Pay off Mortgage or not?
Thread Starter
Joined: Oct 2000
Posts: 17,288
Likes: 39
From: Nashville
Pay off Mortgage or not?
I would like to hear some arguements for either paying off a mortgage or not paying off a mortgage.
Ordinarily the Stock Market averages more than the 6% interest rate that you can get right now (plus the fact that you can write off some of the interest on your taxes---possibly).
I personally am for paying off a mortgage..... a bird in the hand approach..... then if i quit my job (again) i would not have to worry about it.
The president of the company where I work wants to pay off his, but others are argueing against it.??
Ordinarily the Stock Market averages more than the 6% interest rate that you can get right now (plus the fact that you can write off some of the interest on your taxes---possibly).
I personally am for paying off a mortgage..... a bird in the hand approach..... then if i quit my job (again) i would not have to worry about it.
The president of the company where I work wants to pay off his, but others are argueing against it.??
It really depends on your situation...
Registered User
Joined: Feb 2003
Posts: 1,175
Likes: 0
From: North Canton
there are benefits to not paying off your mortgage. these benefits depend on your current tax bracket. everytime time you mortage your primary residnece up to 100% of its value, you can write off all of the interest you pay on the financing.
you might want to talk to an accountant and see whether or not the lack of monthly payment or the write off is more beneficial.
you might want to talk to an accountant and see whether or not the lack of monthly payment or the write off is more beneficial.
Registered User
Joined: Oct 2000
Posts: 7,401
Likes: 1,104
From: Napa
My clients often ask this question. It depends on your own philosophy.
If you are the type that wants to leverage yourself, take some risk, and know what you are doing, then don't pay off the mortgage. Use the money to buy investments, real estate, etc. that will give you a return in excess of the rate you are paying on the mortgage. (return can include appreciation as well)
If you like to avoid risk, don't like to owe people, are afraid you may lose your job, or feel you can't, or don't want to, invest and try to beat your mortgage rate, then use your money to pay it off.
Don't worry about losing the interest deduction. If you pay the bank a dollar, and save 40 cents of it on your taxes, you still are out of pocket 60 cents!
If you are the type that wants to leverage yourself, take some risk, and know what you are doing, then don't pay off the mortgage. Use the money to buy investments, real estate, etc. that will give you a return in excess of the rate you are paying on the mortgage. (return can include appreciation as well)
If you like to avoid risk, don't like to owe people, are afraid you may lose your job, or feel you can't, or don't want to, invest and try to beat your mortgage rate, then use your money to pay it off.
Don't worry about losing the interest deduction. If you pay the bank a dollar, and save 40 cents of it on your taxes, you still are out of pocket 60 cents!
Registered User
Joined: Mar 2002
Posts: 1,452
Likes: 1
From: Bay Area
Originally posted by Morris
My clients often ask this question. It depends on your own philosophy.
If you are the type that wants to leverage yourself, take some risk, and know what you are doing, then don't pay off the mortgage. Use the money to buy investments, real estate, etc. that will give you a return in excess of the rate you are paying on the mortgage. (return can include appreciation as well)
If you like to avoid risk, don't like to owe people, are afraid you may lose your job, or feel you can't, or don't want to, invest and try to beat your mortgage rate, then use your money to pay it off.
Don't worry about losing the interest deduction. If you pay the bank a dollar, and save 40 cents of it on your taxes, you still are out of pocket 60 cents!
My clients often ask this question. It depends on your own philosophy.
If you are the type that wants to leverage yourself, take some risk, and know what you are doing, then don't pay off the mortgage. Use the money to buy investments, real estate, etc. that will give you a return in excess of the rate you are paying on the mortgage. (return can include appreciation as well)
If you like to avoid risk, don't like to owe people, are afraid you may lose your job, or feel you can't, or don't want to, invest and try to beat your mortgage rate, then use your money to pay it off.
Don't worry about losing the interest deduction. If you pay the bank a dollar, and save 40 cents of it on your taxes, you still are out of pocket 60 cents!
Trending Topics
Moderator
Joined: Oct 2000
Posts: 12,904
Likes: 93
From: Big Box suburb, IL
I'm the type to pay it off. I'd rather be saving my monthly mortgage in some truly liquid form....cash!
That way if a business opp. comes along that I can't pass up, I have the cash in hand, with the full equity of my house at disposable.
Having to be out from under a mortgage also frees me up to live a truly credit free life...which is my goal. I want to get to a point sometime in life where I don't need to depend on credit, unless it's regarding qualifying for home owner's/auto insurance.
What I get back annually in the form of tax return is measly (not that I find this past year's $4500 return measly), but it just doens't sit well with me that the gov't had $4500 of my money in their pockets not earning me interest. Also, that $4500 went from the gov't left pocket, to me, and then back to the gov't's right pocket in the form of property taxes....why oh why do I feel like the penis inbetween the two pockets?
That way if a business opp. comes along that I can't pass up, I have the cash in hand, with the full equity of my house at disposable.
Having to be out from under a mortgage also frees me up to live a truly credit free life...which is my goal. I want to get to a point sometime in life where I don't need to depend on credit, unless it's regarding qualifying for home owner's/auto insurance.
What I get back annually in the form of tax return is measly (not that I find this past year's $4500 return measly), but it just doens't sit well with me that the gov't had $4500 of my money in their pockets not earning me interest. Also, that $4500 went from the gov't left pocket, to me, and then back to the gov't's right pocket in the form of property taxes....why oh why do I feel like the penis inbetween the two pockets?
Joined: Jan 2001
Posts: 3,004
Likes: 0
From: Bowie
I agree with Morris mainly because people feel one way about their primary residence and a different way about investment strategy. When you lump the two together, it's about what feels right.
On the flip side, if you look at it all as an investment strategy then the earlier you can invest the better.
Over 10 years...
House price increase $120K (6% Annual rate of return on $150,00 house)
10 Year: $70K Return on investment
-----------------------------------------------
Payments of 10 years $200K (6% 10 year mortgage $150,000)
Principal reduction after 10 years $150K since you paid it off
After 10 years, $120K +$150K - $200K ~ $70K return on your investment
30 Year and Stocks: $110K Return on investment
--------------------------------------------------------------
Payments of 10 years $110K (6% 30 year mortgage $150,000)
Principal reduction after 10 years $30K
After 10 years, $120K +$30K - $110K ~ $40K return on your investment
Invest the other $90K in stocks over 10 years
Stock portfolio is worth $160K (6% annual rate of return)
After 10 years, $160K - $90K ~ $70K return
30 Year and Beach property to rent to cover mortgage: $161K return
-------------------------------------------------------------------------------
Primary House 10 year Return $40K
Payments of 10 years $110K (6% 30 year mortgage $150,000)
Principal reduction after 10 years $30K
Beach House 10 year price increase $120K
Rental income 10 years $81K ($675 week, 12 weeks per summer)
After 10 years $120K + $30K +$81k - $110K ~ $121K
All this is estimates and assumptions, but you can see in general it's better to use the extra monthly payments for new investments.
I'm not a financial anything (just handy with excel) this example was pulled out of thin air. If you want real advice, talk to a real financial planner
On the flip side, if you look at it all as an investment strategy then the earlier you can invest the better.
Over 10 years...
House price increase $120K (6% Annual rate of return on $150,00 house)
10 Year: $70K Return on investment
-----------------------------------------------
Payments of 10 years $200K (6% 10 year mortgage $150,000)
Principal reduction after 10 years $150K since you paid it off
After 10 years, $120K +$150K - $200K ~ $70K return on your investment
30 Year and Stocks: $110K Return on investment
--------------------------------------------------------------
Payments of 10 years $110K (6% 30 year mortgage $150,000)
Principal reduction after 10 years $30K
After 10 years, $120K +$30K - $110K ~ $40K return on your investment
Invest the other $90K in stocks over 10 years
Stock portfolio is worth $160K (6% annual rate of return)
After 10 years, $160K - $90K ~ $70K return
30 Year and Beach property to rent to cover mortgage: $161K return
-------------------------------------------------------------------------------
Primary House 10 year Return $40K
Payments of 10 years $110K (6% 30 year mortgage $150,000)
Principal reduction after 10 years $30K
Beach House 10 year price increase $120K
Rental income 10 years $81K ($675 week, 12 weeks per summer)
After 10 years $120K + $30K +$81k - $110K ~ $121K
All this is estimates and assumptions, but you can see in general it's better to use the extra monthly payments for new investments.
I'm not a financial anything (just handy with excel) this example was pulled out of thin air. If you want real advice, talk to a real financial planner
