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Just an update 4 years later. I did finally a refi, March 2022, with a low cost home equity loan at 2.74%. Just a drive by appraisal. The 15y term extended the payoff 5 years but the 10y rate was higher. Can pay it off any time but I just didn't want to give up the cash. Payment decreased $170. It's a trivial expense.
Pay it off as soon as you can!
For years,I was an advocate of the logic that as long as my cash assets were invested amd earning significantly more than my 3.625% mortgage, my best option was to stay invested. WRONG!
A recent death in the family resulted in an inheritance which could allow us to psy off tbe mortgage early if we so chose. I did the quick math and was shocked to discover that at our current monthly payment and loan balance amounts, I would need to earn 11.5% tax free income or 15.25% taxable income to break even with mortgage costs if I chose to invest the inheritance!
In 3 years DW will claim age 70 social security. In 2 more years a RMD. Paying down the mortgage just a few years from now will look different. For now the little mortgage is like shifting some of that future income to the present. Means I have more cash available for whatever comes up. I shouldn't have to borrow for anything.
For years,I was an advocate of the logic that as long as my cash assets were invested amd earning significantly more than my 3.625% mortgage, my best option was to stay invested. WRONG!
A recent death in the family resulted in an inheritance which could allow us to psy off tbe mortgage early if we so chose. I did the quick math and was shocked to discover that at our current monthly payment and loan balance amounts, I would need to earn 11.5% tax free income or 15.25% taxable income to break even with mortgage costs if I chose to invest the inheritance!
This seems misguided, like you’re including taxes and insurance in the equation, rather than just the interest… but good for you! It’s nice to have a paid for house, regardless of what got you there!
This seems misguided, like you’re including taxes and insurance in the equation, rather than just the interest… but good for you! It’s nice to have a paid for house, regardless of what got you there!
No, principal and 3.625% interest only. We have never had taxes or insursnce escrowed into the house payment. As I said, I was shocked at the results and performed the calcations frontwards,and backwards looking for an error. Never found one.
$733 monthly P&I payment x 12 = $8,796 annual payment total
$8,796 ÷ 0.75 (assume 20% Federal and 5% State taxes) = $11,728 taxable investment income reuired
$11,728 ÷ $77, 000 (outstanding loan balance, rounded) = 0.1523
Therefore a taxable return of 15.25% required (rounded up)
No, principal and 3.625% interest only. We have never had taxes or insursnce escrowed into the house payment. As I said, I was shocked at the results and performed the calcations frontwards,and backwards looking for an error. Never found one.
$733 monthly P&I payment x 12 = $8,796 annual payment total
$8,796 ÷ 0.75 (assume 20% Federal and 5% State taxes) = $11,728 taxable investment income reuired
$11,728 ÷ $77, 000 (outstanding loan balance, rounded) = 0.1523
Therefore a taxable return of 15.25% required (rounded up)
Your math doesn't make sense - you're including the principle portion from your mortgage payment, but not the principle in your investment, so it drastically overstates the required return since you have to create the principle in your investment out of nothing.
Your math doesn't make sense - you're including the principle portion from your mortgage payment, but not the principle in your investment, so it drastically overstates the required return since you have to create the principle in your investment out of nothing.
Not in my view. If I have $77,000 in my hand I can pay off the mortgage to eliminate $733 per month in household living expenses, or I can invest it at 15.25% to provide an income stream that would elinate $733 per month in household expenses. Fat chance of that return!
Some will argue that I still have the $77K if I choose to invest it, but not really. With that sum fully dedicated to creating the necessary income stream to pay the mortgage it cannot be accessed for anything else.
On an assett or Net Worth comparison it is a wash. $77K increase in investment value versus $77K increase in home equity.
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