so I just turned the big 5-0 a couple of weeks ago. and I always wanted to have a paid off house by the time I hit 50 and I have the opportunity to do it. Just looking for a little feedback and perspective here.

I have a 2.5% mortgage and have about 8 more years to pay it off. I should keep this mortgage forever right? seems like a no brainer....However I've been saving up my stock grants and dumping money into my employee stock purchase for the last 5 years in lieu of making extra house payments. This has paid off to the tune of 300% return over the last 3 years. (I work in the semi conductor/IT industry and as most of you know....semi's have been very, very good the last few years, especially with AI).

I know I can take this money out of my company stock (I've sold around 20-25% over the last few years to fund some home remodeling and to pay for my daughters college tuition....and possibly a few vacation trips lol) and reinvest it.....but I can't help the urge to use the long term gains and just pay off my house. I know I'm only at 2.5% interest...but those COVID years really changed some perspective for me...those years were lean (as I know they were or a lot of folks).

My rationale is easy: I have more stock coming for the next 4 years (RSUs) that have also appreciated, just need them to vest. I have emergency funds. I have no debt outside of the mortgage and a few years left on my work car that I get paid mileage from my company which covers most of the car payment so in no hurry to pay that off. And finally, mentally, knowing a reached a goal and have a paid off house would be very, very satisfying....but I know satisfying feelings don't pay for future expenditures LOL.

Just looking for a little perspective here....I know 'feelings' and 'finances' don't always play well together.

(edited to add...I guess I could always keep the mortgage and upgrade my Aggie season tickets to some primo seats....but I like my cheap seats in the 300s and I like all the people that sit around me so I have that going for me LOL!)

My guess is most will tell you that the right answer is to keep paying the minimum and put that money to work somewhere that earns >2.5% interest.

However, the value of that feeling of being debt free, owning your home outright, and hitting your milestone is incalculable. I personally think you're justified either way.

Edit: IB4 "you never truly own a home in TX due to property taxes". Blah blah.

We're the same age. Easy answer for me - keep that great rate for another 8 years and keep stacking up your other investments. Hell, you;re basically only paying principal now anyway.

Signed,
Fifty year old with 26 years left on primary mortgage note

You could put the loan balance in a 9 month CD ladder making 4.95%. Buy 1/36 of your loan balance every week while the rates are favorable. Pretty nice to see that money actually making your house payment for you and putting an additional 2.45% in your pocket.

do not pay off early.

After a few decades dealing with people of all income levels but including quite a few people with FU money and their mortgages I found this interesting. The richest people, when the debt is at a low rate, will always ask what's the lowest down payment and longest term. Most of the ones I've dealt with were on bank balance sheet with up to the 15th of the month to make the payment. Generally those people pay the minimum and pay it on the last possible day.

The business answer is to continue to use their cheap money.
You have to decide what being debt free is worth to you.

Pepper Brooks said:

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My guess is most will tell you that the right answer is to keep paying the minimum and put that money to work somewhere that earns >2.5% interest.

However, the value of that feeling of being debt free, owning your home outright, and hitting your milestone is incalculable. I personally think you're justified either way.

Edit: IB4 "you never truly own a home in TX due to property taxes". Blah blah.

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It's actually pretty easy to calculate the impact of paying off a 2.5% mortgage when you could instead buy a 30 year treasury (or whatever tenor is needed to match a mortgage) for 4.5%+ and neutralize the debt and make money on top of it.

Your bank would love you to pay off a 2.5% mortgage. That should tell you something.

That 2.5% is probably more like 1.8 or 2% when considering the tax deduction you're getting.

Keep the mortgage and keep plowing into your investment accounts.

One other habitual thing is that when some people pay off debt, they just find other things to spend it on rather than save.

Good cheap debt is a nice regulator of lifestyle.

Don't. 2.5% is essentially free money. The feeling of debt free is fake once you realize you still have to make payments on the house in the form of other expenses. You'll pay less after paying it off but it won't feel any different from my experience.

ChoppinDs40 said:

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That 2.5% is probably more like 1.8 or 2% when considering the tax deduction you're getting.

Keep the mortgage and keep plowing into your investment accounts.

One other habitual thing is that when some people pay off debt, they just find other things to spend it on rather than save.

Good cheap debt is a nice regulator of lifestyle.

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These days most people just take the standard deduction since it's so high, so no effect on tax deduction.

Go ahead and pay it off. You can always accrue more debt later if you want, lol.

If you do pay it off you can rest assured that it will never really be paid off. Especially if you live in TX and take it up the rear with property taxes.

I agree with the general sentiment not to pay it off because that cost of capital is so cheap and you can get a better return on the money you would use to pay down the debt by investing elsewhere. You could put it into a very safe investment and likely earn twice your mortgage rate.

I am about your age and get the pull of being debt free. The other thing I would suggest based on prior experience is to make sure and diversify yourself. Sounds like you are pretty heavily invested into your business between the job, salary and stock. While it has performed well the past couple of years, I'm always wary of not diversifying. You could sell some of that stock, invest it elsewhere and accomplish that. Then later if you just want to be debt free, liquidate that investment and pay off the mortgage. Yes you run the risk your company stock continues to outperform the market, but I've also seen horror stories the other way where something happens unexpectedly to the Company, it quickly goes bankrupt and now you may be out of a job with stock worth zero. It's all just paper money until you liquidate those holdings. Just my $.02 on that factor.

I have enough in cash to pay off my mortgage but it is rolling in 6 week treasuries yielding 5.34% while my mortgage is 3.25%.

If treasuries drop below 3.25% before i finish paying off the loan then I'll pay the loan off then.

Same goes for my car which is at 2.34%

What others said. Paying off that mortgage is nothing more than trapping equity into already equity rich position. And whatever you do, do not refinance to pull equity out. Stick with your plan. You have about the lowest possible leverage rate you could possibly get. Use it as the tool it's designed to be. Pay the absolute minimum monthly.

Assuming you're in the 32% tax bracket, your breakeven for those T-bills with a 3.25% mortgage is roughly 4.75%. Once your interest rate drops below 4.75% you may as well pay off the mortgage.

Heineken-Ashi said:

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permabull said:

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I have enough in cash to pay off my mortgage but it is rolling in 6 week treasuries yielding 5.34% while my mortgage is 3.25%.

If treasuries drop below 3.25% before i finish paying off the loan then I'll pay the loan off then.

Same goes for my car which is at 2.34%

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Similar to the OP, that care rate is not hurting you in any way. But something to consider on the car is that it is a constantly depreciating asset, unlike the house.

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I have never understood that logic... debt is debt regardless of the collateral and whether it appreciates or depreciates. As long as you are spending within your means the fact the car is losing value has no impact on if I should pay it off or not.

Good debt vs bad debt is a good rule of thumb for people who can't manage their money and use credit to buy things they can't afford, but if I have the cash and I am earning interest at a higher rate than my loan, I'll borrow all the money you will lend me.

If you want the peace of mind, just put the money in a high yield savings account, where it will have a rate of return at 4% or better right now and then pay your mortgage out of that account each month.

You mentioned COVID making you change perspective because it was lean times, so this gives you the benefit of your low mortgage % rate, but you can still pay it off at any time should the interest rate in the HYSA dive back below your mortgage.

Being worried about lean times isn't something that would make me drop liquidity to pay off an asset on which I have a good rate.

I think putting the money needed to pay it off in some side account gives you a bit of both - peace of mind (you've pulled all money needed to wipe it off into an account and could do so tomorrow if you wanted). It also gives you flexibility should something happen and you need cash - you can always just pull the money back over. Peace of mind + staying fairly liquid.

Don't do it. I did a year ago. Paying off mortgage is great but life still happens. Use capital in other areas to grow. Just my opinion.

double aught said:

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Can you explain why you need to be making 2% higher to come out ahead?

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If your income is being taxed at 37%, any gains/income from MMF, CDs, Treasuries, etc. are also goin to be taxed at that 37%.

Therefore, your 5% interest is being taxed and really only bringing in a rate of 3.15%. So, if your mortgage rate (or other debt) has an interest rate around 3% it is of no value to postpone paying off that debt while receiving 5% on your investments. It's a wash. Might as well relieve the debt obligation.

Mainly people won't prepay a low rate mortgage right now because historical rate of returns in the stock market is around 10%.