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Message
I am in a position to pay off mortgage
Posted on 10/25/10 at 10:01 am
Posted on 10/25/10 at 10:01 am
I am in a position to pay off a 5.4% mortagage only 4 years into a 30 year term. I have always been from the side of "live w/ as little dept as possible" in case something major happens in life. I have a good friend who is an accountant telling me to keep mortgage and invest the money to make an additional 2-3% interest income. I keep telling him that there is certainly no guarantee of doing this and I would rather be debt free. I have no auto loans and don't keep balances on credit cards. I contribute the maximum to 401K and IRA along w/ side investments if this helps. Would like to hear opinions from some of you MTalkers.
14
Posted on 10/25/10 at 10:05 am to rtbtiger
I wouldn't be inclined to pay off my mortgage with rates being so low right now. Maybe you could look into changing your mortgage to a 15 year and getting a much lower interest rate too. I haven't looked in a while, but 15 year loans were below 4% for a while.
Posted on 10/25/10 at 10:06 am to rtbtiger
It really just depends on the person.
I am like you. There is nothing in the world that could help me sleep better at night then knowing I didn't owe ANYONE anything. I would personally choose to go down this road.
Others on here will tell you (and they are right), that you can make more money by keeping the mortgage and investing that money.
Here is the way I have always thought about it. If your house was paid in full today, would you go out and get a mortgage on it? If you wouldn't, then there is your answer.
I am like you. There is nothing in the world that could help me sleep better at night then knowing I didn't owe ANYONE anything. I would personally choose to go down this road.
Others on here will tell you (and they are right), that you can make more money by keeping the mortgage and investing that money.
Here is the way I have always thought about it. If your house was paid in full today, would you go out and get a mortgage on it? If you wouldn't, then there is your answer.
Posted on 10/25/10 at 10:06 am to rtbtiger
I am also a huge proponent of a no debt lifestyle, therefore if you have the cash to payoff your mortgage it may not be a bad idea
Then, that is one less bill coming your way every month and you should invest around half of what your mortgage would have been....
but thats just the first thought that comes to my mind. i am NOT a CFA or a CFP just a real estate guy fwiw
Then, that is one less bill coming your way every month and you should invest around half of what your mortgage would have been....
but thats just the first thought that comes to my mind. i am NOT a CFA or a CFP just a real estate guy fwiw
Posted on 10/25/10 at 10:17 am to rtbtiger
Saving %5.4 interest is equivalent to something around earning %8 after paying income tax on it. Nobody is going to offer you a guaranteed %8 return, and if you are asking the question, you probably are not the type willing to gamble to earn more than %8 in hopes of making a little more.
In my opinion, there are two options. Option 1 is to pay off this mortgage as fast as possible. Option 2 is to refinance (15 year for 3.75), make minimum payments and invest the rest elsewhere.
I actually went through two very similar situations. My last house was financed at %5.35 and I paid it off very quickly, in hindsight I would do it again. I am closing on a house this week at %3.75, where I will make minimum payments and do something else with the rest.
In my opinion, there are two options. Option 1 is to pay off this mortgage as fast as possible. Option 2 is to refinance (15 year for 3.75), make minimum payments and invest the rest elsewhere.
I actually went through two very similar situations. My last house was financed at %5.35 and I paid it off very quickly, in hindsight I would do it again. I am closing on a house this week at %3.75, where I will make minimum payments and do something else with the rest.
Posted on 10/25/10 at 10:29 am to eelsuee
Tks to everyone for the opinions. This is about what I expected, no right or wrong answer. I am of the belief that if you owe someone they partially own you and that takes away some of your freedom to pursue other avenues at times. Could be losing some money by doing this but I think I will sleep better by paying it off.
Posted on 10/25/10 at 10:31 am to eelsuee
quote:
I wouldn't be inclined to pay off my mortgage with rates being so low right now. Maybe you could look into changing your mortgage to a 15 year and getting a much lower interest rate too. I haven't looked in a while, but 15 year loans were below 4% for a while.
I agree with this.
quote:
Saving %5.4 interest is equivalent to something around earning %8 after paying income tax on it. Nobody is going to offer you a guaranteed %8 return, and if you are asking the question, you probably are not the type willing to gamble to earn more than %8 in hopes of making a little more.
You did that backwards. It would be around 3% that he needs to make, which is not hard to do with minimal risk.
Posted on 10/25/10 at 11:01 am to I Love Bama
quote:
If your house was paid in full today, would you go out and get a mortgage on it? If you wouldn't, then there is your answer.
That's a good way of putting it.
I recently refinanced my house for a full 30 year term precisely so I could invest with a very low cost of debt, so now you know where I stand.
Posted on 10/25/10 at 11:16 am to rtbtiger
quote:
I am of the belief that if you owe someone they partially own you and that takes away some of your freedom to pursue other avenues at times.
So perhaps home ownership isn't for you then, as you still owe the government property taxes on an annual basis. Maybe you should just rent - landlords have a lot less power than the government.
Posted on 10/25/10 at 11:24 am to Tiger JJ
I don't think that is really all that important.
Posted on 10/25/10 at 11:58 am to rtbtiger
From a strictly financial "profit" standpoint, you would probably be better off putting the money you would use to pay off the mortgage into some investments and take a calculated risk your investment return will be higher than the mortgage's interest rate.
Of course, if the investments don't work out, you're screwed!
On the other hand, I chose to pay off my mortgages (I had a primary and secondary residence mortgage) years ago (when rates were higher) and it was the best financial decision I ever made. The difference in monthly cash flow was amazing. For the first several months I kept asking myself "Why do I have all this extra cash in my checking account?"
I estimate I saved over $70,000 in interest (pre tax benefit) over the life of the mortgages by paying them off when I did.
It's a difficult question to answer without knowing the exact situation of the person's finances, investment risk tolerance, etc.
Of course, if the investments don't work out, you're screwed!
On the other hand, I chose to pay off my mortgages (I had a primary and secondary residence mortgage) years ago (when rates were higher) and it was the best financial decision I ever made. The difference in monthly cash flow was amazing. For the first several months I kept asking myself "Why do I have all this extra cash in my checking account?"
I estimate I saved over $70,000 in interest (pre tax benefit) over the life of the mortgages by paying them off when I did.
It's a difficult question to answer without knowing the exact situation of the person's finances, investment risk tolerance, etc.
Posted on 10/25/10 at 12:08 pm to rtbtiger
quote:
I am of the belief that if you owe someone they partially own you and that takes away some of your freedom to pursue other avenues at times.
Sure, but you can't get along in life without owing somebody something. For example, if you work for yourself you owe quality work to your clients.
Posted on 10/25/10 at 12:09 pm to eelsuee
quote:
eelsuee
The way you put "%" in front of the number instead of behind it like the rest of the world gives me a headache ...
Posted on 10/25/10 at 12:24 pm to rtbtiger
quote:
I am in a position to pay off a 5.4% mortagage only 4 years into a 30 year term.
Pay it off, aside from being out of debt, a 5.4% return tax free is more that what most people have made the past few years.
Posted on 10/25/10 at 12:37 pm to rtbtiger
It is a good feeling - paid mine off earlier this year. Wish I could do something about taxes and insurance (health, cars, house).
Posted on 10/25/10 at 12:41 pm to notiger1997
quote:
I don't think that is really all that important.
Why not? If someone has a hard time sleeping at night because they have a mortgage, then what is their mindset about the government pointing a gun at them perpetually?
Posted on 10/25/10 at 1:09 pm to Tiger JJ
quote:
then what is their mindset about the government pointing a gun at them perpetually?
I know you are a little off the deep end on stuff like this, but worrying about paying property taxes does not equal worrying about a mortgage payment in my opinion.
If renting, I would worry about what some stupid landlord might do to make life miserable.
Posted on 10/25/10 at 1:29 pm to notiger1997
quote:
I know you are a little off the deep end on stuff like this
Uh oh....
Posted on 10/25/10 at 1:42 pm to LSURussian
quote:
It's a difficult question to answer without knowing the exact situation of the person's finances, investment risk tolerance, etc.
My financial situation is very comfortable presently although I'm not fully prepared for retirement right now and I have about 10-14 years before I am considering retiring. I would say my investment risk tolerance is moderate. I just don't like banks hanging over my head.
Posted on 10/25/10 at 2:30 pm to rtbtiger
If you pay your mortgage off, prepare yourself financially with your own "escrow" account where you will be prepared to pay for your insurances and property taxes on your own now.
Also, probably mentioned but the bad thing is you lose the interest tax deduction but other than that... I would say definitely pay off mortgage and try to "pay yourself back" with close to what you were paying your mortgage note.
Also, probably mentioned but the bad thing is you lose the interest tax deduction but other than that... I would say definitely pay off mortgage and try to "pay yourself back" with close to what you were paying your mortgage note.
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