Should we pay off our mortgage?

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Topic Author
spartanap
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Should we pay off our mortgage?

Post by spartanap »

After itemizing our taxes for many, many years, for the past two years we have taken the standard deduction. Considering this, plus the increase in the standard deduction starting this year, should we consider paying off our mortgage and investing the monthly payments?

Here are the particulars: We owe $153,000 on the house at 3.25% on a 5 yr balloon loan with 18 mos remaining on the balloon. We have $154,000 sitting in an Ally savings account. It is the proceeds from the sale of a previous home and we plan to use it to help pay for our retirement home. I plan to retire in 2.5 years. We will sell the house and move to another city. Our current house is valued at $215,000 and the payment is $720/mo.

My thinking is that since we can't get the benefit of deducting our mortgage interest, why not invest the $720/mo instead?

Thoughts?
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Watty
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Re: Should we pay off our mortgage?

Post by Watty »

spartanap wrote: Fri Jan 26, 2018 11:17 pm I plan to retire in 2.5 years. We will sell the house and move to another city.
If those plans are pretty firm then paying off the mortgage is an easy choice since it is a risk free investment that will be getting 3.25%
JBTX
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Re: Should we pay off our mortgage?

Post by JBTX »

spartanap wrote: Fri Jan 26, 2018 11:17 pm After itemizing our taxes for many, many years, for the past two years we have taken the standard deduction. Considering this, plus the increase in the standard deduction starting this year, should we consider paying off our mortgage and investing the monthly payments?

Here are the particulars: We owe $153,000 on the house at 3.25% on a 5 yr balloon loan with 18 mos remaining on the balloon. We have $154,000 sitting in an Ally savings account. It is the proceeds from the sale of a previous home and we plan to use it to help pay for our retirement home. I plan to retire in 2.5 years. We will sell the house and move to another city. Our current house is valued at $215,000 and the payment is $720/mo.

My thinking is that since we can't get the benefit of deducting our mortgage interest, why not invest the $720/mo instead?

Thoughts?
I would say yes, assuming you otherwise have sufficient emergency fund and ample liquidity.
mortfree
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Re: Should we pay off our mortgage?

Post by mortfree »

spartanap wrote: Fri Jan 26, 2018 11:17 pm I plan to retire in 2.5 years. We will sell the house and move to another city.
If you need to have cash on hand for the next house I would not pay off this house as all your cash would be tied up.

You would probably need to have a contingency to sell your house first and that can be a pain. Or you would have to take out a HELOC prior to putting your house up for sale.

I don’t see the point given the 2.5 year timeframe.
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grabiner
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Re: Should we pay off our mortgage?

Post by grabiner »

Watty wrote: Fri Jan 26, 2018 11:28 pm
spartanap wrote: Fri Jan 26, 2018 11:17 pm I plan to retire in 2.5 years. We will sell the house and move to another city.
If those plans are pretty firm then paying off the mortgage is an easy choice since it is a risk free investment that will be getting 3.25%
And it's a 30-month investment, so it is as good as buying a 30-month CD yielding 3.25%. (However, you may need a bridge loan when you buy your next home if you haven't sold the old one first.)
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Re: Should we pay off our mortgage?

Post by Cycle »

Bird in the hand, 3.25%. I would eliminate the debt.
Never look back unless you are planning to go that way
TallBoy29er
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Re: Should we pay off our mortgage?

Post by TallBoy29er »

grabiner wrote: Sat Jan 27, 2018 10:13 pm
Watty wrote: Fri Jan 26, 2018 11:28 pm
spartanap wrote: Fri Jan 26, 2018 11:17 pm I plan to retire in 2.5 years. We will sell the house and move to another city.
If those plans are pretty firm then paying off the mortgage is an easy choice since it is a risk free investment that will be getting 3.25%
And it's a 30-month investment, so it is as good as buying a 30-month CD yielding 3.25%. (However, you may need a bridge loan when you buy your next home if you haven't sold the old one first.)
Fully agree w/ grabiner.
Vikings_Fan
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Re: Should we pay off our mortgage?

Post by Vikings_Fan »

I don't think there is ever a bad time to pay off your mortgage. Is there a better feeling then going to sleep knowing you owe nothing?

The best piece of advise I got on this subject was never make a large payment without paying your mortgage in full. In other words, if you had 50k in saving and you owe 150k on your house, don't pay down 50k. The reason is your monthly payment will not change. If you run into hard times, you could lose your house and the equity in it. Save up and pay your house in full.
RangerHD
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Re: Should we pay off our mortgage?

Post by RangerHD »

I am in the same situation somewhat....my mortgage doesn't mature for 10 years. It is at 2.875% and with the new large standard deduction, the mortgage interest deduction does nothing for me anymore. Only difference here is I plan to live here forever and I have an apartment building that will help purchase my retirement/vacation home in a warm winter climate some day. But I have the cash to pay the mortgage off and then investing the "payment" into after tax accounts. I did this one other time in 2012 and paid off my mortgage on my old house. I didn't have a plan with the newfound "extra cash" and I crept up my lifestyle. If I do this again, the same month or day it is paid off I will have Vanguard or some institution automatically grabbing that "mortgage payment" each time we get paid in order to decrease me being seduced by that new tractor, ATV, or whatever big boy toy is out there for us country boys.....
Last edited by RangerHD on Sun Jan 28, 2018 7:39 pm, edited 1 time in total.
Topic Author
spartanap
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Re: Should we pay off our mortgage?

Post by spartanap »

Thanks for the replies. After submitting this, I remembered that in December, I put the 150K into an Ally 12 mo CD at 2.00%! So I probably won't be doing anything until the end of December. For those of you in favor of paying it off, does a year less make any difference to your feelings?
coachd50
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Re: Should we pay off our mortgage?

Post by coachd50 »

Vikings_Fan wrote: Sun Jan 28, 2018 12:06 am I don't think there is ever a bad time to pay off your mortgage. Is there a better feeling then going to sleep knowing you owe nothing?

The best piece of advise I got on this subject was never make a large payment without paying your mortgage in full. In other words, if you had 50k in saving and you owe 150k on your house, don't pay down 50k. The reason is your monthly payment will not change. If you run into hard times, you could lose your house and the equity in it. Save up and pay your house in full.
Just to clarify, you would not necessarily lose the equity in your home if for some reason you run into hard times and have to sell. If you owed 150k, payed 50k (now you owe 100k) and something happened...you sold for 200K...the bank doesn't get to keep that. They only keep what is owed to them.
aristotelian
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Re: Should we pay off our mortgage?

Post by aristotelian »

So after the CD matures, you have about a year and a half until you move. How much of your liquid funds would this use up? Do you have a taxable brokerage account aside from the savings account?

I would think you might want to keep at least enough liquidity to make the downpayment on your new house.

The much bigger question is how much mortgage do you want in retirement.
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Hyperborea
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Re: Should we pay off our mortgage?

Post by Hyperborea »

coachd50 wrote: Sun Jan 28, 2018 7:53 pm
Vikings_Fan wrote: Sun Jan 28, 2018 12:06 am I don't think there is ever a bad time to pay off your mortgage. Is there a better feeling then going to sleep knowing you owe nothing?

The best piece of advise I got on this subject was never make a large payment without paying your mortgage in full. In other words, if you had 50k in saving and you owe 150k on your house, don't pay down 50k. The reason is your monthly payment will not change. If you run into hard times, you could lose your house and the equity in it. Save up and pay your house in full.
Just to clarify, you would not necessarily lose the equity in your home if for some reason you run into hard times and have to sell. If you owed 150k, payed 50k (now you owe 100k) and something happened...you sold for 200K...the bank doesn't get to keep that. They only keep what is owed to them.
That's true but do you think that people will pay top dollar for a foreclosure and that the bank will bargain hard to get any more than is owed to them? Really? Then I've got a bridge to sell to you!

For the OP, I would keep you cash at hand given the short time that you have left in the current house. The cash will give you the option to buy as you want in the new location rather than having to add contingencies on the sale of your existing home. Or get a bridge loan until the sale. The tiny amount of any potential gain over 18 months is swamped by those factors.
It’s hard to win an argument with a smart person, it's damn near impossible to win an argument with a stupid person. - Bill Murray
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