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> I was actually going to pay close to triple the sale price of the house if I waited the full 30 years. Did you adjust for inflation? Even at today's inflati

by mschaef 11y ago

> I was actually going to pay close to triple the sale price of the house if I waited the full 30 years. Did you adjust for inflation? Even at today's inflation rates, the dollars you pay in 30 years will be worth considerably less than the dollars you pay today. There's also an opportunity cost issue. Paying off your mortgage means not putting the money somewhere else. > you're really just throwing away money. No... you're paying for access to a resource that you don't have yourself. There's more utility in that than in literally throwing the money in the garbage.

brightball 11y ago
Matter of perspective I guess. When I looked at my early mortgage payments and 85% of the payment was interest so after 10 years I would have barely paid down the principle at all. To me, that feels like waste. I invested with steady 12-14% returns for 10 years and then watched it all get wiped out. The interest rate on paying of debt doesn't change. Granted, at current rates it's a lot tougher to make the argument for mortgage interest vs other types of debt. Nobody ever shows a compound interest chart with anything other than a steady interest rate (aka - 30 years of 10% return = millionaire!). A single negative or downturn can have a pretty dramatic effect on those projections. If you look at those same projection charts and take the amount you'd look to invest over the first 10 years, but put into into debt payment instead of investing so that you get everything paid off, then take that same amount you would have been investing, start investing it plus the money that you're no longer paying in monthly expenses then you'll find the end of the 30 year period to be an almost identical result. The only difference is that after 10 years you've eliminated virtually any risk of personal bankruptcy. If you can find something with a guaranteed long term return higher than the mortgage interest then it's another ballgame, but those are pretty hard to come by. Right now dividend investing seems to be the closest approach that generally lets you ignore the actual interest rates over time and instead focus on building cash flow. But this is one of those topics that is part math, part point of view and part personal comfort level. This was just my perspective.
- cfeduke 11y ago
  I largely agree with you on this. I focused on my mortgage and as a result I have less than a year of payments left. I didn't ignore investments either - roughly 10% of my income into the market - but I did not pay the minimum mortgage payment in favor of investments. There was a point a few years ago where liquidating the investments could pay off the mortgage. To me it seems that you can get some of the benefits of the emotional release of being debt free if you have the capability to liquidate and clear debt. While many people will make the argument that instead I should have paid the minimums and had more money invested with the net effect of reaching the liquidate/pay off point, I agree with the reasoning behind your argument: market volatility will not wipe out debt that has been cleared.
- mark-r 11y ago
  To fix the problem of all your payment going to interest, look at a shorter term. A 15 year mortgage is much less popular than a 30 year, but you start seeing a difference in the outstanding principle right away.
  - bcheung 11y ago
    You can always get a 30 and pay extra. Why give up that flexibility. In today's market interest rates are so low the difference between the 15 and 30 rate are negligible. Also, ask yourself why the bank wants you to take the 15? It's because they make more money that way. Nit from you directly but they have more money they can loan out the faster you pay it back. Plus they have leverage with the fractional reserve system.
- davvid 11y ago
  Nobody ever shows a compound interest chart with anything other than a steady interest rate (aka - 30 years of 10% return = millionaire!). A single negative or downturn can have a pretty dramatic effect on those projections. Exactly. NYTimes had an interesting visualization a few years ago that tracked the S&P 500 to show real-world results. It really shows the effect that doldrum years can have on returns: http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html?ref=business&_r=0 http://www.nytimes.com/interactive/2011/01/02/business/20110...

by mschaef 11y ago

brightball 11y ago

Matter of perspective I guess. When I looked at my early mortgage payments and 85% of the payment was interest so after 10 years I would have barely paid down the principle at all. To me, that feels like waste. I invested with steady 12-14% returns for 10 years and then watched it all get wiped out. The interest rate on paying of debt doesn't change. Granted, at current rates it's a lot tougher to make the argument for mortgage interest vs other types of debt. Nobody ever shows a compound interest chart with anything other than a steady interest rate (aka - 30 years of 10% return = millionaire!). A single negative or downturn can have a pretty dramatic effect on those projections. If you look at those same projection charts and take the amount you'd look to invest over the first 10 years, but put into into debt payment instead of investing so that you get everything paid off, then take that same amount you would have been investing, start investing it plus the money that you're no longer paying in monthly expenses then you'll find the end of the 30 year period to be an almost identical result. The only difference is that after 10 years you've eliminated virtually any risk of personal bankruptcy. If you can find something with a guaranteed long term return higher than the mortgage interest then it's another ballgame, but those are pretty hard to come by. Right now dividend investing seems to be the closest approach that generally lets you ignore the actual interest rates over time and instead focus on building cash flow. But this is one of those topics that is part math, part point of view and part personal comfort level. This was just my perspective.

cfeduke 11y ago
I largely agree with you on this. I focused on my mortgage and as a result I have less than a year of payments left. I didn't ignore investments either - roughly 10% of my income into the market - but I did not pay the minimum mortgage payment in favor of investments. There was a point a few years ago where liquidating the investments could pay off the mortgage. To me it seems that you can get some of the benefits of the emotional release of being debt free if you have the capability to liquidate and clear debt. While many people will make the argument that instead I should have paid the minimums and had more money invested with the net effect of reaching the liquidate/pay off point, I agree with the reasoning behind your argument: market volatility will not wipe out debt that has been cleared.
mark-r 11y ago
To fix the problem of all your payment going to interest, look at a shorter term. A 15 year mortgage is much less popular than a 30 year, but you start seeing a difference in the outstanding principle right away.
- bcheung 11y ago
  You can always get a 30 and pay extra. Why give up that flexibility. In today's market interest rates are so low the difference between the 15 and 30 rate are negligible. Also, ask yourself why the bank wants you to take the 15? It's because they make more money that way. Nit from you directly but they have more money they can loan out the faster you pay it back. Plus they have leverage with the fractional reserve system.
davvid 11y ago
Nobody ever shows a compound interest chart with anything other than a steady interest rate (aka - 30 years of 10% return = millionaire!). A single negative or downturn can have a pretty dramatic effect on those projections. Exactly. NYTimes had an interesting visualization a few years ago that tracked the S&P 500 to show real-world results. It really shows the effect that doldrum years can have on returns: http://www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html?ref=business&_r=0 http://www.nytimes.com/interactive/2011/01/02/business/20110...