Financial gurus: What do you think?

At 49 why do you still have a mortgage? Based upon what you claim to make, that should have been paid off years ago.

The reason you pay it off early is because crap can happen. If you get into an accident and suddenly cannot work, it is much easier to meet expenses with disability insurance if you do not have to make a mortgage payment each month. A $6000 a month mortgage payment is nuts, even if it is at 3%. Meanwhile, the stock market has no guarantees. Paying off a debt provides a guaranteed return.

Ever hear of the Great Recession? It hit my consulting business hard. The income levels I mentioned were the last 3-4 years. Back during the middle of recession, Iwas making about half of what I made this year. My wife also left the workforce about a decade ago, so that was a double whammy. Even though it was the right decision for our family, it put a 6 figure income on the sidelines. Lots of people were short selling and strategically defaulting back then.

Plus, I've only owned my place for 12 years. My original loan was 10 years interest only at 5 or 6%, the going rate at the time, then a 20 year amortization. But I paid down principal for the first couple of years as well. When the recession came, we retrenched some and paid interest only.

I love LRC. Where else can a guy who is doing well generally and ahead of his most of peers go to be so thoroughly second guess by guys who, on the average, are probably sitting on smaller nest eggs?

Marcus S. wrote:

relatively low salary

Humble brag alert!!

There is no right or wrong approach. There are options that you may or may not be comfortable following. I paid off my mortgage early and eventually retired at 60. Maybe I would have made more in the market but maybe it would have tanked (think Oct 1987, 2001-2, 2008). So I was comfortable with the guaranteed return of saving mortgage interest on the amount I was paying early. Once the mortgage is gone you need to ensure you save most of that reduced payment/expense. If need be, set-up an auto withdrawal into a mutual fund. It worked for me.

My ire is more directed toward the MBA types who are telling people to invest so heavily when they are heavily in debt (if you are 12 years into a 30 year loan at 3%, it would imply your original mortgage was about $1.2 million, indicating you would still owe about $840,000). The recent gains in the stock market can mostly be attributed to the corporate tax cut, which is more of a one time thing that made stocks worth more, and less of a sign of economic innovation. Long term stocks are projected to grow about 6%, not 10%. Eliminating a mortgage of $6,000 a month will be worth more than $1,000,000 in savings that you won't need. The real danger is when the next recession hits and your income doesn't meet your expenses you would have to take an early draw from your retirement account (which may be worth 30% less if it is like past recessions) and pay a 10% penalty and taxes on the money you are drawing out early.

"hey guys I'm filthy rich but need help from trolls on letsrun about my 401k"

0/10

If another recession comes, I should be able to refinance into a conventional 30 year mortgage to reduce my carry on my house. If I can’t refi because of income reduction or a lack of lending like last time, I will drop the excess payment altogether. Depending on the sectors hot, my wife may be able to come off of the sidelines and start earning again as well. She’s still qualified for the same 6 figure job she left to raise our brood.

Joe dirt, you issued some facts. My original mortgage balance was $640k but it was interest only at 6%. I refinanced into a 15 year to get into a 4% loan in 2013, then again at the end of 2016 to get into a 3% loan. Also, my retirement model assumes a 5% return, not 10 or even 6%.

The meaning of “relative” in this context escapes some. Sure, my salary is a fair amount of money. But in the scheme of my overall compensation, it is small. That it, it is small relative to my total comp.

Marcus S,

You are getting some bad advice in this thread.

Anyone who tells you to take a paid for house and borrow money on it to invest is a fool.

Anyone who says not to pay down the mortgage because of emergencies isn't doing things correctly.

Here is what the plan should be.

1) Build up an emergency fund of up to $2,000 but no less than $1,000.

2) Pay off smaller debts (not yet a mortgage or LARGE student loan).

3) Put 15% into retirement accounts made up of diversified mutual funds...either all stocks until within 5 years of retirement OR all stocks forever if you also build up an emergency fund by retirement of 3 YEARS of expenses.

4) Build emergency fund up to 3 to 6 months of expenses depending on your situation...single with no dependents, 3 months is ok. Married with children...6 months is better.

5) With fully funded emergency fund and continuing to put 15% or more into retirement accounts, NOW throw more money at the mortgage.

6) Once the mortgage is gone, you can invest more to retire earlier, or spend more or give more or all three.

OP: Your main problem (spending too much) is easily rectified by selling your house and buying a cheaper one. Alternatively, write yourself a budget. You shouldn’t even have to think about money with your income, but you’ve mismanaged it so well that you’re a job loss away from losing your house.

mortgage prepayment wrote:

Paying down extra principal on a mortgage is an awful idea. Stop doing that.

Mortgages are set up so that you pay interest upfront. Paying down the principal in advance does *not* reduce the interest debt you'll have to pay. You're throwing away capital that you can invest or otherwise use today, and you're gaining absolutely nothing in return.

I missed this gem before. The vast majority of mortgages are NOT set up like that actually. Paying down on the principle DOES reduce the interest debt you have to pay.

You should avoid commenting on stuff you know nothing about.

My general conclusion after reading this thread is that most people have no idea what the hell they are talking about and it’s best to do your own research than ask financial advice on a running website.

drunk runner. wrote:

My general conclusion after reading this thread is that most people have no idea what the hell they are talking about and it’s best to do your own research than ask financial advice on a running website.

I'm with this guy. There has been a lot of bad advice and most of the good advice seems to have not made it through to you, Marcus, with all due respect. I'll sum up my points from the first page: a little leverage (aka a mortgage) is okay, but be mindful of what you are exposed to. In the hedge fund business we worry about risk and then worry about return.

Yeah, thankfully I am savvy enough to recognize the terrible advice. As I said early, I recognize that my approach doesn't maximize potential gains, but it does reduce risk. In the context of my overall portfolio, I think the "locked in 2-3% return" I get by my mortgage payments is a decent balance against the relatively higher risk of having my retirement account entirely in domestic equities.

I am poised for another very good year, so I think I can keep doing what I am doing on the mortgage side of things for this year, but then I will start funneling some of my extra mortgage payments into more liquid investments so as to reduce the risk associated with my thin cash reserves. I can always liquidate that investment account and use it to pay off the balance of my mortgage if I should decide that's still what I want to do when I get to the point when I would have otherwise paid it off under my accelerated plan.

Flagpole, you gave good fundamental advice, most of which I have already followed. The only thing that is kind of iffy is the cash reserve amount. I am probably only at about half of what I should be there. It is a little hard to say exactly since I prefund some of my expenses into an account my wife controls and pays the bills from. In my worldview, that isn't a reserve account. But in actuality, it kind of is as it ensures my ability to cover about half of my living expenses for the year.

If you could pay that mortgage earlier, you wouldn't have so many expenses, and you won't exceed the monthly amount of money you have left after you pay everything else. You're paying $6000 a month for the mortgage, but you're earning much more, and you also have that great bonus at the end of the year. If I were in your place, I'd pay the mortgage a long time ago and have a problem less. You should look for a mortgage advisor and pay it off once and for all. I recommend https://www.Cambridgemoneyman.com

That is bad advice. The market far exceeds the rate that people pay on a mortgage.

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