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  #31  
Old 07-12-2018, 06:10 PM
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Originally Posted by ElDucky View Post
On a risk adjusted basis, this is the wrong move. It could easily work out, but only because you took risk that you weren't fully compensated for.

Unless of course over the long term equity risk is actually low, and we shouldn't be equating volatility with risk, which is a reasonable argument.
I see what you're saying- that I'm paying 3% fixed to get 8% variable (8% is my average IRR from 2011 through 2017, which I realize is atypical since it includes only one bad year from the financial crisis), so there's a lot of volatility in that 500 bp difference. The decision still feels right to me but that's what Behavioral Economics is all about- we don't always make decisions that the cold calculations imply that we should.
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  #32  
Old 07-12-2018, 06:32 PM
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Originally Posted by Colymbosathon ecplecticos View Post
Wouldn't you be better off with $62k in cash (invested risk-free) and a $62k mortgage, assuming that the rates were comparable (and ignoring tax effects)?

You are long the pre-pay option (a call), and early exercise of an American-style call option on a non-dividend paying (assuming rates are comparable) security is never optimal.
it's not just about the math and maximizing returns

i will enter retirement debt free, and i'll have enough in cash + ST/low risk holdings to fund 1.5-2 years of living expenses when major corrections come along

i'm fine with not capturing all the return i possibly can. i'm okay giving up the marginal return on that $62k
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  #33  
Old 07-12-2018, 07:31 PM
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Your item (4) is a big one for me, if I'm being honest with myself. Money that isn't spent on normal expenses, or used to pay down debt, just seems to disappear down a hole. Arguably, we could just invest the very money that we were planning to use for debt reduction, but I'm afraid we would "lose momentum" with that plan. Whereas, with a short-term goal to pay off the house, I think we could keep up motivation to see that happen, by controlling our spending here, there and everywhere.

Plus, having the house paid off would make it a lot easier to move one day.
I could not agree more for myself as well.

Theoretically, if I am ultra discipline, #4 would not be a concern. However, I find myself spending more (eating out and buying electronic/clothes) with more disposable income.

Little expenditure adds up, and using that money to pay down mortgage can ensure money is not wasted.
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  #34  
Old 07-12-2018, 11:02 PM
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My personal goal is to have my mortgage paid off by 35 - around the same time as my 3 kids are all done with daycare. I will be (feel) rich $$$$. As long as I don't refi I will be there at least by 40 (10 year mortgage taken out in my twenties). I don't think I could mentally handle having a mortgage in my 50's. Lest I sound like a super-cheap actuary, I am hardly scrimping to get there. I just split whatever cash I don't know what to do with halvsies between mortgage and personal savings.

I have been very anti-aggressive having debt but now as I'm getting more slack and I've start risking up my portfolio.
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  #35  
Old 07-12-2018, 11:17 PM
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Model it in a spreadsheet......

I don't like debt, I'd pay it off, but I haven't made the spreadsheet yet so it's kind of hard to know for sure.
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  #36  
Old 07-13-2018, 07:58 AM
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Originally Posted by JohnLocke View Post
My personal goal is to have my mortgage paid off by 35 - around the same time as my 3 kids are all done with daycare. I will be (feel) rich $$$$. As long as I don't refi I will be there at least by 40 (10 year mortgage taken out in my twenties). I don't think I could mentally handle having a mortgage in my 50's. Lest I sound like a super-cheap actuary, I am hardly scrimping to get there. I just split whatever cash I don't know what to do with halvsies between mortgage and personal savings.

I have been very anti-aggressive having debt but now as I'm getting more slack and I've start risking up my portfolio.
wow, that's great!
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  #37  
Old 07-13-2018, 08:18 AM
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I'm encouraged that the responses in this thread certainly haven't been clearly, "Yes, you would be dumb to pay off the house." It felt like the right thing to do, but I wanted to make sure I wasn't being overly swayed by emotion.

Sure, I could pay it off and then realize I missed out on years of fantastic investment returns. But hindsight is always 20/20 in these things.
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  #38  
Old 07-13-2018, 08:42 AM
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I don't think anyone has mentioned the possible appreciation of your home's value in whatever time horizon you want to consider. That's usually not something very easy to estimate, but for example if you live in a "hot neighborhood" or have a reason to assume it will increase drastically in value, that's definitely another factor to weigh in your analysis - there are many situations in which that increase would vastly outpace whatever you could earn in the market instead.
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  #39  
Old 07-13-2018, 08:52 AM
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Another practical reason to keep your mortgage- continuing to make extra principal payments will reduce the balance and shorten the payoff time but it's not liquid. You can't skip payments for a few months because you made extra payments earlier; you can't have your payments reduced due to the smaller principle balance unless you go through a process called "recasting the mortgage". If you pay it off completely and then want to borrow again, you need to get a whole new mortgage. Since this might happen at an inopportune time (e.g., job loss), there's no guarantee you'll get one.
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  #40  
Old 07-13-2018, 09:07 AM
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Pretty good thread. Solid, logical advice.
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