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Started By
Message
re: Paying off home mortgage vs investing
Posted on 10/24/17 at 4:58 pm to LSUgal1988
Posted on 10/24/17 at 4:58 pm to LSUgal1988
quote:
3.2% rate
quote:
Paying off home mortgage
Not no. But HELL no.
0
Posted on 10/24/17 at 5:01 pm to iknowmorethanyou
quote:
I've averaged 12% annual returns in my lifetime.
What is so difficult to believe about that, my 37 year average return is in the same ballpark.
Since 1980-2017 the Dow average return with dividends reinvested was 12%, S&P500 11.2%
Those that bought decent mutual funds, dollar cost averaged their contributions, and didn't try to time the market have done well.
Posted on 10/24/17 at 7:35 pm to LSUgal1988
quote:
I believe firmly that our 30 year mortgage at about a 3.2% rate is essentially free money
You are correct. I have a similar mortgage and intend to pay the minimum all the way.
1. If you itemize deductions, your rate effectively goes down. For example, if you're in the 25% tax bracket your 3.2% note is really a 2.4% note.
2. The Federal Reserve is targeting a long-term inflation rate of 2%. So your note really only costs you 0.4%
So investing in paying off your mortgage is like getting a 0.4% real return for 30 years or however long you have left. That's terrible.
Posted on 10/24/17 at 8:03 pm to LSUgal1988
The math will always say to invest, but ask yourself a few questions....
When your house is paid off, will you re-mortgage it if a low interest rate is available?
Do you care if you have a mortgage in retirement?
At some point we all would say we would rather own it outright, but everyone is different.
Personally, I want rid of my mortgage ASAP regardless of interest rate. No MT ballers have mortgages, or so I hear...
When your house is paid off, will you re-mortgage it if a low interest rate is available?
Do you care if you have a mortgage in retirement?
At some point we all would say we would rather own it outright, but everyone is different.
Personally, I want rid of my mortgage ASAP regardless of interest rate. No MT ballers have mortgages, or so I hear...
Posted on 10/24/17 at 8:27 pm to dragginass
quote:
No MT ballers have mortgages, or so I hear...
Whether you think I'm a MT baller or not is your call, but I traded mortgage-backed bonds for three years and have a Master's in Finance.
A 30 year mortgage at 3.2% is stupid cheap. I have one myself and it's a big reason why if I ever move that I will rent my property rather than sell it.
Using other people's money (aka debt) can be a way to become very wealthy provided you're smart about it. Or it can be a way to poverty and ruin if you aren't. What gets people into trouble is that they borrow money and then spend it on stuff that generates no (or negative) return, like vacations, depreciating assets, etc.
Posted on 10/24/17 at 8:43 pm to foshizzle
I agree, which is why I don't make any extra payments on current 3.75% mortgage.
Posted on 10/24/17 at 9:25 pm to foshizzle
I get it, and I don't disagree with you. Depending on how much of one's income is going to mortgage payments,and outside(of residence) investments, it may not be a big advantage though. Dependent upon that, someone may simply prefer to own everything in their life outright. That's me.
Side question- and what point would you say mortgage rates aren't worth market risk of investing the difference? 6%? 8%?
Side question- and what point would you say mortgage rates aren't worth market risk of investing the difference? 6%? 8%?
Posted on 10/25/17 at 3:49 pm to jimbeam
quote:
Just pointing out that there are and were historically better investments than paying off a mortgage early (As common as the stock market). Not sure how this is arguable.
I wasn't arguing the fact there were not better investments, she clearly was being sarcastic there. I doubt she actually meant she thought it was literally the best investment in the world at the time to pay off her house. I was disagreeing with your laughing emoticon.
I think its absurd to laugh at someone for paying off a debt instead of investing. That's like laughing at a 5 year old for saying they are the best baseball player in the world.
Sure investing intelligently is a great move, but paying off debts can be great moves too.
Posted on 10/25/17 at 6:05 pm to LSUgal1988
Pay off the mortgage and then invest in whatever you like. Nothing like being debt free.
Posted on 10/25/17 at 7:21 pm to baldona
Posted on 10/25/17 at 8:16 pm to Popths
quote:
Pay off the mortgage and then invest in whatever you like. Nothing like being debt free.
Thanks, but I prefer having more net worth.
Posted on 10/25/17 at 8:25 pm to LSUgal1988
My FIL is still paying on his house that he built in the 70's.
Continues to refinance it to free up investment money.
Seems like a good idea, but his investments are typically shite stocks that don't perform well.
I am not sure what his wealth is ( doubt its a lot, him and my MIL had ordinary careers) now compared to what it would have been had he paid off his house after 30 years, and invested with just the money he had available.
Continues to refinance it to free up investment money.
Seems like a good idea, but his investments are typically shite stocks that don't perform well.
I am not sure what his wealth is ( doubt its a lot, him and my MIL had ordinary careers) now compared to what it would have been had he paid off his house after 30 years, and invested with just the money he had available.
Posted on 10/25/17 at 8:26 pm to dragginass
quote:
Side question- and what point would you say mortgage rates aren't worth market risk of investing the difference? 6%? 8%?
That's a very complicated question but I'll try to give you a short answer anyway that won't be woefully adequate.
You need to consider your investment horizon (i.e. how long you can afford to not touch your investments). Generally speaking, it's a good idea to keep your investment horizon matched with the length of your loan.
So if you have a 30 year mortgage, it's reasonable to invest in equities instead of paying off early. The 30 year return from equities is highly likely to be better provided you stay in for 30 years. That means riding out a few crashes along the way and not panic selling.
If you have a mortgage that is only 3-4 years from being paid off, then it's a gamble that may or may not pay off and may not matter much either way.
But the fact that interest is tax deductible means paying off early is usually not a great idea unless you have a high rate. It's a tax shelter, after all.
Posted on 10/25/17 at 9:54 pm to East Coast Band
quote:
his investments are typically shite stocks that don't perform
That is the problem right?
Posted on 10/26/17 at 6:48 am to foshizzle
quote:
quote: Pay off the mortgage and then invest in whatever you like. Nothing like being debt free.
Thanks, but I prefer having more net worth.
That's great and all, but the irony of that statement is that your net worth must not be much. No one worth anything enough to brag about believes that. For one, you get to a point and your home net worth should be a minor portion of your total net worth. If you are needing that extra 10% of your net worth or whatever to invest then you are gambling more than investing. Secondly, you get to a point that you should absolutely stop leveraging your personal residence and potentially look to move it out of your estate. Once it is out of your estate it makes much less sense to have a mortgage.
So the whole idea of having a higher net worth because you have a mortgage, is like bragging about playing in AA ball. You aren't even close to the pros in reality.
Posted on 10/26/17 at 7:55 am to baldona
I love this thread. This is helpful thought processes for those of us not so savvy. I have changed my mind on paying of my mortgage in a lump some next year with the sell of my other propery. I think i will take those proceeds and just dca into funds and daughters 529 and pay a little extra every month towards mortage to meet somewhat all my needs. Thanks for all info from all sides.
This post was edited on 10/26/17 at 7:58 am
Posted on 10/26/17 at 9:14 am to baldona
quote:
You aren't even close to the pros in reality.
The entire banking industry is built on the idea of borrowing from depositors at a low rate and lending at a higher rate.
But I guess they aren't pros with million-dollar fortunes. Nope, they're all poor.
Posted on 10/26/17 at 9:35 am to foshizzle
Why would you pay off free money?
You can do better than 3% in the market, and with inflation potentially on the horizon, you're locked in at today's dollars.
You can do better than 3% in the market, and with inflation potentially on the horizon, you're locked in at today's dollars.
Posted on 10/26/17 at 12:22 pm to foshizzle
quote:
The entire banking industry is built on the idea of borrowing from depositors at a low rate and lending at a higher rate.
But I guess they aren't pros with million-dollar fortunes. Nope, they're all poor.
No shite, and they are pros with billions of dollars on hand. They make millions by investing with billions, its a different thing completely. You do realize that they go out of business and go bankrupt occasionally right? You think someone should go bankrupt with their personal residence? You are talking about an amateur looking to pay his likely sub $300k mortgage. Huge freaking difference.
Furthermore, you think hedge fund managers and the like have mortgages? lol. No.
The smart thing to do once you hit a certain level of wealth is to have a secure personal stash of money that you are safe with. Then you have your money you do your business with.
When you are truly wealthy, you don't invest with your personal residence.
This post was edited on 10/26/17 at 12:24 pm
Posted on 10/26/17 at 1:01 pm to LSUgal1988
I'm just a dumb MRI tech. I'd rather pay off the mortgage, then double down on investments.
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