MBCBP
05-21-2024 | 05:07 AM
#71
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From: ir.delta.com
Im sure you know this, but you’d be much better of putting the extra principal in a high yield savings and letting it sit at 4.5%+. Use it to pay off the mortgage on retirement day, and you’ll be tens of thousands, if not a hundred grand ahead.
At 2.25%, your mortgage should be the very last thing you pay off.
At 2.25%, your mortgage should be the very last thing you pay off.
Last edited by notEnuf; 05-21-2024 at 05:19 AM.
05-21-2024 | 05:10 AM
#72
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From: DAL FO
It IS the very last thing I’m paying off 😉
Your math is absolutely correct IF each dollar that you would have used to pay down the house actually goes into savings AND continues to outperform your mortgage rate (admittedly likely with a rate in the 2’s). Most people will find a use for that cash that’s just piling up and it gets spent…not all that dis-similar to the namesake of this thread’s pro/con arguments.
Rate/Debt arbitrage is not a requirement to win the game of personal finance. If you have the discipline to do so, by all means go for it and enjoy your extra return. I’m looking forward to the big reduction in fixed expenses going out the door, and the associated flexibility to make this a part time job whenever the mood strikes.
Your math is absolutely correct IF each dollar that you would have used to pay down the house actually goes into savings AND continues to outperform your mortgage rate (admittedly likely with a rate in the 2’s). Most people will find a use for that cash that’s just piling up and it gets spent…not all that dis-similar to the namesake of this thread’s pro/con arguments.
Rate/Debt arbitrage is not a requirement to win the game of personal finance. If you have the discipline to do so, by all means go for it and enjoy your extra return. I’m looking forward to the big reduction in fixed expenses going out the door, and the associated flexibility to make this a part time job whenever the mood strikes.
05-21-2024 | 06:30 AM
#74
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From: DAL FO
I think I made 2 payments before I said that was enough. Poor capital allocation? Sure. Does a Delta pilot need lo leverage a car loan (or cheap mortgage)? No.
Call debt reduction poor allocation if you want. Simplicity vs optimization.
05-21-2024 | 07:16 AM
#75
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Joined: Dec 2007
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I also wiped out a 0% car loan they were begging us to take during Covid. The horror!
I think I made 2 payments before I said that was enough. Poor capital allocation? Sure. Does a Delta pilot need lo leverage a car loan (or cheap mortgage)? No.
Call debt reduction poor allocation if you want. Simplicity vs optimization.
I think I made 2 payments before I said that was enough. Poor capital allocation? Sure. Does a Delta pilot need lo leverage a car loan (or cheap mortgage)? No.
Call debt reduction poor allocation if you want. Simplicity vs optimization.
05-21-2024 | 09:15 AM
#76
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From: DAL FO
It's simple math. Your loan is at 0% amortized over several years. Plenty of money market accounts are yielding above 3% risk free. Simplicity comes at a high cost paying off that loan. Does a Delta Pilot need to leverage a cheap mortgage? No, but a cheap mortgage is basically free money that can be leveraged to build wealth. Paying off free money early is poor capital allocation.
I am saying most people, my household included, will be more likely to spend that cash than let it sit in your risk free MM acct which starts eroding the purity of the mathematical comparison. If you have a 2.5% mortgage you are essentially paying 2.5% interest on every latte, tank of gas, etc as long as that debt exists.
Hold while I get my pompous lecturing stick out, ahem: spending on anything while you are still paying interest elsewhere is poor allocation of capital. It’s just simple math 😂
Your Tesla is your status symbol. Mine is taking a month off whenever I want. Neither is a poor decision if you can afford to do it, and we’re both fortunate to be able to do so. Choices are good. Cheers.
05-21-2024 | 01:23 PM
#77
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Mis allocation of $30,000 for a car loan out of $3,000,000 net worth is only 1%. The after tax return on a 5% MM or CD is about 3%. The net effect is barely a rounding error.
Paying off $300,000 out of $3,000,000 net worth is a much larger mis application of capital, especially if you can deduct the mortgage interest. My preferred technique is keeping an account filled with SPAXX or FZCXX and drafting the monthly payments. It captures the return arbitrage AND removes the hassle of a house payment.
Bonus: In a tight financial situation or market collapse buying opportunity there is liquidity vs equity. Other than a GRAT or homestead exemption in a lawsuit, there are few times equity beats liquidity in a primary residence.
Paying off $300,000 out of $3,000,000 net worth is a much larger mis application of capital, especially if you can deduct the mortgage interest. My preferred technique is keeping an account filled with SPAXX or FZCXX and drafting the monthly payments. It captures the return arbitrage AND removes the hassle of a house payment.
Bonus: In a tight financial situation or market collapse buying opportunity there is liquidity vs equity. Other than a GRAT or homestead exemption in a lawsuit, there are few times equity beats liquidity in a primary residence.
05-21-2024 | 03:18 PM
#78
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Joined: Dec 2013
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Mis allocation of $30,000 for a car loan out of $3,000,000 net worth is only 1%. The after tax return on a 5% MM or CD is about 3%. The net effect is barely a rounding error.
Paying off $300,000 out of $3,000,000 net worth is a much larger mis application of capital, especially if you can deduct the mortgage interest. My preferred technique is keeping an account filled with SPAXX or FZCXX and drafting the monthly payments. It captures the return arbitrage AND removes the hassle of a house payment.
Bonus: In a tight financial situation or market collapse buying opportunity there is liquidity vs equity. Other than a GRAT or homestead exemption in a lawsuit, there are few times equity beats liquidity in a primary residence.
Paying off $300,000 out of $3,000,000 net worth is a much larger mis application of capital, especially if you can deduct the mortgage interest. My preferred technique is keeping an account filled with SPAXX or FZCXX and drafting the monthly payments. It captures the return arbitrage AND removes the hassle of a house payment.
Bonus: In a tight financial situation or market collapse buying opportunity there is liquidity vs equity. Other than a GRAT or homestead exemption in a lawsuit, there are few times equity beats liquidity in a primary residence.
05-21-2024 | 03:50 PM
#79
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Joined: Apr 2007
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I loaded up the account with my car loan balance and just have the car payment automatically drafted monthly. I never see it in my primary checking account. The "house loan payoff" is in longer term investments, but i do keep several months liquid in the same payment account. If needed, I could refill with quarterly distributions and dividends, but I usually just sweep the excess from my checking account and reinvest the returns.. FWP
05-22-2024 | 02:17 AM
#80
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Joined: Nov 2018
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Not disagreeing with the math, but I'd rather give to a charity than BofA for the tax benefit. Does not make sense to me to give a bank $20k to save $4k in taxes.
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