Is it a bad decision to payoff mortgage early

[rokkyroad]

It was a smart move. Very smart.

Calculate the interest you would have paid over the 15 years. Why pay for the house twice?

Paying loans off early puts money in your pocket big time. Don't let the bank or finance company tell you otherwise.

[PewDiePie]

I would say it is not a bad decision. Paying off your mortgage, essentially gives you a 30 year guaranteed rate of return of your interest rate. It will also give you piece of mind that you will likely not lose your house to foreclosure if you were to lose your job or have another major financial setback (you could still lose it to tax foreclosure if you don't pay property taxes).

thats why people still have choice to get choice take it or leave it .

[countryfree]

If the interest is fixed, keep the mortgage as it is, and invest your extra money elsewhere.

[wasserman99]

Way more important than savings rate vs. mortgage interest is mortgage interest vs. inflation (at least in the US, where the savings rate is practically 0%). It's probably one of the best times in history to get a fixed-rate mortgage (and pretty much any cheap debt you can get your hands on) in the US, but that doesn't mean it's a good time to get or keep/refinance a mortgage for you. Inflation/Fed rates have been astoundingly low, which has to eventually change, likely quite significantly where your debt is devaluing significantly faster than the interest rates you can lock into today with you having access to savings rates >0%. Of course, right now, you could use all these different "accelerated checking" schemes (credit unions in particular are good for this, but they're always named something different) which actually pay decent interest (~5% annually) if you jump through a bunch of hoops (generally, something like ACH deposit 1-3 times [Paypal] and use your debit card 5-12 times [Amazon Prime membership will do you well, here, though Meritline can be a great choice, too]), and they usually have maximum deposit limits of $5k-25k.

Most mortgage balances are much higher then this so if you wanted to keep the entire amount in "checking" then you would have a much lower effective interest rate on the money you could use to payoff your mortgage with. It is also important to understand that these interest rates on checking deposits are not guaranteed to last forever, while you are guaranteed to be due for a set amount of interest (based on the outstanding unpaid principle) until you pay off your loan.

Another point is that if you were to pay off your mortgage then you can get a guaranteed return on this money over 30 years (you no longer need to pay interest on the money you use to pay off your debt). On the other hand, if you were to invest in anything but treasury bonds, you would be taking on some level of risk and your return would not be guaranteed. When comparing paying off your mortgage verses investing in treasury bonds, paying off your mortgage would be a better investment.

Finally if you were to pay off your mortgage, you could then use the money you would use as a mortgage payment to invest in something over time, using dollar cost averaging, preventing you from investing all of your money at the market top.

[DannyElfman]

Basically you would be better of keeping it if you can yield an average of >4.4% ROI AFTER taxes. But keep in mind, that you should never invest money that you don't yet own. So basically you would lever yourself.

THough decision, I would have paid it off too.

[TRYpolar]

Basically you would be better of keeping it if you can yield an average of >4.4% ROI AFTER taxes. But keep in mind, that you should never invest money that you don't yet own. So basically you would lever yourself.

THough decision, I would have paid it off too.

It is very difficult to get a guaranteed return that is this high. There are not many investments that even have an expected return of this much.

[DannyElfman]

Basically you would be better of keeping it if you can yield an average of >4.4% ROI AFTER taxes. But keep in mind, that you should never invest money that you don't yet own. So basically you would lever yourself.

THough decision, I would have paid it off too.

It is very difficult to get a guaranteed return that is this high. There are not many investments that even have an expected return of this much.

Exactly, so you would need to take on extra risk and then if you perform negatively, you might have trouble paying back. Thus overleveraging yourself.

[galbros]

The way to think about it is what else you could have invested the money in? (beetcoin alludes to this)  As long as you paid off all your other debts first, paying off your mortgage could have been a great call.  With interest rates so low, there probably was not a lot of other investments you could make that would have guaranteed you more than your 4.4% rate (less tax deduction).  That is still a pretty amazing rate though....

[boraf]

When lending rate is low and inflation is high, it is usually better off to delay payment as late as one can.

[Baitty]

I was always under the thought the faster you pay it the more weight is off your shoulders so I don't quite understand why others are disagreeing.

[DannyElfman]

I was always under the thought the faster you pay it the more weight is off your shoulders so I don't quite understand why others are disagreeing.

because people think that investing the money instead of paying it back will yield a higer return than the 4.4%.

But those guys don't think about taxes and risk.

[unpure]

I was always under the thought the faster you pay it the more weight is off your shoulders so I don't quite understand why others are disagreeing.

because people think that investing the money instead of paying it back will yield a higer return than the 4.4%.

But those guys don't think about taxes and risk.

You only pay tax on gain. As for risk, you can always buy investment grade bond which offer higher than 4.4% yield.

[Mobius]

I was always under the thought the faster you pay it the more weight is off your shoulders so I don't quite understand why others are disagreeing.

because people think that investing the money instead of paying it back will yield a higer return than the 4.4%.

But those guys don't think about taxes and risk.

You only pay tax on gain. As for risk, you can always buy investment grade bond which offer higher than 4.4% yield.

Investment grade bonds will carry risk. If you are earning 4.4% on an investment grade bond, then your expected return (after accounting for defaults) is going to be closer to 2 or 3%, however your actual return may be less. When you payoff your mortgage the return is 100% guaranteed.

[Kluge]

Way more important than savings rate vs. mortgage interest is mortgage interest vs. inflation (at least in the US, where the savings rate is practically 0%). It's probably one of the best times in history to get a fixed-rate mortgage (and pretty much any cheap debt you can get your hands on) in the US, but that doesn't mean it's a good time to get or keep/refinance a mortgage for you. Inflation/Fed rates have been astoundingly low, which has to eventually change, likely quite significantly where your debt is devaluing significantly faster than the interest rates you can lock into today with you having access to savings rates >0%. Of course, right now, you could use all these different "accelerated checking" schemes (credit unions in particular are good for this, but they're always named something different) which actually pay decent interest (~5% annually) if you jump through a bunch of hoops (generally, something like ACH deposit 1-3 times [Paypal] and use your debit card 5-12 times [Amazon Prime membership will do you well, here, though Meritline can be a great choice, too]), and they usually have maximum deposit limits of $5k-25k.

Most mortgage balances are much higher then this so if you wanted to keep the entire amount in "checking" then you would have a much lower effective interest rate on the money you could use to payoff your mortgage with. It is also important to understand that these interest rates on checking deposits are not guaranteed to last forever, while you are guaranteed to be due for a set amount of interest (based on the outstanding unpaid principle) until you pay off your loan.

Another point is that if you were to pay off your mortgage then you can get a guaranteed return on this money over 30 years (you no longer need to pay interest on the money you use to pay off your debt). On the other hand, if you were to invest in anything but treasury bonds, you would be taking on some level of risk and your return would not be guaranteed. When comparing paying off your mortgage verses investing in treasury bonds, paying off your mortgage would be a better investment.

Finally if you were to pay off your mortgage, you could then use the money you would use as a mortgage payment to invest in something over time, using dollar cost averaging, preventing you from investing all of your money at the market top.

Well, you can have more than one bank/CU account open -- but yeah, the more you have, the more time you'll have to spend meeting their hoop-jumping requirements, but this shouldn't be more than an hour per month per account (and this could be scripted if more than a couple accounts are needed to be open). While interest rates are at historical lows, checking/savings rates have virtually nowhere to go but up, which is why the fixed rate available in HELoCs are so attractive. I'm not interested in them, ATM -- I don't want so much at stake and would be surprised if I could get a HELoC at a good rate, but I'm always on the search for 0% credit card promos.

[Mobius]

Way more important than savings rate vs. mortgage interest is mortgage interest vs. inflation (at least in the US, where the savings rate is practically 0%). It's probably one of the best times in history to get a fixed-rate mortgage (and pretty much any cheap debt you can get your hands on) in the US, but that doesn't mean it's a good time to get or keep/refinance a mortgage for you. Inflation/Fed rates have been astoundingly low, which has to eventually change, likely quite significantly where your debt is devaluing significantly faster than the interest rates you can lock into today with you having access to savings rates >0%. Of course, right now, you could use all these different "accelerated checking" schemes (credit unions in particular are good for this, but they're always named something different) which actually pay decent interest (~5% annually) if you jump through a bunch of hoops (generally, something like ACH deposit 1-3 times [Paypal] and use your debit card 5-12 times [Amazon Prime membership will do you well, here, though Meritline can be a great choice, too]), and they usually have maximum deposit limits of $5k-25k.

Most mortgage balances are much higher then this so if you wanted to keep the entire amount in "checking" then you would have a much lower effective interest rate on the money you could use to payoff your mortgage with. It is also important to understand that these interest rates on checking deposits are not guaranteed to last forever, while you are guaranteed to be due for a set amount of interest (based on the outstanding unpaid principle) until you pay off your loan.

Another point is that if you were to pay off your mortgage then you can get a guaranteed return on this money over 30 years (you no longer need to pay interest on the money you use to pay off your debt). On the other hand, if you were to invest in anything but treasury bonds, you would be taking on some level of risk and your return would not be guaranteed. When comparing paying off your mortgage verses investing in treasury bonds, paying off your mortgage would be a better investment.

Finally if you were to pay off your mortgage, you could then use the money you would use as a mortgage payment to invest in something over time, using dollar cost averaging, preventing you from investing all of your money at the market top.

Well, you can have more than one bank/CU account open -- but yeah, the more you have, the more time you'll have to spend meeting their hoop-jumping requirements, but this shouldn't be more than an hour per month per account (and this could be scripted if more than a couple accounts are needed to be open). While interest rates are at historical lows, checking/savings rates have virtually nowhere to go but up, which is why the fixed rate available in HELoCs are so attractive. I'm not interested in them, ATM -- I don't want so much at stake and would be surprised if I could get a HELoC at a good rate, but I'm always on the search for 0% credit card promos.

I used to apply/open credit cards with 0% interest rates, put everything I would normally buy on the credit card, then only pay the min payment and put the difference in a savings account and earn interest on what I would have paid to the credit card to pay it off, then once the 0% offer expires pay off the credit card. After a while of doing this I ran the numbers and it turns out that I didn't make very much doing this. It was a little bit like using a faucet (it wasn't this bad). Now especially what you can earn by doing this is even worse.

[DannyElfman]

I was always under the thought the faster you pay it the more weight is off your shoulders so I don't quite understand why others are disagreeing.

because people think that investing the money instead of paying it back will yield a higer return than the 4.4%.

But those guys don't think about taxes and risk.

You only pay tax on gain. As for risk, you can always buy investment grade bond which offer higher than 4.4% yield.

Yah but you can't deduct the 4.4% you pay from your gains.... So if you only get 4.4% on your investment you will lose about ~25% (of the 4.4%) depending on where you live.

[unpure]

Points being made here to delay paying off is you can use the money for business venture, which generally pay around 30% ROI per year. Not investing in low yield asset like bond.

[freedomno1]

I was so eager that I paid off a 4.4% $150k 15y mortgage in a few years. now some people are analyzing and suggesting that i should have run it out.
thoughts?

That isn't a bad thing you saved a fortune in interest costs and proved yourself a good lender.
It's more if you pay it off a month or two later that they get concerned and start issuing fees for settling early, basically it depends what type of mortgage arrangement you make originally.

[minime]

I was so eager that I paid off a 4.4% $150k 15y mortgage in a few years. now some people are analyzing and suggesting that i should have run it out.


thoughts?

just calculate how much interest you would save... you also could try to refinance it...

[BitCoinNutJob]

It was a smart move. Very smart.

Calculate the interest you would have paid over the 15 years. Why pay for the house twice?

Paying loans off early puts money in your pocket big time. Don't let the bank or finance company tell you otherwise.

If you have better place to park money or invest money then i cant see how paying off a mortgage early is a good idea.  Right now personally i havent even got a mortgage due to having better options with deposit money.  Not sure on my thinking atm.