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Pay off my mortgage?
Posted by: stephen
Date: February 22, 2021 09:15PM
Backstory: I have two condos.

I have the opportunity to pay one of them off. The mortgage rate is very low, 2.75% with six years remaining in a 15 year mortgage. That's a great rate and normally, one would say, pay down that cheap money slowly.

But paying it off would eliminate 2/3 of my monthly living expenses and create a lot of cash flow I could then invest or save. Or, put towards the other mortgage.

Anyone dealt with this decision?
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Re: Pay off my mortgage?
Posted by: mattkime
Date: February 22, 2021 09:53PM
At 2.75% there's no rush to pay it off. Given the choice I'd put your extra money in the market and keep the monthly mortgage payment.

What are your other investment opportunities? What is your risk tolerance?

Some people would prefer to have a mortgage paid off because they'd get a feeling of security. No matter what market gains they'd be missing out on.

>But paying it off would eliminate 2/3 of my monthly living expenses and create a lot of cash flow I could then invest or save.

I don't understand how having monthly income is better than your current lump sum.



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Re: Pay off my mortgage?
Posted by: stephen
Date: February 22, 2021 10:01PM
My risk tolerance seems to be fairly low. My lump sum is in money market funds right now, and has been for several years. I'm definitely going to do something smarter than that, but assessing options.

My time horizon is 5-8 years before I'm going to retire. 10 years max. The stock market might continue to go up in that time period, or it might not.

401K is in retirement-date funds (70%) and AAPL (30%).
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Re: Pay off my mortgage?
Posted by: mattkime
Date: February 22, 2021 10:22PM
IMO you might benefit from talking to a flat fee financial planner. You're planning to retire in as early as 5 years but you'll need your money to stick around for quite a while longer. You lump sum has slowly been worn away by inflation.

I like target date funds for the most part but I'd be tempted to change strategy near retirement - if you have a mutual fund that has both stock and bonds then you're selling BOTH stocks and bonds when you cash it out. If the market is down you'd much rather just sell the bond portion so you can wait for the stocks to recover.

Very good free advice but make an account under a screen name as they'll want you to tell them EVERYTHING - [www.bogleheads.org]



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Re: Pay off my mortgage?
Posted by: Acer
Date: February 22, 2021 10:55PM
A question A Certain Financial Personality asks is, "Would you borrow against your house to invest?" If the answer is no, then pay off the mortgage.

The amount in question matters, too. If it's small, then the opportunity cost is correspondingly small. If you still have $X00,000 to go, well, that's a pretty big chunk of money to lock away in a house, unless you happen to live in a consistently hot market.

Speaking for myself, I paid mine off. But my mortgage was never very large, and I personally don't like being in debt.



Edited 1 time(s). Last edit at 02/22/2021 10:57PM by Acer.
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Re: Pay off my mortgage?
Posted by: Michael
Date: February 23, 2021 05:41AM
My first impulse was to suggest paying it off; you can easily make more than 2.75% in an SP500 fund. But, when you said your horizon was 5-8 years and that you're in money market but that you'll get into the market, I dunno. I think the market is pretty frothy right now (look at the Nasdaq yesterday and the futures today) and if/when the Fed stops their rather remarkable level of financial support of the economy I'd bet the market will decline substantially. And then go back up, but it could take some time. If you paid it off and kept the extra in money market, you'd save the 2.75% interest, but you wouldn't make much on it (nor lose it if the market goes south!).

We got stuck in money market funds for several years around 2016 and 17. We had stayed in the market through thick and thin from 1981 through the big drops and recoveries. Somewhere in 2016 we decided that it just had to crash. So we got out and, of course, the market didn't crash. I kept waiting and waiting and then finally just went back in after a couple of years--knowing it would crash immediately! But it didn't until the smallish decline in 2018 and then the biggish one in 2020. Those 2 years were pretty costly in terms of lost opportunity but, of course, we didn't lose anything.

Having said all of that, when our mortgage was paid off a couple of years ago, just as I retired, it was VERY nice having the extra $700 a month. Add to that SS and that my net pension income was higher than my net work income and we've had more available cash than we've ever had before. It's been pretty nice just being able to spend modest to moderate amounts of money without thinking of budgets.

One thing that we do that is completely safe and pays us a modest amount of interest is to use high interest checking accounts. We have 9 of them that have anywhere from $3000 in each (TMobile Money associated with our cell phones) to $25,000. They pay anywhere from 2% to 4% in interest. To earn that I need to swipe debit cards 10-15 times per month for each as well as either pay a bill or have money deposited to the account. For the deposit, I just have Fidelity set up to deposit the minimum each month (and every several months move back the extra); for the swipes, I got a Square card and sit in my chair and swipe the minimum amounts required 3 or 4 times at a time and do it several times a month. Those swipes goes to one of the high interest accounts and sits there. It takes a few minutes at a time while I'm watching TV and we made north of $2200 in interest last year from those high interest checking accounts. I keep almost nothing in our Fidelity money market account; I use the high interest checking as our "safe money just in case" fund.
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Re: Pay off my mortgage?
Posted by: space-time
Date: February 23, 2021 05:47AM
what is the rate on the other mortgage?
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Re: Pay off my mortgage?
Posted by: NewtonMP2100
Date: February 23, 2021 07:28AM
......can you give one of the condos away to a forum member..........;)



_____________________________________

I reject your reality and substitute my own!
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Re: Pay off my mortgage?
Posted by: Speedy
Date: February 23, 2021 07:33AM
Given how you have been using your money, pay it off. Get it behind you and sleep well.



Saint Cloud, Minnesota, where the weather is wonderful even when it isn't.
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Re: Pay off my mortgage?
Posted by: sekker
Date: February 23, 2021 07:37AM
Quote
Speedy
Given how you have been using your money, pay it off. Get it behind you and sleep well.

This would be my recommendation as well. If you have better uses for the $$, do that. Otherwise, convert it over to peace of mind.
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Re: Pay off my mortgage?
Posted by: Paul F.
Date: February 23, 2021 08:12AM
Pay it off.

If bad financial times come, or you lose your job, DEBT is what will break you. No debt means you can subsist on that much less.

People playing games trying to show that being in debt is a GOOD thing are the ones that were screaming loudest in 2008-9 about how they were "underwater" on their loans.
Pay it off, and start investing that mortgage payment, or saving it, or buying hookers and booze - but, then you have the choice what to do with it!



Paul F.
-----
A sword never kills anybody; it is a tool in the killer's hand. - Lucius Annaeus Seneca c. 5 BC - 65 AD
----
Good is the enemy of Excellent. Talent is not necessary for Excellence.
Persistence is necessary for Excellence. And Persistence is a Decision.

--

--

--
Eureka, CA
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Re: Pay off my mortgage?
Posted by: stephen
Date: February 23, 2021 08:34AM
Quote
space-time
what is the rate on the other mortgage?

Here's the situation with both:

Atlanta (where I plan to retire)
$107,000, 2.75% for 15 years, 6 years remaining
$2038/month including P&I ($1466) and escrow ($547).
Interest $249/month.

Birmingham
$144,000, 3.75% for 20 years, 19 years remaining
$1030 / month including P&I ($889) and escrow ($174).
Interest $451/month.

The difference is, I can afford to pay Atlanta off.

Cutting monthly housing expense from $3130 to $1030 is pretty profound. (I'd still owe $547/mo in ATL property taxes at the end of the year, but saving it would be easy.)

Call it a reduction from $3130 to $1577 if you want to keep it honest about ATL property taxes.

I would save more interest on paper in paying down Birmingham, but wouldn't be able to pay it off for several years. Especially with the smaller cash flow from paying two mortgages.

The plan is to unplug from Birmingham and sell the loft when I retire. It won't appreciate a ton, but I shouldn't lose money on it either. Worth about $225K.
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Re: Pay off my mortgage?
Posted by: rz
Date: February 23, 2021 08:42AM
We paid our mortgage off a few years early, but our circumstances are different. We're actually about to buy a more expensive house. Our payoff amount was smaller than yours, and at a higher interest rate. Paying it off meant that we could buy the new house without having to sell the current one first and not have to worry about having two house payments if we can't sell the current one right away.
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Re: Pay off my mortgage?
Posted by: Bixby
Date: February 23, 2021 08:50AM
What about just dumping a lot of money into Birmingham, so you can pay that off that much earlier? The longer you're paying for it, the more interest you're paying.
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Re: Pay off my mortgage?
Posted by: stephen
Date: February 23, 2021 09:02AM
Quote
Bixby
What about just dumping a lot of money into Birmingham, so you can pay that off that much earlier? The longer you're paying for it, the more interest you're paying.

It's definitely something to consider. But I also feel the need to maintain an emergency fund for six months of expenses.

With two mortgage payments, that emergency fund has to be larger.

I don't feel like I could pay more than $50K-$60K down on Birmingham if I'm going to continue to have two mortgages.
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Re: Pay off my mortgage?
Posted by: pdq
Date: February 23, 2021 09:25AM
Any tax implication? Do you itemize deductions? Is this your primary residence?
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Re: Pay off my mortgage?
Posted by: vicrock
Date: February 23, 2021 09:26AM
Are you splitting your time between ATL and BHM? An option would be to rent out the ATL condo - and offset some of that income with the mortgage deduction.
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Re: Pay off my mortgage?
Posted by: anonymouse1
Date: February 23, 2021 09:37AM
If you keep BHM, think about refinancing-15 yr mtgs are available around 2%.
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Re: Pay off my mortgage?
Posted by: stephen
Date: February 23, 2021 09:54AM
Quote
vicrock
Are you splitting your time between ATL and BHM?

Yes, I'm in each town every week.
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Re: Pay off my mortgage?
Posted by: mattkime
Date: February 23, 2021 10:37AM
I think you should consider your mortgage debt and payments together. I don't see a need for you to have two mortgages. You also have two financial concerns that are somewhat intertwined - your lump sum of cash and your monthly expenses. Getting rid of the Atlanta mortgage certainly increases your monthly cash flow but you should really consider refinancing your other property - seems like you could free up about $100/month with a lower interest rate.



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Re: Pay off my mortgage?
Posted by: davester
Date: February 23, 2021 12:07PM
Quote
mattkime
...you should really consider refinancing your other property - seems like you could free up about $100/month with a lower interest rate.

That was my first thought. Surely you could knock that 3.75% rate way down. I just refied my house at 2.375% 15 years (no cost loan).



"In science it often happens that scientists say, 'You know that's a really good argument; my position is mistaken,' and then they would actually change their minds and you never hear that old view from them again. They really do it. It doesn't happen as often as it should, because scientists are human and change is sometimes painful. But it happens every day. I cannot recall the last time something like that happened in politics or religion." (1987) -- Carl Sagan
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Re: Pay off my mortgage?
Posted by: NewtonMP2100
Date: February 23, 2021 12:10PM
.....won't knock it......'til I've tried it......



_____________________________________

I reject your reality and substitute my own!
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Re: Pay off my mortgage?
Posted by: sekker
Date: February 23, 2021 12:38PM
Yep, refi what you can, then pay off as much of whatever ends up being the higher interest rate loan with whatever you feel comfortable paying off.
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Re: Pay off my mortgage?
Posted by: norse
Date: February 23, 2021 12:52PM
I agree with the others...get rid of your debts first.



Edited 1 time(s). Last edit at 02/23/2021 12:53PM by norse.
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Re: Pay off my mortgage?
Posted by: space-time
Date: February 23, 2021 02:16PM
Pay more to the higher interest mortgage!
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Re: Pay off my mortgage?
Posted by: Paul F.
Date: February 23, 2021 02:30PM
Quote
space-time
Pay more to the higher interest mortgage!

If he gets RID of the lower one, he can then dump the money he was paying for that mortgage into paying off the higher one and get two birds with one stone.



Paul F.
-----
A sword never kills anybody; it is a tool in the killer's hand. - Lucius Annaeus Seneca c. 5 BC - 65 AD
----
Good is the enemy of Excellent. Talent is not necessary for Excellence.
Persistence is necessary for Excellence. And Persistence is a Decision.

--

--

--
Eureka, CA
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Re: Pay off my mortgage?
Posted by: stephen
Date: February 23, 2021 03:54PM
Quote
Paul F.
Quote
space-time
Pay more to the higher interest mortgage!

If he gets RID of the lower one, he can then dump the money he was paying for that mortgage into paying off the higher one and get two birds with one stone.

Did a call with my mortgage banker and that's what he recommends. They call it Snowballing. He says that will be more cost effective for me than doing another refi.
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Re: Pay off my mortgage?
Posted by: davester
Date: February 23, 2021 04:26PM
Quote
stephen
Quote
Paul F.
Quote
space-time
Pay more to the higher interest mortgage!

If he gets RID of the lower one, he can then dump the money he was paying for that mortgage into paying off the higher one and get two birds with one stone.

Did a call with my mortgage banker and that's what he recommends. They call it Snowballing. He says that will be more cost effective for me than doing another refi.

Why can't you do a refi as well? IMHO it is ridiculous to keep a 3.75% 20 year loan when you can almost certainly get around a no-cost 2.5% 15 year that would be around the same payment and save you probably $30,000 in interest over the long run. Also, if you are looking to refinance I would strongly suggest looking at mortgage brokers rather than banks. Here's one that you can get online rate estimates from pretty easily:
[www.provident.com]

Note that I had the initial mortgage on my house with these folks years ago and I just refinanced with them for 2.375% 15 year no cost.

.



"In science it often happens that scientists say, 'You know that's a really good argument; my position is mistaken,' and then they would actually change their minds and you never hear that old view from them again. They really do it. It doesn't happen as often as it should, because scientists are human and change is sometimes painful. But it happens every day. I cannot recall the last time something like that happened in politics or religion." (1987) -- Carl Sagan
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Re: Pay off my mortgage?
Posted by: stephen
Date: February 23, 2021 05:04PM
I'm not opposed to it, but.

My loan officer specializes in downtown Birmingham properties (there are some weirdnesses with intown condos, local laws, all the documentation, etc.) and not a lot of people make loans in this area.

Quite frankly, it's not worth his time. His business has quadrupled in the past year. He also notes that rates have ticked up a bit this week.

Also, some lenders balk at refis under 150K.

He ran some quick numbers and says even if for example, he did a 10 year refi at 2.5%, for the couple of thousand he would have to charge me in closing costs, why not just pay $1000 extra on the existing loan every month and save 42K in interest (22K vs 64K), and instead of being paid off in 19 years, be paid off in 8 years? Close to the same net effect.
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Re: Pay off my mortgage?
Posted by: stephen
Date: February 23, 2021 05:06PM
I think I'll start with the Snowballing, but also keep my eyes peeled for a refinance opportunity.
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Re: Pay off my mortgage?
Posted by: NewtonMP2100
Date: February 23, 2021 07:23PM
....uh, in my neck of the woods......'snowballing' means something else.......yuk.......!!!!



_____________________________________

I reject your reality and substitute my own!
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Re: Pay off my mortgage?
Posted by: Bill in NC
Date: February 26, 2021 07:26AM
Quote
Paul F.
Pay it off.

If bad financial times come, or you lose your job, DEBT is what will break you. No debt means you can subsist on that much less.

People playing games trying to show that being in debt is a GOOD thing are the ones that were screaming loudest in 2008-9 about how they were "underwater" on their loans.
Pay it off, and start investing that mortgage payment, or saving it, or buying hookers and booze - but, then you have the choice what to do with it!

Yep, I recently buried a relative who did the right thing...they refinanced their mortgage to 15 years after the kids moved out, planning on paying it off before retiring...but then got laid off 5 years into it, so refinanced back to a 30 year for the lower payment.

At over age 60 they never found another job...they had to cash in their pension to make it to Social Security at age 62.

With a combined mortgage and later HELOC payment of ~$1200/month versus SS as their only income (~$1800/month) they managed to stay in their home but had a very mean "retirement" for the decade or so before they died.

I paid off my modest home (half the size of the place I grew up) over a decade ago.



Edited 5 time(s). Last edit at 02/26/2021 07:29AM by Bill in NC.
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Re: Pay off my mortgage?
Posted by: stephen
Date: February 28, 2021 08:09PM
I paid it off! And it feels great.

I think I made the right decision for me.
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