Depending on your mortgage interest rate, have you considered continuing the 18 years and investing your extra cash in index funds? Market returns ~10% over 20 years, so if your mortgage is 6% or less it's in your best 'interest' to continue.
Financially this makes sense. But for me, I’m sitting in a house that’s paid off. If I lose my job (or have to quit for medical reasons) and I can’t get a new job, I’ve got shelter. I can live Indefinitely where I am right now just paying utilities and property tax. Granted there is the reality of things just break on houses and require $$$.
Maybe it isn’t the best strategy. But there’s a nice feeling to know that I’ll have my house even if something bad happens.
And by bad I mean less than societal collapse. All bets are off in that situation.
If you have the discipline to pay off a house you can easily create a stock portfolio. The only important advice is to stop staring at the charts for too long. If you are an investor you derive zero value from it. Your decision to sell should not be driven by the market. It should be driven by personal goals.
Totally agree. I was replying more about why I chose to pay off my house vs. sitting in a mortgage for X more years so that I can put more money into the market.
During the time I was paying off my house, I did put money into the market. I just prioritized money going towards the house. Now that the house is paid off, all that prior mortgage payment money is going into the market.
This is good advice. A 30 year mortgage is like 2.8% right now, after taxes maybe 1.8%. The stock market over any 18 year time period (after taxes) will return higher than 1.8%. Adding to that, liquidity - having money in the bank provides flexibility, having equity in the house is nearly inflexible.
As an Australian that's dealt with the US bank/tax systems:
* Mortgages in the US traditionally are 30 year fixed rate.
* Mortgages are deductible from federal income tax up to a certain value
* People in the US have trouble understanding things that Australians are used to, like: variable rate mortgages, fixed/variable rate mortgages, redraw accounts, lines of credit mortgages, which all Aussie lenders offer.
On the other hand, as an Aussie I was confused by:
* People still writing cheques (checks). Like, really? On paper and stuff? Haven't written a cheque in Australia since 2000 and the only time I see it is the "CHQ" button on an EFTPOS.
* Contactless credit cards are only just a thing and people don't have PINs, they still stick their card in, or swipe (?!?) and sign.
* There's no such thing as EFTPOS which goes direct to your account, there are Visa/MC debit cards that work in the field like credit cards, but you can overdraw and get fees charged.
* Discounts for cash are still a thing because the CC charge isn't available. People get things like cash back on their spend, but then pay more for the card in the first place.
* Everyone worries about their credit score that changes in magical ways depending on different weird spending rules that have incentives for taking on debt but only in certain patterns that they won't tell you.
Assuming you itemize. For married couples, the standard exemption is $24k. Very few people well end up actually needing to itemize to deduct more than the standard exemption.
You can. Only deduct (married) if you pay more than 10-15k of interest a year? Or am I missing something (itemized deductions is now at 20k limit or so).
Edit: and since you need to pay taxes on dividends in bank accounts, you would need something like 3.5-4% interest to match the gains from prepaying the mortgage at 2.75%?
Assume an inflation adjusted average return of 3% on your investment and a 20% long-term capital gains you end up with 2.4% return versus 0 to 1% for prepaying a mortgage.
The market does not return 10% of 20 years, you may be referring to some period of U.S. returns, and many experts do not expect it to return so well over the next 20 years.
Yeah, even though that 10% is net tax 8.5% (vs. the full 6%) it seems like one could refinance it down in future. Still, I don't think most payment terms are flexible enough to make them an indefinite loan (go interest-only).
Depending upon their tax situation, the loan rate may be effectively a little lower due to the tax deduction too, though. And, tbh, 6% is a really high mortgage now. Rates below 3% are common.
