Agree with middle of the road. With my last couple purchases with really low rates, I paid way more than minimum down up front so start off with good equity...and then no way in hell I'm making any extra principle payments with the really low rates. Not planning on keeping properties for anything close to 30 years anyway.

I hear ya.

We built, however, what I think is almost my coffin house (and I just turned 35). Large 1 story with a nice game room and media room and big patio.

We may want something smaller down the road but this is a great long term setup that we expect to be in for at least 15 years.

Now… property taxes may run us out of here. Hopefully not.

Just another element to consider. The upward trending value of a home will also typically outpace the interest over the life of a mortgage when the rates are so low:

Example - buy a house for $250k in 2020, assume 2% growth in value (conservative number), and fully mortgaged at 3% for 30 years. In 2050, the house would be worth $453k, so a gain in asset value of $203k. Total interest paid $130k over 30 years. In total, a net gain of $73k in value.

So part of the equation is that you're locking in the value of a home today. These are conservative numbers, too. We bought a home in 2018, and have easily seen our home value increase well past the expected interest payments over the life of the loan in only 4 years. Had we waited to buy the same house today, we probably would have been priced out.

In general, I don't think it's a good idea to over-leverage yourself with your mortgage debt on the basis that you can take that money and invest elsewhere, but generally, with rates being so low, and inflation being so high, there are many better ways to use your money than to pay off your mortgage - and that's coming from someone who has previously paid off a home and generally more aligned with the Dave Ramsey philosophy than most on this board. But you're probably right to point out that many people just spew the rhetoric about mortgage vs investing, and don't really understand the math behind it. Best thing you can do is educate yourself and learn how to amortize.

BenTheGoodAg said:

---

Just another element to consider. The upward trending value of a home will also typically outpace the interest over the life of a mortgage:

Example - buy a house for $250k in 2020, assume 2% growth in value (conservative number), and fully mortgaged at 3% for 30 years. In 2050, the house would be worth $453k, so a gain in asset value of $203k. Total interest paid $130k over 30 years. In total, a net gain of $73k in value.

So part of the equation is that you're locking in the value of a home today. These are conservative numbers, too. We bought a home in 2018, and have easily seen our home value increase well past the expected interest payments over the life of the loan in only 4 years. Had we waited to buy the same house today, we probably would have been priced out.

In general, I don't think it's a good idea to over-leverage yourself with your mortgage debt on the basis that you can take that money and invest elsewhere, but generally, with rates being so low, and inflation being so high, there are many better ways to use your money than to pay off your mortgage - and that's coming from someone who has previously paid off a home and generally more aligned with the Dave Ramsey philosophy than most on this board. But you're probably out that many people just spew the rhetoric about mortgage vs investing, and don't really understand the math behind it. Best thing you can do is educate yourself and learn how to amortize.

---

Maybe I'm wrong, but this is kind of irrelevant to me in regards to the debate on this thread. I'm buying the home today regardless of whether I'm paying cash, mortgage minimum, or a small percentage more to pay off a few years early. Either way, the value will be the same x years from now. Difference is how much money I saved in interest paying off the loan early vs. how much I could have made in investments with that extra cash.

Eh, maybe it's not relevant. I wasn't trying to debate or discredit any of the points that others have already made, more just a discussion point for the OP related to the value of a mortgage.

Taking it to the extreme, if you're really that debt averse because of the interest, you probably shouldn't take out a mortgage in the first place. Just trying to point out that a low interest mortgage sort of pays for itself anyway.

I think the main point that seems to be agreed upon is that there is no math behind the scenes that makes a 3% mortgage a better payoff than an 8% investment (or 7, 6, 5, 4, etc.). There are lots of reasons somebody may choose to forego a higher potential investment (for one, the fact it is "potential" where as a mortgage payoff's savings are guaranteed), but that doesn't change the math. I got the feeling OP was indicating a potential mathematical advantage to paying down principal vs a higher rated investment.

ChoppinDs40 said:

---

Now… property taxes may run us out of here. Hopefully not.

---

that is a benefit to staying a long time. Pay off mortgage and fixed property tax in retirement.

JDCAG (NOT Colin) said:

---

I think the main point that seems to be agreed upon is that there is no math behind the scenes that makes a 3% mortgage a better payoff than an 8% investment (or 7, 6, 5, 4, etc.). There are lots of reasons somebody may choose to forego a higher potential investment (for one, the fact it is "potential" where as a mortgage payoff's savings are guaranteed), but that doesn't change the math. I got the feeling OP was indicating a potential mathematical advantage to paying down principal vs a higher rated investment.

---

Exactly. No math says 3>8. Ever.

Now that 8% may be the historical average but by no means is guaranteed. For that extra return, you are taking on risk. 3% can be treated as a risk-free return. If I pay an extra dollar, I will avoid that extra interest. Period.

Some people have different risk profiles, and some people derive way more value from the freedom of no debt than they do from investment gains. And that's okay.

62strat said:

---

ChoppinDs40 said:

---

Now… property taxes may run us out of here. Hopefully not.

---

that is a benefit to staying a long time. Pay off mortgage and fixed property tax in retirement.

---

30 years until they're capped for me

never truly capped in Texas...although school taxes are a big chunk of it

jagvocate said:

---

As in everything, it's always "compared to what?"

Your currency is devaluing at a rate as low as 9% annually and many think inflation is 15%+

Many folks instinctively prefer to pay that low interest rate with future dollars that are worth less rather than a pile of current dollars

---

Jason Hartman for the win!

To over simplify it, the appreciated value of of the home over 30 years will offset interest/inflation. This isn't ALWAYS the case, but I have been fortunate to have this be the case in my experience.

Additionally, putting more money into an asset that you can only access in the event of a sale is as, if not more risky than taking out a mortgage, IMO.

How you pay for the house has no impact on how much it appreciates over time so it's really irrelevant to the discussion.

lb3 said:

---

jja79 said:

---

I was responding to the original topic which was mortgage. They don't have compound interest.

---

My mortgage has compound interest.

---

https://www.thetruthaboutmortgage.com/are-mortgages-simple-interest-and-compounded-monthly/

You might want to contact the Consumer Finance Protection Bureau.

I'm paying my house off in the next couple of years not because it makes the most sense financially but it will give me peace of mind; and that's a currency all on its own.

Once I have no debt then I'll worry about long term investments. There's more to life than dying with the largest net worth possible.

lobopride said:

---

I'm paying my house off in the next couple of years not because it makes the most sense financially but it will give me peace of mind; and that's a currency all on its own.

Once I have no debt then I'll worry about long term investments. There's more to life than dying with the largest net worth possible.

---

That's fine, and it can work. Here's a problem to be aware of:

Let's say you are 50 years old and focused the last 15 years paying off your mortgage. You've saved a little over that time, so maybe you have $100000 in a 401k and $15000 in emergency fund. Your required mortgage payment was $1000, but you've been paying $1800 all that time. Your total monthly expenses are $7500 after mortgage.

Finally, you've paid that mortgage off! Congrats! Then something happens... Job loss, medical emergency, college tuition, busted sewer pipe under your house. Maybe a combination of multiple things.

You drain your emergency fund, find you don't have access to the 401k, and you realize removing the mortgage payment didn't actually resolve much of anything.

So, you are right, there's more to life than net worth... But there's also not much you can get with a paid off deed, other than a house loan. I'd highly recommend first building long term investments, then come back to the mortgage if you feel better about that.. then back to long term investments.

Hopefully this scenario didn't play it for you.

Eh, you can get a heloc. You can also generally reduce expenses drastically without a mortgage.

I get your point and I agree that you'll come out ahead investing vs prepaying a low percentage mortgage.

But, if we're being honest, I highly doubt someone in either of these two categories are the people who find themselves in serious financial trouble.

Lose your job and apply for a loan.. might be tough. How does eliminating a mortgage payment allow you to reduce expenses any more than someone with a mortgage payment?

Fwiw, the most stressed financial plans I face are from people who prioritized paying off mortgage vs building net worth and liquidity. Not saying all who do are in trouble, but paid off home mortgage only benefits those who had no means to sufficiently save throughout their life and are left on a fixed income budget. Everything else about paying off mortgage is psychological currency as stated above.

Lets assume two people bought a 400k house a few years ago and got a 4% mortgage. Their payment would be 1909.66. If person A decided to put an extra 600 to pay the house down faster and person B decided to make the minimum payment but invest the 600 in the stock market and conservatively get 7% annualized here is how that would break down.

After 228 months, Person A would own the house outright. Person B would still owe 204k on the house but have 284k in the stock market.

So person A decides to now put the amount he was putting towards his mortgage (1909.66+600) into the stock market at 7%.

After the 30 years is up, both person A and person B have a paid off house, person A would have 497K in the market while person B would have 732k.

So in this example, that peace of mind of paying your house off a little earlier costs you almost a quarter million in retirement. I would lose sleep knowing I was doing that to my future self.

You illustrated why I don't personally understand the peace of mind argument. But to each their own.

MAS444 said:

---

You illustrated why I don't personally understand the peace of mind argument. But to each their own.

---

just like you have different levels of risk within investing; Stock, mutual funds, bonds, options, etc.

Paying off a mortgage is a guaranteed returns so of course the reward is not equal to that of stock market which has more volatility, and you never know if when you need it, it has crashed.

No one has ever suggested putting 100% of your money in high risk investments, or all your money in one basket. 'Investing' in your mortgage is no different and is just another part of any one's portfolio in my opinion.

So, even in this case, you can now invest risk free at 3.3%+ percent. So if it is risk aversion, then now you can be risk averse, retain liquidity, and accomplish same goals of paying off your house early. There is zero benefit to simply owing less on your home as you go, the only benefit comes when the mortgage is fully paid off.

cjsag94 said:

---

So, even in this case, you can now invest risk free at 3.3%+ percent. So if it is risk aversion, then now you can be risk averse, retain liquidity, and accomplish same goals of paying off your house early. There is zero benefit to simply owing less on your home as you go, the only benefit comes when the mortgage is fully paid off.

---

risk free at 3.3% vs.. 4% mortgage? Not everyone got in the 3% record low, and you certainly aren't getting it now.

62strat said:

---

cjsag94 said:

---

So, even in this case, you can now invest risk free at 3.3%+ percent. So if it is risk aversion, then now you can be risk averse, retain liquidity, and accomplish same goals of paying off your house early. There is zero benefit to simply owing less on your home as you go, the only benefit comes when the mortgage is fully paid off.

---

risk free at 3.3% vs.. 4% mortgage? Not everyone got in the 3% record low, and you certainly aren't getting it now.

---

Sad to the extent you are correct.. nearly 10 years of sub 4% interest rates. Hard to believe anyone with decent finances let that opportunity slide for so many years. The person who couldn't or didn't capitalize on that probably is better off paying off their mortgage.

cjsag94 said:

---

62strat said:

---

cjsag94 said:

---

So, even in this case, you can now invest risk free at 3.3%+ percent. So if it is risk aversion, then now you can be risk averse, retain liquidity, and accomplish same goals of paying off your house early. There is zero benefit to simply owing less on your home as you go, the only benefit comes when the mortgage is fully paid off.

---

risk free at 3.3% vs.. 4% mortgage? Not everyone got in the 3% record low, and you certainly aren't getting it now.

---

Sad to the extent you are correct.. nearly 10 years of sub 4% interest rates. Hard to believe anyone with decent finances let that opportunity slide for so many years. The person who couldn't or didn't capitalize on that probably is better off paying off their mortgage.

---

just a random example, someone purchased in 2008,l at 6%. Then 10 years later sees 4% so refi's.

Sure enough 2-3 years later it's still dropping, but the math may not add up going from 4 to 3.5.