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yep , that is true . think about had you paid off that 30k mortgage well in advance and what that 30k mortgage being paid off represents today , barely the difference in not having a utility bill . in the mean time 30k invested since those days would be a lot of money .
The flaw with this thinking is assuming you invest in the right thing and assuming you pull your money out at the right time and nothing goes wrong. You're not accounting for risk. Paying off your mortgage yields you a lower rate of return on your money ...but it's a guaranteed rate of return. Also back then 30k was quite a bit of money with the perspective of what people made back then. $100 a week was considered good money. Now that's nothing. so i'm sure back then a 30k mortgage was similar to today, where people's mortgage is far more than their utility bill.
Last edited by Jlong2315; 10-02-2017 at 08:54 AM..
it always sounds so safe and secure not having a mortgage , but home equity is a one way street . you can't really spend the house without taking a loan against the house .
you may get a better rate but it is no different than not having the house and taking a loan . it is a one way door and that may not be the best idea . nothing beats cash and its liquidity for safety . taking loans can cost you money just at the worst times if you face unemployment for a while . not only that but 2008 saw lines of credit cancelled stranding people with no jobs and little free cash .
so each situation is different . if we pay cash when we buy it is because we already have enough invested assets and do not need anymore in that risk pool .
I think it generally depends on what percentage of your net worth the house is. For most Americans, the home equity represents more than 50% of their net worth. I wouldn't do it in that case. Unless you're the dude that claims he lives in a 30M house.
Around these parts, many people have 1M homes. Even then , hard to see most people retiring in this area on less than 1M liquid, unless they've really driven expenses down.
We paid off our condo last year. Since then we've been channeling money into several accounts. We (re)filled an emergency fund in the first 6 months. Then we put a lot into a taxable. Most recently we started on a down payment for the next condo. Of course, we're still maxing our retirement accounts... Thanks to a new CPA I even learned I could contribute some to a SEP-IRA....
I firmly believe in doing what you can to avoid sinking funds into depreciating assets. I respect that sometimes one just wants nice things to enjoy... like car or jewelry or a vacation... sometimes you work hard and you want to play hard too.. sometimes I feel that way... but I personally didn't go through the hassle of paying off a mortgage to buy more stuff. I did it to take us to the next level in financial stability. And I believe it really has made a difference. Maybe it was all a confidence issue, but I feel like money just comes in easier. Like I just invested $10k last month and now there is another $18k I need to move into long term savings. This happened before we paid off the mortgage every so often, but now it just happens a lot more.
This, mostly.
I'm financially independent at age 59 in the sense that I don't have to ever work again and I'll still live an upper middle class lifestyle. The house is paid for. The ski condo is paid for. The boat is paid for. I have enough money to run all three and live my desired leisure lifestyle I've done my whole life forever. My age 70 Social Security check would just about cover my cash flow including Medicare & supplemental premiums.
I continue to work because I want to retire with higher cash burn to fund those other discretionary spending things I enjoy. Car. Travel. Dining. Entertainment.
My personal finances are pretty much "max the 401(k), spend way less than I make, and scrape the excess out of my household checking account into savings & investment every couple of months". The longer I work, the more travel, dining, and entertainment I get to do when I retire.
My opinion and much of it learned from people like Mathjak107, is to grow your investments and pay off your house over time. For example I have a 3.25% interest rate which is cheap money. I also don't plan on retiring anytime soon. My wife and I have upped our retirement account to 15% of our income and plan on going to 20%. That money will grow over time and the home will get paid off either way.
it always sounds so safe and secure not having a mortgage , but home equity is a one way street . you can't really spend the house without taking a loan against the house .
you may get a better rate but it is no different than not having the house and taking a loan . it is a one way door and that may not be the best idea . nothing beats cash and its liquidity for safety . taking loans can cost you money just at the worst times if you face unemployment for a while . not only that but 2008 saw lines of credit cancelled stranding people with no jobs and little free cash .
so each situation is different . if we pay cash when we buy it is because we already have enough invested assets and do not need anymore in that risk pool .
You say this like once you pay off your mortgage you're planning to quit your job -_-. If you're not planning to quit your job then one of your largest bills will now be eliminated. Therefore not having a mortgage is safe and secure. You should have quite a bit of free cash with no mortgage payment. No you can't spend the house but you can spend the money you would have used on payments. If the economy crashes or you lose your job, you can afford to take a lower paying job if that's all you can find.
You say this like once you pay off your mortgage you're planning to quit your job -_-. If you're not planning to quit your job then one of your largest bills will now be eliminated. Therefore not having a mortgage is safe and secure. You should have quite a bit of free cash with no mortgage payment. No you can't spend the house but you can spend the money you would have used on payments. If the economy crashes or you lose your job, you can afford to take a lower paying job if that's all you can find.
What you lose by paying off the mortgage early is "time in the market", regardless of whether or not you keep working.
There are many scenarios in which I would rather invest smaller payments with 30 years of compounding than larger payments with only 15 years of compounding... particularly when the "rate to beat" over those 30 years is under 4%.
What you lose by paying off the mortgage early is "time in the market", regardless of whether or not you keep working.
There are many scenarios in which I would rather invest smaller payments with 30 years of compounding than larger payments with only 15 years of compounding.
I get it but You're still assuming there will be a gain and everything will work out as planned. If anything goes wrong your money gets stuck in the market or you take a huge lost. If you want your money out of your house you can just refi. Or buy a new house.
I don't think it's worth it, just to shave a few years off of your mortgage. If you can cut your balance in half or more, then sure. Or if you are nearing the end of your mortgage and can finish it off in one payment or just a few.
But if all you can do is contribute a few extra bucks each month, you are probably better off putting the money into an investment fund.
I get it but You're still assuming there will be a gain and everything will work out as planned. If anything goes wrong your money gets stuck in the market or you take a huge lost. If you want your money out of your house you can just refi. Or buy a new house.
I can see that. For me it's a function of the interest rate. At sub-4% mortgage rate, I think the rate is low enough that over 30-years, I'll come out ahead by investing, even if there are hiccups along the way. If the mortgage rate were 10% or higher I would be right alongside the rest of the posters clamoring to pay it down as soon as possible.
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