Mortgage

Why I Paid Off My $400K Mortgage | Jabar Post Indonesia

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Why I Paid Off My $400K Mortgage | Jabar Post Indonesia

A mortgage loan or, simply, mortgage (/ˈmɔːrɡɪdʒ/) is used either by purchasers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged. The loan is “secured” on the borrower’s property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property (“foreclosure” or “repossession”) to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning “death pledge” and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure.[1] A mortgage can also be described as “a borrower giving consideration in the form of a collateral for a benefit (loan)”.

Mortgage borrowers can be individuals mortgaging their home or they can be businesses mortgaging commercial property (for example, their own business premises, residential property let to tenants, or an investment portfolio). The lender will typically be a financial institution, such as a bank, credit union or building society, depending on the country concerned, and the loan arrangements can be made either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary considerably. The lender’s rights over the secured property take priority over the borrower’s other creditors, which means that if the borrower becomes bankrupt or insolvent, the other creditors will only be repaid the debts owed to them from a sale of the secured property if the mortgage lender is repaid in full first.

In many jurisdictions, it is normal for home purchases to be funded by a mortgage loan. Few individuals have enough savings or liquid funds to enable them to purchase property outright. In countries where the demand for home ownership is highest, strong domestic markets for mortgages have developed. Mortgages can either be funded through the banking sector (that is, through short-term deposits) or through the capital markets through a process called “securitization”, which converts pools of mortgages into fungible bonds that can be sold to investors in small denominations.



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In this video I answer the question, why did I pay off my $400,000 mortgage agent 36 years old? I show you the two options I weighed heavily, I show you the math behind the two option, then finally I discuss why I ultimately decided to pay off my mortgage.

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29 Comments

  1. I think you are smart for paying it off early! Im on that same game plan while still investing and then to invest even more once im paid off in 5 years :-)! Congrats to you

  2. Great video, something tells me you won’t be too far off that 5 million at 65 doing it your way (having more to invest after the mortgage is paid) would love to see a video about what/how and why you invest with Vanguard…..there’s a movement happening right now and this topic has never been so popular 👍

  3. You made the right choice. People are looking at it all wrong. First. The investment would have only been at 5 million in thirty years at the risk of the market performing that way. Second. Dont look at the investment over a 30 year term, because it didnt take you 30 years to pay off your mortgage. It only took 5. Given this, anything you would have paid toward your mortgage for the next however many years it wouldve taken you to pay off your mortgage plus the interest rate of your mortgage is now back in your pocket to invest for the next 30 years if you so chose. This is not to mention your now financial freedom to do whatever the heck you want with YOUR money!

  4. I would like to add that there is also a possibility that the S&P could have fallen for the five years it took you to pay off your mortgage possibly earning you less than regaining your mortgage interest! The point is that it is always better to pay off debts before investing. It is the best way to ease risk.

  5. I'm in the same boat. Just paid my mortgage off last year and in hindsight, maybe it wasn't the most financially rewarding decision in the long term, but I wanted the financial freedom and peace of mind. Nobody knows when a bad recession will hit, and if all your money is in the market, you can just as easily lose half your money. Now that I don't have deal with a mortgage, I can invest all of my money and have no fears whatsoever. I don't regret my decision for a minute.

  6. 1 thing that people forget about is the risk factor. If you lose your high paying job, you have that chance of not being able to pay your mortgage.
    Thanks for the video you did a smart move. Now you can invest much more

  7. What bank would lend you a $320k unsecured loan to invest it in the market :o. Besides the money that you would be putting, including the extra money, into your mortgage can now be put into a Roth IRA; you can also invest more money into groth stock mutual funds.

  8. Great video. I watched your other video and still trying to get answer to the question: what was your method to pay down the mortgage. Did you make extra payments on top of your monthly mortgage to cut it down to 5 years? Or did you pay extra payments yearly or one lump sum at end of the 5th year by pulling money from brokerage where you have been investing.

  9. I'd say you did the right thing. No investment is totally secure. The higher the interest rate, generally speaking, the greater the risk. The notion that you would have been guaranteed to end up with over $5,000,000 in 30 years if you put the money into a fund averaging 10 percent a year, is misleading. You might have ended up with that much, or could have ended up losing it all, as many investors do, and having to refinance repeatedly in a desperate attempt to make ends meet.

    I have friends who fell for the "logic" of not paying off their mortgages 30 years ago, usually on the advice of someone trying to sell them a different kind of investment, such as a stock that was "guaranteed" to pay a return that turned out to be imaginary. Many of them have had to borrow or refinance (being assured by their brokers it was a good thing to do), to get money to put into supposedly great "investments". But many ended up losing, not gaining, money from their investments… while still owing a huge amount on their homes. Some have actually lost their homes and been through bankruptcy. I know people actually ARE 66, and tell me they'll have to work for 20 more years, if they can find work, because their social security won't pay them enough to pay their mortgages, which they refinanced and extended several times to get cash for more "investments."

    The truth is that if you pay off your house in five years, saving yourself over $400,000 in interest payments, that means you've made an extra $400,000 in those five years…. money you are then free to invest (as you see good opportunities for investment) in the following decades. And you do so knowing that you own your house free and clear. If you were to lose your job or become disabled… no foreclosure, you own it.

    Investing your money in the market is a good choice for some people, but for others, such as yourself, paying off your mortgage is far wiser.

  10. You cannot put a price tag on peace of mind. Also a 10% rate of return is not guaranteed. You can invest even more now that you don't have to worry about you $2300/month payment. Additionally you will need less for retirement because you no longer have to factor in the cost of housing which means that you can possibly retire earlier than you originally planned. The math on the $5 million seems a bit off. In addition to not investing the entire $320k at one time, keep in mind that the amount of interest that you will be losing over the life of the mortgage should also be subtracted from the 5 million and if you were paying $2300 towards the mortgage would you still have been able to simultaneously put $320k towards a stock market investment?? There are just so many factors to consider. I think you made the right decision.

  11. If now you invested $2,300 a month which would have otherwise been paid to a mortgage and do that for 30 years… assuming the same 10% return you would end up in nearly the same place. It won't be equally as large of an ending amount but when you factor in the mortgage interest that you erased, you really would end up pretty close. The way you did it, you have guaranteed that you will have no more interest losses on the house and the house is more secure in the event of an economic downturn or personal crisis. You can use the mortgage money to now build a separate investment nest egg over time. Bear in mind, that $320K could be substantially wiped out if you invest it when the market is running high as it is right now and then there is a sharp downturn. Investing $2,300 per month over the span of many years while your house is completely paid off seems to me to be the safer bet and better insulates you in case of some disaster (i.e.: medical issue, income issue, market recession, etc.). I think you made the prudent choice.

  12. Great video. 10% return is never guaranteed and most of the time is less than that, obviously nothing is guaranteed. The majority of people don’t have that much to invest and I would rather have no monthly payments than be tied to a bank for 30 years with the possibility of not being able to pay due to a financial hardship, losing my job, medica bills, etc

  13. You made the right choice!!! I’m working on mine now!!! I had the same battle and chose the same as you I want my freedom!! I'm going to have way more to invest when I'm done!! And have a place to stay forever mortgage free!!! Good choice I'm proud for you very inspiring!!!!

  14. Here we dont get a weekly paycheck or bi-weekly pay check so paying bi-weekly isnt an option. Also our principal stays the same but the montly amount goes down and thus also the amount of intrest. But its a very nice challenge! I do wrestle a lot with investing the payment in stocks or bitcoins or paying it of. For now i do a bit of all three…

  15. Awesome that you paid off your mortgage in five years. Good for you. I have been trying to pay some extra every year towards my mortgage. Hoping to finish in ten years. By doing so I am getting 3% guaranteed return. Not much but better performing than my money in mutual funds and etfs that I have been investing in for the last 15 years. I don’t know how you can make 10%. That will awesome.

  16. I’ve been running the same calculations for my own mortgage payoff… I think something you left out is this… if you have 320k and invest it at 10% over 30 years (and continue to pay your mortgage every month) you would have a 5MM portfolio and a 1 million dollar house. Consequently… if you paid off the house right away and repurposed the pull payment to your vanguard account that should give you about 5MM as well. Doing it the latter I thing is better because you are “dollar cost averaging” into the market over time (just think of you put it all in ($320k) in 2007. Ouch!! I think you made the right call. Did I do that math right????

  17. Who cares what these mean people think you should've done. It's your family and your life and you did what you felt was best. We're not guaranteed 30 years of life to pay off a mortgage and the money that we "invest" isn't guaranteed to be there.
    Personally I agree with your choice, but even if I didn't, I wouldn't be calling you names. Ugh! People are so strange. Thanks for sharing this video, very inspirational and good sound advice.

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