TipTanks

Yeah, the catch is I have to be investing what I would otherwise be using accelerating the mortgage payoff. We max out both HSAs, 401k (pre-tax amount), and do a backdoor roth conversion in IRAs. The next goal is to max out the total allowable ~$61k contribution to 401k somehow. Once I'm doing all that, I will worry about paying down the mortgage--if I have any spare cash


Yeah, it's 2.25% fixed and no PMI on a 95% LTV loan. (Navy Federal CU)

TransWorld

I know it is good I am using that money in investments. That is good. It really is.

Compare if you used your emotions to fly through an emergency, compared to using your intellect and knowledge. It is tough not to panic in an emergency, but you have trained yourself otherwise.

Benjamin Graham, the legendary investment writer said, “The investor’s chief problem - and his worst enemy - is likely himself.”

Armyguy

what investment return percentage are you “hoping” for?

why not take the biggest Home Equity Line of Credit and invest it since you assume market returns are basically guaranteed.

paying off a mortgage is a guaranteed return on your money.

tnkrdrvr

Only if you are able to continue living in it. Natural disaster, man made disaster, and life circumstances could all force you out of that house. At that point you are at the mercy of the housing market or insurance, assuming you pay that after paying the house off. All this, merely to say there are no truly guaranteed payoffs. That said, ensuring your home is paid off well before retirement is a wise move in my opinion. It’s also true that a 2.25% mortgage paid off over 30 years with vastly depreciated money is also a good return, assuming your income at least keeps up with inflation.

aerogrd77

Although everyone needs a place to live and it’s nice to have a paid off house you never end up owning it anyway. My parents who live in jersey paid their house off more than twenty years ago, yet owe more in property tax now per month than the mortgage payment originally was. There’s something wrong with that in my opinion. Reality is you’ll never “own” your home. The property tax bill will always be there, unable to be paid off, unlike the mortgage. Better than renting I guess, but you’ll still pay “rent” with a paid off home.

Armyguy

Mortgage interest is an expense. Paying off a house is eliminating an expense.

what rate of return do you plan for when investing in the market instead of eliminating the mortgage expense?

SonicFlyer

Yes, correct, taxation is theft.

TransWorld

1. I am planning for 8% per year return on my investments. I have been averaging more than that, in reality, for a number of years. Some years more, some years less. But that is the average.

2. I have refinanced my mortgage, cashing out excess equity. That way, I can take a deduction for the interest. Unless you are using a Home Equity Line of Credit for a renovation or addition to your home, it is usually NOT deductible.

3. Paying off a mortgage is a guaranteed about 3% return on my money. Doing what I have done allows me to come out much better over a number of years.

TransWorld

I base my investment return percentage from a Monte Carlo simulation run every year, with my plan of withdrawals (I am retired).

What is a Monte Carlo? Imagine you have bingo balls put in a hopper. Each one has the percentage of stock market index return for a year, from 1925 (the first year we have good data) to last year (that includes the Great Depression). Draw them out until your assumed death year (in my case, assume age 100.) Each time put the ball you drew back in the hopper. Subtract your planned withdrawal for income.

Repeat this for 2500 iterations. You get a bell shaped curve of ending values. In almost every case (it is possible to draw a 1929 crash over and over and over again, but highly unlikely), my returns are greater than what I would get by paying off my mortgage.

This is a part of the basis for sound financial withdrawals and business decisions.

Armyguy

Whats the tax rate on your 8%? Whats your net after taxes?