Not left of center?
- Dec 5, 2006
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Well, today was a good day in the market...the bond market.
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This is just a math question. First - how much of that $1k per month is principal vs interest? Second - if the interest component (after taxes) is lower than your withdrawal rate (marginal after taxes) multiplied by the size of the note, it would be more efficient to carry a mortgage.2) Say you have a 1k mortgage a month with a balance of 150k. That's 12k a year to service that mortgage, so if you were FIRE'd with a 4% spend rate, you would need a 300k income producing asset to cover that 1k. Therefore you could actually FIRE sooner by paying off the 150k mortgage in cash.
I had not thought about it from the POV of how much interest was being charged on the mortgage but rather just servicing the monthly nut with a spend rate as that's largely what FIRE is all about. Your way should maximize the balance sheet over the long term but I was looking at it strictly from a cash flow perspective and then realizing the principal could be paid off with far less money than what it would take to accumulate an asset of 300k with a 4% withdrawal rate.This is just a math question. First - how much of that $1k per month is principal vs interest? Second - if the interest component (after taxes) is lower than your withdrawal rate (marginal after taxes) multiplied by the size of the note, it would be more efficient to carry a mortgage.
If you check a mortgage calculator, with a 150k mortgage at 4% interest that you were paying $1k per month on, you would only have 10 years left and would only pay a total of $30k in interest over that 10 years. 4% of $150k is $6k per year. If I felt like 4% was a safe withdrawal rate, I would keep the mortgage.
ps, this is more of the less back of the envelope so please let me know if I have it wrong.