Understand the mathematics of it, you get a guaranteed return of your interest rate. However, my mortgage is below 2.5% so I just don't see why I'd put extra money towards paying it off when I can buy almost any dividend stock and get better than 2.5% return...

I'm not old enough for double digit mortgage rates, but my dad always reminds me that his first mortgage was 17%..

Another side of this is that many think of their primary residence as a place that keeps you warm when it is cold, dry when it is raining and the central hub for all things family related. Its not about the money/income/appreciation. Knowing that if everything goes kattywumpus you will still have your house is peace of mind. How much is peace of mind worth?

I completely understand that sentiment, and a have never discouraged anyone from pursuing it. I just wonder why its often touted in FIRE strategies, which basically look to maximize passive income. While a primary residence can be a huge net worth driver, it isn't gonna help produce any income unless you're renting a room I guess...

I can also appreciate that I have a higher risk tolerance for investments, while also having a very stable income. I was just curious why others feel so strongly about it.

https://www.loanmarket.co.nz/calculators/extra-mortgage-repayments

I just inputted a $500k mortgage at 3% over 25 years with fortnightly payments, and an extra $100 voluntary payment every fortnight.

You save $30,000 over the mortgage and pay it off 3 years earlier.

Of course, that’s assuming your mortgage rate will be 3% average over 25 years. I doubt it’ll be that low. When the crash comes, expect it to shoot back up again.

Which of course would make the savings greater.

If you do exactly the same calculation, but change the interest rate to 6% (maybe a better average over 25 years) the savings are $71,000 bucks.

Not bad for an extra $50 payment a week.

rd

In my case, to pay for less flood insurance. Need to be covered up to the amount you owe. Since it's subsidized, the first 60k costs less per $ than the next 190k that you will most likely never need (250k is the max).

$100 a month at 5% return over 25yrs is $57k.. greater return

I understand the urge to be debt free, and the flood tax is new info for me which is awesome to know. However, calculations of how much you'd save will never beat a compounded return, at least not in this low rate environment. If you're looking at an adjustable mortgage, or investing in CDs, I get it. Otherwise it doesn't make sense

Not right now it doesn't due to interest rates and the current market. "Peace of Mind" is less important as one gets older. Once you know you won't ever be homeless, eh. Debt free is over-rated...just ask the US Government.

Paying off your mortgage isn't always about making a financial decision. It's sometimes about the feeling you have when you are debt free.

Leveraging real estate has made many people "rich." I think most people who have paid off their mortgage get that. They just don't want the hassle of making payments, dealing with the paperwork of having a mortgage, or they don't have the desire to try to make more money.

I don't mind debt, but I know others do... Hell, I have 4 mortgages, but they all get paid so I could give a sht less.. I'm not trying to start an argument, was just interested in understanding motivations, cause I only understand mine..

I get all of that, and I'm not really questioning that logic. However, this thread is about achieving retirement faster, and the first several pages are filled with tips and hacks. Paying off a mortgage early was often cited, and I'm just trying to understand why. I don't know if I'll RE, but I'm certainly working towards FI, and I'm legitimately trying understand why this advice is often given when discussing FIRE.

<TMI>

For me, that’s the best feeling ever ... living in the house you own, the apartment you own .. and the bank can never come and kick you out on the street.

At that stage, you’re set for life.

rd

You also need to take into account taxes on those investment gains, that reduces those returns.

For me, I just paid off my mortgage and it was the absolute feeling of no-debt and the weight of "it all" being lifted off my shoulders and not being able to invest that sum of money I had in my hand at the time is ok for me. I could have tossed it all in a fund, but man, I feel like a million bucks not owing, that was Nov 1, I'm still living off the high

Yeah I thought about paying my house off. 2.75% with less than 5 years left. I just bumped my 401k from 10% to 25% and called it good.

Thanks for all the perspectives, really appreciate it! I'm always trying to learn more about others that live below their means, cause at the end of the day that's the bedrock for this path...

Some people have a natural affinity toward land. Owning it outright is a special feeling that only someone who experiences it can understand.
Not owning rental properties or warehouses, that can be good too.
Owning the ground under your main dwelling, your home, free and clear, harkens back to a time few people did so, or could.
An equalizer of sorts, the poor guy that has a paid off shack with a few acres is richer than the guy with 3 mortgages, since the one with borrowed money can lose everything.

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Your primary residence can be a farm, or an apartment above a storefront. It can have a small Ebay packing outbuilding, or a hay barn earning RV rent. It may have a hay bailer that earns 10 dollars a bale, or a backhoe at 50 dollars an hour.
The importance of the "Paid off" mindset lies with the middle class and not the rich.
The person who can say my stuff is paid for and nobody except the tax man can take it away is a rare commodity this day and time.
To me it means that any income earned is free and clear and doesn't have to go toward bills.

The poor guy with a paid off shack and three acres can still lose everything. Property tax, medical expenses, lawsuits, the list goes on and on... I'm fine with your natural affinity to harken back to a time when people couldn't borrow money at a rate less than inflation, but that time isn't now. Sure rates will go up, my mortgage is fixed. Could I lose my job, yep, but I have always continued to improve my marketable skills throughout my career and have confidence that I would find gainful employment. I'm fine with whatever your motivations are, but don't think for a second that I couldn't liquidate my position in Apple and pay off my primary (realizing I'd be paying capitol gains too), and use the cash in my business account to pay of my investment property mortgages. I just think my money is better in Apple, and going towards capitol improvements on my income producing assets. I guess I just have a different mentality than those that want to own the ground

Maybe that's the mindset that will keep them in the middle class... IMHO

Done hijacking this thread.. thanks for all the input! I have more to think about now than I did last night..

You are not getting it.
Your home is your private sanctuary no matter what shape it comes in.
Paid off= more money for speculation. The speculation should not ever infringe on your sanctuary.
Insurance against hazards that threaten your homes viability is money well spent.
Even Superman had his own private Fortress of Solitude.
Famous Actors and Musicians always kept their home in the midst of IRS judgments that seized the rest of their property.

Nothing like being free and clear.In reality I'm my own bank.Only have to convince myself to buy something.

I completely understand your perspective, and appreciate it. I just don't think the same way, and I don't believe there is anything wrong with either perspective. I just don't view my home as a sanctuary. I have assets across several classes of investments, and I have a pension and healthcare for life. Perhaps that skews my judgment, and aptite for risk. I posed the question initially to try to get additional perspectives, and I believe I have gotten them.
I just don't view my home as a asset, let alone a sanctuary. I view my house as a place to sleep that will hopefully apriciate, but I'll be fine if it doesnt. Hopefully I'm never an actor or muscian. I also really understand that satisfaction. It wasn't from making my final house payment, but I was able to meet one of my financial goals so I get that feeling.

I get the dilemma. There is no real wrong answer. On one hand, you will likely earn 8%+ returns over time on any money you invest in the market and mortgages are around 3%. On the other hand, your AAPL could plummet by 75% tomorrow, stocks may stay flat for the next ten years, etc. Ultimately, this is what prompted us to pay off our mortgage a couple years ago: If my mortgage was paid off, would I borrow to invest the money? No. So we owe no one. Nothing. Zero debt. Debt is literally slavery in that you HAVE to work to pay someone else. Once you have no debt life feels very different. You're finally in charge. I've had mortgages, car debt, business debt, 401k loan "debt", etc. None of it is "good", it's just a stop gap. Otherwise it eats you alive financially.

On a mathematical note due to the sequence of returns on your investments it's not just "Make 8%" or "Save 3%". I'd say if the markets had just dropped 50% I -might- have reconsidered paying off the mortgage. Maybe.

I read this book at 20. I started my ROTH at 19 while working through college and going on mostly scholarships so I was able to pocket some money I earned.
My gf/fiancé/wife/now 3 baby momma, struggled in the beginning to see the potential.
5 years in the light kicked on
Now 10 years deep, we live the model
Long before FIRE was a thing

https://www.amazon.com/Millionaire-Next-Door-Surprising-Americas/dp/1589795474

I'm with you MrExtrm. I have a 30 year mortgage at 2.75%. There is no way I would pay it off. I would rather earn 8 to 9% in the market over the long run. Yes in the short run there will be corrections and bears but over the long run the market creates wealth. Well above 2.75%. I do understand people want peace of mind. Its just not for me, money is way too cheap right now. DIfferent strokes for different folks.

This is so very true. Sold some lakefront property a few years ago and bought land instead.

Will never go back.

You need to look at the "Opportunity Cost" of the extra interest expense in a 30 year vs 15 year.

Here is a good video from Chris Hogan talking about how over 8% of adult American's are millionaires and the 5 steps that they take to get there. Motherhood and apple pie, but good reinforcement.

https://www.cnbc.com/2021/02/09/more-than-8-percent-of-american-adults-are-millionaires-heres-how-they-got-wealthy.html

It seems like having one million dollars (with all of your asset totaled including house) doesn't really make you too wealthy these days. It might be enough to get by.

Also, I don't think these types of stats include any retired government workers or others who get a pension. They are basically all millionaires also. A lifetime pension of $3,000/month has a current value of about $1.1 million, assuming you get to take it for 30 years. Of course its worth even more if you live longer since with a pension you collect it all the way to the end.

If you have a pension of $6,000/month, that means an average person would need to save up $2.2 million to match that.

I agree, Million in assets is not what is used to be at all

Even with low rates it's important to realize an extra $30 today might save you another $1000 payment 30 years from now. Pay all you can if you're at the beginning of your loan, if at the end it won't matter so much.

$30 a month for 30yrs at modest (5%) return will net you $25k....

Not to mention my $1000 payment adjusted for inflation in 30yrs will be worth significant less than today...

$30 a month will knock several years off your 30 year payment. What's 5 years at $1000 a month? The real point is to do something, whether paying a loan early or investing, that's up to you.

Couldn't agree more! I think someone living below their means, and looking to generate some kind of future value with the excess is way ahead of the curve. I just enjoy debating the best application of those excess funds, but honestly it's a way less important decision than the one that's made when you decide to stop keeping up with the Jones

I firmly believe I have got myself and my wife into the best possible scenario, my boys are 16,17.

My wife has a pension that will be a salary until she's dead after retirement, and I am building a pension (company) into a large pot. this one is called PEPP in Canada, one of the best run pensions out there I believe
My wife and I have added to an RESP (education fund) for my boys since birth, should have just a bit under 100k for them when they are into post secondary.
Both of us have added to our own personal RRSP's also since our early 20's and have been making a nice pot there also.

I feel if we can live off our RRSP's and her salary for a few years easily. My large pot will have grown in that time nicely, then we can start withdrawing from that a couple years in and it should work out nice for us. All that and our home is paid off at 43 (her-42)

For those of you with defined benefit pensions that are married, Be sure to determine if you will do the surviving spouse option and keep in mind the reduced payments you will receive when you're both alive.

Maybe it’s just me just maybe. All of This candy land bullshit don’t take it. This how it is..

Great point.. for anyone that cares, my plan is to not take the survivor benefits, offset the risk initially with life insurance while our nest egg continues to grow (she's younger, and will continue to work after I retire) and by the time term life insurance is to expensive we'll have enough saved that she will be alright if I'm an early out. This strategy would be greatly impacted if I develop health problems before then, so flexibility is key.

Maybe caught the incorrect thread?

It's like someone entered our thread, farted, then left.

Someone on a bender.

Yeah, we'll be in that boat in a while yet to decide. I'm very conservative with my money, so it will be tough for us to take the higher defined benefit rather than the survivor one. But if I biff it early, she should have a million or + dumped over to her from my pot, which is nice.

The peace of mind argument is perfectly valid, so long as you're conscious that you're putting a $ value to it.

One of the things I think most people pay too much for, and that I hadn't really thought about until reading Mr Money Mustache is insurance.

Insurance is basically:
[how likely it is something will happen to you] X [how much it costs when it does] X [1 + insurance company overhead] = your cost
Plus, the insurance company invests all that capital to make even more money.

So, it makes sense to get insurance for stuff that is unlikely to happen but will ruin you if it does, with a pretty high deductible that will not ruin you if you have to pay it, but it doesn't make sense to get insurance for something very likely to happen and that will not ruin you, because you are better off putting the money aside yourself and invest it and not pay the insurance overhead.
Unless you want to pay extra for the peace of mind, which you may or may not want to do.

Also to keep going on this riff, the old "you can't afford a used car" adage is basically insurance, peace of mind and not dealing with the hassle - you are sure to pay, say, 30k and not have to deal with the unexpected maintenance and breakdowns, but if you can afford a 30k car, you can certainly afford a 3k one with 1-2k of maintenance here and there.

That's a good point. My wife is younger so I figure it is better to give her the survivor benefit. Perpetual money is good. Plus my SS benefit transfers. The life insurance is a bonus to her.

My late dad did the surviving spouse same payments for my mom. He also was offered and took a guaranteed lump payout to the estate should he and my mom have departed within ten years of his retirement.

.

Insurance is one of those things that you hope you never need to use, but are glad you have it when things happen to you and yours. Health insurance has been mentioned in this thread a few times and in my mind it is a necessary item. I agree with the high deductible health care plan idea with catastrophic coverage included. Sure, I don't like paying the premiums either. MMM has different views on the topic of health insurance and I think this reflects his age and life experience to date. Regardless of our current health and health habits, more stuff happens to us as we age.

Regarding cars, I just replaced a 19 year old car with a 3 year old car and have no regrets. It isn't just peace of mind, it is about safety, too. Newer cars have more safety features. Also, it just wasn't worth the risk of having a car breakdown on the highway, or in an unsafe area.

Just one more point to add in the ‘pay mortgage early or not’ question. What needs to be considered beside cost of money vs return is Cashflow.

If I pay off my mortgage I don’t need to somehow generate $x amount per month from my investment portfolio. I can reinvest dividends and not be concerned with capital gains or other impacts of selling. If you have some other money streams (pensions, rental income, side jobs) maybe it’s not as big a concern of the monthly money going out.