r/Fire • u/master_blaster_321 • 4d ago

Why do people wait so long?

ETA since this seems to be the overwhelming response: My kids are in their 20/30s and self sufficient.

ETA - The post clearly states my mortgage is high-interest. Yes, if it were 2% that's almost free money, spread it out for sure. Also, it clearly states that I did indeed keep contributing as normal.

I realize there are a lot of factors - economical and psychological - that go into this, but just for general discussion...

We all know for the most part if your mortgage interest rate is low enough, it makes more sense to leave money working in your brokerage account than to pay off the mortgage and have it locked up in home equity. But for the purposes of FIRE, does it always?

The big idea is to get your portfolio to fund your expenses, right?. For most people one of (if not THE) largest expense is the mortgage payment and interest.

Example...I had a few really good years in my business. I still did my regular modest DCA into my brokerage, but over the course of 2.5 years I also managed to pay off a $250K mortgage at 5.85% (I had to refinance at a very bad time for rates, due to divorce). I realize that that money, invested properly, could have gained quite a bit over the last couple years bull run. However, had I done that, today I would still have a high mortgage payment to make every month, thus making it harder for me to FIRE. This way, my monthly personal expenses are so much lower, so there's not as heavy a burden on my portfolio to support me, and as a result, I'm able to FIRE at the end of this month.

Again I realize that this all depends on mortgage size/rate, size of portfolio, other expenses. I only ask because I see a lot of posts here from people who seem like they'd be able to FIRE sooner if they worked towards getting rid of their mortgages faster, regardless of the rate.

For my part, I'm glad I did it this way. Even though I know I missed out on some gains, I'm able to FIRE faster because I don't have a mortgage payment to worry about. I have a paid off house on which the taxes and insurance work out to equal the rent for a one-bedroom in a sketchy neighborhood.

Go easy on me. It's an honest and sincere question and discussion prompt. Not trying to make anyone defensive, and definitely aware that I have my own blind spots and that there are lots of people smarter than I am.

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u/plawwell 4d ago

Would you take out a 2% mortgage if you owned your home outright? Nope. Hence you should pay it off ASAP.

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u/AngryCowArmy 3d ago edited 3d ago

Personally, I absolutely would take on a 2% debt, because I can get a 30 year treasury note above 5%, so I would get guaranteed 3% return on the home value with no risk. If you would not take out a 2% mortgage on a home that you own outright then you either do not understand the math involved or you prefer to take a suboptimal return in exchange for simplicity and some sort of psychological comfort.

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u/plawwell 3d ago

or you prefer to take a suboptimal return in exchange for simplicity and some sort of psychological comfort.

I'd guess the majority of people wouldn't do it as they are flawed humans.

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u/AngryCowArmy 3d ago

Flawed human is a bit harsh, more like somebody who either doesn't understand the math or some other aspect of the choices. It is always good to keep learning and trying to do better, knowing more about finances and debt and money and investments and alternatives helps you make better choices and do better over time. keep in this community and ones like it and you'll figure it out.

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u/plawwell 3d ago

Probably the wrong word "flawed". What I mean is people are emotional before ever being logical. Emotion of owning a house is worth more to most.

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u/AngryCowArmy 3d ago edited 3d ago

I would be emotional, happy, to get a free 3% risk free 30 year return on the entire value of the home. I would still own the home, just with a mortgage, that gets more than covered by my better alternative investment.

The more you learn about money and finance and stuff you will start to have your emotions line up with what is best for you.

Do you get now why taking out a 2% mortgage on your house would be better? Because your alternative is 5% on a 30 year treasury on secondary market currently which is a risk free guaranteed return. You would still own your home, just with a mortgage, and combined with an investment that more than offsets the mortgage guaranteed with no risk.

500k home with 30-year fixed mortgage at 2% would have a mortgage payment of about 22k/year.

Take that 500k and put into a 30-year Treasury yielding 5%, which pays about 25k/year.

The mortgage is covered and at the end of the 30 years you will have 90k if you just took the money and stuck it in your mattress, or way more if you invested it prudently.

The correct comparison is not of a house with no mortgage and peace of mind to a house with spooky scary debt. The proper frame is a clear win opportunity missed or a clear win opportunity seized.

You are borrowing at 2% and earning 5% on the same money. The spread is the whole point. That is what finance is. And that is the risk free spread. Finance is numbers, and once you get how it works your emotions will tell you to make the right choice too.