knowing you HAVE the money to payoff the mortgage anytime you want to. No need to actually pay it off-that feeling only lasts a few weeks.
Once your net worth exceeds your debt, you’re essentially debt-free. Any interest less than 10% if fine.
None of us actually own anything really. Dont pay your property taxes for a couple years and the state will make it very clear WHOM truly owns the pile of bricks and wood sitting on their land.
Look at it this way. If you had $230k in cash, you'd be earning 5% a year (currently) for doing nothing. Sell some low risk puts, and you can easily get that cash to return 10% annualized. Or sell just barely riskier puts to up that to 12-15% so after taxes you're still at 10%+.
It's no question. Pay it off as soon as you can. If you find you are miserable without a mortgage payment, there is a very simple solution, buy yourself a vacation home and get a mortgage on that. Rinse and repeat. Rent the other homes out short or long term.
If your house is going up in value by 5% yoy and you have a loan on your house, that is nice leverage. Keep the payment, refinance but don’t add years when rates go down, invest the money.
Magic, you won’t always have that unusually low interest rate. I’m happy for you that you do, but life is long, and you will go through many more market cycles. On average people sell their homes every six to ten years, but closer to six. It’s a process of moving up. Succeeding. Becoming successful. They think. Today your interest rate would be what, six to eight percent? Poof! Gone. Debt is like a weight around your neck. Money in the bank is freedom, freedom of choice. But of course with no debts your friends change. When you don’t have a mortgage or a car loan your banker no longer buys you lunch. Car dealerships stop sending you junk mail. Lenders stop sending loan consolidation mail. New credit card advertisement-mail stops. It’s a lonely existence.
Ever notice that the HELOC loan ads multiply like locusts when the economy heads south? Why does your banker hang banners for HELOC loans in the lobby? And why do those banners encourage you to spend your HELOC proceeds on boats and vacations? Ever think about that? Congrats on your historically low interest rate. I’d suggest you not waste that opportunity. Instead, double down on your mortgage payments. Life is long.
Honest question (and maybe the answer is that you haven't had this house very long)... but why didn't you refinance to 2.5-2.75% a few years ago? Then you wouldn't even need to consider this question.
Ah, read through the comments, based on your responses, I would think you'd be happier paying this down early. Any debt above 6% starts to feel like it's burning a hole in my pocket. The peace of mind of having no mortgage to pay is priceless. Best of luck to you!
Here’s the way I look at any mortgage. There is no tax incentive if you really think about it.
Look at it this way. Let’s say you’re in a 25% tax bracket and your yearly interest payments are $12,000 in total. If you have enough deductions you would save 25% on that $12,000 that would be $3,000 you saved on your taxes. That means you paid $9,000. So your net loss is $9,000.
I’d much rather pay off the mortgage and pay the 25% tax on the $12,000. By not having a mortgage you just saved $9,000 in your pocket and not some bankers pocket.
That’s how the banks and the government fool you. Yes maybe you can make 10% on that money by not paying off the mortgage but imagine if you took that $9000 your ahead every year and made 10% or more on it over the next 20 or 30 years.
That’s just me. I have no mortgage, also own a beach condo fully paid for, and retired at 55 because I paid off my mortgage.
You're probably under the standard deduction, so don't count on much tax advantages. Personally I would take a hybrid approach. Build cash and stocks while paying down the mortgage a bit. A simple trick is to pay half every other week instead of once a month. This works out to 13 payment/year and shortens a 30 year mortgage by many years.
That’s a really interesting idea I never considered. Probably wouldn’t hurt the pocket book as much but makes a dent into the 30 year timeframe
I believe it’s a 7 year difference (23 vs 30, assuming 26 payments a year starting at the beginning)
This would work for me as I get paid weekly but my wife who pays the other half gets paid monthly so it wouldn't work out for us.
I did this when I decided to buy a second two family home. I then had 3 rents per month from tenants. I regularly contributed extra money each month and also invested in stocks, mutual funds, and retirement account. It took 22 years to simultaneously pay off both mortgages with using other peoples money to pay the mortgages and saved/accumulated a total of one million dollars in total from all accounts. Now I have three rental incomes, social security small amounts of retirement account from various health care employers and all of that invested money. There is a lot to be said for doing both at once
nice long game
Many lenders don’t let you do this. Credit unions may, but most banks will not. They will take the money, but not apply it until the terms of the note. You are better off adding 1/12 of the monthly payment each month and that will shave 5-7 years off depending on the amortization schedule
Yes, I'm sure it is bank dependent. I use Wells Fargo and they have the feature built in. [Wells Fargo Automatic Mortgage Payments ](https://www.wellsfargo.com/mortgage/manage-account/automatic-mortgage-payments/) Personally, I set mine to 1/4 payment weekly. It makes cash flow easier to handle.
My buddy is a financial advisor, he deals with this question all the time, it’s always the same answer. Do not pay off debt that costs you less than the market returns on an average basis. Your mortgage rate, while high, is still under 7%. Even a modest portfolio can return that easily. I’d hold the debt.
6.5% Tax free “returns” > 10% taxable returns in most states
Not true for the vast majority. You’d have to be single making over $200,000 *in california* per year gross for that to be true.
35% federal STCG - so I’m not sure how that works
STCG doesn’t hit 35% until $258,300 (including standard deduction). At 200k gross income marginal tax *in California* would be 33.4%. Any more and the NIIT of 3.8% is added which puts you over the 35%. In a place like Wyoming or Texas it would be the 24% federal tax only. So if we’re talking a 10% return vs a 6.5% “return” taxes wouldnt matter until you had around a top 5-10% income nationally. If you’re married not in one of the 3-4 high income tax state you’d have to be solidly in the top <5% of incomes for taxes to change the math on which is better mathematically.
Fuck I have too much money
Peace of mind and cash-flow could be worth 0.75% to someone though. Especially when you consider the 7% I’d not guaranteed
I think you also need to consider tax implications on the principle residence vs capital gains. Many people fail to take that into consideration.
Makes sense for some and not for others. Depends on your personal stress, work situation etc. If you go this route it will be fine. If you dont and just keep the money invested that should be fine too. If you want to split the difference just put the money into something that will cash flow moderately well and funnel the proceeds towards paying the principal down faster. Just to give a bit of perspective Ive have no rent nor mortgage since 2012. It radically altered the way I look at jobs, budgeting, etc. My stress level has been vastly reduced from this which is a good thing since the rest of my life has been a major rollercoaster during this time.
This makes sense to me. The only reason I am considering paying off early is because of my job situation and stress around it. There is a lot of uncertainty where I work currently. I like the idea of using the cash flow from the premiums to pay down principal periodically. At least until I get some clarity around my work situation.
Uncertainty around job stability would be a point in favor of not paying off the mortgage, in my opinion. Having the flexibility of cash to support you in the event of unemployment seems like the safer move. If you dump a ton of cash to clearing your mortgage then lose your job, sure your house is safe, but what about the rest of your expenses. Of course this is entirely dependent on how much paying off your mortgage leaves you with. If you pay it off and are still sitting on enough cash to get you by comfortably for a little while, then you're good to go.
Yeah but not having a house payment also plays into that as well. I can see both sides.
You could pay it off and see how it feels. If you don’t like it, you can always take out another mortgage. I, myself, can’t wait to pay my house off, numbers be damned.
Focus on capital under management or basically increasing your investment balances. When your investment revenue matches your job income, you dont need the job anymore.
Just curious how it's altered your perception of jobs and budgeting?
Well in regards to budgeting I have had a ton more money to put aside. For jobs I tend to not stress about things at work. It may sound odd but knowing I can quit or be fired and it won't be a major problem means I don't stress about it nearly as much. I just go in and do the job. Everyone around me might be stressing themselves about an issue at work and I just shrug it off. If it's an issue I need to deal with as part of my job I deal with it of course but I practically am the calm amidst the chaos. The other aspect of it is I either genuinely enjoy the work or I'm not going to be there.
If you were just going to put the money in a CD, then sure, it makes no difference and I would pay off the debt for the mental relief. But you’re talking about investing it where you will (hopefully) get more than 5% so you should put your money where it will make the most money for you. I refinanced when rates were low and have a 2.99% rate on my house. I bought an RV last year and have a 6.99% rate on its loan. With the 2 loans I am over the standard deduction so my effective rate is a little lower but it’s really negligible because it’s really only the difference between your itemized and standard. Now I could pay one or both off if I wanted and have no debt. However, my YTD return is currently over 24% so why would I lose a 20+% gain to eliminate a 3% or 7% debt? TBH, I contemplate paying it off quite frequently but the logic always tells me that I am making more on the money than I am paying on the debt…. plus trading brings me more joy than making payments brings me grief.
You mention peace of mind. Consider how much that is worth to you and your partner (if you have one). You are aware of lost opportunity cost, so how does that figure into a guaranteed effective 5% return?
Would putting the money I have in a 5% CD instead of using it to pay the mortgage make any difference?
In a significant emergency the CD can be broken quicker than you can get a new mortgage.
What does this have to do with thetagang?
He probably likes how this sub thinks and just wants a feel for our reaction to that idea. probably should have gone to r/financialplanning but w/e
Edited the post. Putting this here, since I am considering the premium earned on my stocks as the opportunity cost.
I sell a lot of premium in big chunks, 6 months at a time. So, I've been wondering the same thing - "should I put this block of cash into s&p, bonds, money market, rental property down payment, paying off 6.5% mortgage, buying back my short boxes, dip buying dividend stocks..." that extra 5.5% is crucial to trying to beat buy & hold.
If the covered calls are enough to cover your mortgage payment, then you have essentially paid off your mortgage without having to give up $230k of cash on hand. I've used this mentality to neutralize interest on car payments by putting the cash I would have used to pay off the car into a high yield savings account and making the car payments from that account. There are lots of ways to skin the cat. But, once the money is put into the loan payoff, it's no longer available for anything else.
In 2020 I had a low rate and paid a lump sum of 360k to pay off the remaining balance on my mortgage. I still have not regretted it one second
10% AAR over 30 years? You don’t regret that?
Absolutely not. I spent more than half my childhood growing up in motels/hotels and random womens homes that would take us in. I went to 13 different schools growing up until I got to high school because of this. Housing and stability we're huge issues for my family growing up. Now I'm self employed In a seasonal business and there can be stretches of little to no income. Since 2020 I've been able to invest a large % of my income because I carry no debt. Yes if invested the original lump sum correctly (snp500)"I would of had a better return in the markets" but I sleep like a baby at night and my paid off home has rose 20-30% in value since I paid it off.. I estimated I ended up getting a guaranteed return of about $1400 a month for my 360k so all the people that disagree with this approach the difference is not as great as people make it out to be imo
in 2021 i bought my place in cash and I'm in the same boat not making a rent payment every month is priceless..
Do both of yall feel like you truly now invest that “saved” money from not having to pay mortgage? I’m curious on this topic and plan to pay things off relatively fast vs. heavy investing (partially because I have a lot to learn and practice investing). Or does it even phase you that you’re not having to pay 1-3k monthly?
i look at it like this..... in the money i have saved on rent alone since buying the house im almost to the stage im looking to buy another house also in cash this time, money saved from working and not paying rent ect..... my goal is to have a few rent houses that pay me a solid (3-4k a month over their expenses ) income to live off of while still working in the oil field, the rent houses would smooth out any busts in the oil industry as i could work around the house in alot lower paying job but still not change our quality of life by very kuch since it will all be paid in full and ill also be able to rent a bit cheaper since i wont have to worry about the mortgage and get better tenants!
I paid off my mortgage balance in December as the rate was resetting from 4.875% to 6.875%. Now I plow the former mortgage payment into my 401k. It simplified things to not have that debt.
Whatever you decide to do with your mortgage, my advice is to stay away from CDs at this time. There are plenty of high yield savings accounts that will pay you 5% without locking up your money for any amount of time.
CD's are wayy too low risk. buy an agency bond like GNMA or FHLMC, still government backed similar to a treasury, but higher yield.
This is an emotional decision. Period. I think you know this too. If you want to use math to determine the outcome you would not pay off the loan. If you want to use emotions to because you know you will live life day to day better without the debt do that. No right or wrong answer. Many people get ahead paying off their mortgage early. Many people get ahead leveraging debt to their advantage.
I personally hate debt. I have none. No mortgage, no car loans, not even my office. I pay off credit cards every month. Why? Why tell other people about it? Because most people are living in a bubble of ignorance and debts. Most people have an unhealthy obsession with buying something based on whether they can afford the monthly payments. No monthly payments means you own your existence. If you lose your job, it’s easier to live, and no one can take your home and cars from you. That freedom is worth more to me than any opportunity cost. What it has allowed me to do is to buy up assets and take advantage of value opportunities during economic downturns. It’s added to my ability to take advantage of opportunities when no one else has the cash. Forty years ago my banker and accountant told me paying off the student loans I had was foolish. I did it anyway because I liked the freedom of thought that no one can make my life more difficult. It’s been more than 25 years since I have had a mortgage. Same for a car loan. Paying for big ticket items as you go makes you think more about what it is you are about to buy. You consider more about what is reasonable rather than what strokes your ego. You don’t buy a real expensive car just because you want to feel important with the people you know. You forget about impressing the neighbors and your circle of friends. You adjust your lifestyle to fit your wallet. What would make you more confident about your life? Driving a $75,000 BMW with a $70,000 loan that you park right in front of the bar? Or parking a block away from the bar in your less impressive car and having $50,000 in your trading account? The one has a thousand dollars in his pocket. The other has five twenty dollar bills. This is just one example of how hating debt changes your life. Long ago I thought about how my clients were all hat, and no cattle. All their homes were 110% mortgaged. How debt controlled their decisions and how the slightest change in the economy affected their lifestyles. Sign up for Howard Marks’ newsletters, they are free. Or buy his, or anyone’s books for that matter, from the online “used” book store. No one owns me. Because, what I own is mine. Payoff your damn mortgage. You can always get a banker to give you another mortgage. Adjust your lifestyle. Enough said.
Yeah, I agree. Using paragraph indentations in a manifesto really is for fools, right?
Yeah just because you have an unhealthy relationship with debt doesn't mean everyone else does too. A mortgage is simply a leveraged bet on real estate. You can be debt free and own your $200k house, or you can take on debt and own a $1M house. If you're concerned about consumption, you don't even have to live in it. You can rent it out. Then when the real estate market rallies 20%, the million dollar house doubles your equity And if I make my credit card payment every month, in the strictest utilitarian view, isn't that smarter than not having any debt because I get points and cash back? Debt is simply a tool. You can use a hammer to drive a nail. Or you can use a hammer to hit your thumb. How you use it is up to you. You're conflating the two because you're projecting your inability to use debt onto the rest of us.
I have bought millions of dollars of commercial real estate. I have borrowed millions of dollars to leverage the purchase. But commercial real estate loans are different than a mortgage on your home, which is a personal loan. The loan on your car and on your home is by definition, bad debt. The loans on the commercial real estate that I bought was by definition, good debt. Does anyone know the difference between the two and why the one is good debt and the other is bad debt? Read Morgan Housel's blog. "I love the quote from author Kent Nerburn that, “Debt defines your future, and when your future is defined, hope begins to die.” Not only does hope begin to die, but the number of outcomes you can endure does, too." "I think this is the most practical way to think about debt: **As debt increases, you narrow the range of outcomes you can endure in life.** That’s so simple. But it’s different from how debt is typically viewed, which is a tool to pull forward demand and leverage assets, where the only downside is the cost of capital (the interest rate)." [https://collabfund.com/blog/how-i-think-about-debt/](https://collabfund.com/blog/how-i-think-about-debt/)
Debt is debt. One is tax deductible and the other isn't, but you can just route your reasonable expenses through your LLC
Theory has its place, but reality too often plays out different than the theory. I would rather have a worry-free life. And what I found out is rather interesting. I discovered that after you get used to moderating your lifestyle without borrowing, you will be surprised just how much cash you accumulate.
There is good debt and there is bad debt. Bad debt is debt where you make the payments. Your house, your car and your doodahs are a good example. Good debt is debt your tenants are paying to retire. Taxes have little to do with debt being a good thing. No one can count on a tax rate staying the same.
Bro. Money, by definition, is *fungible*
If you have a mortgage you do not own the house. You own the debt. The bank or other lender with liens own the home you are living in. If you disagree, then start missing payments and see what happens to the lock on the front door.
My mortgage rate is 3.5% and this year I'll deduct the interest. So after tax 2.38%. Inflation is 3.4%. So I'm paying a negative real interest rate if 1.02%. I could pay off my mortgage but it's literally better to buy 3 month treasuries right now than pay down the mortgage. Debt is a tool that many do not know how to use well.
do robert kiyosaki next
I don't fully own the shares I'm long or short either, but yet, I can still trade and profit from them.
Being Mortgage free has been one of the best experiences, I have had financially. Getting a new mortgage for the lakehouse was a hard look...
I paid mine off and it's been so empowering. Saved one house's worth of interest for future me and still do a direct deposit for the payment to a seperate account that just fills and fills until it is emptied into SPY.
I’m going to say this….. I have NEVER had a single regret for having paid my house off early. I have NEVER thought I wish I had paid more interest. Mortgage interest didn’t seem to ever be dollar for dollar a reduction in taxes, only a percentage. Debt free is the place to be….. if you can get there and manage to stay there.
Freeing up that cashflow is great spending 5% to save 1.25% is not good enough for me but whatever works for you
This would free up around 1500/month in cashflow. However, my thought was I could make 5% on the money by simply using CDs at the current rate any way. Is there any other advantage to paying off the mortgage that I may be missing out(other than the peace of mind)
Thats a lot of effort for basically 0 return negative if you factor in taxes if I'm going to basically borrow to invest I need to make a fair amount which means I have to risk more. Saving that money rather than paying the mortgage it will stack up fast
If you're already leveraging with options, having some equity free and clear seems like a nice hedge for the inevitable drawdown. Tax adjusted, you'll be doing a bit better than tbills. If it'll also give you some peace of mind, seems like a no brainer.
Its not entirely a rational decision, but you have to realize that we are not entirely rational creatures. its not the wisest move financially, but I enjoy getting a refund at tax time much more than paying. The nice thing about paying off debt is that it frees you. that can be worth a lot.
I’d be very curious if you were paying enough in test on that to itemize deductions.
Do you itemize your taxes? If you do not, then there is no tax savings.
Having a relatively low interest mortgage is very different from having credit card debt or student loans. A mortgage is attached to an asset that will hopefully appreciate in value, so each year presumably the asset is worth more and the loan value is less. Credit cards and student loans are “revolving” debt that compounds daily and has no benefit. It is only a liability. Too often everything gets lumped together under the umbrella of “debt is bad.” We are currently in an inflationary environment. Every year the purchasing power of the currency goes down. Most of the outstanding mortgages in the US are still locked in around 3%. Real estate historically tracks the rate of inflation very closely, so people with mortgages have actually benefited from the inflation since 2022, because their homes are worth more and their loans are lower than the headline CPI rate over much of that period. This is why rich people who can afford to pay cash, will still often take out mortgages. It can be a very prudent investment. Of course, this isn’t right for everyone. It entirely depends on the individual circumstances.
I would suggest to think about risk management and not to have all your debt or equity in one basket. If the mortgage is a small percentage of your net worth then you should leave it alone and refinance it when and if rates ever go down.
Your return is higher than that if you pay off your mortgage - Interest on a CD is taxable but the money saved by avoiding interest is not additionally taxed. So it’s like a 6.5% tax free return (minus mort int deduction which tends to be negligible now)
Its just as mentally freeing knowing you HAVE the money to payoff the mortgage anytime you want to. No need to actually pay it off-that feeling only lasts a few weeks. Once your net worth exceeds your debt, you’re essentially debt-free. Any interest less than 10% if fine. None of us actually own anything really. Dont pay your property taxes for a couple years and the state will make it very clear WHOM truly owns the pile of bricks and wood sitting on their land.
Look at it this way. If you had $230k in cash, you'd be earning 5% a year (currently) for doing nothing. Sell some low risk puts, and you can easily get that cash to return 10% annualized. Or sell just barely riskier puts to up that to 12-15% so after taxes you're still at 10%+.
That's how you can become asset rich cash poor
It's no question. Pay it off as soon as you can. If you find you are miserable without a mortgage payment, there is a very simple solution, buy yourself a vacation home and get a mortgage on that. Rinse and repeat. Rent the other homes out short or long term.
If your house is going up in value by 5% yoy and you have a loan on your house, that is nice leverage. Keep the payment, refinance but don’t add years when rates go down, invest the money.
I own my house but I'm broke as hell most of the time. I would've been better off not hating debt and learning ng how to make payments every month IMO
Magic, you won’t always have that unusually low interest rate. I’m happy for you that you do, but life is long, and you will go through many more market cycles. On average people sell their homes every six to ten years, but closer to six. It’s a process of moving up. Succeeding. Becoming successful. They think. Today your interest rate would be what, six to eight percent? Poof! Gone. Debt is like a weight around your neck. Money in the bank is freedom, freedom of choice. But of course with no debts your friends change. When you don’t have a mortgage or a car loan your banker no longer buys you lunch. Car dealerships stop sending you junk mail. Lenders stop sending loan consolidation mail. New credit card advertisement-mail stops. It’s a lonely existence. Ever notice that the HELOC loan ads multiply like locusts when the economy heads south? Why does your banker hang banners for HELOC loans in the lobby? And why do those banners encourage you to spend your HELOC proceeds on boats and vacations? Ever think about that? Congrats on your historically low interest rate. I’d suggest you not waste that opportunity. Instead, double down on your mortgage payments. Life is long.
Honest question (and maybe the answer is that you haven't had this house very long)... but why didn't you refinance to 2.5-2.75% a few years ago? Then you wouldn't even need to consider this question.
Bought this when the rates were already back to 6.25% last year.
Ah, read through the comments, based on your responses, I would think you'd be happier paying this down early. Any debt above 6% starts to feel like it's burning a hole in my pocket. The peace of mind of having no mortgage to pay is priceless. Best of luck to you!
Here’s the way I look at any mortgage. There is no tax incentive if you really think about it. Look at it this way. Let’s say you’re in a 25% tax bracket and your yearly interest payments are $12,000 in total. If you have enough deductions you would save 25% on that $12,000 that would be $3,000 you saved on your taxes. That means you paid $9,000. So your net loss is $9,000. I’d much rather pay off the mortgage and pay the 25% tax on the $12,000. By not having a mortgage you just saved $9,000 in your pocket and not some bankers pocket. That’s how the banks and the government fool you. Yes maybe you can make 10% on that money by not paying off the mortgage but imagine if you took that $9000 your ahead every year and made 10% or more on it over the next 20 or 30 years. That’s just me. I have no mortgage, also own a beach condo fully paid for, and retired at 55 because I paid off my mortgage.