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  • Snowball mentality

    Is paying off your mortgage working on a behavioral level like the snowball debt repayment? When you are just left with a mortgage and you have no other debt it is easy to forget that you really do. You can think of your retirement as a debt to your future self. However that is a very nebulous debt with an unknown amount and term. However it is certainly higher then my mortgage and I would assume most mortgages. Making it attractive to tackle the relatively small and concrete debt.

    I have been thinking about this lately and paying more to the mortgage seems so attractive to me even though I know the math is probably against me.

    I am not one to scream "unprecedented times" and doom and gloom impending crash but all that noise does make the guaranteed 3% seem better. I save well more then 20% already so this is plow more into taxable vs mortgage. Not giving up any tax advantage space.

    Anyone else have any thoughts that have not been hashed out a million times in the invest or debt threads?

  • #2
    Originally posted by Lordosis View Post
    I have been thinking about this lately and paying more to the mortgage seems so attractive to me even though I know the math is probably against me
    you are only playing the game against yourself.
    however its definitely the wrong move.

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    • #3
      I personally disagree with Peds here. I took a different approach: paid off mortgage (3.375%) and then increased stock allocation. With no mortgage i can now take more Risk with a higher stock AA. I know it is an oversimplification to think of it as a “negative bond” and we have discussed that here, but i am VERY pleased to have a simple situation with no mortgage and fewer bonds and a smaller emergency fund.
      https://www.whitecoatinvestor.com/th...nk-about-debt/

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      • #4
        we're setting ourselves up to do the same in 2021 and do that for 2-3 years, very aggressively paying down the mortgage. We already save ~30-35% of our income in all of our retirement accounts. If we want to save more, we then have to open a taxable account, or we can more aggressively throw money at the mortgage. Our rate in 3.375% 30-year fixed. We plan to very aggressively attack that for the next 2-3 years and then refinance to a 15-year. I suspect the fed will keep rates low, so I'm hoping by then we can get a 15-year with a rate of 2.75% or less. Our retirement stock:bond is now 92:8. I think I'll be keeping it at that for awhile, in part due to what I tell myself about us still having a large mortgage

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        • #5
          I can tell you what I did. Interest rates were high when I first bought a house like 10-11% so I refinanced as rates dropped. Initially 30 year, then 15 year, then 10 year. Once I had it to 10 years I started paying extra each month until it got low enough to write one check. I paid out of new money cash flow. I paid it off around 45. The house I have now was a cash purchase. I would always fill up retirement accounts over mortgage paydown. I actually had a sizable taxable account prior to paying off the mortgage.

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          • #6
            It always comes down to risk tolerance and time to retirement. There will always be another unprecedented time in the future. As long you have a long investment horizon, paying off the mortgage early has a psychological benefit at the cost of potential gains and compounding interest. (also as long as the world doesn't descend into chaos where food and water/guns/bullets are worth more than anything else)

            There's no right or wrong answer for personal situations as everyone's risk tolerance and situations are different.

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            • #7
              Conspiracy thinking here. Does the man in the tower purposely lower the mortgage rates as to lure suckers like us to pump up the stock market for the man in the tower.( As opposed to responsibly paying off the mortgage, even if the rate were zero.)

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              • #8
                We made extra principal payments early on in our mortgage when most of the payments due went interest. But by the last 4 to 5 years when most of the payments due already went to principal we backed off from making extra payments. We did also refinance 2 times in there as well (started as 30y, but was eventually payed off in 12yrs in 2019)

                I'm not sure I could put a price on how comforting it felt to be debt and loan free when I had to shut my office down for 2.5 months when Covid first hit. And isn't one of the purposes of money, when done right, to help provide an easier path to happiness? I agree that maybe the math could have been prettier, but I still haven't met anyone who was unhappy about no longer have a home loan.
                Last edited by wfpbFI; 10-26-2020, 09:49 AM.

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                • #9
                  I was super debt averse, to the point we were paying extra on our mortgage for 18 months, over putting more money into tax advantaged retirement accounts. I eventually decided that was stupid and stopped. Decided we would pay extra to the mortgage AFTER we got our investment accounts to 1M. We did refinance to a15 year a few months ago and maybe that is a compromise? Of course we also might have bought a cabin last month, so I am probably getting too comfortable with mortgage debt. I don't know, don't listen to me, I'm all over the place ;-)

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                  • #10
                    I think it depends. Mainly on how close you are to meeting your savings goals. We are doubling up on principle right now to pay mortgage off before retirement and throwing extra into taxable. If market drops like it did in March will switch gears and put all extra into taxable. Reducing the amount of the mortgage opens up more options down the road if needed also. Probably no right or wrong answer for this. A matter of personal preference. Some people absolutely hate debt. Others see it as a way to leverage and use more cash flow for investing. Using leverage in the case of a mortgage is probably the best choice mathematically. We chose to do a bit of both.

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                    • #11
                      When my mortgage was young and large I paid a bit extra mainly as a risk/lifestyle inflation behavior control mechanism. I wanted to be sure that if rates increased I would be able to comfortably pay the mortgage by continuing to pay the same amount. Now that it's half paid off and the consequences of a rate increase are much smaller and inflation has reduced the debt it feels less urgent and I am no longer prepaying it. On a numerical basis the opportunity cost was substantial but I wasn't willing to risk losing my home if rates jacked up.

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                      • #12
                        Welcome to your senses.

                        I always paid off any debt within 3-5 years, no matter what it was. It was not at the cost of investing. As Tangler said, no mortgage means more cash flow that can go toward investing, and no interest to a slaveowner, no foreclosure risk, no refinance costs, etc. I have more in my tax advantaged retirement accounts and taxable cash/investment accounts than anyone I know at my age.

                        If Peds was correct, why do the wealthy prefer to live debt free and pay cash?

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                        • #13
                          Originally posted by Shant View Post
                          When my mortgage was young and large I paid a bit extra mainly as a risk/lifestyle inflation behavior control mechanism. I wanted to be sure that if rates increased I would be able to comfortably pay the mortgage by continuing to pay the same amount. Now that it's half paid off and the consequences of a rate increase are much smaller and inflation has reduced the debt it feels less urgent and I am no longer prepaying it. On a numerical basis the opportunity cost was substantial but I wasn't willing to risk losing my home if rates jacked up.
                          Were you using an adjustable rate mortgage?

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                          • #14
                            Originally posted by Peds View Post

                            you are only playing the game against yourself.
                            however its definitely the wrong move.
                            It is only the wrong move if your end goal is to have as much money as possible.

                            If your goal is to be debt free while still meeting your savings/retirement goals, paying off the mortgage early is the right move.

                            Again, it's all personal.

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                            • #15
                              my perspective on this kind of thing is that when you are deciding between 2 very good decisions it is very hard to be "wrong."
                              we have a relatively large mortgage still ~1.8X, it's low interest and even lower w/ tax deduction obviously. 20% savings rate since day #1 as attending.
                              again i just think it's hard to screw this up. if we pay more on it, we win. if we save more for retirement, we win. if we spend the excess money, we still win.

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