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Old 09-23-2018, 03:39 PM
 
Location: Wooster, Ohio
1,037 posts, read 792,069 times
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I took out a 15 year mortgage in 1988 to build a house on land I had bought and paid in cash in 1986. The amount of money I needed was as much as the bank was willing to loan me.

Some years later, I read about a book called The Banker's Secret by Marc Eisenson. I also bought the software; a $25 diskette. By following his advice and paying as much as I could on the loan, I paid off the mortgage at the end of 1995.

The loan was at 9.5%. As interest rates dropped, I could have refinanced, but never did, because the upfront cost of refinancing greatly increased.

Once the mortgage was paid off, I was debt free. I used the money I had been spending on payments to buy a new car with cash, and then to contribute to deferred comp and IRA.

Thanks also to a state pension, my retirement income is greater than my working income. Had I not invested my savings, I would be retired at less than 80% of my salary (still a great deal, I admit) or still working. If I had taken out a 30 year loan and not prepaid, it would have been paid off this year. There is no way I would have retired with debt.
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Old 09-24-2018, 01:04 PM
Status: "Loving life, wife and job!" (set 23 days ago)
 
Location: USA
1,008 posts, read 395,579 times
Reputation: 2730
Quote:
Originally Posted by jrkliny View Post
This thread has been alive for 3 years and 40 some pages of posts. I am probably repeating myself but I will add my comments.


First I try to make decisions based on analysis. If my gut feelings don't agree, I look for the explanations and try to arrive at a resolution. When it comes to debt, most of us were trained to avoid debt and it feels good not to have any debts. That made a lot of sense generations ago. If you owned the farm, you could always get by. But if the bank owned it you could lose it. Few if any of us are in that situation. Having a mortgage means less money tired up in a house. That can mean a bigger emergency fund, more money to invest or to spend before we die.


Here is my story for what it is worth. When I retired 8 years ago, we sold the house. We added the money to our investment portfolio and took off to explore the US in our RV. Three years later we resettled and instead of plowing our equity from the previous house back in to a new house, we took out a mortgage for $330K. In 5 years that $330K we invested has returned enough to cover the cost of the mortgage and to grow by $100K.


There are those who will say we were just lucky. Not really, it is a matter of math. We are dealing with a 30 year fixed mortgage at well below 4%. A balanced portfolio is going to return way more than that. Now there are some restrictions on being able to borrow and invest. First the rate needs to be low enough. As rates are now climbing well over 4%, it becomes harder to do this. Remember your investment returns not only need to cover the mortgage but they need to be able to pay down the principal as well. Secondly you cannot do this without risk if you are living on the edge and must get those returns every year to pay the mortgage.


Again, you are best off if you do the analysis instead of going by what feels good.
Great story - thanks for sharing. I remember when my wife and I tripled up on our house payment to get it paid off. We did - just before the market took a huge dump in the late 2000's and she lost her job. If I had put that money in the market, I'm afraid that *poof* - it would have disappeared...at least for a few years anyway. We've been pretty disciplined about saving that payment since then but we do splurge a bit occasionally.
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Old 09-25-2018, 06:10 PM
 
6,341 posts, read 4,777,318 times
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In 2000 the stock market did not just go poof. The drop was not very big for the vast majority of stocks. Now if your wife lost her job and you could not meet expenses, having a lot of money tied up in the house would have been a major issue.


2008 is an even more powerful example. Many people lost jobs, sold stocks at the wrong time and they lost their houses because they were under water without equity. Taking a mortgage or avoiding paying it off early, means there is money to invest. Investing rarely means buying stocks exclusively. I invested in a portfolio of roughly 60% stocks. I also maintain an emergency fund to hold me over if markets drop.
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Old 09-25-2018, 08:04 PM
 
Location: Tennessee
23,739 posts, read 17,687,620 times
Reputation: 27811
Quote:
Originally Posted by jrkliny View Post
In 2000 the stock market did not just go poof. The drop was not very big for the vast majority of stocks. Now if your wife lost her job and you could not meet expenses, having a lot of money tied up in the house would have been a major issue.

2008 is an even more powerful example. Many people lost jobs, sold stocks at the wrong time and they lost their houses because they were under water without equity. Taking a mortgage or avoiding paying it off early, means there is money to invest. Investing rarely means buying stocks exclusively. I invested in a portfolio of roughly 60% stocks. I also maintain an emergency fund to hold me over if markets drop.
But those lessons are in each recession, and can be learned in each person's day to day. If the guy across the street loses his job, it's a recession. If I lose my job, it's a depression. That line of thinking.
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Old 09-25-2018, 08:34 PM
 
6,341 posts, read 4,777,318 times
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Quote:
Originally Posted by Serious Conversation View Post
But those lessons are in each recession, and can be learned in each person's day to day. If the guy across the street loses his job, it's a recession. If I lose my job, it's a depression. That line of thinking.
I agree and the relevance to this topic is that having money in hand is going to be better than having it tied up in a house. Instead of paying off low interest loans, it is better to keep the money. Start by building an emergency fund. Then look at investing before paying off a low cost loan.
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Old 09-26-2018, 01:51 AM
 
72,069 posts, read 72,068,214 times
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i agree , once that money goes in to the house it can't come out cheaply . you pay to gain access to that money so accelerating putting it in makes little sense most of the time .

the longer you have when you invest in equities the safer it can be, so losing time by sinking extra money in to a non liquid asset like a house can make your investments more time sensitive.

most times , people use market downturns and the likelihood of losing a job to try to support putting more in to the house but they would really be better served with more cash not more non liquid house equity . most heloc's were killed off in 2008 .
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Old 09-26-2018, 10:22 AM
 
6,341 posts, read 4,777,318 times
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Getting money out of a house often means selling the house. Lenders I have dealt with will not give a mortgage on a house that is already paid off. When refinancing is an option, they will only refinance for the amount currently owed. A HELOC is be no means the same as a mortgage. Rates are typically higher, the amounts lower and all sorts of restrictions apply.
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Old 09-26-2018, 12:08 PM
 
Location: equator
3,531 posts, read 1,563,392 times
Reputation: 8761
Quote:
Originally Posted by jrkliny View Post
Getting money out of a house often means selling the house. Lenders I have dealt with will not give a mortgage on a house that is already paid off. When refinancing is an option, they will only refinance for the amount currently owed. A HELOC is be no means the same as a mortgage. Rates are typically higher, the amounts lower and all sorts of restrictions apply.
Has this changed? My parents got a $250,000 mortgage on a paid-off 1.5 mil house back in 2002 for an addition.

Then again, in 2013 we were trying to get a loan against our paid-off 5 acres with a mobile home and no one would touch it with a 10-ft. pole, but I thought that was due to mobile home avoidance.
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Old 09-26-2018, 12:19 PM
 
Location: Ypsilanti, MI
2,461 posts, read 3,681,352 times
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We basically did the opposite. Were within ear shot of the end of our 15-year mortgage and refinanced it at low rates to invest the borrowed money in the market. We could pay off our Mortgage at any time, but earning 7-8% on money that costs us 3.5% is better than earning zero percent return on a zero investment balance. Our current total investment portfolio balance is approximately 16 times our current mortgage balance.


Definitely risk involved, not for everyone, and we need to be prepared to take appropriate action if returns plummet, but we are both comfortable with this leveraging.
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Old 09-26-2018, 04:59 PM
 
Location: Coastal New Jersey
56,389 posts, read 54,802,083 times
Reputation: 66904
I took out my first mortgage in 2010 at the age of 52, and it will likely outlive me.

But mebbe not. Now that I've killed off all other debt, I've been paying an extra $500 a month on the principal.
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