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Additional Posts in FIRE Financial Independence Retire Early
Decided to payoff my mortgage.
Custodial or 529 for child?
What do you want to do when you reach FI?
Anyone a CFP as a side hustle?
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Does the advisor charge a percent of AUM? If so, you paying off your mortgage directly impacts their fee
Assets under management, the total value of the assets you have which you pay them to manage for you (generally an investment account of yours which they manage how to invest on your behalf).
Some charge a fee based on AUM (say 1% of the AUM per year), and others charge a flat fee or different fee schedule, regardless of the AUM. As it relates to this thread, if you were to pay off your mortgage faster instead of throwing that money at investments and they charged a fee based on AUM, you’d have fewer assets invested for them to make money on.
I totally ignore advisors and YouTubers on this topic. From a personal experience, I can tell you the feeling of mortgage-free living is simply awesome. It is a true living and you can officially say it is your home. You can sleep much better at night and more money for you to invest so that you can retire early. Hope that helps and best of luck. 🤞
This. This is what I’m after haha 😂
It’s all relative to the market. In your shoes after a massive run up in stock performance, I would take the the 7.3% guaranteed return of paying off your mortgage.
For me my mortgage is 2.25% - I will not throw an extra dollar on it and instead invest elsewhere
See if that was my rate, I wouldn’t touch it either!
We paid ours off about 3 years ago at a lower rate than what you have. Definitely something to be said for the psychological part of being completely debt free. You gotta run your own numbers to see if it makes sense for you. If I were at 7.3%, getting that gone would be my top priority.
💯
7.3 is a terrible rate.
Stay away from that ARM. But I’d be surprised too if you can’t find a 30- or 15-yr fixed rate at better than 7.3%, that seems really high even in today’s market. If you can drop it even a half a percent and plan on staying in the house for at least the next couple years or so, I’ve found it’s still usually worth it.
And I wouldn’t sit on the cash waiting to pay lump sum until the very end, because as you pay down the principal extra over time, the amount which they charge interest on each month also drops.
At 7.3% I’d definitely pay it down faster instead of investing. The market swings so you’re not always going to be in the green. But even if you had a guaranteed 10% return, you’d still need to account for taxes on those gains. That may be 30% if short-term, or 15% if long-term, so even taking long-term capital gains, your real return is 8.5% on a guaranteed 10% ROR, which really isn’t that far off from your interest rate, so your spread (or “arbitrage” that a lot of people like to talk about these days) really isn’t that much and imo not worth it, and especially since you don’t have a guaranteed ROR.
I’d look to refi, and I’d still probably pay the mortgage down faster. Heck, even if you later regret it, there’s nothing stopping you from taking out another mortgage or a HELOC if you really wanted, so it’s not like you can’t go back.
I suggest to pay your mortgage asap and enjoy being debt free! The best thing I did few years ago - paying a 30 year mortgage within 10 years. Do what you think it’s better for you. I listen to advisers but at the end of day, I decide what really I want to happen. Enjoy!
Coach
Because it is the correct thing to do financially. The best financial thing to do is get a market rate 30 year mortgage. If the rate is out of market, refinance to a new market rate 30 year mortgage. All the arguments for paying off your mortgage early are emotional arguments; not financial arguments.
Curious about your liquidity statement? Where is the liquidity coming from to pay off the mortgage? Put that excess liquidity into a broad based equity fund and don’t trade out. You are ignoring compounding in order to pay off simple interest. That is not rational.
Def appreciate the anecdote, ZF. Thank you.
OP, one way to look at FIRE seekers is that they generally fall into two groups: those who are comfortable with the ongoing monthly expenses, and those who are not.
Developed economies thrive largely because they have more of the first type; people are willing to spend, borrow, and keep money circulating. Ironically, that also makes them ideal customers for the financial industry.
It seems that you (and I) belong to the second group. The psychological burden of monthly payments bothers us more than it does many others.
So, don’t look for validation from people who think differently. If paying off the mortgage gives you peace of mind and reduces your monthly obligations, go ahead and do it.
The feeling of being debt-free is hard to quantify, and not many people can truly relate to the freedom it brings.
I agree. We'll pay off our mortgage in a few months and I can't wait to get rid of the largest debt hanging over our heads each month! I am very anti-debt and won't even let $1 carry on a credit card. I want financial freedom, not to be tied to debt carried by a lender.
Thanks all for this! Love the sanity check here ❤️
At that rate if I could I would definitely pay off mortgage!
Peace of mind is totally valid. However - do the math calculations on the trade off the two scenarios with the tax (mortgage interest deductions) and inflation lenses. You will see why the math does strongly say not to pay off the loan.
It’s frustrating when people read one sentence of an entire post and then write exactly what I wrote. If you read the rest of it - I literally say calculate it.
Coach
Maybe the advisors are idiots? Or they have ulterior motives, like a percentage of total investments fee?
With a mortgage rate over 7%, I cannot see a good reason why you wouldn't pay it down. When I still had a mortgage, I directed a set amount to the mortgage and a set amount to my investment account each month. My thinking was that I would be getting a solid return on the pay down of the mortgage. However, if my mortgage was at 2%, I would not be making extra payments.
Do what makes sense in your personal situation. If I had 2K extra a month and was in your situation, I'd probably put 500 or 1000 per month extra on the mortgage, and the rest towards my investment account.
Right now I’m putting $1k additional. I could afford to do a lot more. But I’m trying to save fast enough to have the full amount in a few years and then make the decision then, ya know?
At 7.3% guaranteed rate of return, I’d take that investment. Don’t evaporate your liquidity in the process. I had the $ and paid mine off long ago based on the following. If your house was paid off already, would you go out and get a mortgage at 7.3% so you could invest the proceeds?
Subject Expert
7.3% is pretty high and nullifies a lot of the arguments against paying off.
If you pay off would you still be matching the tax advantaged contribution opportunities you have? Would you still have an emergency fund that satisfies you? If so, maybe a good idea.
How much is the balance? How big is your portfolio? How much do you spend and save each year? How old are you? When do you want to retire?
Plan to save 300k per year. I spend based on income level. If I were to quit, my spend would be nominal lol
Omg refi. U can get sub 6 rn
At least in my area, it looks like no point, no cash out refis are in the 6.20-6.75% APR range. OP should definitely refi.
Subject Expert
Presumably the rationale would be to have emergency savings
Do you have a plan what you would do if you lose your job and are out of work for 6-12 months?
Once you have that covered then I’d go ahead and pay off the mortgage.
That kind of liquidity is not as important to me. Liquidity to protect assets and family more so. At some point when I have enough liquidity to drop money on a holiday home I’ll worry about it then or take a mortgage. Literally could care less about any other mortgage as long as my primary residence is paid off.
About to sign a mortgage at 6.25%. I feel terrible about this rate. I know the stock market does return higher than this rate on average so any extra savings we have we will split between brokerage and mortgage. We already max out our tax advantaged accounts and have a 6 month emergency fund. At the point where I’m not trying to maximize the return of every dollar, I think I’ll have more psychological relief from making moves towards being debt free!
Same. I max out all retirement and put money away for emergencies. I’d really like to be debt free. Form a mental standpoint
Not the same problem but I had to think about this recently. I’m relatively young, bought my first car because I needed one (live in a city with trash public transport.) Since it was my first loan, I had 7.6% interest despite a perfect credit score. Googled online calculator for car payoff. Decided the 7.6% guaranteed return in 6 months was worth it and paid off my car. Also knowing I’m debt free is great and provides a lot of mental security with the current economy because if worst come to worst I can sleep in my car you know? I would do the same with a house and see how that plays out.
Only if final assembly was in US, I looked into this, mine was made in Canada. But for others, yes something to consider!
Not sure if this helps but I contemplate putting my money into my 6.15% mortgage frequently (going to start a hybrid approach in 2027 after wedding) but At 7.3% I’d put some cash in at a minimum without a thought.
At 7.3%, paying off your mortgage is a valid option.