Stupid Paying-Down-The-Mortgage Question Asked 1mil x before

[jacob]

It just means that the timing of your inflows should match the timing of your outflows. That if you continue to pay in you expect home equity to perform better (higher IRR) than the alternative within the next 4--7 years.

[classical_Liberal]

Given the light of discussions in other threads, and since it's so very easy to get side/single-tracked, I'd be remiss to not point out that the value of a house goes beyond its accumulated equity or how much it ads to the NW.

Touche... and thank you.

[Hristo Botev]

There are other kinds of values which although harder to quantify and put a price on have real worth in terms of what kind of systems you can build and what kind of live you can live there.

This I understand; it's just that those systems are all entirely focused on my family responsibilities at present. And in that context our house is ideal in terms of proximity to kids' school, church, work, and grocery/retail, and it's about as cheap as we could get that proximity; it's also small enough that we can clean and maintain it ourselves, and it's relatively cheap to heat and (to a lesser extent) cool; and it's well positioned for our various social circles. The point is that those systems won't really be fruitful 7 years down the road; but they are now.

[Hristo Botev]

seems to me from his journals etc he’s very much wanting to build those systems elsewhere though. under those conditions, 7 years feels like a sentence.

We're not looking to build those systems elsewhere currently; DW and I are just looking to the horizon, when we've satisfied our obligation to educate our kids.

[Alphaville]

We're not looking to build those systems elsewhere currently; DW and I are just looking to the horizon, when we've satisfied our obligation to educate our kids.

but if you’re educating them in the city you’re educating them for the city though. you know this, yes? young people gravitate to their friends and their social circle, not their parents origins, most of the time.

i think a city’s quality of education is better of course, and have said so elsewhere, especially if parents contribute above and beyond government provision of the school, so count your blessings in that front. but i thought i read (misread?) elsewhere that you wanted to take them to a rural school and were okay with that.

sorry about the assumption, i realize journals etc are a process, and we’re witnessing an ongoing internal debate rather than finished conclusions, and i only got a snapshot of an idea that’s no longer in play.

[Hristo Botev]

Our parish and our kids' parochial school happen to be located smack in the middle of a very progressive and very secular city located in a very large metro area. When DW and I moved here, 10 years ago, before kids, it was the parish that we fell in love with, and we sort of didn't mind the progressive and secular aspects of most of our non-Catholic/religious neighbors and friends, who were generally open to different ideas and viewpoints. That's changed rather drastically since Trump (who I didn't vote for, if that makes a difference) was elected. This change is part of what prompted us to take our kids out of the fancy-schmancy public school that we pay through the nose to support, because there is a secularist, moral relativist religion preached at these schools that is contrary to and actively aggressive toward our own Catholic faith--and we are not Trad Catholic types; it's a Jesuit parish! (all the Trads left the parish as soon as the Jesuits took over!) And there's only so much indoctrination I'm willing to allow the government school to do to my kids; they are my kids, I get to choose how they are indoctrinated. So in response to your question, yes, they are being raised in the city; but their social circle and community is centered entirely around the parish and their parochial school, and to a lesser degree the neighborhood kids who live in our townhouse development, some of whom are also students at the parochial school (it's right next door). So, about the rural school--if I could figure out a way to create my own little Benedict Option where we uprooted our entire parish school and community and moved it out to the boonies, I'd do it. But that's not really feasible, so for the time being, we've created our own little Benedict Option in the middle of the city; in the lion's den so to speak.

[Alphaville]

aaaaaaaaaaaah..... ok, i thought you were desperate to flee. didn’t realize it was all a thought experiment. my bad.

and didn’t know the kids were in a parochial school too, i though they were in the public one.

anyway that’s the great thing about a city (as you yourself stated elsewhere): you always have options. even if things have gotten polarized as of late, which i sort of understand, because people’s nerves are frayed with our current climate, it’s worse in other places where there’s no escape. in parts of my state the polarization has happened between towns: one town wears masks, the next one doesn’t, they blame each other, etc. ugh!

as for this:

where it can be used for investing in stocks, in rural land, etc.?

rural land is more expense than investment i still think, but is there a way that you could gain temporary low-cost access to some sort of retreat situation via parish connections?

e.g. sort of like this, but not necessarily this: https://www.tripsavvy.com/monastery-sta ... es-4779957

growing up attending catholic school there was always some sort of retreat property or another we’d be carted off to...

let’s duckduckgo... https://www.retreatfinder.com/Directory ... holic.aspx

idk, just a thought. why buy when you can just borrow temporarily? [eta: for now, anyway]

[Mister Imperceptible]

Historical inflation rates.

https://chapwoodindex.com/

[UK-with-kids]

I don't get this idea that property equity is a particular % of net worth. Surely if you take an overall view of your finances, your exposure is the full gross value of the property plus any other assets you own, and your debt is just the amount of debt you have. Isn't investing in other assets rather than paying the mortgage down just a way of increasing your gross assets and maintaining more leverage? Is the idea of investing in other things that they will outperform the value of the house and diversify risk, or that you will do well out of the new investments and pay your mortgage off with money to spare?

Maybe I'm missing the point here because of the strange US rules that appear to allow you to withdraw all the equity out of your house, invest the proceeds in additional assets, then if the property value collapses just walk away without paying the mortgage off? Whereas in the UK for example the bank would come after you for the rest of your assets to settle the debt.

Anyway, my answer to the "stupid" question is that you should probably pay your mortgage down in order to reduce risk and for "peace of mind". Otherwise it's a gamble that your alternative investments will end up being worth more than the mortgage so you can pay it off and sell the house before moving elsewhere. And if history is anything to go by, that might not turn out well. Don't bet the farm, as they say.

[Alphaville]

Maybe I'm missing the point here because of the strange US rules that appear to allow you to withdraw all the equity out of your house, invest the proceeds in additional assets, then if the property value collapses just walk away without paying the mortgage off? Whereas in the UK for example the bank would come after you for the rest of your assets to settle the debt.

yes. it might vary by jurisdiction, but generally in case of disaster you’re allowed to walk away and stick it to the creditors. banks factor this in when they lend you the money. and of course you’d lose all the equity.

e.g. see: https://www.investopedia.com/articles/m ... losure.asp

so, pumping the property for cheap credit is not such a terrible move here, it’s just a decision about what assets you want to bolster, and it’s up to the lender to evaluate your risk.

but zeroing out the equity would be an extreme case, and the bank can always turn you down.

what @HB was asking about originally was just where to allocate extra cash above& beyond the required mortgage payment, i.e., diversifying assets outside of RE. and he’s got many options, but i think purchasing a summer home would not help accomplish that.

[Alphaville]

So in response to your question, yes, they are being raised in the city; but their social circle and community is centered entirely around the parish and their parochial school, and to a lesser degree the neighborhood kids who live in our townhouse development, some of whom are also students at the parochial school (it's right next door). So, about the rural school--if I could figure out a way to create my own little Benedict Option where we uprooted our entire parish school and community and moved it out to the boonies, I'd do it. But that's not really feasible, so for the time being, we've created our own little Benedict Option in the middle of the city; in the lion's den so to speak.

ah!

like this?

https://www.npr.org/2017/04/10/52271498 ... -believers

[Hristo Botev]

rural land is more expense than investment i still think,

I don't mean investing in rural land as I think it's going to improve my net worth. I mean investing in the John Michael Greer "we're all f'ed so 'invest' in something that might actually be useful in a post-industrialized economy" (not sure why I included quotation marks, he didn't say that; he said this: https://www.resilience.org/stories/2009 ... -delusion/).

Basically, I'm all over the place at the moment (as I know you've gathered as a regular reader of my journal ). I spent the first 6 years or so of my career and family life making ridiculous amounts of money that DW and I threw at lifestyle inflation, following in the footsteps of our work colleagues and neighbors (e.g., you can "afford" a house if you can afford monthly payments on a 30-year loan, with PMI). We then spent the next 4 or so years realizing we need to scale it back, pay off debt, and save more--with the idea that we just need to dump money in VTSAX and wait to hit that magical net worth number where monthly projected passive income surpassed monthly expenses. The good news is the last 4 years got us to a point of financial security where we've been able to rather drastically refocus our lives in a way that makes us much healthier and happier--less time at work, and doing work that never raises any ethical or moral red flags, more time with the kids, friends, neighbors, and family, and more time engaging in our community.

But now I'm starting to freak out a bit. I don't have any faith in our economy for the long term. DW just sent me what her (very large) employer is doing to try and make it possible for employees to still come to work with kids who are now "back in school," virtually. The solution? Really, really, really expensive on-site child care where facilitators will help kids manage their various virtual school lessons. I'm not faulting the employer for trying to do something, anything to manage this craziness (I'm sure they aren't making any money directly from the child care arrangement). I'm not really faulting anyone. And I understand that, hopefully, this virtual school/COVID thing will in fact be a temporary, one-time phenomenon we all laugh at 10 years from now. I'm just saying that, generally, our "system" just seems to make it more and more expensive and logistically difficult to have children, and if the continued success of our economy is 70% dependent on growing consumption, we're kind of SOL if we've also got a declining birth rate.

So, if not "investing" in VTSAX (or any index fund equivalent), and if I'm not yet ready to undertake Jacob's intensive self-learning course on stocks and the financial system, and if I'm not going to be in my current house when my kids graduate from their current school in 4-7 years, what then? That's what's keeping me up at night.

[Hristo Botev]

ah!

like this?

https://www.npr.org/2017/04/10/52271498 ... -believers

Oh how well you understand me!

[Alphaville]

Oh how well you understand me!

haha i dont know if you meant that sarcastically or not...

but assuming a straight reading, i have to ask: why leave at all in 7 years if the place fits your family so well? the perfect is the enemy of the good, and you might lose something very good there. if it’s a good place to raise kids, wouldn’t it be a good place to get old as well?

as for the reason why i ask these things in a purely “money” question: it’s because money is just a tool that serves a purpose and i couldn’t understand the purpose. purpose gives meaning to probabilistic scenarios.

and yes i get the conflict from the journals, we are all working out problems here one way or another, otherwise we’d be in autopilot.

so, in trying to grapple with these questions you have, i don’t have an answer, and i don’t know the future, but one thing i’d counsel maybe is to not be paranoid? hedging is one thing, banking it all on the world going to pieces is very much another. no?

i think it was @bigato in one post a while ago saying that you can trust the global economy more than other economic systems because everyone is in it together trying to make it work (forgive the bad paraphrasis). i think he’s right, and if civilization were gone—what would be left? if things really go back to the barbarian stage, who is going to protect your preindustrial homestead from rampaging pillaging hungry hordes? your m4 vs their homemade bazookas? or will you join the huns instead?

it’s a bit pointless to seek those extremes in my opinion. i mean if you want to take wilderness survival courses that is great, and make sure the kids are in the scouts or whatever, but enduring permanent carnage can’t be the main gamble to make, in my opinion.

btw, funny thing that i do have a rural retreat but in this pandemic i’m staying in the city where it’s actually safer, warts and all.

the other side of not getting paranoid, the spiritual one, has to do a bit with the article i linked. from the community founder:

Currie, the community founder, looks for comparison to the experience of the early Christians under Roman rule, when they thrived despite vicious persecution.

"They lived joyful lives, and they attracted converts by the example of their lives," he says. "I think that's what we're trying to do, live the way they did. Not live defensively, in sort of a paranoid xenophobic reaction to the rest of society, but to realize that we're all human beings created in the image of God, and to live that life ourselves and share it with our neighbors."

that there. that makes me appreciate what they do much more than what survivalists do hunkered down somewhere in idaho stockpiling weapons in fear of everyone.

i may not be one of those people in hyattsville, but their stated joy and acceptance of humanity would be an admirable declaration of faith. consider the lillies, etc.

[IlliniDave]

The reason it gets asked 10^6 times is it is relevant to a lot of people and doesn't really have a crisp answer.

I would argue that mathematically its a wash in the sense the odds the wealth differential that might be gleaned through the leverage will provide the difference between success and failure are vanishingly small. Assuming the ultimate goal in your life is not to accumulate the maximum number of dollars possible, of course.

For me it was primarily a lifestyle question, and having been through stretches where cobbling together enough for a mortgage payment was nontrivial, paying it off early maximized SWAN. It's worth noting that at the time failure of the Republic was not on my list of worries.

I didn't catch which city you are in, but if it is a large one in the US and you are not committed to your present home/neighborhood, now might be a good time to make the move. Of course I have no idea what the future might bring, but we have close to a perfect storm brewing to precipitate a migration away from recently desirable urban centers. (high taxes, high cost of living, rise of local gov't-sanctioned lawlessness, pandemic, sharp rise in acceptance of telecommuting by employers). The outcome in November may or may not lessen those trends. For some this would mean a devaluation of their present property while the cost of alternates rise.

For decades now I've been listening to the preppers and various doomsday prophets and while until very recently it wasn't something I expected, it was something I thought about. Given it's unlikely to know which flavor of catastrophe will arrive when with any certainty, flexibility through diversification seems the most sensible strategy. More by accident than by cunning I have

-an unmortgaged home in a medium-sized city
-an unmortgaged vacation property (a small investment, which I am planing to do, would convert it into a home, albeit rustic) in a remote area four hours paddle/portage from another country
-enough farm land to quasi-homestead
-a pretty good dollop of cash and other reasonably liquid, reasonably stable financial assets (very short term treasuries, MM funds, stable value funds)
-a reliable AWD vehicle that I never let get below 200 mi worth of fuel.
-pretty good skill at fishing and probably enough tackle and equipment to last the rest of my life.

I plan to pursue a larger tract of undeveloped land, a more explicit bugout plan (probably Canada as the place of refuge), and a more tangible self-defense plan (doubles as a means of providing food). I have not shot a firearm since my last shooting match in the scouts (I was maybe 15) nor a bow since I was just a cub scout. I own neither at present. That has to change.

One important thing I have no answer for is the fact that my family is spread out geographically.

Along with all that I have a boglehead-influenced traditional retirement portfolio (some of the aforementioned bonds and cash are part of that), the promise of a modest pension from my employer, and the promise of SS and Medicare from the government. Meaning if change is moderate and/or gradual, I won't be SOL for having bet the farm speculating on an outcome that never materialized. I enjoy spending time away from mainstream society, but I'm not anxious to chuck it entirely.

So why do I prattle on about all that? Even though it is mildly comforting intellectually, it doesn't sate the gut-level unrest inherent to grappling with the possibility the ground rules and assumptions of the world I'm adapted to will become invalid. Although I'm not directly responsible for them, I have some of the same worries/frustrations concerning my grandchildren that you do with your kids. One of the burdens of responsibility is to be the navigator if the time comes to sail beyond the edge of the map in the face of unknowns (known or unknown).

I wish I could offer something actionable. Generically, keeping expenses and debt low while maintaining decent income provides soil on which to cultivate options, which you seem to be doing. Income potential versus location versus lifestyle is a trade space most of us operate in. IMO it should be done with SWAN and day-to-day contentedness in mind, but my opinion and a 5-dollar bill together are worth maybe 3 bucks. Insofar as I've had success it's been by engaging in the minimum machinations to keep the worry at bay and spending the rest of my energy trying to have a good life.

(Yeah, I tend towards worry so in some dimensions I am guilty of overkill)

[UK-with-kids]

I'm SOL with googling SWAN - what does it stand for?

[Hristo Botev]

Thanks IDave; your take is very helpful for me.

Of course I have no idea what the future might bring, but we have close to a perfect storm brewing to precipitate a migration away from recently desirable urban centers. (high taxes, high cost of living, rise of local gov't-sanctioned lawlessness, pandemic, sharp rise in acceptance of telecommuting by employers).

This is definitely a concern. I walk from my house to downtown a couple times a day, between my commute and walking the dog. It's a pleasant walk, generally, as our cute little downtown, with its square and historic courthouse, is one of the things that attracted us here in the first place. However, with every walk I'm seeing in our downtown/square: (a) an increasingly larger homeless population, sleeping on benches, in doorways, and on the grass; (b) more and more strewn-about take out containers and other trash that is attendant with an unregulated homeless population; (c) more graffitti, usually of the BLM variety, which no one is bothering or at liberty to clean up; (d) more and more boarded up storefronts (thanks Bezos); and (e) more historical markers/statues removed (they recently got T. Jefferson), with more us vs. them-type historical markers put up in their place (this morning I saw for the first time a new marker reminding passers-by that the site had been the location of a lynching of a "Black man" by a "white mob"). This is all concerning.

I enjoy spending time away from mainstream society, but I'm not anxious to chuck it entirely.

And this, also; this is the rub. I like being around people; I like density. I've always found humanity, in all of its grubbiness, reassuring. But more and more my environment serves to constantly remind me through very in-your-face, undeniable signs that society seems to be falling apart, and rapidly. Perhaps it wouldn't seem quite so stark if peoples' faces weren't hidden behind masks; if I didn't feel the need to step off the sidewalk and into the street to make sure I'm giving an oncoming pedestrian 6+ feet of distance. There's something just very impersonal about all of this; which makes an otherwise energetic and alive city seem cold and tribalistic.

Honestly, if this mask and social distance thing is going to be anything close to a permanent change in behavior for city living, even after this particular coronavirus is a memory, I just can't do it.

So why do I prattle on about all that? Even though it is mildly comforting intellectually, it doesn't sate the gut-level unrest inherent to grappling with the possibility the ground rules and assumptions of the world I'm adapted to will become invalid.
...
Generically, keeping expenses and debt low while maintaining decent income provides soil on which to cultivate options, which you seem to be doing.

What DW and I decided, last night, is to stop paying extra towards the mortgage principal, and instead to use that money to save up for the $200K or so we've got left to pay in Catholic school tuition for the next 10 years. Having the security (SWAN? Is that "sleep well at night"?) of knowing that education is paid for is more important than having the security that a paid-off mortgage would provide, given that a paid-off mortgage would only knock our monthly mortgage payment down by about half, once you factor in the insurance and very high taxes (yeah, the bank couldn't take our home, but the county could). Once that education money is saved up, then we'll likely start saving up for some sort of escape hatch, likely in the form of forested and unregulated land with a reliable water source.

[IlliniDave]

I'm SOL with googling SWAN - what does it stand for?

Sorry, it's obscure I guess, but pretty standard in some investing subcultures. Means "sleep well at night," shorthand in the context of "risk tolerance" for a standard admonition "if worrying about your portfolio is keeping you up at night, it's probably not the right portfolio for you."

[UK-with-kids]

Sorry, it's obscure I guess, but pretty standard in some investing subcultures. Means "sleep well at night," shorthand in the context of "risk tolerance" for a standard admonition "if worrying about your portfolio is keeping you up at night, it's probably not the right portfolio for you."

Thank you - and I thought I'd already spent too much of the last decade in investing subcultures already, but clearly I have more to learn

[IlliniDave]

...

What DW and I decided, last night, is to stop paying extra towards the mortgage principal, and instead to use that money to save up for the $200K or so we've got left to pay in Catholic school tuition for the next 10 years. Having the security (SWAN? Is that "sleep well at night"?) of knowing that education is paid for is more important than having the security that a paid-off mortgage would provide, given that a paid-off mortgage would only knock our monthly mortgage payment down by about half, once you factor in the insurance and very high taxes (yeah, the bank couldn't take our home, but the county could). Once that education money is saved up, then we'll likely start saving up for some sort of escape hatch, likely in the form of forested and unregulated land with a reliable water source.

Sounds pretty reasonable to me, and it's an approach customized to the two of you and your goals, as it should be. And if it makes you feel better, even debt-hawk Dave Ramsey puts funding children's education higher in the pecking order than paying off the mortgage. One good thing about Catholic schools, at least in the diocese where I was educated, is that tuition is generally need-based, meaning if a family fell on hard times income-wise (and were members of one of the parishes in the diocese) tuition would be lowered commensurately, or even waived entirely. They were also pretty good about dealing with non-catholic families that wanted to send their kids but didn't have the means. That a disproportionate number of those non-Catholic students that got a lot of assistance were exceptional athletes was I'm sure a coincidence.