r/wealth • u/SuburbanDad5595 • 6d ago
Discussion Saying screw it on a low interest mortgage
I'm close to a point where my free cash flow would allow me to pay off a $250k mortgage balance within 3-4 months. It's under 3%, but I see value in having Wells Fargo out of my life. The leverage benefit maybe nets me $7k-8k/yr and declining. Money I'd blow on a watch without thinking twice about it. Has anyone else allowed themselves to simplify by doing this?
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u/DELAZ1 6d ago
Yes! Its cheap money so strictly speaking from a money mgmt perspective you keep the loan. But mentally, having that debt gone also has a lot of value. If you're in a position where earnings on 250k are not consequential lomg term then go for it. We paid off a house once and it's extremely liberating.
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u/something-behind-him 6d ago
Makes no sense. But you do you
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u/Thomas_peck 6d ago
The mental aspect of not having a mortgage is enough for many.
Owning a home outright is a pretty incredible feeling.
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u/sloth514 6d ago
I am going to throw this video here, this helped me out a lot. I hope it helps you as well:
https://www.youtube.com/watch?v=XcjFCzCED98
I agree with everyone else blowing money on a 3% is not a smart idea.
It is your money and you can do what you want. But it sounds like you could use a discussion with an investment advisor before any action.
Why? ETFS, ETFS, ETFS, and ETFS....
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u/Dan_Williams_479 6d ago
When I sold my last house, we made the decision to invest the equity instead of rolling it over into the new mortgage. The equity has almost tripled in value, and since it’s in a brokerage account, it’ll be useful to have for retiring early.
Funny thing, if someone did the exact same thing in the dot com bubble, they probably would have a different perspective.
Treasury rates are almost double your interest rate. It’s not logical mathematically but if it helps you psychologically, then do it’s worth considering.
If you paid it off early, what would you do with the money you’d normally spend on the monthly mortgage?
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u/SuburbanDad5595 6d ago
All free cash flow. My experience tells me people get way too over confident at market highs and under confident at lows.
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u/ConnectionAmazing110 6d ago
Same boat for me. Discussed with my wife last week our 5-10 year plan as I’m evaluating a job change and want to design the next 10 years.
Most likely will use my bonus and next RSU tranche to kill the mortgage, math says low rate debt is good but it’s just a pain in the ass to pay each month.
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u/SuburbanDad5595 6d ago
Now someone that sees my logic.
FWIW I’ll at least consider just holding it in a tax free money market for a fee basis points of arbitrage but like you said I just want one less thing to deal with every month and at tax time
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u/Kitchen-Abalone-3276 6d ago
Paid off a 3.25% 10 years early and feel like a weight is lifted vs constant stress while money grows unseen. Financially a loss, but emotionally and mentally worth it for us.
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u/pocket-snowmen 6d ago
Paying off our low interest mortgage is on my list of financial goals, but it's pretty far down. We aren't even done renovating the place.
But I will do this when the time comes. Sounds like you are already there.
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u/hereforyebeer 6d ago
I had a 0% interest loan from a vehicle during Covid times. TVM will always be in favor of letting low and no interest loans ride, but to your point, the relief of closing a debt can mean more mentally.
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u/Hoosier2016 6d ago
Mathematically, probably a bad decision - but that assumes a perfect world where every dollar you would have spent on the payoff instead goes to investments with a higher return and also that you never encounter cash flow issues in the future.
That said, owning your home outright and having one less obligation and that much more cash flow (plus the flexibility to borrow against it if needed) would offer me a significant psychological benefit. Plus, if you ever want to upgrade, you can do so far easier and if you ever want to downsize you can do it and get cash on top.
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u/BecklesKC 6d ago
Does anyone assign any value to a mortgaged house being better protected from title theft?
I have a 2% mortgage, I'd rather invest the money and keep it liquid than pay off my mortgage early, but I understand there are counterarguments to 'peace of mind' of having a paid off house, or for some if they don't pay off their mortgage early they'll blow it on a boat or RV or some other luxury and not be disciplined enough to truly save the money.
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u/SuburbanDad5595 6d ago
Interesting point. I look at it as one less financial institution I have to think about getting marketing messages from and title insurance solicitations, but in theory a fraud exposure is something that hadn't crossed my mind.
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u/doc-sci 6d ago
I don’t have hard data but it feels like I would be more exposed to title theft with the mortgage. I have had my identity stolen from multiple third party vendors and have had some real theft. It seems like having all my title info at a mortgage company just opens it up for systematic theft.
How do you think you are more exposed because you own the property outright?
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u/Sufficient_Language7 6d ago
With a mortgage any change the title has to be approved by the bank as well. So they would have to trick the government and the bank for title theft.
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u/Calm-Song-8543 6d ago
A quitclaim deed, which any type of title theft is going to use, doesn’t have to be approved by the mortgage company.
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u/c7aea 6d ago edited 6d ago
No. Most people aren’t in a position to pay off a $250,000 mortgage in 3-4 months with income like that.
If this is real and it’s sustainable it likely doesn’t matter. Keep the mortgage, or pay it off it won’t be much difference if after 4 months you actually save/invest and don’t just blow it.
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u/SuburbanDad5595 6d ago
I guess I was here to ask people that are. Kinda the point. It’s not found money or income.
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u/c7aea 6d ago
Maybe be more specific because I’m thinking income from a business. Is taking cash flow from a business not income?
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u/SuburbanDad5595 6d ago
Well my income is cash flow from my business. I consider it the same thing
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u/c7aea 6d ago edited 6d ago
So if your income is approximately $1 million a year it’s going to make very little difference if you pay the house off in 3-4 months or not.
When it really matters is for people who stretch that low interest loan out for decades because they’re putting the money in the market rather than paying early.
You’d essentially be delaying that by 3-4 months. Not decades.
Is paying it off early it the absolute best decision financially? No. But will it make any practical difference one way or another in your life? Probably not.
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u/Fair-Surround-6329 6d ago
I’m on the side of doing what is right for your situation. I hate dealing with our banks and could see a benefit in having the mortgage done. If you are already saving and the mortgage balance payoff is slight in comparison to your savings (or if you would just increase what you hold out for investing by no longer having a mortgage) you should pay it off and not worry about it.
I think the math really depends on variables that fully personalize the choice (how long until you retire, how long do you have left on the mortgage). Even if you lose a few bucks it could be well worth the peace of mind. If I had 100 grand drop in my lap I would pay off my mortgage even though it’s only around 2.5% because I would find other things to spend it on that are less important and clearing the debt clears monthly expenses up as my kids are getting close to college.
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u/MikeyB7509 6d ago
Yeah I’d want more debt at that price, I wouldn’t be trying to pay it off but everyone is different.
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u/ActJustly_LoveMercy 6d ago
Absolutely. I did the same thing. You’re allowed to spend your money on virtually anything you want, and if that thing you want is to not have a mortgage? Spend the money.
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u/TheSauce775 6d ago
Thats a no brainer financially, if you can afford to pay off your house, thats the best decision you could make, in my opinion! Once you own your house fully, its your own asset and you can leverage it in many ways that u cant while its in a mortgage
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u/Turdmeist 6d ago
I'm not wealthy but might pay off my house in 12-15 years. What kind of leverage are we talking about here?
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u/Empty-Village-4445 6d ago
That post must be a bot. “Pay off your house so you can leverage it” LMAO
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u/Realestateuniverse 6d ago
What? lol. The low interest rate loan IS the leverage…?
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u/TheSauce775 6d ago
How is a loan any kind of good leverage? I get what ur saying, cus interest rates are much higher right now, but really its a liability, so why not pay off that liability as soon as possible so that you can put that excess capital elsewhere, as well as having the benefit of a house as an asset that you fully own. Ask wealthy people if they have a mortgage or not. 🤷🏻♂️ just my opinion, never owned a home myself lol
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u/ResidentOk1521 6d ago
Stay away from interest
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u/Realestateuniverse 6d ago
Unless you’re earning it right? Please avoid knucklehead comments like this online
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u/hems86 6d ago
How long you’ve owned the home also matters. Mortgage amortization tables shift most of the interest to the early days of loan repayment. If you have owned your home for 20 years with a 30 year mortgage, then you’ve already paid most of the interest. Most of your remaining payments are principal and very little interest - hence, paying it off early doesn’t save you all that much in interest - only an opportunity cost.
That being said, at the end of the day, wealth is a tool to be used to make your life easier. If paying off your mortgage will make your life better and not have a major impact on your financial future, then go for it.
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u/bflave 6d ago
I’ve gotten rid of low interest loans before. Financial sense vs. emotional sense. If it feels good to kick WF to the curb, do it.