5 ms·

An interesting thing I heard is that is not so convenient to pay off the mortgage earlier. Mortgages are debt with 1-3% per year. You could take the money you a

An interesting thing I heard is that is not so convenient to pay off the mortgage earlier. Mortgages are debt with 1-3% per year. You could take the money you already have and put it in an ETF covering the whole market which kept for a long time (10 years) in average will return you 5-8% per year. I also had the instinct of paying off the mortgage faster if I could until they explained me that. Never had chance to do it. I'm interested in hearing some expert opinion about it!

arcticbull 5y ago
Or even throw it in a Series I risk-free savings bond paying 8%. [edit] I'm not an expert but explained why I wouldn't do that personally in a peer to your reply.
- giorgioz 5y ago
  Your comment, though sarcastic, underlines some points I thought about myself and I would like to discuss it! We are both well aware that there is no risk-free investment. Governments bonds that are considered less risky that ETFs usually return 1-2% per year. The ETF I'm talking about maps a market index covering a big chunk of the US market or several stable international markets. They are still a risk, your house is also an asset and is also a risk. I think if you only have your mortgage as an asset then probably buying some ETFs would help diversify your assets. But if you already have a lot ETFs then maybe would be better to finish up earlier the mortgage...
  - arcticbull 5y ago
    Sorry if I came across that way, I wasn't being sarcastic at all. Series I bonds are essentially risk-free unless you think the US government plans to default within the next 1 year (which is basically the lock-up period). Series I bonds pay a coupon equal to CPI. The current Series I interest rate is 7.11%. It is variable, however, and capped at $10,000 in contributions per year (online). [1] [1] https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm https://www.treasurydirect.gov/indiv/products/prod_ibonds_gl...
  - dragonwriter 5y ago
    > I think if you only have your mortgage as an asset Your mortgage is a liability, not an asset.
    - arcticbull 5y ago
      It really isn't if the interest rate is below inflation. If it's below inflation, the mortgage is yielding real-dollar value. That's an asset in my eyes. It's a calendar spread. Last year, you were buying 2021 dollars for a fixed rate (2.675% APR in my case), but you different vintage dollars over time. You owe 2022 dollars in 2022, and 2031 dollars in 2031. A 2051 dollar is almost certainly going to be worth significantly less than a 2021 dollar. So you're buying 1 2021 vintage USD, but at the extreme, you're paying it back with 2.2 2050 dollars. If we expect inflation to be an average of say, 3% over that period, each 2021 vintage USD should be worth at least 2.42 2021 vintage dollars. So in this example, you're earning real dollars over this period.
      - dragonwriter 5y ago
        > It really isn't if the coupon rate is below inflation It's a liability in the amount of the balance. I suppose you could consider the present value of the “income” stream of the difference between inflation and interest over the life of the loan as an asset, but unless it's a very unusual loan, any income stream of that kind is likely to be a transitory effect, and interest is likely to be be a real as well as nominal expense considered over the life of the loan.
        arcticbull 5y ago
        Indeed, you are of course correct! I'm just hoping folks look at mortgages not as a strictly bad thing, but as a tool in their financial arsenal. They can be good! I think most folks are stuck in nominal dollar mode, and it can really help to look at things in real dollar terms. I think I may have been loose with my words.
bombcar 5y ago
It's a personal decision and can go either way, and depends on your cash flow and risk tolerance, and goals. There are many ways to look at it, and the financial aspects aren't always the most important ones. If you have higher debt (credit card, etc) you probably want to pay those off first. You may want to have ready cash available (stocks, ETFs, etc can be sold) - but once you put money back into your mortgage it can be hard to get it back out (HELOCs can affect this). You may find you're not good with savings, and paying extra "forces" you to save (people do this with taxes all the time, preferring to get a large refund as a "windfall" vs having some amount of money extra each paycheck). And it can all change AGAIN from a cash flow perspective - if you have a few years left on a ten year mortgage paying it down faster gets you to the point where you have no mortgage payment faster - that may not matter to you as much if you're 29 years left on a 30 year mortgage. Also paying down debt is a certainty, but ETF returns could do anything (we have had ten year periods of negative returns in the past). Conversely, inflation makes your debt load lesser, assuming your income inflates at some point.

arcticbull 5y ago

Or even throw it in a Series I risk-free savings bond paying 8%. [edit] I'm not an expert but explained why I wouldn't do that personally in a peer to your reply.

giorgioz 5y ago
Your comment, though sarcastic, underlines some points I thought about myself and I would like to discuss it! We are both well aware that there is no risk-free investment. Governments bonds that are considered less risky that ETFs usually return 1-2% per year. The ETF I'm talking about maps a market index covering a big chunk of the US market or several stable international markets. They are still a risk, your house is also an asset and is also a risk. I think if you only have your mortgage as an asset then probably buying some ETFs would help diversify your assets. But if you already have a lot ETFs then maybe would be better to finish up earlier the mortgage...
- arcticbull 5y ago
  Sorry if I came across that way, I wasn't being sarcastic at all. Series I bonds are essentially risk-free unless you think the US government plans to default within the next 1 year (which is basically the lock-up period). Series I bonds pay a coupon equal to CPI. The current Series I interest rate is 7.11%. It is variable, however, and capped at $10,000 in contributions per year (online). [1] [1] https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm https://www.treasurydirect.gov/indiv/products/prod_ibonds_gl...
- dragonwriter 5y ago
  > I think if you only have your mortgage as an asset Your mortgage is a liability, not an asset.
  - arcticbull 5y ago
    It really isn't if the interest rate is below inflation. If it's below inflation, the mortgage is yielding real-dollar value. That's an asset in my eyes. It's a calendar spread. Last year, you were buying 2021 dollars for a fixed rate (2.675% APR in my case), but you different vintage dollars over time. You owe 2022 dollars in 2022, and 2031 dollars in 2031. A 2051 dollar is almost certainly going to be worth significantly less than a 2021 dollar. So you're buying 1 2021 vintage USD, but at the extreme, you're paying it back with 2.2 2050 dollars. If we expect inflation to be an average of say, 3% over that period, each 2021 vintage USD should be worth at least 2.42 2021 vintage dollars. So in this example, you're earning real dollars over this period.
    - dragonwriter 5y ago
      > It really isn't if the coupon rate is below inflation It's a liability in the amount of the balance. I suppose you could consider the present value of the “income” stream of the difference between inflation and interest over the life of the loan as an asset, but unless it's a very unusual loan, any income stream of that kind is likely to be a transitory effect, and interest is likely to be be a real as well as nominal expense considered over the life of the loan.
      - arcticbull 5y ago
        Indeed, you are of course correct! I'm just hoping folks look at mortgages not as a strictly bad thing, but as a tool in their financial arsenal. They can be good! I think most folks are stuck in nominal dollar mode, and it can really help to look at things in real dollar terms. I think I may have been loose with my words.

bombcar 5y ago

It's a personal decision and can go either way, and depends on your cash flow and risk tolerance, and goals. There are many ways to look at it, and the financial aspects aren't always the most important ones. If you have higher debt (credit card, etc) you probably want to pay those off first. You may want to have ready cash available (stocks, ETFs, etc can be sold) - but once you put money back into your mortgage it can be hard to get it back out (HELOCs can affect this). You may find you're not good with savings, and paying extra "forces" you to save (people do this with taxes all the time, preferring to get a large refund as a "windfall" vs having some amount of money extra each paycheck). And it can all change AGAIN from a cash flow perspective - if you have a few years left on a ten year mortgage paying it down faster gets you to the point where you have no mortgage payment faster - that may not matter to you as much if you're 29 years left on a 30 year mortgage. Also paying down debt is a certainty, but ETF returns could do anything (we have had ten year periods of negative returns in the past). Conversely, inflation makes your debt load lesser, assuming your income inflates at some point.