Additional payment to mortgage

alfadriver said:

frenchyd said:

40% of Americans do not have $400 in ready cash for an emergency.  At one time with IRA’s and 401K’s over 60% of Americans had some share of the stock market.  Today it’s  a very small percentage. 

Pay yourself first!  Reduce or eliminate debt before you invest.  It’s true money compounds  leading to nice numbers.  But debt compounds worse.  

Just to be accurate, your statements are not exactly clear....

First, yes, the peak investment was 62% of Americans in 2008.  Then the crash happened, which naturally reduced the number.  Now it's 54%. given that is still over half the population, I would not call that a small percentage.  Smaller, sure.  But not small. 

Then- the #1 reason people left was the crash- people lost a lot of value, got spooked, and left.  

And for the last line, one HAS TO DO THE MATH.  This isn't rocket science, it's just compound interest- every spreadsheet system has the models in it, it's so easy to run the model, and find out where the cost/benefit lie.  Especially when weighted with the tax implications (which are pretty light with such a small mortgage- one is unlikely to need to ues the write off).

Put a model together with your current mortgage, put together some different scenarios to find out how much money you would save, etc.  I used that as a major factor in looking into changing to a different mortgage schedule.

I remember seeing a number similar to that 54% but that was not personal stock investments, rather the percentage of Americans who had an interest in the stock market.  

In other words  some of that number had their retirement invested in the stock market.  Teachers/ firefighters/  city employees  type retirement accounts.  

Percentage of Americans with Personal accounts was down dramatically from the high of 60% ( (ok. 62 %) 

As far as charts  and formulas, all of those reduce life to a math problem.  Life isn’t a math problem. It’s a series of events that constantly change.  Good economy. Poor economy recession/ depression, personal gain, personal loss.  Income varies, Inflation, pay raises, job changes.  

While you could  reduce life to an algorithm the variables would be too complex

In reply to alfadriver :

Save your internet breath. This argument with frenchy is just going to sidetrack the whole thread while he throws out incorrect stats with zero proof because they substantiate his predetermined points of view.

On my phone, so I'll keep it short:

DO THE MATH.   A number of people here can help with that if needed.  

If you can't beat 4.25% over a 29 year period, you are doing it wrong.  Especially with retirement accounts working in your favor.

PM'd to Curtis

STM317 said:

In reply to alfadriver :

Save your internet breath. This argument with frenchy is just going to sidetrack the whole thread while he throws out incorrect stats with zero proof because they substantiate his predetermined points of view.

That’s rather rude.  Because I can’t link no to my sources, ( I can’t post pictures either, I admit I have poor skills compared to you )  does not invalidate my premise.  

You can find the sources if you were to look. However to be fair how credible is any internet source?  

I'm sure it's been said already.  Assess your financial situation.  Make sure you've got an adequate emergency fund on hand.   Pay off high-interest debt first, if you have any. 

I suggest:

• Fully funded emergency fund, like six months living expenses.
• Throw everything else at the mortgage and pay that sucker off. 

frenchyd said:

I started saving for retirement as soon as I was fully employed following the service.  Events happened and that fund was drained just prior to retirement.  

I thought, my bad luck or poor timing etc.  Then I started looking at others.  Most of my contemporaries were in the same or worse fix.  

That's tragic and I’m very sorry for you and others in the same  situation, but something must have gone beyond catastrophically wrong. If someone starts saving as soon as they are in full time employment (say, generously,  25) and they are close to retirement, I'll take a swag at 60? They should easily, very easily have at least 10 times their annual working take home (after all taxes, health ins and retirement savings) For an average (and I'll guess someone with the foresight to start saving young is at least of average income and means) person that should have had at the very least $400K in savings a decade ago. A crisis event that wipes out $400+K is major enough, and uncommon enough, to be something that I wouldn't fault most people for not having a contingency for.

Having said that, I'm 100% on board with having no mortgage by 55 Y/O. To me, looking at the overall country and economy I see more and more companies 'encouraging' older employees to leave ASAP. Older employees have higher wages and higher insurance costs so large corporations would like them to be off their books, experience be damned. So to me aiming for all mortgages to be paid off prior to 55 means if you find yourself being downsized into a lower paying position/job/industry you have the peace of mind to know that you don't need to worry about making a mortgage or rent payment. Also while I hate reverse mortgages, in an extreme case where something really bad has befallen a person/household, a paid off house can provide some guaranteed income if all other savings have been wiped out. Under 45 I wouldn't obsess over getting rid of a mortgage. Over 55 I see as essential to aim for no mortgage and that 10 years in-between I see as optional based on your personal risk tolerance.

frenchyd said:

STM317 said:

In reply to alfadriver :

Save your internet breath. This argument with frenchy is just going to sidetrack the whole thread while he throws out incorrect stats with zero proof because they substantiate his predetermined points of view.

That’s rather rude.  Because I can’t link no to my sources, ( I can’t post pictures either, I admit I have poor skills compared to you )  does not invalidate my premise.  

You can find the sources if you were to look. However to be fair how credible is any internet source?  

My goal is not to upset you, but there's a pretty clear pattern to your posts on topics like these. Other members have commented about it as well. When a person engages in discussion with you, or questions a post of yours you divert the topic to something tangentially related or centered around your beliefs that:

1. Vintage Jaguars are good

2. Real Estate is a great investment because of leverage/inflation

3. Wealthy people/ Banks/ Wall St are to blame

4. Taxes are good, but the current tax code is too complex

In the scientific community, if a person makes a claim, the onus is on them to substantiate it. We're all busy people. We don't have time to chase down every stat that you throw out to verify how legitimate it is. If you can't provide a source with your stats, then make your point without them.

frenchyd said:

As far as charts  and formulas, all of those reduce life to a math problem.  Life isn’t a math problem. It’s a series of events that constantly change.  Good economy. Poor economy recession/ depression, personal gain, personal loss.  Income varies, Inflation, pay raises, job changes.  

While you could  reduce life to an algorithm the variables would be too complex

But it is math.  Your suggestion to pay off the debts is based on math- that's what the whole idea of compounding debt comes from.

Instead of just taking ONE person's blanket suggestion, it's far better to actually do the math of all the suggestions- which is super easy.

-Use all to pay off mortgage at once- you save X$.

-Use some to pay off mortgage more each month, so that you have a reserve- you save Y, Z, or C depending on how much you pay off.

-Use the money for home improvements- you save S from another loan that you may have.

-use money to invest- you can accumulate some savings.  

-use money to invest in yourself for another job.... this one is the only one you can't really model.

Everything else is pretty simple math, where you can see what you are gaining or losing by doing one thing or another.  And then you compare that with your life, and how you see the future playing out.  That gives you some actual information to make a decision.  That way you can be prepared for MORE stuff to happen.  Not everything, but enough to make you more comfortable.  

Here's the one thing I would not do- if the mortgage was the only real liability, and I'm also committed to a fixed year loan, I would only pay it all off if it was ALL paid off.  Especially if your job situation was not exactly super firm.  In this case- $10,000 is 3 YEARS of the only liability that you have signed a long term contract to pay.  Three years is a long time to have a buffer to find a new job.

Still, the point is that every suggestion is based on an idea of finances, which is all based on math.  Do the math, and you have more information to make a decision.  

frenchyd said:

As far as charts  and formulas, all of those reduce life to a math problem.  Life isn’t a math problem. It’s a series of events that constantly change.  Good economy. Poor economy recession/ depression, personal gain, personal loss.  Income varies, Inflation, pay raises, job changes.  

While you could  reduce life to an algorithm the variables would be too complex

I disagree completely.  Whether you like it or not, life is little more than an infinitely recurring risk vs reward probability problem.  Every choice you make, no matter how big or small, carries some inherent risk and offers some potential reward. Every time you make a decision, even subconsciously, you are running that calculation...Although not always using the complete data set and/or not necessarily running it compltely correctly either. Oftentimes these sources of error have little to no bearing on the outcome, but other times (the 'if I had known then what I know now' times) it ends up making all the difference in the world. And no matter how good you are at running these calculations, it's still all based on probabilities...Which means that you'll never be right 100% of the time either.

Each individual has to determine their own risk tolerance, which also changes over time.  Some people's risk tolerance would have them buy an extended warranty on a toaster, while others would take out a second mortgage on their home to invest along with the rest of their entire life savings into Bitcoin.  Only in hindsight will we be able to provide any insight as to how good or not our choices were, and even then we'll often still never know if making a different set of choices would have ended up with a better or worse result...And what was the right choice for one may not have been the right choice for another.

Paying down the mortgage faster is a good option for the risk averse, but leveraging low interest debt (and time) to allow for investing in higher yield vehicles can also be done in such a way as to substantially limit the amount of additional exposure to risk.  You are at a place in life where one typically moves toward lower risk, which has been compounded by being bitten by the cruel mistress of probabilities.  So it makes sense that you are (to put it lightly) firmly in the pay it off and avoid risk camp.  But were you 20 or 30 years younger with more time and options to fully recover (and even exceed) that which you previously lost, your risk tolerance might justifiably be higher and it might not be such a cut-and-dry answer.

Honestly at 4.15% I would not pay a penny more toward that mortgage than you are obligated to. I have way more than enough liquid assets to pay off my mortgage but I have it working for me instead and earning far more in income than the 3.75% that my mortgage is at. I wouldn't even bother with additional principal payments. I send every penny I possibly can into VTSAX, the Vanguard ultra low fee total stock market index fund. It coincidentally has a minimum investment of $10,000. I have followed this strategy for many years and it has paid off handsomely. There is risk, yes, but you can work to minimize / mitigate that risk. You do need an emergency fund, but for your living situation it sounds like your emergency fund would be very, very small.

Let's look at real figures. At 4.15%, over the next 25 years, you would pay $3,012 in interest on that $10,000. That's right - a whopping $120 a YEAR. So in 25 years if you pay that $10,000 now versus later you would have an effective asset value of $13,012 from that $10,000.

If you invest the $10,000 in VTSAX with dividends reinvested and it returns the historical average of about 9% over the next 25 years, which is a reasonable bet, how much would you have? $93,992.

So in effect by putting the money to work for you instead of handing it back to the bank you have netted $80,980 in asset value from that $10,000. That by itself is not enough to retire on but it's a nice boost and life is full of decisions like this one that can result in a massive nest egg you can retire comfortably on. Add that $10k/year you mentioned for the next 3 years and you've got a net in 25 years of $259,333.

No offense to Frenchy, but he spends a lot of his time talking about how he has nothing to retire on, no investments left, only a paid off house which is a big expense to keep. That is not a goal I would set for myself. Lots of people on here advocate against the stock market but few have a solution for how to provide a passive income stream for yourself in your old age without it. I can say that many truly wealthy people got that way by buying and holding stocks through good times and bad, and that's unlikely to change in our lifetimes.

I can write volumes, obviously, but it's something I've spent a lot of time studying and practicing. I'm happy to keep going if you have questions!

dculberson said:

Lots of people on here advocate against the stock market but few have a solution for how to provide a passive income stream for yourself in your old age without it.

Real estate investing, entrepreneurship, and the lottery.

Driven5 said:

dculberson said:

Lots of people on here advocate against the stock market but few have a solution for how to provide a passive income stream for yourself in your old age without it.

Real estate investing, entrepreneurship, and the lottery.

Unfortunately only one of the three is truly passive .

I agree with the E-fund and investment strategy.  As mentioned, you aren't paying enough in interest to make paying off the mortgage to be financially worth it.  

It sucks for those who panicked at the 2008 crash.   Rule #1 in the stocks: The only time it's truly a loss is when you sell.

Driven5 said:

dculberson said:

Lots of people on here advocate against the stock market but few have a solution for how to provide a passive income stream for yourself in your old age without it.

Real estate investing, entrepreneurship, and the lottery.

Real estate is a job. I have the majority of my net worth in real estate and if you think that's ever a passive income stream, I have a bridge to sell you!!

Entrepreneurship is also by definition a job. The major difference between it and working for "the man" 9-5 is that you work longer and harder hours as an entrepreneur.

The lottery - well, if you can sell me a sure thing lottery ticket, I'll take it!

dculberson said:

Honestly at 4.15% I would not pay a penny more toward that mortgage than you are obligated to. I have way more than enough liquid assets to pay off my mortgage but I have it working for me instead and earning far more in income than the 3.75% that my mortgage is at. I wouldn't even bother with additional principal payments. I send every penny I possibly can into VTSAX, the Vanguard ultra low fee total stock market index fund. It coincidentally has a minimum investment of $10,000. I have followed this strategy for many years and it has paid off handsomely. There is risk, yes, but you can work to minimize / mitigate that risk. You do need an emergency fund, but for your living situation it sounds like your emergency fund would be very, very small.

Let's look at real figures. At 4.15%, over the next 25 years, you would pay $3,012 in interest on that $10,000. That's right - a whopping $120 a YEAR. So in 25 years if you pay that $10,000 now versus later you would have an effective asset value of $13,012 from that $10,000.

If you invest the $10,000 in VTSAX with dividends reinvested and it returns the historical average of about 9% over the next 25 years, which is a reasonable bet, how much would you have? $93,992.

So in effect by putting the money to work for you instead of handing it back to the bank you have netted $80,980 in asset value from that $10,000. That by itself is not enough to retire on but it's a nice boost and life is full of decisions like this one that can result in a massive nest egg you can retire comfortably on. Add that $10k/year you mentioned for the next 3 years and you've got a net in 25 years of $259,333.

No offense to Frenchy, but he spends a lot of his time talking about how he has nothing to retire on, no investments left, only a paid off house which is a big expense to keep. That is not a goal I would set for myself. Lots of people on here advocate against the stock market but few have a solution for how to provide a passive income stream for yourself in your old age without it. I can say that many truly wealthy people got that way by buying and holding stocks through good times and bad, and that's unlikely to change in our lifetimes.

I can write volumes, obviously, but it's something I've spent a lot of time studying and practicing. I'm happy to keep going if you have questions!

Great points and on the whole I agree, but in some ways it just goes to prove that there is no one size fits all solution.  While your math is undeniable, you are not taking into account that once the house is paid off faster he will have extra income each month that he can also invest, although he'll have lost several years of compound interest.  But there are other factors.  To invest the $10K each year you need to be able to be sure you wont nickle and dime your way through it and that actually get's into an investment so it is earning interest.  Also you are not taking into account that while the economy is still expanding, one thing is for certain, the economy and the stock market are at the end of the day cyclical.  This isn't a political statement, I feel that both parties and the president get too much credit and blame for the swings in a cyclical market.  Yes I think that good or bad decisions can change an inflection point in time, but not create or remove one altogether.  The fact is that we are nearly nine years into an expanding economy and workplace, ten years is pretty much the longest continuous expansion we've seen since the industrial revolution.  The overall economy and job market could turn next month, next year or next decade, but one day it will turn.  Once its gone down then you want to be able to throw money into the market to accelerate growth on the back of a recovery.  You don't want to be throwing (large amounts, I'm not including your regular monthly contributions in here, they average out through up and down cycles, I'm talking extra lump sums) money into the market before the peak.  I'd argue the middle ground may be best for Curtis.  Spend the next year, two years, three years chunking down the mortgage with these $10K 'annuities' then wait for things to head south.  Once the economy has turned and is either at the bottom or getting to the bottom then start putting money into savings then.  That way he has a greatly reduced mortgage burden (security) plus growing savings.  

In reply to Adrian_Thompson :

What you describe is market timing and that's a sure way to underperform in the stock market. I agree that we're deep into a serious run up of the stock market but strongly disagree that it means a large drop is coming. It might be years of middling performance that is coming. It might be a small drop and a slow recovery. It might even be four more years of serious growth then years of slow growth or even losses. You and I - and everyone else in the world - just don't know. What you're preaching might be "common sense" but it doesn't pay off in a truly math driven long term view. Common sense leads to overthinking and losses.

Including dips and crashes you'll average about 9% on a long enough time table. If you start trying to time the market you will earn less. As I've said here today, "time in market beats timing the market."

The only additional money Curtis would have to invest would be the $120/year on average. That's not enough to really make a strong case for paying the debt off first and then investing.

I make my living applying / teaching mathematics (specifically statistics) and yet I’ve got little to contribute given the excellent points that STM317, Alphadriver, MTN, Adrian Thompson, Driven5’s and some others have made (sorry, I didn’t reread the posts to create a complete list).

FWIW, I’m 53 and I only owe 105K on a home that’s worth 890K based on Zillow (Zillow is a joke, the comps say more like 925K but whatever) so that’s conservatively 88% equity and I’m on track to have the mortgage paid off in December of 2021 which is six months before my eldest child will begin college.

I’ve got a 30 year fixed at 3.625% so all the math screams pay the minimum and throw everything else into a ultra-low load index fund (I like VFINX but I think the total market fund suggestion made earlier is excellent as well) and yet, I’m aggressively paying off my mortgage at the expense of acquiring less stock than I otherwise could.

So, why don’t I do what the simple math suggests…it’s because the “value” of a dollar isn’t a constant but rather varies as a function of how many other dollars I have. Essentially, my risk tolerance is going down not because I’m getting older or because I’m afraid of losing my job but because I’m approaching my ultimate goals so getting my hands on that next dollar is becoming less and less “valuable” to me.

You’re much younger than I and your future is much less predictable than mine (you’re contemplating going back to school, you’ve had big relationship changes recently, you’re fairly new to home ownership, etc.). I’d say ‘regress to the mean” by throwing 1/4 at the mortgage on your next payment, hold 1/4 in an emergency fund, and put ½ in an ultra-low load index fund (S&P 500 or total market).

Unless your circumstances significantly change, I’d rinse n’ repeat the same strategy each year when your gravy train comes rolling in.

Good luck my friend

dculberson said:

In reply to Adrian_Thompson :

The only additional money Curtis would have to invest would be the $120/year on average. That's not enough to really make a strong case for paying the debt off first and then investing.

Good point, but what if he get's laid off in 2-3 years and can't find another job.  In that case I'd rather have a paid off house than a more full retirement fund yet not be able to pay my mortgage.  That's why I say there is no right answer.  I often think that the 'right' answer may not be the 'best' or 'perfect' answer, but instead it may be one that's theoretically only (say) 75% right but lets you sleep easy at night.

There is no answer here that's right or wrong across the board. Curtis seems introspective enough to decide which path might be the right answer for him. There's the most secure/emotional path and the slightly riskier path with a very good chance of working out.

Trusting the math, and regularly investing in good times and bad has been the path to financial success and will continue to be. But it requires great discipline for a period over 20 years. It's very hard to suppress the urges to panic sell when the market tanks or hold out when the market is hot while "waiting for stock prices to drop" only to miss out on a huge run up.  Trying to time the market ends up costing people tons of money. If the investment path is chosen, the answer is routinely dumping the cash into low fee funds that follow the general market trends and ignoring it for 20+ years. Overcome human weakness and trust the math. The investment path begins to get much riskier if you start trying to time investments.

RX Reven' said:

So, why don’t I do what the simple math suggests…it’s because the “value” of a dollar isn’t a constant but rather varies as a function of how many other dollars I have. Essentially, my risk tolerance is going down not because I’m getting older or because I’m afraid of losing my job but because I’m approaching my ultimate goals so getting my hands on that next dollar is becoming less and less “valuable” to me.

Good luck my friend

The real, important, part is that the math means a little different to you.  And that's a VERY good reason to do the math, and run multiple scenarios.  

There are so very many good ideas that people have posted.  Everyone has different "values" on their math weighting, though.  This is the essence of why the math is so important to do.

dculberson said:

Honestly at 4.15% I would not pay a penny more toward that mortgage than you are obligated to. I have way more than enough liquid assets to pay off my mortgage but I have it working for me instead and earning far more in income than the 3.75% that my mortgage is at. I wouldn't even bother with additional principal payments. I send every penny I possibly can into VTSAX, the Vanguard ultra low fee total stock market index fund. It coincidentally has a minimum investment of $10,000. I have followed this strategy for many years and it has paid off handsomely. There is risk, yes, but you can work to minimize / mitigate that risk. You do need an emergency fund, but for your living situation it sounds like your emergency fund would be very, very small.

Let's look at real figures. At 4.15%, over the next 25 years, you would pay $3,012 in interest on that $10,000. That's right - a whopping $120 a YEAR. So in 25 years if you pay that $10,000 now versus later you would have an effective asset value of $13,012 from that $10,000.

If you invest the $10,000 in VTSAX with dividends reinvested and it returns the historical average of about 9% over the next 25 years, which is a reasonable bet, how much would you have? $93,992.

So in effect by putting the money to work for you instead of handing it back to the bank you have netted $80,980 in asset value from that $10,000. That by itself is not enough to retire on but it's a nice boost and life is full of decisions like this one that can result in a massive nest egg you can retire comfortably on. Add that $10k/year you mentioned for the next 3 years and you've got a net in 25 years of $259,333.

No offense to Frenchy, but he spends a lot of his time talking about how he has nothing to retire on, no investments left, only a paid off house which is a big expense to keep. That is not a goal I would set for myself. Lots of people on here advocate against the stock market but few have a solution for how to provide a passive income stream for yourself in your old age without it. I can say that many truly wealthy people got that way by buying and holding stocks through good times and bad, and that's unlikely to change in our lifetimes.

I can write volumes, obviously, but it's something I've spent a lot of time studying and practicing. I'm happy to keep going if you have questions!

I gave you a thumbs up

STM317 said:

There is no answer here that's right or wrong across the board. Curtis seems introspective enough to decide which path might be the right answer for him. There's the most secure/emotional path and the slightly riskier path with a very good chance of working out.

Trusting the math, and regularly investing in good times and bad has been the path to financial success and will continue to be. But it's very hard to suppress the urges to panic sell when the market tanks or hold out when the market is hot while "waiting for stock prices to drop" only to miss out on a huge run up. Trying to time the market ends up costing people tons of money. If the investment path is chosen, the answer is routinely dumping the cash into low fee funds that follow the general market trends and ignoring it for 20+ years. Overcome human weakness and trust the math. The investment path begins to get much riskier if you start trying to time investments.

Math doesn’t account for life changes.  Priorities change as life happens and  events are always changing.  

Imagine the algorithm required to project your priorities in life.  Then factor in the effect of various influences , such as inflation, down markets, up markets, recession, depression, and growth.  

In reply to frenchyd :

So plan for the worst and hope for the best. Make sure your ass is covered with appropriate insurance and then shovel what's left into properly diversified investments. There are no laws against changing course as life dictates.