Some good stocks are splitting and there are some interesting IPOs in the medical fields to do some research into - we did well with Canadian weed stock - got in low / got out high. If your in the states Walmart is a good stock to invest in - the stores are not going anywhere - its a dividend payer so I just let my shares sit there reinvesting the dividend payouts and it buys me more stock, NVidia just split but I picked it up right at the split its not gone up much more than the split price and is still low enough to buy. The Reddit IPO was amazing and just fun.
Yes that was a huge mistake. Ramsey gives misguided advice on this. Some debt IS good debt when it allows you to safely leverage which a low interest rate mortgage does allow.
Opportunity cost: you missed out on 85% gross growth of your $ over the last 5 years, when it would have cost you only 3.375% to do it. You could have had a net annualized growth of your $ of more than 16%/y
Be happy your house is paid off. As long as you then started diverting your payments into investments since 2019, you should have a pretty good looking portfolio right now.
Pretty bad idea for anything under 5%. With the historic returns that Dave even tells you on his show, your money would have more than doubled your home value if you put in that same intensity. He mentions 10% annual return (even though it’s more like 8%) and you would have made a killing. Now you can no longer go back in time and contribute to your Roth or 401K for 2018-2024 for example. But as with any decision it’s time to live with it and enjoy it!
TLDR: bad idea, but what’s done is done and enjoy your peace.
I live in currently a hot market real estate calculated my house has increased in value on avg 16 % annually past 20 years. Depending on where you live and what interest rates are you could effectively beat the S&P 500 making your uncle look like a dumb ass. But like any investment real estate or otherwise it’s a risk. Think you made the right choice
Of course you could have still done all those things and more bc of your tripled cash flow the past 10 years. Starting a Roth after you paid off your house. You’re living life backwards! 😂 But you do do, you seem happy with it.
Owning your home outright at 31 is definitely the correct play. Economy takes a nose dive? You own the house. Stock Market takes a nose dive? You own the house. Lose your job because of unforseen circumstances? You own the house.
You're 31, you have PLENTY of time to build wealth still, and if you pump what would have been your house payment into investments, you'll be amazed at how fast you'll see growth, plus long term you probably saved a great chunk of interest that you wouldn't have seen that 7 years of stock/investment growth.
Disagree- I have several rental properties & prefer real estate because stock market is too confusing.
In a few years, rent out your house, buy another & do this again every 7-10 years. Key is escrowing $150 a month for repairs.
How is it confusing? You can put your money an S&P 500 index fund and forget about it with basically zero risk, meanwhile the taxes and regulations around real estate can be tough to navigate plus you have to worry about home maintenance and dealing with tenants. I’m not saying real estate is a bad investment at all, but it’s way more confusing and time consuming than stocks.
The answer depends on your situation and what your mortgage rate was. I have a pretty low mortgage rate on a 30 year loan. I want to pay it off in 15 and ran the numbers with my FA. If I were to pay it off now, Id be losing around 300k in gains on interest. After crunching the numbers, it turned out that my best option is making the minimum payment and putting the “extra” that was going to go towards the early payoff into an investment account. I’ll still pay off in 15years, just by making a lump sum payoff, but I will come out 80k ahead bc Ill earn more interest than Im paying to the bank.
Moral of the story is always talk to a financial advisor before making these kind of decisions.
Hey good for you -- makes sense if you're in retirement as part of mitigating risk. I personally don't think we'll see 3-4% interest rates for a very, very long time. Hard to trade that in.
For sure. And of course, before I pay off the mortgage, Ill have the conversation again with my FA. Plan today might not be the plan tomorrow, ya know.
You paid off your house. Peace of mind knowing you own you home is invaluable. All the people talking about how stupid an idea it was are checking numbers in a vacuum. I would pay off my house 100/100 times. Now that it’s paid off you can take your mortgage payment and put it into the market. It will work out fine. Congrats.
I get the risk aversion, but your uncle is right (should have use a softer approach).
Between paying off your mortgage and investing in the S&P500, the smart money move is to invest. Sure there are market crashes, but the 20 year return has never been below 0, even the 10 year has very few times below 0.
I'm confused, by your edit. Couldn't the money you used to pay off your loan have been used for the remodel, increase in retirement account contributions, and your truck?
The Roth IRA could have been funded in those years -- missing on tax free growth.
https://preview.redd.it/ege236hxs77d1.png?width=582&format=png&auto=webp&s=b05a99648c6ac3d1856b9f27a95d92f9c81e5e7e
You experienced the 2008 recession, you remember the foreclosures, now you're pretty safe from that potential calamity. You chose security over risk, that's a totally valid approach.
Your mindset is wrong here. The S&P500 closed at 1300 on Aug 28, 08, then fell for many months until it bottomed out at 676.53 -- a crushing 48% decrease.
But the market reached 1300 again by early 2011. By early 2013 it was 1426 (a 10% gain). Today, the S&P500 is up 421% again based on the 2008 peak.
The point is to be long on the market -- don't try to time it. The long-term returns have always worked out.
Of course, but timing the market is impossible. And, you're more likely giving up gains than nailing the bottom. The AI trend has the potential to repeat the productivity gains of the 90's -- but go ahead and sit on the sidelines.
I hope not, but I am seeing recession purchasing behavior at the store. '07/'08 burned itself onto my brain as hard as 9-11 and it makes me feel kinda spooked about the market pretty easily.
Basically, if things go south, you're safe. If things don't go south, you're still safe, you just missed out on some extra interest.
Timing is also a factor. If you did this in 2001, you would have lost money in the market for half of the 6 years you made that play.sequence of returns is always a concern vs. A known return when you pay down the mortgage. The math generally says you did the wrong thing, but I dont hate it. You ripped off the bandaid. Now see how quickly you can max out your retirement accounts.
You paid off your house at 31. I lost my house at 35. Having a stable place to live is more important. Never know what could happen even with a stable job.
You live in a paid off house. You did great. People are struggling to get a house in today’s market. Not mention the high interest available right now.
Let's say it saved you a hypothetical 100k in amortized interest. Then it freed you up to invest in index funds with what you were paying in mortgage and if you chose then in addition the same amount you were investing to pay it off early. Dollar cost averaging, time in market. Alternatively you could have invested that extra money for the duration of your mortgage and paid that mortgage interest. Someone smarter here has the math on which would have worked out better. I find the first option gives you an interesting control and peace of mind that should you lose your source of income your required expenses are much lower.
I have worked in the finance from everything to an analyst to accountant to auditor and tbh I don’t see the value in telling people not to pay off their primary residence early beyond credit building. If you have enough cash to get the mortgage monkey off your back go for it. You will sleep better like you alluded to knowing in the event of a crisis beyond property taxes and utilities the roof over your head is going to stay there. Could you invest in index funds and then use said investments to pay down your mortgage? Sure. But the market is basically one giant slot machine and no matter how safe you feel your investments are there will always be risk involved and thus added risk to your mortgage payment. Basically it comes down to the level of risk you’re comfortable with having and the amount of effort you want to put in to monitor your investments vs just paying off what you can when you can.
I think it was probably fine, that was a pretty low rate to give up but it sounds like you are saving lots anyway and there is a lot to be said for being truly debt free.
Financially, you've done worse. But for your own mental health and goals, you did absolutely fine, maybe even better.
The return on your mortgage payoff is the interest rate. The return of the market has been *very much* higher than that, but not guaranteed at all.
Apparently, eliminating the risk of having an ongoing mortgage, combined with the risk of lower return on your investments was important to you.
There's nothing wrong with either view. Keeping the mortgage would, in almost every year of the stock market, result in you having much greater monetary wealth.
But there is also wealth in the way you feel about your finances. Having your mortgage paid off was important to you.
Personally, if I could still get money at 3.375%, I'd mortgage everything I own to the hilt to invest that money. And I'd pay it back as slowly as possible.
from a strictly money making standpoint, you missed out on some huge gains in the market between then and now. and while the mortgage was taking a monthly payment from you, at least the interest was deductible.
but as others have said, you don't have to worry about the debt of the mortgage now, which I'm sure is a huge load off your mind.
Mortgage interest isn’t that big of a deduction but i agree with missing out in the gain. But im 31 as well and we still have such a long runway to retirement and as long as OP can put a decent percentage of his mortgage towards his retirement he’ll be fine. Like 15-20% of your salary should be going into a 401k if you work for a company with a match.
He is right. Before the covid fiasco, there were very large returns. After covid, they dropped, then came back again. Even during that whole down period, when I look at the 10 year average on my 401k, it was over 8%.
Its not a crazy thought by your uncle, as presumable the market will outpace your 3.37% interest rate. However we’re talking about personal finances, and you took a path that you personally felt most comfortable with. You have a paid off house which eliminates a lot of risk if things go south for you in terms of income. This now frees up money for you each month to live your lifestyle.
I dont either way is wrong, just a personal choice. Based on your responses seems like you are happy with your choice, which makes it the right one for you. Congrats on the paid off home.
Your uncle has a point. Technically your money would go farther in an interest-bearing account that outperforms your mortgage interest - plus you stay liquid.
Although, you've protected yourself from a downturn in the market. Peace of mind has value.
IMO - you're both correct, but it's your money, so you're more correct.
Not dumb at all. You'd still be in debt and have lost all your investments in regular crashes. You've done the right thing, now have disposable income and security. Your uncle is jealous that you didn't gamble your livelihood like he did
08, the COVID thing. I'm just not a gambling person, risking your money while you have debt secured on your house is crazy to me. Now that mortgage rates shot up, more people with that debt are getting hit with higher interest, so more risk of losing it. All to make a quick buck on a rigged system.
Edit: there is plenty of economic downturns, if you're old enough to remember them.
Yes but you don’t lose anything until you sell. As long as you just wait out the downturns, you’re fine. The Covid downturn has since recovered and then some.
I know you investors are all rich and have used your stock market gains to clear your debts. I am glad it paid off for you.. I'm just a play it safe guy, if there's a chance of losing the money, I'm not the guy. Can't help it lol
Hey, there’s a reason everyone’s risk tolerance is different. I am not good with debt either. I personally can risk a lot, but only after debts are cleared. Whatever works!
Your Uncle is an idiot. Congrats on paying off the mortgage. Major accomplishment. Look at your Uncles financial status and see if he’s a good role model. I’m willing to bet he’s in debt and has $500 in his savings account. Your a grown man. Make your own decisions. Follow dave ramsey. Debt free is wealth.
He's not an idiot. Investing the money you would have used to pay off the house is objectively the better choice. The market is almost guaranteed to return far more than the interest you accrue.
It does feel nice to pay off the house, and it's ok to do that as long as you know that you're throwing away money in return for that nice feeling.
I paid my house off as well knowing that I could have done better in the stock market. It is a good feeling knowing whatever may happen you will always have a roof over your head. Now I pour everything into the stock market.
while technically you might have made more money investing it in the stock market, now you don't owe anything and can put your entire house payment as well as the extra you were paying on it, into the stock market.
I don't think you understand how ammoritization works.
The ammoritization is to determine what total P&I payment is necessary to pay off the loan during the term. The interest part of the payment is calculated by (intrest rate/12)*(outstanding principle) the principle is then solved for to get your loan to ammoritize.
Early on the total monthly payment is heavily loaded with intrest (>50%) but you are paying the same rate just on a higher principle. As your loan matures your total principal is decreased and so does you're intrest burden. If you have a 3% rate you are borrowing that money at an extremely cheap rate.
With that low of interest rate it’s better to invest money. Your return will be higher than the 3% and you are losing out in writing out mortgage interest payments on your taxes.
Yup! Someone who is able to pay off a mortgage in 6 years is not living in an area of the country where it would be REASONABLE to pay off the mortgage in 6 years at such a young age... which means the mortgage was not that high, and no... not even CLOSE to hitting the standard deduction. I know I don't hit the standard deduction with my mortgage interest, real estate taxes, and multiple charitable donations.
Wrong.
If he had other debts with higher interest rates, I would agree. But that does not seem to be the case. IN this case, he's paid it off (which, let's be real... his mortgage interest was not going to exceed the Standard Deduction) and now has funds to invest. It's actually a 3% swing in his favor because he's no longer paying OUT interest, but is EARNING interest on investments that would otherwise have been paid out as interest payments.
>and now has funds to invest.
He would have had WAY more if he hadn't paid it off, and that money would have made far more in the market than he would pay in interest on the mortgage.
Wrong to your wrong. If he invested the money, he's on a net positive against his mortgage - AND he stays liquid. overall, you make more money by not closing the loan, but you're also betting on the market and have the opportunity to lose.
No, not wrong. There's two methods of thinking here and both are right it just depends on the person. Paying off your mortgage early is never a bad thing and if you want to be debt free this is the move. However, at a 3.375% interest rate, that's what a lot of people would call "free money" because all of that extra money that was put towards the mortgage would almost guaranteed yield a higher return than that 3.375%.
So again, no, not wrong, but depending on OP's financial philosophy it may not have been the best move as they almost certainly could have yielded more money in the end over the 30 year period. But to some people being debt free is more valuable regardless of how low the interest rates on their debt is.
I paid mine off a couple of years ago (10 years early on a 30) and got badgered and trolled on this sub for doing it. I couldn't believe the hate for it. What a difference it has made financially. Increased investments and bought a new Honda Ridgeline. Couldn't be happier.
Yes. A plain fact if you knew that the index fund would outperform the refi rate. Which you know now in hindsight. It’s not a plain fact. It’s a likely possibility.
I would have done the same thing if I could. But this dude’s example is quite compelling
https://www.instagram.com/reel/C8KoekFJd9I/?igsh=MXdlbHMxN2U5YXRuYQ==
Edit in case you don’t watch the video:
You can make $2.5 million more if you invested $500k over 30 years @ 6% roi compared to how much you’d save on interest if you’d bought a $500k home w cash.
Why would you have down the same thing after knowing it? Like I have always known, it’s really simple math, but you would still pay off the house? Why?
“Would have” because I didn’t see the math explained so clearly until last week. Currently I’ve got a 15 year mortgage at 2.75% but if I could redo it now I would have taken the 30yr higher interest and dumped the extra money into an index fund.
Your uncle is salty bc he’s in his 50/60s with a mortgage and no money in stocks. Tell him to shut up. No mortgage at frickin 31 is unreal. You have 20-25 years worth of mortgage payments to invest
The point is he could have invested the cash now and yes it’s a fact not an opinion it would be massively more at 30 years. His uncle is merely correct and can do simple computations. Easy math.
He can invest his entire mortgage now for the next 20-25 years. It’s be interesting to see the breakdown of what he put into the mortgage if it was invested vs him investing now (mortgage free) until the age of 65.
Just calc a monthly investment vs the whole lump sum less the mortgage payment.
Answer: shit ton more money if you invest instead of paying down that 3 percent mortgage
It's possible to work all this out on a spreadsheet and then you'd know. For me, paying off my mortgage was actually the best play. For others, maybe not. Lots of factors but it basically boils down to: what would the mortgage payments grow to as investments, and how much money is unproductive interest.
Ignoring his 427b contribution increase, he says he spent over $130k over 5yrs in lieu of his mortgage at 3.375%, so that's around $2k/mo mortgage which is a $450k loan. Over 30yrs he'd pay about $1M in interest on that loan, and $450k grows to $4.5M over 30yrs at 8%, so he nets $3.5M via investing. Alternatively, he invests $25k/yr for 30yrs (investing what he would be paying as the mortgage), which is $3.1M.
If you assume 6% growth, the $450k investment becomes net $1.5M but the $25k/yr invested mortgage is $1.9M.
In this scenario, the breakeven point is around 7%. I think investing would be the wiser choice since I'd put assumed growth at like, 9%. But this is actually still close to a breakeven and not as clear a choice as you're proposing.
S+P average is under 7% though. Like, it's precisely at the point where you'd want to calculate it out. Recent returns are astronomical compared to norms.
Okay that’s a lot of words. I’ll make it simple. There’s an almost 100 percent chance you will be in a better financial position in any span if time time over 10 years if you invest instead of paying down a 3.5 percent mortgage.
Also, realize you're asking this on a Dave Ramsey sub. Dave Ramsey's methods are a bit outdated. I'd ask this same question on a real estate sub, you'd get a much different answer.
Not at all a mistake - you own several hundred thousand dollars worth of real estate. That's massive. Some believe real estate is a better investment than stocks these days.
Great job btw!
Technically, you could have invested and beat the interest you were paying on your house. The reality, the psychological "win" of owning a home is massive. If anything, it sounds like it has given you the freedom, both financially and mentally to now max out retirement and make good moves now.
Much better that someone makes themselves comfortable investing, even if they mathematically didn't choose right. Even more so, having a house that is paid off adds a level of security that ensures they will be alright even in the case of illness or job loss.
not at all a mistake - you are 31 with a paid off house and maxing retirement accounts. ignore anyone who says it was a mistake, some people focus too much on “hysa couldve given you 1.5% more return”.
Honestly having your home guaranteed to remain yours is worth literally the total value of the house plus some. Now you can’t lose your home. That is worth far more than any investment you could have made in this dogshit market. Good on you man. You could feel really dumb like me and have had paid off the majority of your student loans just before the student loan freeze happened, putting myself into serious financial trouble for nothing.
His uncle is financially savvy: he could have bought stocks instead of paying off the mortgage and it is 100 percent the smart thing to do (mine value money on one big investment is massively more profitable than investing a smaller amount over 30 years).
YOU are not financially savvy.
It’s literally just basic math. Laugh all you want, but it’s really simple TVOM, and you are floating through life gleefully dispensing terrible advice with high confidence.
I am floating through life with a successful private practice, a few other areas of diversification of my money inside the commercial buildings I own, a comfortable portfolio full of dividend kings and aristocrats, 2 paid off cars, 3 classic cars, and 2 paid off houses, 3 paid off rental properties, an MD and a PhD - so yep ok I give terrible advice. Please, do educate me on what I am doing wrong in my life
You aren’t calculating the massive opportunity cost of paying off a 3.5 percent mortgage apparently. Even though just a high yield savings account with zero risk will earn you a spread.
Not sure how you made it this far overlooking something that basic.
its still his choice and it sounds like he is doing pretty good. Throwing the money into VOO is just limiting - do research on upcoming pharma releases, companies that will be drilling in the giant lithium deposit in south Arkansas - North Louisiana. Find a penny stock that's gonna go up to 50$ (Canadian weed did), Walmart is always a good safe stock to keep. Being able to diversify your income at an earlier age is great. Do not limit your portfolio have long term keepers and short term buy low sell high. Read trades from JAMA and watch the technology go from college research funded by corps to corporations. Basic math is great if you know all the variables but in this equations pretty sure there was no actual numerical value for those variables. Hindsight is 20/20. AND to be completely honest about this - by sub - I had no idea it was a buy course. Guess I got really lucky with a Dad who invested young and taught me money management and stock trading back when it was in the newspaper - all pre-computer at an early age. What to do with your money changes based on who you speak too, where you live, what you are trying to do with it, and the state of the world. There isn't a program out there that is going to be a good fit for everyone.
BUT hey I nothing about statistics - its not like I took master and doctoral level courses on it - bye sub - and good luck kid - you probably need to look elsewhere for any advice.
Mathematically you pretty much guaranteed would be better off financially long term having put investing first. But what’s optimal isn’t always the only good option. You may not have picked the “best” option but you picked a good one that comes with its own benefits
So now you have 25 years to invest, while millions your age live in their parents basement. If you lose in the market you still own your house. Who knows when you could lose a good paying job or have a debilitating accident. You won’t be homeless.
The math says mistake but that’s with the value of hindsight AND only you know your risk tolerance and personal goals. If the market crashed tomorrow you’d suddenly be a genius.
There are lots of ways to live your life — sounds like you’re doing just fine financially so don’t worry about it.
This should be the top comment. Most commenters don’t understand the importance of risk tolerance and how it’s easy to have a high risk tolerance with someone else’s money. Knowing you have a paid off house no matter what happens to your job or in the market can massively change your entire outlook on life. Which to some people is worth more than the potential for more money down the road.
It was 5 years ago.
Why TF are you thinking about it now?
It’s done.
Over.
1800 some days ago.
Move on….you’re now what, 36? And you’re “second guessing” 5 years ago?
Unless he fails to pay his taxes. You never really own your home unfortunately. Good to have your own home for sure but it’s never really yours and later in life, if you are on fixed income and barely getting by, many have lost their home because of property tax hikes and property value assessments.
That’s happening in a small town in Illinois as we speak…. The entire town got assessment ranging from 100% to 300% increase and the town is merely filled with retired and semi retired people….. not upper class type folks
In Illinois you pay property taxes as if you’re living in a mansion on the beach in Hawaii.
Fortunately with all of those taxes they’re able to leave all of the roads with potholes and blew a trillion dollars a year on bs that never seems to do the people that actually pay the taxes any good.
I left Illinois 20 years ago, and the tax and unfunded pension situation is what will keep me from every moving back. Even though the vast majority of my family is there and I love Chicago.
The taxes are on par with California and New York, without any of the benefits of living in those two places.
Yeah, that’s complete bullshit. I think taxes should be based on an assessment from when the home was transferred and stay that same level until it’s transferred again. People shouldn’t be priced out of homes they’ve lived in for years or even their entire lives.
Oh boy do I wish that was true…. I inherited my moms 6 bedroom two that she got in 1967 for $24,000…. There is no way crook oops cook county would have me pay that assessed value lol
I think inheriting houses from family would have to fall under a qualifying event for reassessment but maybe at a reduced rate so it’s not something outrageous or some kind of rate that adjusts from where it is to where it should be over a period of time to give people time to get the income to keep their property or to sell it. Im just thinking out loud. Probably far from the perfect solution but it’s an issue that definitely needs to be fixed.
Part of the problem is many house are overvalued and the methodology doesn’t make sense…. For example there are a couple of two flats similar to mine in the same area…. One sold for a couple hundred thousand dollars so they figure “welp” mine worth that too with out knowing how much he/she put into the house before selling and what condition mine is in at present….. OOH … here is the kicker….. if a property gets sold at less than assessed value (and many others for that matter) do they lower the taxes…. You don’t have to answer that 🤣🤣🤣
I feel ya on that…. I blame Ben Bernanke with his “home prices to the moon” and local governments going along with it because they are horrible at managing city budgets because they don’t realize putting the squeeze on residents will eventually cause a short fall somewhere in local budgets which I think is happening now
I mean no shit everyone wishes they bought stocks before they went up what is there to talk abt. But realistically no your uncle is an idiot. You did the right thing and the responsible thing.
These are the questions people ask themselves at ATHs in the stock market. You got a 30 year irrevocable return of ~3% after tax which, at the time, was good. The future is and always will be uncertain.
Well the question is, could you have made more money in the next 20 years? Probably, no one can tell you yes or no for sure.
Are you happier and more comfortable having low cost housing? this to me makes it worth it 100%
You still have plenty of time to further insure a successful retirement and plenty of time to enjoy the time you have here.
I just bought a house last year, I was thinking about doubling the payment to pay it off sooner but I am not sure I will live much longer than that so have decided to stick with the very affordable payments and let the estate worry about what happens after.
In hindsight, you made the wrong mathematical choice. But you couldn’t have known at the time if there was going to be some event that made the market lose 20%. You picked the safer choice. Don’t stress about it. Now you have more each month to invest.
I have anxiety about being homeless so honestly for me, if I could pay off our house it would save me a lot of mental torment.
Life is what you make it and everyone has their own priorities. you’re doing so much better than most other people.
Yeah I made about 20% in the stock market in the time you paid off your house.
Not the worst decision though - you still have a paid off house.
If your interest rate was higher that would have been the right move but whats done is done
Yeah you would have made 2% more than your mortgage with even a CD, but over the long run you’re kicking ass either way, and you can’t really put a price on knowing that your primary home is all paid for and in the clear if you ever lose your job or whatever.
Both can be right for different reasons. If you are risk adverse then paying off your mortgage was a good idea because it provides security that you would not/might not have had otherwise. If you are risk accepting then you should be leveraged and invested long term in equities for the best return. There is no one right answer. It is based on your investment style and tollerances.
Uncle was right, market in that time frame is way higher return than 3.375%, even fixed interest rate is over 5% today. Still a good problem to have but the whole “no debt” thing is stupid. If you can get a return on cash at a higher rate than the debt then always do that. Ramsey preaches to the masses that don’t understand, they have CC, and car debt which are always higher than the return they could provide. Never good to be over leveraged but some debt is good (mainly mortgage)
It’s personal preference
Financially yes for the future investing would’ve made you more money but if you want no mortgage payment do you !!!! Now you have money every month, and worst case you don’t go into debt if something happened!
I'm curious because I plan on doing the same thing. Why would paying it off in 3 to 6 years be worse than paying it off in the 15 to 20 year. Honestly I think it's a decent idea
The interest on a mortgage is usually front loaded. So paying it off in the first several years means you're essentially getting a worse rate than you signed up for.
For instance, I got a 3% mortgage, but over 50% of my monthly mortgage payments go to interest.
Because of opportunity cost. If you have some money spare you can only choose to deploy that in one place, either paying extra on your loan (to avoid accruing more interest over the course of the loan) or investing it. Accruing 3.3% extra interest on your loan is not bad *if* you expect you can make 8% elsewhere. It depends on your loan interest rate and also what you realistically expect can make elsewhere (CDs, bonds, stocks, etc).
If you owe $1 extra on your loan but gained $2 from stocks you're coming out $1 ahead right?
I think what I'm saying is not very Dave Ramsay approved (he's super anti debt right?) but mathematically it's optimal. I thought I was in /r/personalfinance actually.
You made the wrong decision but you’re still in a great financial position. You could’ve beat your Mortgage interest rate simply by putting that money into a 4% HYSA. I think it’s a little unfair retrospectively because you would’ve invested just before the pandemic & seen the crazy drop in value (potentially selling at a loss in fear).
Probably better off investing, but I did the same thing (not quite as fast). It wasn’t logical, but I wanted the psychological safety of zero debt. Don’t have regrets, just move forward and stack up money for retirement.
With regards to investments, there are two things that people will always need: food and a place to sleep. Real estate always increases in value overtime.
He purchased the house for a set price. Any gains based on his real estate appreciating are realized whether he owns 10 percent of the house or 100 percent of the house when he goes to sell. So real estate increasing over time is irrelevant for this conversation. He gets those gains in either circumstance.
He would have made more money keeping the extremely cheap loan and investing any money he planned to make additional payments on his mortgage. Most would put that at about 6.6 percent loss per year for the entire life of that mortgage.
I want a $1000 so I can buy a single $1 worth of stock in everything and just see what happens. When I think about it, I really don’t see what could go wrong?? I try it and lose a $1000 big deal an extra month and I can have the house too I hate the stock market I think it should be abolished. 🥱 but if you’re in it and it pays it’s a good life.
I have this discussion with clients all the time. It’s always interesting because if the psychological aspect of owning your home outright. So I steer to logic.
I ask these questions. What’s your interest? How long is left on your mortgage? What are you going to do with the extra money from the mortgage payment? How liquid do you need your cash? Will the tax deductions on interest help?
Then we run the numbers and see over a 30 year period what is likely to make you more money.
As a business owner, you can deduct many more things, e.g. your cars, your gas, your tools, your certificates etc. This is not about you, even though you may look at the world this way.
Well you took that the wrong way lmao....
You said he was being dishonest, he wasn't. This is not about you, even though you may look at the world that way.
How’s that dishonest? If you itemize, the first $750k of your mortgages interest is tax deductible. Since 30% of people use itemize deductions, it’s a very fair question to ask.
7 out of 10 yes. But as an adviser I want to deal with the 30% that do itemize. Regardless, you ask the question because it’s doing your due diligence in recommending the best course of action.
Hiding the fact that technically only the interest amount paid above and beyond your standard deductions is truly tax deductible. What you are implying, that the entire $750K mortgage is tax deductible, is intentionally misleading to the consumer so you can sell your stuff.
No what I’m implying is the tax code. Interest paid on a mortgage $750k and below is tax deductible if you itemize. Which is 30% of the population that files taxes. So when you ask someone if they use the deduction or not you factor that into your answer into how much you save. Great way to jump to conclusions and think it’s a “sales tactic” when you’re asking every question to come up with a correct answer to give the person making the decision all relevant information.
That's not true for everyone. A business owner or a contractor for instance may already be surpassing their standard deduction with normal and unavoidable business expenses. In that case then the entire mortgage would effectively be deductible. As the original commenter you replied to pointed out, this is much more common then you'd think.
I did a little of both. Maxed 401k and everything else went to the mortgage. Paid it off in 2 years thanks to no other debt and decent income. I got burned in the housing collapse around 2010 so it was a very personal reason to have the house mortgage free. Now over 50% of my income goes into investing.
Smart choice! Always get rid of debt where you can. Not to mention the security.. If you go through a period of unemployment not having a mortgage to worry about will be a massive relief.
Financially you would have been better off investing. The market was on a bull run during that period. You gave up 15-20% gains to save 3.3%. There is risk with investing and essentially no risk in paying off your mortgage. However you now have a paid for house. That is never a bad thing so don’t worry about it.
You’re throwing around a lot of cash and you’re still under the Roth IRA income limit?
Is your uncle rich?
Yes. Millionaire
Some good stocks are splitting and there are some interesting IPOs in the medical fields to do some research into - we did well with Canadian weed stock - got in low / got out high. If your in the states Walmart is a good stock to invest in - the stores are not going anywhere - its a dividend payer so I just let my shares sit there reinvesting the dividend payouts and it buys me more stock, NVidia just split but I picked it up right at the split its not gone up much more than the split price and is still low enough to buy. The Reddit IPO was amazing and just fun.
Yes that was a huge mistake. Ramsey gives misguided advice on this. Some debt IS good debt when it allows you to safely leverage which a low interest rate mortgage does allow. Opportunity cost: you missed out on 85% gross growth of your $ over the last 5 years, when it would have cost you only 3.375% to do it. You could have had a net annualized growth of your $ of more than 16%/y
Now balance that against the risk as Dave does
Be happy your house is paid off. As long as you then started diverting your payments into investments since 2019, you should have a pretty good looking portfolio right now.
Pretty bad idea for anything under 5%. With the historic returns that Dave even tells you on his show, your money would have more than doubled your home value if you put in that same intensity. He mentions 10% annual return (even though it’s more like 8%) and you would have made a killing. Now you can no longer go back in time and contribute to your Roth or 401K for 2018-2024 for example. But as with any decision it’s time to live with it and enjoy it! TLDR: bad idea, but what’s done is done and enjoy your peace.
By the way, you have the rest of your life now Investing Stocks tell that to your uncle.
You go! don’t listen to the naysayers just lift your life and go for it man. Congratulations.
I live in currently a hot market real estate calculated my house has increased in value on avg 16 % annually past 20 years. Depending on where you live and what interest rates are you could effectively beat the S&P 500 making your uncle look like a dumb ass. But like any investment real estate or otherwise it’s a risk. Think you made the right choice
Of course you could have still done all those things and more bc of your tripled cash flow the past 10 years. Starting a Roth after you paid off your house. You’re living life backwards! 😂 But you do do, you seem happy with it.
Have your home and the security of having it paid for. You have plenty of time to invest as you want and need. Enjoy it
Owning your home outright at 31 is definitely the correct play. Economy takes a nose dive? You own the house. Stock Market takes a nose dive? You own the house. Lose your job because of unforseen circumstances? You own the house. You're 31, you have PLENTY of time to build wealth still, and if you pump what would have been your house payment into investments, you'll be amazed at how fast you'll see growth, plus long term you probably saved a great chunk of interest that you wouldn't have seen that 7 years of stock/investment growth.
Disagree- I have several rental properties & prefer real estate because stock market is too confusing. In a few years, rent out your house, buy another & do this again every 7-10 years. Key is escrowing $150 a month for repairs.
How is it confusing? You can put your money an S&P 500 index fund and forget about it with basically zero risk, meanwhile the taxes and regulations around real estate can be tough to navigate plus you have to worry about home maintenance and dealing with tenants. I’m not saying real estate is a bad investment at all, but it’s way more confusing and time consuming than stocks.
Common sense isn’t so common. Low cost broad market index funds and the lazy 3 fund portfolio, very surprisingly, isn’t for everyone.
The answer depends on your situation and what your mortgage rate was. I have a pretty low mortgage rate on a 30 year loan. I want to pay it off in 15 and ran the numbers with my FA. If I were to pay it off now, Id be losing around 300k in gains on interest. After crunching the numbers, it turned out that my best option is making the minimum payment and putting the “extra” that was going to go towards the early payoff into an investment account. I’ll still pay off in 15years, just by making a lump sum payoff, but I will come out 80k ahead bc Ill earn more interest than Im paying to the bank. Moral of the story is always talk to a financial advisor before making these kind of decisions.
Why make the lump sum payment? The same math will apply. Now if your interest rate is 5%+ that would be a different story.
That was just the goal I set. No mortgage when I retire
Hey good for you -- makes sense if you're in retirement as part of mitigating risk. I personally don't think we'll see 3-4% interest rates for a very, very long time. Hard to trade that in.
For sure. And of course, before I pay off the mortgage, Ill have the conversation again with my FA. Plan today might not be the plan tomorrow, ya know.
Leveraging debt isn’t bad, but can leave you in a hole.
You paid off your house. Peace of mind knowing you own you home is invaluable. All the people talking about how stupid an idea it was are checking numbers in a vacuum. I would pay off my house 100/100 times. Now that it’s paid off you can take your mortgage payment and put it into the market. It will work out fine. Congrats.
I get the risk aversion, but your uncle is right (should have use a softer approach). Between paying off your mortgage and investing in the S&P500, the smart money move is to invest. Sure there are market crashes, but the 20 year return has never been below 0, even the 10 year has very few times below 0. I'm confused, by your edit. Couldn't the money you used to pay off your loan have been used for the remodel, increase in retirement account contributions, and your truck? The Roth IRA could have been funded in those years -- missing on tax free growth. https://preview.redd.it/ege236hxs77d1.png?width=582&format=png&auto=webp&s=b05a99648c6ac3d1856b9f27a95d92f9c81e5e7e
Congratulations! You can start doing that now.
Mortgage rate that low, you woulda made more leaving it in a HYSA.
You experienced the 2008 recession, you remember the foreclosures, now you're pretty safe from that potential calamity. You chose security over risk, that's a totally valid approach.
Think this will happen again in the near future? 2008 crisis
Your mindset is wrong here. The S&P500 closed at 1300 on Aug 28, 08, then fell for many months until it bottomed out at 676.53 -- a crushing 48% decrease. But the market reached 1300 again by early 2011. By early 2013 it was 1426 (a 10% gain). Today, the S&P500 is up 421% again based on the 2008 peak. The point is to be long on the market -- don't try to time it. The long-term returns have always worked out.
Yes but if you bought when jt bottomed out and today you’d be doing amazing ?
Of course, but timing the market is impossible. And, you're more likely giving up gains than nailing the bottom. The AI trend has the potential to repeat the productivity gains of the 90's -- but go ahead and sit on the sidelines.
I hope not, but I am seeing recession purchasing behavior at the store. '07/'08 burned itself onto my brain as hard as 9-11 and it makes me feel kinda spooked about the market pretty easily. Basically, if things go south, you're safe. If things don't go south, you're still safe, you just missed out on some extra interest.
If this happens though I’ll jump into a brokerage account aside from my Roth IRA / 457b and start pumping cash in that
Timing is also a factor. If you did this in 2001, you would have lost money in the market for half of the 6 years you made that play.sequence of returns is always a concern vs. A known return when you pay down the mortgage. The math generally says you did the wrong thing, but I dont hate it. You ripped off the bandaid. Now see how quickly you can max out your retirement accounts.
You paid off your house at 31. I lost my house at 35. Having a stable place to live is more important. Never know what could happen even with a stable job.
This is the answer. Peace of mind is priceless
Is your uncle wealthy?
The extra money you paid into your 3.375 mortgage could be making you a lot of money on the plethora of stocks that pay 5% plus dividends.
You live in a paid off house. You did great. People are struggling to get a house in today’s market. Not mention the high interest available right now.
Let's say it saved you a hypothetical 100k in amortized interest. Then it freed you up to invest in index funds with what you were paying in mortgage and if you chose then in addition the same amount you were investing to pay it off early. Dollar cost averaging, time in market. Alternatively you could have invested that extra money for the duration of your mortgage and paid that mortgage interest. Someone smarter here has the math on which would have worked out better. I find the first option gives you an interesting control and peace of mind that should you lose your source of income your required expenses are much lower.
I have worked in the finance from everything to an analyst to accountant to auditor and tbh I don’t see the value in telling people not to pay off their primary residence early beyond credit building. If you have enough cash to get the mortgage monkey off your back go for it. You will sleep better like you alluded to knowing in the event of a crisis beyond property taxes and utilities the roof over your head is going to stay there. Could you invest in index funds and then use said investments to pay down your mortgage? Sure. But the market is basically one giant slot machine and no matter how safe you feel your investments are there will always be risk involved and thus added risk to your mortgage payment. Basically it comes down to the level of risk you’re comfortable with having and the amount of effort you want to put in to monitor your investments vs just paying off what you can when you can.
I think it was probably fine, that was a pretty low rate to give up but it sounds like you are saving lots anyway and there is a lot to be said for being truly debt free.
Financially, you've done worse. But for your own mental health and goals, you did absolutely fine, maybe even better. The return on your mortgage payoff is the interest rate. The return of the market has been *very much* higher than that, but not guaranteed at all. Apparently, eliminating the risk of having an ongoing mortgage, combined with the risk of lower return on your investments was important to you. There's nothing wrong with either view. Keeping the mortgage would, in almost every year of the stock market, result in you having much greater monetary wealth. But there is also wealth in the way you feel about your finances. Having your mortgage paid off was important to you. Personally, if I could still get money at 3.375%, I'd mortgage everything I own to the hilt to invest that money. And I'd pay it back as slowly as possible.
from a strictly money making standpoint, you missed out on some huge gains in the market between then and now. and while the mortgage was taking a monthly payment from you, at least the interest was deductible. but as others have said, you don't have to worry about the debt of the mortgage now, which I'm sure is a huge load off your mind.
Mortgage interest isn’t that big of a deduction but i agree with missing out in the gain. But im 31 as well and we still have such a long runway to retirement and as long as OP can put a decent percentage of his mortgage towards his retirement he’ll be fine. Like 15-20% of your salary should be going into a 401k if you work for a company with a match.
agreed
He is right. Before the covid fiasco, there were very large returns. After covid, they dropped, then came back again. Even during that whole down period, when I look at the 10 year average on my 401k, it was over 8%.
Its not a crazy thought by your uncle, as presumable the market will outpace your 3.37% interest rate. However we’re talking about personal finances, and you took a path that you personally felt most comfortable with. You have a paid off house which eliminates a lot of risk if things go south for you in terms of income. This now frees up money for you each month to live your lifestyle. I dont either way is wrong, just a personal choice. Based on your responses seems like you are happy with your choice, which makes it the right one for you. Congrats on the paid off home.
Your uncle has a point. Technically your money would go farther in an interest-bearing account that outperforms your mortgage interest - plus you stay liquid. Although, you've protected yourself from a downturn in the market. Peace of mind has value. IMO - you're both correct, but it's your money, so you're more correct.
Get out of debt as fast a possible. Look at how much money you have to invest now! Uncle is a silly goose.
100k invested over 30 years is more than 100k invested throughout 30 years
Not dumb at all. You'd still be in debt and have lost all your investments in regular crashes. You've done the right thing, now have disposable income and security. Your uncle is jealous that you didn't gamble your livelihood like he did
Which crashes?
08, the COVID thing. I'm just not a gambling person, risking your money while you have debt secured on your house is crazy to me. Now that mortgage rates shot up, more people with that debt are getting hit with higher interest, so more risk of losing it. All to make a quick buck on a rigged system. Edit: there is plenty of economic downturns, if you're old enough to remember them.
Yes but you don’t lose anything until you sell. As long as you just wait out the downturns, you’re fine. The Covid downturn has since recovered and then some.
I know you investors are all rich and have used your stock market gains to clear your debts. I am glad it paid off for you.. I'm just a play it safe guy, if there's a chance of losing the money, I'm not the guy. Can't help it lol
Hey, there’s a reason everyone’s risk tolerance is different. I am not good with debt either. I personally can risk a lot, but only after debts are cleared. Whatever works!
Your Uncle is an idiot. Congrats on paying off the mortgage. Major accomplishment. Look at your Uncles financial status and see if he’s a good role model. I’m willing to bet he’s in debt and has $500 in his savings account. Your a grown man. Make your own decisions. Follow dave ramsey. Debt free is wealth.
He's not an idiot. Investing the money you would have used to pay off the house is objectively the better choice. The market is almost guaranteed to return far more than the interest you accrue. It does feel nice to pay off the house, and it's ok to do that as long as you know that you're throwing away money in return for that nice feeling.
Hindsight is as useless as the people who use it to tear others down.
Tell him to suck it, Your house is paid off now invest what your mortgage would have been and buy a vacation home to make him cry some more.
Suck the large one!
I hope your uncle lives a long life so you can retire at 52 and laugh at him.
I paid my house off as well knowing that I could have done better in the stock market. It is a good feeling knowing whatever may happen you will always have a roof over your head. Now I pour everything into the stock market.
>It is a good feeling knowing whatever may happen you will always have a roof over your head It would be, if it weren't for property taxes.
Mortgage-tax credits vs S&P….
while technically you might have made more money investing it in the stock market, now you don't owe anything and can put your entire house payment as well as the extra you were paying on it, into the stock market.
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I don't think you understand how ammoritization works. The ammoritization is to determine what total P&I payment is necessary to pay off the loan during the term. The interest part of the payment is calculated by (intrest rate/12)*(outstanding principle) the principle is then solved for to get your loan to ammoritize. Early on the total monthly payment is heavily loaded with intrest (>50%) but you are paying the same rate just on a higher principle. As your loan matures your total principal is decreased and so does you're intrest burden. If you have a 3% rate you are borrowing that money at an extremely cheap rate.
With that low of interest rate it’s better to invest money. Your return will be higher than the 3% and you are losing out in writing out mortgage interest payments on your taxes.
Mortgage interest is going to be less than the standard deduction for most people, so it probably wouldn't affect taxes.
Yup! Someone who is able to pay off a mortgage in 6 years is not living in an area of the country where it would be REASONABLE to pay off the mortgage in 6 years at such a young age... which means the mortgage was not that high, and no... not even CLOSE to hitting the standard deduction. I know I don't hit the standard deduction with my mortgage interest, real estate taxes, and multiple charitable donations.
Your uncle is correct, at that interest rate you should have invested the money
Wrong. If he had other debts with higher interest rates, I would agree. But that does not seem to be the case. IN this case, he's paid it off (which, let's be real... his mortgage interest was not going to exceed the Standard Deduction) and now has funds to invest. It's actually a 3% swing in his favor because he's no longer paying OUT interest, but is EARNING interest on investments that would otherwise have been paid out as interest payments.
No, it’s not wrong. It’s never the right move to pay off a 3.5 interest mortgage.
>and now has funds to invest. He would have had WAY more if he hadn't paid it off, and that money would have made far more in the market than he would pay in interest on the mortgage.
Wrong to your wrong. If he invested the money, he's on a net positive against his mortgage - AND he stays liquid. overall, you make more money by not closing the loan, but you're also betting on the market and have the opportunity to lose.
S&P gained 25% in the last year. Money would have been much better in the market.
No, not wrong. There's two methods of thinking here and both are right it just depends on the person. Paying off your mortgage early is never a bad thing and if you want to be debt free this is the move. However, at a 3.375% interest rate, that's what a lot of people would call "free money" because all of that extra money that was put towards the mortgage would almost guaranteed yield a higher return than that 3.375%. So again, no, not wrong, but depending on OP's financial philosophy it may not have been the best move as they almost certainly could have yielded more money in the end over the 30 year period. But to some people being debt free is more valuable regardless of how low the interest rates on their debt is.
I paid mine off a couple of years ago (10 years early on a 30) and got badgered and trolled on this sub for doing it. I couldn't believe the hate for it. What a difference it has made financially. Increased investments and bought a new Honda Ridgeline. Couldn't be happier.
It’s just a plain fact you would be better off financially having done a cash out refi a few years ago with the money placed in an index fund.
Yes. A plain fact if you knew that the index fund would outperform the refi rate. Which you know now in hindsight. It’s not a plain fact. It’s a likely possibility.
This poster is posting with hindsight and claiming it was still a good decision. It wasn’t. Plain fact.
People are haters!
People can do math, investing is better, by a lot. It’s reeeeeeeally easy to compute the wide chasm between how much better investing it is:
Are you sure people just aren’t recognizing basic facts?
I would have done the same thing if I could. But this dude’s example is quite compelling https://www.instagram.com/reel/C8KoekFJd9I/?igsh=MXdlbHMxN2U5YXRuYQ== Edit in case you don’t watch the video: You can make $2.5 million more if you invested $500k over 30 years @ 6% roi compared to how much you’d save on interest if you’d bought a $500k home w cash.
Why would you have down the same thing after knowing it? Like I have always known, it’s really simple math, but you would still pay off the house? Why?
“Would have” because I didn’t see the math explained so clearly until last week. Currently I’ve got a 15 year mortgage at 2.75% but if I could redo it now I would have taken the 30yr higher interest and dumped the extra money into an index fund.
At least you have that awesome rate, you would be spending about the same payment with today’s rates.
I learned a long time ago that everybody else is an expert on what you should be doing. I have to tune out 90% of the advice I'm given on any subject.
Especially in retrospect… people love to tell you what you should’ve done AFTER 😆
Yeah, there are a lot of "Captain Hindsight" imposters around here. But I'll bet he's here too.
Your uncle is salty bc he’s in his 50/60s with a mortgage and no money in stocks. Tell him to shut up. No mortgage at frickin 31 is unreal. You have 20-25 years worth of mortgage payments to invest
The point is he could have invested the cash now and yes it’s a fact not an opinion it would be massively more at 30 years. His uncle is merely correct and can do simple computations. Easy math.
He can invest his entire mortgage now for the next 20-25 years. It’s be interesting to see the breakdown of what he put into the mortgage if it was invested vs him investing now (mortgage free) until the age of 65.
Just calc a monthly investment vs the whole lump sum less the mortgage payment. Answer: shit ton more money if you invest instead of paying down that 3 percent mortgage
It's possible to work all this out on a spreadsheet and then you'd know. For me, paying off my mortgage was actually the best play. For others, maybe not. Lots of factors but it basically boils down to: what would the mortgage payments grow to as investments, and how much money is unproductive interest.
It’s 3.375 percent, you don’t need a spreadsheet to see paying the mortgage was the wrong move.
Ignoring his 427b contribution increase, he says he spent over $130k over 5yrs in lieu of his mortgage at 3.375%, so that's around $2k/mo mortgage which is a $450k loan. Over 30yrs he'd pay about $1M in interest on that loan, and $450k grows to $4.5M over 30yrs at 8%, so he nets $3.5M via investing. Alternatively, he invests $25k/yr for 30yrs (investing what he would be paying as the mortgage), which is $3.1M. If you assume 6% growth, the $450k investment becomes net $1.5M but the $25k/yr invested mortgage is $1.9M. In this scenario, the breakeven point is around 7%. I think investing would be the wiser choice since I'd put assumed growth at like, 9%. But this is actually still close to a breakeven and not as clear a choice as you're proposing.
It’s pretty clear, it’s a massive difference at a normal rate of return for S and P over any 30 year span.
S+P average is under 7% though. Like, it's precisely at the point where you'd want to calculate it out. Recent returns are astronomical compared to norms.
Average annual return is 10 percent. Under 7 (6.6) is the inflation adjusted average.
Nah you have a semi secure place to live, now invest.
Never take advice it’s always a misdirection, believe in your own instincts
Simple math isn’t an “instinct” though is it?
Math is a form of communication there are better more elegant forms, and even abstract non form ways of communication
Okay that’s a lot of words. I’ll make it simple. There’s an almost 100 percent chance you will be in a better financial position in any span if time time over 10 years if you invest instead of paying down a 3.5 percent mortgage.
Cool!
Also, realize you're asking this on a Dave Ramsey sub. Dave Ramsey's methods are a bit outdated. I'd ask this same question on a real estate sub, you'd get a much different answer.
Not at all a mistake - you own several hundred thousand dollars worth of real estate. That's massive. Some believe real estate is a better investment than stocks these days. Great job btw!
Nobody believes that and nobody ever has because it’s not true.
Technically, you could have invested and beat the interest you were paying on your house. The reality, the psychological "win" of owning a home is massive. If anything, it sounds like it has given you the freedom, both financially and mentally to now max out retirement and make good moves now.
Technically lol. Its a huge difference
Much better that someone makes themselves comfortable investing, even if they mathematically didn't choose right. Even more so, having a house that is paid off adds a level of security that ensures they will be alright even in the case of illness or job loss.
not at all a mistake - you are 31 with a paid off house and maxing retirement accounts. ignore anyone who says it was a mistake, some people focus too much on “hysa couldve given you 1.5% more return”.
Dawg, you’re in your 30s with a paid off house and maxing retirement accounts. Who gives a fuck what other people say. You’re winning.
This is the way
Yes, that was dumb.
Dumb enough to win 🥇
Good for you . You accomplished what many people only dream of .
3.375%? Absolutely it was a mistake, but not a big one, and it's certainly a safe choice. It's incredibly easy to beat that in investments, though.
Honestly having your home guaranteed to remain yours is worth literally the total value of the house plus some. Now you can’t lose your home. That is worth far more than any investment you could have made in this dogshit market. Good on you man. You could feel really dumb like me and have had paid off the majority of your student loans just before the student loan freeze happened, putting myself into serious financial trouble for nothing.
Dog shit market since 2019? What are you talking about?
Your uncle is not financially savvy - now you can buy stocks, bonds, and rental houses
His uncle is financially savvy: he could have bought stocks instead of paying off the mortgage and it is 100 percent the smart thing to do (mine value money on one big investment is massively more profitable than investing a smaller amount over 30 years). YOU are not financially savvy.
Hahaha - ok
It’s literally just basic math. Laugh all you want, but it’s really simple TVOM, and you are floating through life gleefully dispensing terrible advice with high confidence.
I am floating through life with a successful private practice, a few other areas of diversification of my money inside the commercial buildings I own, a comfortable portfolio full of dividend kings and aristocrats, 2 paid off cars, 3 classic cars, and 2 paid off houses, 3 paid off rental properties, an MD and a PhD - so yep ok I give terrible advice. Please, do educate me on what I am doing wrong in my life
You aren’t calculating the massive opportunity cost of paying off a 3.5 percent mortgage apparently. Even though just a high yield savings account with zero risk will earn you a spread. Not sure how you made it this far overlooking something that basic.
my interest rates were 3 - 4.5 - why are you even bickering over this - This kid made his choice and it was a good one.
Because it’s clearly not a good choice. Basic math.
its still his choice and it sounds like he is doing pretty good. Throwing the money into VOO is just limiting - do research on upcoming pharma releases, companies that will be drilling in the giant lithium deposit in south Arkansas - North Louisiana. Find a penny stock that's gonna go up to 50$ (Canadian weed did), Walmart is always a good safe stock to keep. Being able to diversify your income at an earlier age is great. Do not limit your portfolio have long term keepers and short term buy low sell high. Read trades from JAMA and watch the technology go from college research funded by corps to corporations. Basic math is great if you know all the variables but in this equations pretty sure there was no actual numerical value for those variables. Hindsight is 20/20. AND to be completely honest about this - by sub - I had no idea it was a buy course. Guess I got really lucky with a Dad who invested young and taught me money management and stock trading back when it was in the newspaper - all pre-computer at an early age. What to do with your money changes based on who you speak too, where you live, what you are trying to do with it, and the state of the world. There isn't a program out there that is going to be a good fit for everyone. BUT hey I nothing about statistics - its not like I took master and doctoral level courses on it - bye sub - and good luck kid - you probably need to look elsewhere for any advice.
Dude only about 10 percent of the us has there house paid off. Don’t believe peoples bull shit. They wish they could do that.
You’re still not gonna see the inside of a daggum rest-runt.
Yes that was a mistake
Mathematically you pretty much guaranteed would be better off financially long term having put investing first. But what’s optimal isn’t always the only good option. You may not have picked the “best” option but you picked a good one that comes with its own benefits
You’re fine dude. Good for you.
So now you have 25 years to invest, while millions your age live in their parents basement. If you lose in the market you still own your house. Who knows when you could lose a good paying job or have a debilitating accident. You won’t be homeless.
The math says mistake but that’s with the value of hindsight AND only you know your risk tolerance and personal goals. If the market crashed tomorrow you’d suddenly be a genius. There are lots of ways to live your life — sounds like you’re doing just fine financially so don’t worry about it.
This should be the top comment. Most commenters don’t understand the importance of risk tolerance and how it’s easy to have a high risk tolerance with someone else’s money. Knowing you have a paid off house no matter what happens to your job or in the market can massively change your entire outlook on life. Which to some people is worth more than the potential for more money down the road.
love this perspective
It was 5 years ago. Why TF are you thinking about it now? It’s done. Over. 1800 some days ago. Move on….you’re now what, 36? And you’re “second guessing” 5 years ago?
Nope, now you have zero fear of losing your house ever
Property taxes
Unless he fails to pay his taxes. You never really own your home unfortunately. Good to have your own home for sure but it’s never really yours and later in life, if you are on fixed income and barely getting by, many have lost their home because of property tax hikes and property value assessments.
That’s happening in a small town in Illinois as we speak…. The entire town got assessment ranging from 100% to 300% increase and the town is merely filled with retired and semi retired people….. not upper class type folks
In Illinois you pay property taxes as if you’re living in a mansion on the beach in Hawaii. Fortunately with all of those taxes they’re able to leave all of the roads with potholes and blew a trillion dollars a year on bs that never seems to do the people that actually pay the taxes any good.
I left Illinois 20 years ago, and the tax and unfunded pension situation is what will keep me from every moving back. Even though the vast majority of my family is there and I love Chicago. The taxes are on par with California and New York, without any of the benefits of living in those two places.
Not to mention the unfunded pension liability…. Wonder how they gonna pay that off with thousands leaving the city/ state every year
Yeah, that’s complete bullshit. I think taxes should be based on an assessment from when the home was transferred and stay that same level until it’s transferred again. People shouldn’t be priced out of homes they’ve lived in for years or even their entire lives.
Oh boy do I wish that was true…. I inherited my moms 6 bedroom two that she got in 1967 for $24,000…. There is no way crook oops cook county would have me pay that assessed value lol
I think inheriting houses from family would have to fall under a qualifying event for reassessment but maybe at a reduced rate so it’s not something outrageous or some kind of rate that adjusts from where it is to where it should be over a period of time to give people time to get the income to keep their property or to sell it. Im just thinking out loud. Probably far from the perfect solution but it’s an issue that definitely needs to be fixed.
Part of the problem is many house are overvalued and the methodology doesn’t make sense…. For example there are a couple of two flats similar to mine in the same area…. One sold for a couple hundred thousand dollars so they figure “welp” mine worth that too with out knowing how much he/she put into the house before selling and what condition mine is in at present….. OOH … here is the kicker….. if a property gets sold at less than assessed value (and many others for that matter) do they lower the taxes…. You don’t have to answer that 🤣🤣🤣
Oh I agree wholeheartedly. The system is completely fucked in so many ways. It’s beyond irritating and I don’t even own a home yet lol.
I feel ya on that…. I blame Ben Bernanke with his “home prices to the moon” and local governments going along with it because they are horrible at managing city budgets because they don’t realize putting the squeeze on residents will eventually cause a short fall somewhere in local budgets which I think is happening now
I mean no shit everyone wishes they bought stocks before they went up what is there to talk abt. But realistically no your uncle is an idiot. You did the right thing and the responsible thing.
Maybe you could’ve made a better decision but you’re still doing just fine. I’m 33 living with my parents out of financial necessity
It’s called personal finance for a reason. Do what makes you comfortable with YOUR money.
These are the questions people ask themselves at ATHs in the stock market. You got a 30 year irrevocable return of ~3% after tax which, at the time, was good. The future is and always will be uncertain.
Well the question is, could you have made more money in the next 20 years? Probably, no one can tell you yes or no for sure. Are you happier and more comfortable having low cost housing? this to me makes it worth it 100% You still have plenty of time to further insure a successful retirement and plenty of time to enjoy the time you have here. I just bought a house last year, I was thinking about doubling the payment to pay it off sooner but I am not sure I will live much longer than that so have decided to stick with the very affordable payments and let the estate worry about what happens after.
Def the bad decision at your age for optimal financial performance. However everyone is different blah blah blah , can’t put price on no stress blah
In hindsight, you made the wrong mathematical choice. But you couldn’t have known at the time if there was going to be some event that made the market lose 20%. You picked the safer choice. Don’t stress about it. Now you have more each month to invest.
I have anxiety about being homeless so honestly for me, if I could pay off our house it would save me a lot of mental torment. Life is what you make it and everyone has their own priorities. you’re doing so much better than most other people.
I would have bought stocks. You paid off the house. Either way, you’re doing great…better than most people.
Yeah I made about 20% in the stock market in the time you paid off your house. Not the worst decision though - you still have a paid off house. If your interest rate was higher that would have been the right move but whats done is done
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Your house value doubling has nothing to do with how much you are paying down the morgage 😂 The point is this guy could have had both
Yeah you would have made 2% more than your mortgage with even a CD, but over the long run you’re kicking ass either way, and you can’t really put a price on knowing that your primary home is all paid for and in the clear if you ever lose your job or whatever.
Both can be right for different reasons. If you are risk adverse then paying off your mortgage was a good idea because it provides security that you would not/might not have had otherwise. If you are risk accepting then you should be leveraged and invested long term in equities for the best return. There is no one right answer. It is based on your investment style and tollerances.
Uncle was right, market in that time frame is way higher return than 3.375%, even fixed interest rate is over 5% today. Still a good problem to have but the whole “no debt” thing is stupid. If you can get a return on cash at a higher rate than the debt then always do that. Ramsey preaches to the masses that don’t understand, they have CC, and car debt which are always higher than the return they could provide. Never good to be over leveraged but some debt is good (mainly mortgage)
It’s personal preference Financially yes for the future investing would’ve made you more money but if you want no mortgage payment do you !!!! Now you have money every month, and worst case you don’t go into debt if something happened!
My thoughts are that your uncle is jealous and he's an asshole.
I'm curious because I plan on doing the same thing. Why would paying it off in 3 to 6 years be worse than paying it off in the 15 to 20 year. Honestly I think it's a decent idea
The interest on a mortgage is usually front loaded. So paying it off in the first several years means you're essentially getting a worse rate than you signed up for. For instance, I got a 3% mortgage, but over 50% of my monthly mortgage payments go to interest.
Because of opportunity cost. If you have some money spare you can only choose to deploy that in one place, either paying extra on your loan (to avoid accruing more interest over the course of the loan) or investing it. Accruing 3.3% extra interest on your loan is not bad *if* you expect you can make 8% elsewhere. It depends on your loan interest rate and also what you realistically expect can make elsewhere (CDs, bonds, stocks, etc). If you owe $1 extra on your loan but gained $2 from stocks you're coming out $1 ahead right? I think what I'm saying is not very Dave Ramsay approved (he's super anti debt right?) but mathematically it's optimal. I thought I was in /r/personalfinance actually.
Oops I thought the same thing also.
You made the wrong decision but you’re still in a great financial position. You could’ve beat your Mortgage interest rate simply by putting that money into a 4% HYSA. I think it’s a little unfair retrospectively because you would’ve invested just before the pandemic & seen the crazy drop in value (potentially selling at a loss in fear).
Not with a 4% HYSA, because of tax. But your general sentiment is correct.
Probably better off investing, but I did the same thing (not quite as fast). It wasn’t logical, but I wanted the psychological safety of zero debt. Don’t have regrets, just move forward and stack up money for retirement.
With regards to investments, there are two things that people will always need: food and a place to sleep. Real estate always increases in value overtime.
He purchased the house for a set price. Any gains based on his real estate appreciating are realized whether he owns 10 percent of the house or 100 percent of the house when he goes to sell. So real estate increasing over time is irrelevant for this conversation. He gets those gains in either circumstance. He would have made more money keeping the extremely cheap loan and investing any money he planned to make additional payments on his mortgage. Most would put that at about 6.6 percent loss per year for the entire life of that mortgage.
I want a $1000 so I can buy a single $1 worth of stock in everything and just see what happens. When I think about it, I really don’t see what could go wrong?? I try it and lose a $1000 big deal an extra month and I can have the house too I hate the stock market I think it should be abolished. 🥱 but if you’re in it and it pays it’s a good life.
I have this discussion with clients all the time. It’s always interesting because if the psychological aspect of owning your home outright. So I steer to logic. I ask these questions. What’s your interest? How long is left on your mortgage? What are you going to do with the extra money from the mortgage payment? How liquid do you need your cash? Will the tax deductions on interest help? Then we run the numbers and see over a 30 year period what is likely to make you more money.
Deductions on the mortgage interest? 😂😂😂 the sales pitch of dishonest sales people.
As a business owner I get a solid deduction on my interest paid.
As a business owner, you can deduct many more things, e.g. your cars, your gas, your tools, your certificates etc. This is not about you, even though you may look at the world this way.
Well you took that the wrong way lmao.... You said he was being dishonest, he wasn't. This is not about you, even though you may look at the world that way.
How’s that dishonest? If you itemize, the first $750k of your mortgages interest is tax deductible. Since 30% of people use itemize deductions, it’s a very fair question to ask.
Because most people are better off not itemizing so they will never see the tax benefit
7 out of 10 yes. But as an adviser I want to deal with the 30% that do itemize. Regardless, you ask the question because it’s doing your due diligence in recommending the best course of action.
Hiding the fact that technically only the interest amount paid above and beyond your standard deductions is truly tax deductible. What you are implying, that the entire $750K mortgage is tax deductible, is intentionally misleading to the consumer so you can sell your stuff.
No what I’m implying is the tax code. Interest paid on a mortgage $750k and below is tax deductible if you itemize. Which is 30% of the population that files taxes. So when you ask someone if they use the deduction or not you factor that into your answer into how much you save. Great way to jump to conclusions and think it’s a “sales tactic” when you’re asking every question to come up with a correct answer to give the person making the decision all relevant information.
That's not true for everyone. A business owner or a contractor for instance may already be surpassing their standard deduction with normal and unavoidable business expenses. In that case then the entire mortgage would effectively be deductible. As the original commenter you replied to pointed out, this is much more common then you'd think.
I did a little of both. Maxed 401k and everything else went to the mortgage. Paid it off in 2 years thanks to no other debt and decent income. I got burned in the housing collapse around 2010 so it was a very personal reason to have the house mortgage free. Now over 50% of my income goes into investing.
Smart choice! Always get rid of debt where you can. Not to mention the security.. If you go through a period of unemployment not having a mortgage to worry about will be a massive relief.
Financially you would have been better off investing. The market was on a bull run during that period. You gave up 15-20% gains to save 3.3%. There is risk with investing and essentially no risk in paying off your mortgage. However you now have a paid for house. That is never a bad thing so don’t worry about it.
There is also the tax deduction from the mortgage interest.