Pay off mortgage?

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Erwin
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Pay off mortgage?

Post by Erwin »

I have a 15 year 2.5% fixed interest rate mortgage. I have the cash, and I am tempted to pay it off given that I cannot see any safe investment at a higher after tax interest rate. Is there anything I am missing?
Erwin
jimbeam22
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Re: Pay off mortgage?

Post by jimbeam22 »

I was in the same boat as you. I had a 15yr 2.75% mortgage that I owed $110,000. I had the cash in the bank to pay it off and had been dragging my feet for months. I decided the right thing to do for me is pay it off (although many on here would argue not to). The way I look at it is like this, I can pay the home off now, or invest it all at stock market highs. Should the market drop 50% (and it will drop after I invest, it just always does), I will still have the mortgage and only half of the initial money. How bad would I feel then? I know this is a form of timing the market in my thinking though.

I feel more free now, and less stressed to simply invest the monthly mortgage payment now and DCA in with a paid off mortgage. I guess it really depends on the individual.
bloom2708
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Re: Pay off mortgage?

Post by bloom2708 »

Paying off your mortgage is more of a lifestyle choice than purely financial. (Use the search to browse other similar threads)

Here is what I would do: Pay it off. Wait 12 months. If you hate it, go get another mortgage (or HELOC). If you like it, wait another 12 months. Repeat.

We paid our mortgage off in 2007. I waited 12 months. Then another. Then another. Still no strong desire to get another one. :shock:
Last edited by bloom2708 on Wed Nov 30, 2016 3:25 pm, edited 2 times in total.
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jafcorrea
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Re: Pay off mortgage?

Post by jafcorrea »

Erwin wrote:I have a 15 year 2.5% fixed interest rate mortgage. I have the cash, and I am tempted to pay it off given that I cannot see any safe investment at a higher after tax interest rate. Is there anything I am missing?

pay off the mortgage and invest the same or more old monthly payment :sharebeer

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bigred77
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Re: Pay off mortgage?

Post by bigred77 »

If I had un-invested cash just sitting the bank or in a MM fund in excess of my mortgage I would just pay it off.

Set up a no-fee HELOC and then, should the need arise, you have access to that liquidity. You will only be charged interest if you actually withdraw on the line of credit.
KlangFool
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Re: Pay off mortgage?

Post by KlangFool »

Erwin wrote:I have a 15 year 2.5% fixed interest rate mortgage. I have the cash, and I am tempted to pay it off given that I cannot see any safe investment at a higher after tax interest rate. Is there anything I am missing?
Erwin,

1) Have you maxed up your contribution to Trad. 401K account? If not, you will be paying a lot of tax for every additional dollar that you spend on paying off the mortgage.

For example, if you are in 25% marginal tax rate, you are paying 25% tax for every additional dollar. So, how does paying 25% tax in order to save 2.5% interest sound to you?

2) I would max up all my tax advantage accounts: HSA, Trad. 401K, and Roth IRA before considering this move. Even then, at 2.5%, why bother?

3) When will your kids go to college? Will they need to take a loan? Why pay off 2.5% mortgage in order to take a 6.8% student loan?

KlangFool
Last edited by KlangFool on Wed Nov 30, 2016 1:52 pm, edited 1 time in total.
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knpstr
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Re: Pay off mortgage?

Post by knpstr »

Be done with it.
Pay it off!
Congratulations on achieving a major milestone!
:beer
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Jack FFR1846
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Re: Pay off mortgage?

Post by Jack FFR1846 »

The more risk averse you are, the better the idea of paying the mortgage off is. When I had a mortgage, I'd always put any spare cash into extra principal payments. Friends would say to invest instead. My response always was "what investment is there with a guaranteed return higher than my mortgage rate?". Nobody ever had an answer. To me, having debt in order to invest in the unknown didn't make sense.

While I agree with Klangfool about tax advantages, one could argue that upon withdrawl, there will be some tax paid. Will it be less? Probably. Guaranteed? Nope.
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mortfree
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Re: Pay off mortgage?

Post by mortfree »

Erwin wrote:I have a 15 year 2.5% fixed interest rate mortgage. I have the cash, and I am tempted to pay it off given that I cannot see any safe investment at a higher after tax interest rate. Is there anything I am missing?
How much is the payoff?

How many years left on the loan?

will you still have an EF in place?

What will you do with the mortgage payment (P&I only) - invest it DCA?

what is your timeline till retirement, assuming you aren't already retired?

and just like KlangFool asked, are you hitting 18k (catchup eligible?) in your pre-tax retirement accounts?
mptfan
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Re: Pay off mortgage?

Post by mptfan »

Erwin wrote:Is there anything I am missing?
No.
indyfish
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Re: Pay off mortgage?

Post by indyfish »

I asked about this recently. I paid it off a few months ago - and I have no regrets at all. But, everyone has a different situation and risk tolerance.

viewtopic.php?f=1&t=194844&p=2974736
printer86
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Re: Pay off mortgage?

Post by printer86 »

With an established EF and fully funded annual tax deferred accounts, pay the thing off and never look back. It's a risk free investment.
NDfan27
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Re: Pay off mortgage?

Post by NDfan27 »

I haven't seen it mentioned here but mortgage interest is deductible in many cases. Correct my math if it's off but could mean you're only paying 1.875% on a 2.5% mortgage if you're in the 25% tax bracket.

You can always pay off your mortgage later but you can't fund previous years for tax deferred accounts. I'd make sure you're doing that first.
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Toons
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Re: Pay off mortgage?

Post by Toons »

My favorite Question on the board/

Yes :happy
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Watty
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Re: Pay off mortgage?

Post by Watty »

Erwin wrote: Is there anything I am missing?
There is a wiki on this.

https://www.bogleheads.org/wiki/Paying_ ... _investing

To me the question could be turned around and you could ask, "I have a paid off house, should I take out a mortgage and invest the money?" There are few situations where most people would be tempted by that but it is just about the same question.

If you are not sure what to do then one option would check with your lender to see if they will "recast your mortgage"(Google this) if you make a large prepayment. They are not required to do this but they often will for a processing fee of a couple of hundred dollars. If they do this and you pay off 50% of the loan then your monthly payment would also be reduced by 50%. The interest rate and length of the loan would stay the same which could be important if interest rates go up and you want to keep the loan for as long as possible.
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Earl Lemongrab
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Re: Pay off mortgage?

Post by Earl Lemongrab »

I don't think that makes any financial sense, especially if your real rate is lower (if you can deduct some or all of of the interest). I would invest the money in a diversified portfolio in the expectation that it will outperform that. There is no guarantee of course, but that's always true of a riskless investment. You can't guarantee that your stock portfolio will outperform CDs either, but you sure hope so.

Now, if it's an emotional thing, then that's fine but it's not a financial question.

Earl
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SmileyFace
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Re: Pay off mortgage?

Post by SmileyFace »

printer86 wrote:With an established EF and fully funded annual tax deferred accounts, pay the thing off and never look back. It's a risk free investment.

This and in addition - if you are planning on funding college expenses fund 529s first (as Klang mentioned - you don't want to lose a 2.5% loan only to turn around and take out a much higher one to finance college costs).

A lot of people always say "Don't pay it off - invest instead". I wonder if those same people are upping their mortgage periodically to capture more leveraged investment opportunities. Oftentimes the answer is no. You can't get a risk-free return anywhere except for banks/CDs and mortgage pay-offs so go for it.
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Re: Pay off mortgage?

Post by Grt2bOutdoors »

Off with it's head!
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ParkersPaPa
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Re: Pay off mortgage?

Post by ParkersPaPa »

Erwin wrote:I have a 15 year 2.5% fixed interest rate mortgage. I have the cash, and I am tempted to pay it off given that I cannot see any safe investment at a higher after tax interest rate. Is there anything I am missing?
Same here. 2.5% APR for 15 years. Three years in and I'm just not motivated to divert other savings (maxed 401k) to prepay.
printer86
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Re: Pay off mortgage?

Post by printer86 »

ParkersPaPa wrote:
Erwin wrote:I have a 15 year 2.5% fixed interest rate mortgage. I have the cash, and I am tempted to pay it off given that I cannot see any safe investment at a higher after tax interest rate. Is there anything I am missing?
Same here. 2.5% APR for 15 years. Three years in and I'm just not motivated to divert other savings (maxed 401k) to prepay.
Are you saying that you have the entire balance of your mortgage in savings, but choose not to payoff your mortgage? Or do you just don't want to throw chunks of additional savings to merely pay it down? I can understand the latter, but not the former.
mx711yam
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Re: Pay off mortgage?

Post by mx711yam »

I paid off the mortgage on my rental house, which enabled me to then quit my job the next week to start a company I have wanted to do for years. Having a paid off mortgage was more important for me psychologically than financially. It offered freedom.
lostdog
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Re: Pay off mortgage?

Post by lostdog »

Pay it off. You'll no longer be a slave to a lender. Welcome to freedom.
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Grt2bOutdoors
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Re: Pay off mortgage?

Post by Grt2bOutdoors »

lostdog wrote:Pay it off. You'll no longer be a slave to a lender. Welcome to freedom.
Yes, instead you'll be a slave to the taxes, you fail to pay them and you'll be slapped with a lien first, next step after that is lien sale, followed by potential foreclosure. :wink:
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protagonist
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Re: Pay off mortgage?

Post by protagonist »

Erwin wrote:I have a 15 year 2.5% fixed interest rate mortgage. I have the cash, and I am tempted to pay it off given that I cannot see any safe investment at a higher after tax interest rate. Is there anything I am missing?
Pay it off.

Maybe it is a good financial move. I think it is, but regardless, you will be a happier person.

And ultimately that is what really matters.

The only reliable investment these days is vintage saxophones. (laughing....)
Bwise1
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Re: Pay off mortgage?

Post by Bwise1 »

Pay it off! Join the club and welcome yourself to a less stressful life... One less thing to worry about.
kathyauburn
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Re: Pay off mortgage?

Post by kathyauburn »

Erwin wrote:I have a 15 year 2.5% fixed interest rate mortgage. I have the cash, and I am tempted to pay it off given that I cannot see any safe investment at a higher after tax interest rate. Is there anything I am missing?
Pay it off! Don't even hesitate. I did this years ago and do not regret it a single day.

No debt = freedom.

Don't listen to any of the BS about "advantages" of carrying a mortgage. All HOGWASH!
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Traveller
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Re: Pay off mortgage?

Post by Traveller »

I paid mine off last July and I have no regrets.

So long as you've already maxed out all tax deferred opportunities and the cash is just sitting in the bank, then by all means pay it off. :beer
Jack FFR1846
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Re: Pay off mortgage?

Post by Jack FFR1846 »

Grt2bOutdoors wrote: Yes, instead you'll be a slave to the taxes, you fail to pay them and you'll be slapped with a lien first, next step after that is lien sale, followed by potential foreclosure. :wink:
I'm confused. What taxes are you talking about? Property taxes? I get quarterly bills myself.....have never had escrow through my mortgage provider, so no change here. More income taxes because I'm not paying mortgage interest? I'm happy to keep the 75% that was interest at the expense of the 25% that was income tax.
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Grt2bOutdoors
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Re: Pay off mortgage?

Post by Grt2bOutdoors »

Jack FFR1846 wrote:
Grt2bOutdoors wrote: Yes, instead you'll be a slave to the taxes, you fail to pay them and you'll be slapped with a lien first, next step after that is lien sale, followed by potential foreclosure. :wink:
I'm confused. What taxes are you talking about? Property taxes? I get quarterly bills myself.....have never had escrow through my mortgage provider, so no change here. More income taxes because I'm not paying mortgage interest? I'm happy to keep the 75% that was interest at the expense of the 25% that was income tax.
Property taxes. There seems to be an artificial sense of relief when the mortgage is gone, however over time taxes will rise, likely above what the mortgage costed. For example, my old neighbor bought his house for $30k, his original taxes were $400. Today, his mortgage of $125 per month is long gone, his monthly property tax bill is $1,250: that is 10x what his original mortgage costed him.
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stickman731
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Re: Pay off mortgage?

Post by stickman731 »

YES YES YES

Pay it off - greatest sense of relief. I paid mine off 4 years ago and exactly 18 months afterwards my company was acquired. New company offered a severance package and now retired at 58. Could not be better not having to worry about a mortgage payment.

Thank you Bogleheads for all your advise and guidance over the years. :sharebeer
Loandapper
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Re: Pay off mortgage?

Post by Loandapper »

Grt2bOutdoors wrote:
Jack FFR1846 wrote:
Grt2bOutdoors wrote: Yes, instead you'll be a slave to the taxes, you fail to pay them and you'll be slapped with a lien first, next step after that is lien sale, followed by potential foreclosure. :wink:
I'm confused. What taxes are you talking about? Property taxes? I get quarterly bills myself.....have never had escrow through my mortgage provider, so no change here. More income taxes because I'm not paying mortgage interest? I'm happy to keep the 75% that was interest at the expense of the 25% that was income tax.
Property taxes. There seems to be an artificial sense of relief when the mortgage is gone, however over time taxes will rise, likely above what the mortgage costed. For example, my old neighbor bought his house for $30k, his original taxes were $400. Today, his mortgage of $125 per month is long gone, his monthly property tax bill is $1,250: that is 10x what his original mortgage costed him.
Over what time period? 40 years?
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knpstr
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Re: Pay off mortgage?

Post by knpstr »

mx711yam wrote:I paid off the mortgage on my rental house, which enabled me to then quit my job the next week to start a company I have wanted to do for years. Having a paid off mortgage was more important for me psychologically than financially. It offered freedom.
That seems like it was pretty important financially as well if it allowed for more cash flow to be financially independent?

I hope to have 2 rentals (SFH and 6-plex) AND my home paid off within ~5 years at age 37 - (barring any huge repairs, I have reserves but would have to divert pay down funds to rebuilding reserves if/when that happens)
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius
Jack FFR1846
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Re: Pay off mortgage?

Post by Jack FFR1846 »

Grt2bOutdoors wrote: Property taxes. There seems to be an artificial sense of relief when the mortgage is gone, however over time taxes will rise, likely above what the mortgage costed. For example, my old neighbor bought his house for $30k, his original taxes were $400. Today, his mortgage of $125 per month is long gone, his monthly property tax bill is $1,250: that is 10x what his original mortgage costed him.

Ah, ok. But if the taxes are paid separately, just as credit card bills, water bills, electricity....I don't see where this would be tied with the mortgage. It's not like the taxes jump from $125 one month to $1250 just because the mortgage is paid. Perhaps someone who has all the "crap" paid as one bill to the bank (P&I+prop tax+insurance), they might forget that only P&I are gone. This is more of a behavior problem than a mathematical problem, I think, where someone doesn't understand how to pay his bills.
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knpstr
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Re: Pay off mortgage?

Post by knpstr »

Grt2bOutdoors wrote:Property taxes. There seems to be an artificial sense of relief when the mortgage is gone, however over time taxes will rise, likely above what the mortgage costed. For example, my old neighbor bought his house for $30k, his original taxes were $400. Today, his mortgage of $125 per month is long gone, his monthly property tax bill is $1,250: that is 10x what his original mortgage costed him.
But who wants to pay that tax AND a mortgage?
Pretty sure they'll have utilities and insurance to pay as well among many "upkeep" expenses, no one is saying that they are living for free without a mortgage (I don't think).

There are many recurring expenses in life some can be eliminated, some cannot.
A mortgage is one that can be eliminated, eliminate it.
:beer
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Grt2bOutdoors
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Re: Pay off mortgage?

Post by Grt2bOutdoors »

Jack FFR1846 wrote:
Grt2bOutdoors wrote: Property taxes. There seems to be an artificial sense of relief when the mortgage is gone, however over time taxes will rise, likely above what the mortgage costed. For example, my old neighbor bought his house for $30k, his original taxes were $400. Today, his mortgage of $125 per month is long gone, his monthly property tax bill is $1,250: that is 10x what his original mortgage costed him.

Ah, ok. But if the taxes are paid separately, just as credit card bills, water bills, electricity....I don't see where this would be tied with the mortgage. It's not like the taxes jump from $125 one month to $1250 just because the mortgage is paid. Perhaps someone who has all the "crap" paid as one bill to the bank (P&I+prop tax+insurance), they might forget that only P&I are gone. This is more of a behavior problem than a mathematical problem, I think, where someone doesn't understand how to pay his bills.
My mortgage is paid as one bill, the lender insists upon it. Isn't 90% of personal finance related to behavior? :wink: LBYM is difficult because of the behavioral deficiencies imbedded in 90% of America - the I want it now society.
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Grt2bOutdoors
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Re: Pay off mortgage?

Post by Grt2bOutdoors »

knpstr wrote:
Grt2bOutdoors wrote:Property taxes. There seems to be an artificial sense of relief when the mortgage is gone, however over time taxes will rise, likely above what the mortgage costed. For example, my old neighbor bought his house for $30k, his original taxes were $400. Today, his mortgage of $125 per month is long gone, his monthly property tax bill is $1,250: that is 10x what his original mortgage costed him.
But who wants to pay that tax AND a mortgage?
Pretty sure they'll have utilities and insurance to pay as well among many "upkeep" expenses, no one is saying that they are living for free without a mortgage (I don't think).

There are many recurring expenses in life some can be eliminated, some cannot.
A mortgage is one that can be eliminated, eliminate it.
:beer
I don't disagree with you, getting rid of it is a good goal to have in life. It's better if you can get rid of it before the original term expires. It can reduce the level of stress.
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desiderium
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Re: Pay off mortgage?

Post by desiderium »

Erwin, I am doing this myself for the same reasons.

My only concern when people become infused with the energy of being Mortgage-free is whether they have enough liquidity (assets in a taxable investment account) to deal with unexpected personal adversity. The mortgage payoff won't be accessible at such a great rate if you need it.

You can also take a gradual approach, pay off a third now and see how it feels in 6 months.
wickywack
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Re: Pay off mortgage?

Post by wickywack »

Erwin wrote:I have a 15 year 2.5% fixed interest rate mortgage. I have the cash, and I am tempted to pay it off given that I cannot see any safe investment at a higher after tax interest rate. Is there anything I am missing?
There is another thread right now on a 3.01% 7 year CD from Andrews Federal Credit Union. Does that qualify as a safe investment at a higher rate?
mortfree
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Re: Pay off mortgage?

Post by mortfree »

desiderium wrote:Erwin, I am doing this myself for the same reasons.

My only concern when people become infused with the energy of being Mortgage-free is whether they have enough liquidity (assets in a taxable investment account) to deal with unexpected personal adversity. The mortgage payoff won't be accessible at such a great rate if you need it.

You can also take a gradual approach, pay off a third now and see how it feels in 6 months.
This is exactly what I went through over a few years and then I finally paid off my mortgage earlier this year (just under 10 years from original purchase date). So I've been through it.

I am amazed at how quickly everyone tells the OP to pay off the mortgage just b/c he says he has enough cash to do so. Are we talking a 200k mortgage or a 50k mortgage? how much cash is left over after the payoff? Is the P&I $1000/month, $2000/month, less? How much is he really losing to interest - $100/month, $500/month? Depending on those details, he could be setting himself up for a potential financial disaster spending all that cash OR everything could be perfectly fine afterwards.

when he said am I missing anything - who knows if he thought this through other than "I didn't lose money in the market and I won't have to pay P&I any more". I am hoping we get those details... also wondering if the long time member is just doing this for fun since they haven't come back... end rant - sorry.
protagonist
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Re: Pay off mortgage?

Post by protagonist »

mortfree wrote: Depending on those details, he could be setting himself up for a potential financial disaster spending all that cash OR everything could be perfectly fine afterwards.

How can he be setting himself up for financial disaster if he has that equity in his home? In the rare case that he was "desperate" he could always take out a line of credit.

Pay it off.

I have never met anybody who regretted being debt-free.
mortfree
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Re: Pay off mortgage?

Post by mortfree »

protagonist wrote:
mortfree wrote: Depending on those details, he could be setting himself up for a potential financial disaster spending all that cash OR everything could be perfectly fine afterwards.

How can he be setting himself up for financial disaster if he has that equity in his home? In the rare case that he was "desperate" he could always take out a line of credit.

Pay it off.

I have never met anybody who regretted being debt-free.
not always. lose your job and you have no income... might not be able to get the HELOC??

still nothing from the OP?
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bertilak
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Re: Pay off mortgage?

Post by bertilak »

mortfree wrote:not always. lose your job and you have no income... might not be able to get the HELOC??
But at least you won't have to come up with mortgage payments.
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mortfree
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Re: Pay off mortgage?

Post by mortfree »

bertilak wrote:
mortfree wrote:not always. lose your job and you have no income... might not be able to get the HELOC??
But at least you won't have to come up with mortgage payments.
he'd still have the pile of cash to draw from...

So then you pay everything with a 12% credit card. (no thanks)

bowing out of this one till OP gives details. otherwise this is one of those "porn" threads where there is no right answer.
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Earl Lemongrab
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Re: Pay off mortgage?

Post by Earl Lemongrab »

kathyauburn wrote:Don't listen to any of the BS about "advantages" of carrying a mortgage. All HOGWASH!
Sorry, but I will object to this. It's fine if you disagree, but name-calling and insulting others is not appropriate.

Earl
lostdog
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Re: Pay off mortgage?

Post by lostdog »

Grt2bOutdoors wrote:
lostdog wrote:Pay it off. You'll no longer be a slave to a lender. Welcome to freedom.
Yes, instead you'll be a slave to the taxes, you fail to pay them and you'll be slapped with a lien first, next step after that is lien sale, followed by potential foreclosure. :wink:
You're right but I'll still pay it off and reduce my slavery a bit.

Thanks
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saladdin
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Re: Pay off mortgage?

Post by saladdin »

lostdog wrote:Pay it off. You'll no longer be a slave to a lender. Welcome to freedom.
Ok, let's not get dramatic. The "lender" is still alive in property taxes, insurance, up-keep etc....
Not having a mortgage doesn't make one "free". There are plenty of debts that still need to be paid.
lostdog
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Re: Pay off mortgage?

Post by lostdog »

saladdin wrote:
lostdog wrote:Pay it off. You'll no longer be a slave to a lender. Welcome to freedom.
Ok, let's not get dramatic. The "lender" is still alive in property taxes, insurance, up-keep etc....
Not having a mortgage doesn't make one "free". There are plenty of debts that still need to be paid.

You're right but I'll still pay it off and reduce my slavery a bit.

Thanks
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timboktoo
Posts: 840
Joined: Sun Mar 31, 2013 3:42 pm

Re: Pay off mortgage?

Post by timboktoo »

If you've already maxed out all tax-advantaged accounts and you're on track to hit your retirement goals and you don't have any other debt and you'd prefer to not have that mortgage then sure. I paid mine off a few months ago and don't regret it.

That said, the honeymoon feeling of paying off a mortgage eventually wore off for me and now I don't really think about it anymore. I think instead about the next financial obstacle. There's always a new thing to be anxious about, it seems, no matter how wealthy I become.

- Tim
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jimb_fromATL
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Joined: Sun Nov 10, 2013 12:00 pm
Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: Pay off mortgage?

Post by jimb_fromATL »

saladdin wrote:
lostdog wrote:Pay it off. You'll no longer be a slave to a lender. Welcome to freedom.
Ok, let's not get dramatic. The "lender" is still alive in property taxes, insurance, up-keep etc....
Not having a mortgage doesn't make one "free". There are plenty of debts that still need to be paid.
When you have the cash to pay it off, you're not a "slave" to the lender. Instead, you're taking advantage of the lender's money instead of using your own to pay for a place to live, while improving your own net worth. You're reducing the debt on the mortgage and getting a leveraged gain on any appreciation on the full value of the house without have the full value in your own money tied up in it.

The property taxes, insurance, up-keep etc. are not debts. They're pay-as-you go costs to have a place to live. Unless you're living under a bridge or perhaps in your mom's basement for free, you're going to be paying for someplace to live whether you have a mortgage or not.

If you're renting a place to live, then you're the OPM of Other Peoples' Money fame who are providing the OPM to pay for the property, including any mortgage, taxes, insurance, maintenance and repairs, while the landlord gets the tax breaks, reduction of any mortgage debt, and any appreciation in value of the property.

Among other ways to look at paying off a mortgage with a lump sum, you could consider it an investment in an immediate annuity that guarantees to give you a series of payments with a guaranteed rate that would give you the pre-tax amount of income that you'd need to make the payments that were remaining.

Just make sure that you still have plenty of cash on hand for emergencies so you can pay the taxes, insurance, maintenance and repairs etc, because the investment is somewhat like a bond or CD that you cannot cash out at all unless you either sell the home or borrow against it.

After locking in the guaranteed return at somewhat higher than the mortgage rate, you can then dollar-cost-average the freed up payments. You can afford to invest more aggressively because you have already locked in the minimum savings at the mortgage rate plus tax. And you can ride out the market's ups and downs a lot more easily if you don't have to worry about making a mortgage payment every month.

Not only that, but if you see the market drop badly, you can stop investing your freed-up payment. On the other hand, mortgage lenders in general are notoriously grumpy about borrowers who stop making payments, no matter what the market is doing.

jimb
Last edited by jimb_fromATL on Thu Dec 01, 2016 5:48 pm, edited 1 time in total.
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Meg77
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Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX

Re: Pay off mortgage?

Post by Meg77 »

OK I am all for having a paid off home, but I may be in the minority here on this particular question. Your interest rate is so low that I would be tempted to invest in muni bonds for a higher tax free rate of return compared to your tax effective mortgage rate. Even if your tax bracket is low or you don't benefit from the mortgage interest deduction because you don't itemize, there are munis paying over 3% right now which would be a higher after tax rate than you'd get by paying off the mortgage.

It's not guaranteed of course - bonds do go bad - but you also get the added benefit of maintaining liquidity. Interest rates have been ticking up, and it's widely expected that the Fed will raise interest rates later this month. In pretty short order you could have money market funds and savings accounts paying more than 2.5% again!

In short, I might be tempted to construct a muni bond ladder and use the income from that to pay your mortgage. As rates tick up over time you'll have even more income from the bonds than you need to pay the mortgage, which you can reinvest. But then again, the spread (for now) you'd make is small, and the much simpler solution is to wipe out the mortgage immediately instead. Then you can invest slowly - in munis or anything else - with the cash flow you'll be saving.

Good choices to have in any case! :sharebeer
"An investment in knowledge pays the best interest." - Benjamin Franklin
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