I could pay off my mortgage 7 years early, but after doing the math I've found a better use for my money

Business Insider ^ | May 30, 2024 | Katie Oelker; edited by Avril Ayers

[where's_the_Outrage?]

A little over a year after my husband and I bought our house, we refinanced our mortgage.

Refinancing means paying closing costs again, but we'll break even after just four years.

We could pay off our 30-year mortgage in just 23 years with the money we save, but we're putting it in a brokerage account......

The pros and cons of refinancing our mortgage

Refinancing has pros and cons, and the decision to do so was one we didn't take lightly. One of the cons is that you typically have to repay closing costs. Anyone who has closed on a home knows that closing costs are typically thousands of dollars.

To justify paying closing costs again, our mortgage broker informed us that we would break even in four years. This meant the amount we paid in closing costs wrapped into our mortgage payment would be "paid off" in four years. Because we plan on living in our home for much longer than four years, we knew that we would benefit from a lower rate and increased monthly savings over the course of the mortgage.

On the flip side, one of the pros of refinancing is applying a lower interest rate to the duration of the mortgage. Since we are only 16 months into our 30-year mortgage, we will have a long time to take advantage of the lower rate. This lower rate, in turn, means a lower payment.

[Dutch Boy]

It also eliminates a financial liability if something goes wrong in the future.

[bert]

Amen....... The mortgage is an earning asset

[Empire_of_Liberty]

Yes. I would like to know how to get out from under it. “The Creed is Greed” seems to be the motto of state government. All around me, farm land is being turned into roach motels for alien invaders. The State has to be swimming in money. That only seems to make them more greedy.

Still, you have to pay the same taxes, with or without, your mortgage.

[woodbutcher1963]

Where do you propose getting the taxes if you lower the property taxes?
Income tax?
Sales tax/consumption tax?(IMHO the only fair tax)

The GOOD thing about property taxes is that I get to vote on them in MY TOWN. Any bond proposal has to pass by a 60%(NOT 50.1%) majority. The spending is controlled locally. Not by the state government.

[Lonesome in Massachussets]

I have a $160k mortgage @ 3.25% on a house worth roughly 500k, and over 400k in the bank earning more than that 3.5%. I will pay off the mortgage when CD’s pay less over the long term. (I also have roughly 2M in my 401k, so I have little anxiety about paying off the mortgage.)

I think the issue is self discipline and awareness. If you refinance the house to finance a new car (I drive a 2014 Corolla, great car!) or Hawaiian vacation, it’s probably a bad idea. If you can hold on to money and watch returns and interest rates, you’ll come out ahead not paying off your mortgage.

If you can afford a better car, or nice vacation, more power to you, money is here to help you enjoy life. I do not recommend being a miser, but live sensibly, and decide what you can afford.

[USAF1985]

Paid off our mortgage early during COVID and the depressing 2020 election. Being completely debt free is a complete relief. Since my retired pay was paying the mortgage, it took me almost a year to get used to the fact I had extra money in the bank every month!

[metmom]

Well, if you have no mortgage you are not paying interest on it and you can then invest the money in interest bearing accounts.

It’s a win in my book.

Plus after seeing some friends of mine lose a house to a greedy mortgage company because of a couple missed payments because of a mental health crisis the husband had, and they offered to make up the missed payments, which the lender refused, I have concluded that mortgages are not worth the risk if it’s at all possible to avoid them.

[mikelets456]

Seriously? You never own your property and government can confiscate it if you don’t pay or can’t pay the flat fee (regardless of what you make)-—lastly, you have heard of areas that double and triple property taxes then people lose their homes. This is flat out confiscation.

Then have an EIT for that area or abolish public schools-—they’re corrupt crap indoctrinating kids, with our money, making them into anti-Christian nuts.

You will never convince me that property taxes are “:right and just”-—they aren’t!

[Seruzawa]

If everyone paid off their mortgages early there would be less need for these “specialists.”

[Alberta's Child]

That's all true, but the last few years of your mortgage are beyond the window of time when the "pre-payment" scenario vs. the "invest excess cash" scenario pass their inflection point anyway.

I'd also point out that your particular situation has been magnified by the tax law changes in 2017 that increased the standard deduction dramatically. It's something like $27,000 right now for a married couple.

[montag813]

Shitcoins!

[Alberta's Child]

Here's the math for you. Consider a scenario where you have a $300,000 mortgage that carries a 3% interest rate, fixed for 30 years (this is comparable to what I am dealing with myself).

1. The monthly payment on this mortgage (not including taxes and insurance) is $1,264.81.

2. Suppose you have the ability to make a monthly payment of $1,500 without any sacrifice to your living standards. This represents an excess monthly payment of $235.19.

3. If you follow this strategy, you will pay off the 30-year mortgage in 23 years and 2 months. We will call this Scenario A.

4. In Scenario B, you invest the extra $235.19 every month in a set of diversified investments that yields an average annual return of 7%.

5. In Scenario B, the balance in your investment account will exceed the remaining balance on your mortgage after 17 years and 3 months. THIS is the point of time when you should consider paying off the mortgage in its entirety, if that makes the most sense for you.

6. Note that Scenario B is not a case where a "market crash" is a catastrophic turn of events. You are investing in relatively stable long-term assets like stock market index funds, government bond funds, and maybe even a small investment in some real estate investment trusts and precious metals. There will be ups and downs along the way, and if you are diligently investing the same $235.19 every month then you are wisely adopting a well-established investment strategy called dollar cost averaging that will yield the best results in the long term. You will be buying more shares in each mutual fund when the market declines, and fewer shares as the market is strong.

Please tell me how this math DOESN'T make sense.

[woodbutcher1963]

Yes, the standard deduction was $25,000(I believe) when I made the decision to pay it off. In addition, my last mortgage was only $70K. This was almost 14 years ago. When a house was $270K. I also was selling an existing house for $260K. That I had paid $175K for. My largest borrow was $100K on my first house in 1990 on a $125K house.

[webheart]

Bragging

[caver]

“I hard all this before from the guys who put their money into flipping houses.”

If you can’t buy a house with cash and put out the money for upgrades with cash, then you have no business buying a flip house.

[woodbutcher1963]

I did not say they were RIGHT or JUST.
My point is they are better than the alternatives available with the exception of a consumption tax.

The problem with any state wide taxes is that the legislature and governor can increase those taxes by a 50.1% vote of the government.

I have witnessed in the MA where they had a state wide referendum to lower the income tax from 5.5% to 5.0%. It passed by large majority. Then the MA legislature decided to vote against it. Even though they had a large budget surplus.

With a property tax here in NH we vote locally. We vote on the budget of the town and school systems.

[AppyPappy]

I paid $189k for my previous house and sold it for $420k. We bought this house (much larger, more land) for $320k. Life without a mortgage feels pretty good.
Keep in mind, it is very difficult to get a mortgage in this town. Too many DYI mods that won’t pass inspection. A neighbor told us “He had every tool that Craftsman made and didn’t know how to use any of them”.

[cgbg]

The joke in our small town is that no matter what the question is the answer is “no”.

Lol.

[woodbutcher1963]

Almost all of my property taxes goes to fund the local school system. Mandated in the NH CONSTITUTION.
So, we have to pay for schooling for X amount of students.
The cost/pupil goes up every year. The variable is how old are the buildings. How long has the average teacher been in the system. Meaning their salaries go up as they get older until they retire.

Similar to the fact that my town has been looking to purchase a new pumper/tanker fire truck for about six years. In that time period the price or that truck has gone from around $700K to $1MILLION DOLLARS. We are going through all this right now. The cost per student is now over $20K/year. Which is ridiculous. Then if you need to build a new school it is not just single millions, it tens of millions.

[metmom]

My mom had a 40 year mortgage many years ago and her mortgage payments were $50/mo.

She told me that she only had five years left on it to pay. I knew she had the money and encouraged her to pay it off. She decided to and even at the end of the mortgage, she saved almost half of what she would have paid out had she continued to pay it.