pay off mortage?

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wrichards58
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pay off mortage?

Post by wrichards58 »

our mortgage is at 4.87% AT 682.00 then an extra 250 so we pay around 932. a month. we owe 122,000 we have an extra 150,000 so do we pay off the mortgage ..we are already maxing out our 403b and ira. thanks............ we have 20 years left on the house .. we want to retire in three years..
travellight
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Re: pay off mortage?

Post by travellight »

If you have adequate emergency funds and have nothing else you want to do with the money, you can figure out a payment schedule that will get it paid off in 3 years and just pay that amount extra. I would want to be mortgage free when I retire.
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mhc
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Re: pay off mortage?

Post by mhc »

OP,

I would either pay off the mortgage immediately or refinance. Your interest rate seems way too high.
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greg24
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Re: pay off mortage?

Post by greg24 »

I would pay it off.
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FNK
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Re: pay off mortage?

Post by FNK »

Do you have a way to invest that would pay a guaranteed 4.87? No? Then pay it off right away.
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wrichards58
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Re: pay off mortage?

Post by wrichards58 »

FNK wrote:Do you have a way to invest that would pay a guaranteed 4.87? No? Then pay it off right away.
I wish I could say that I did.........one person said to pay half off and invest the rest.....
Default User BR
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Re: pay off mortage?

Post by Default User BR »

I would refinance to a new lower rate. Long-term low-rate mortgages are good hedges against inflation and rising interest rates, something that works for retirees as well as anyone else.


Brian
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FabLab
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Re: pay off mortage?

Post by FabLab »

Default User BR wrote:I would refinance to a new lower rate. Long-term low-rate mortgages are good hedges against inflation and rising interest rates, something that works for retirees as well as anyone else.


Brian
That's what I'd do as well.
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Aptenodytes
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Re: pay off mortage?

Post by Aptenodytes »

Your extra 150k would shrink a lot if you paid it off. is that your emergency fund? if so probably too big now and too small after. i would probably refinance to a 15 year term but you do not give enough details for fully considered response.
NYBoglehead
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Re: pay off mortage?

Post by NYBoglehead »

I'd pay it off and be done with it. You'd still have 28k of your the extra funds you are sitting on, plus you'd free up the 932/mo that you are currently paying on the mortgage.
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wrichards58
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Re: pay off mortage?

Post by wrichards58 »

Aptenodytes wrote:Your extra 150k would shrink a lot if you paid it off. is that your emergency fund? if so probably too big now and too small after. i would probably refinance to a 15 year term but you do not give enough details for fully considered response.
what more details do I need to give
NYBoglehead
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Re: pay off mortage?

Post by NYBoglehead »

I don't think more info is needed. You say you have an extra 150k, and only need 122k to pay off the mortgage. That leaves 28k left over and you'd be done with a mortgage. To the posters that say the emergency fund might not be sufficient after this is done, keep in mind that the absence of the mortgage payments also lowers his monthly expenses.

If I were in your shoes I'd pay it off and be done with it, and start putting that 932/mo into retirement accounts and taxable investing after those are maxed out.
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Toons
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Re: pay off mortage?

Post by Toons »

Pay it off.Be done with it. You won't regret it :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
sunspotzsz
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Re: pay off mortage?

Post by sunspotzsz »

If I were you, I would pay it off and then apply the 1.99% HEL from penfed.
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usorry
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Re: pay off mortage?

Post by usorry »

I'd refi in the 5/5 ARM and create a pay down plan for the next 3 years while investing the rest of the free cash in safer areas. 2.75 is cheap money.

The real question is if you think you can do better than 3.5 earnings rate. If so, it doesn't make sense to pay it off now.
Default User BR
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Re: pay off mortage?

Post by Default User BR »

sunspotzsz wrote:If I were you, I would pay it off and then apply the 1.99% HEL from penfed.
That's a decent idea. I'm doing that (or trying to), but then my balance was so low that I couldn't do a conventional refinance at any advantageous rate.


Brian
twinsdad
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Re: pay off mortage?

Post by twinsdad »

Not enough info. Need to know how much other investments you have. If you plan to retire in 3 years and have a great pension, I would pay it off and live comfortable on the pension income. If you have more than 2-3 million saved for retirement, same, pay it off. If you have less than one million saved for retirement, you won't last 30-40 years unless you are willing to pinch pennies or risk improving the 150k in the market. So if I were you and had less than 1 million saved with only 3 years to retire, I would pay minimal mortgage and try to invest the 150k or use it to defer taking $ out of retirement accounts so they have time to build.
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Aptenodytes
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Re: pay off mortage?

Post by Aptenodytes »

wrichards58 wrote:
Aptenodytes wrote:Your extra 150k would shrink a lot if you paid it off. is that your emergency fund? if so probably too big now and too small after. i would probably refinance to a 15 year term but you do not give enough details for fully considered response.
what more details do I need to give
Twinsdad is asking the kinds of questions i have in mind. the word "extra" raises red flags because i do not understand it. where did the money come from? Why wasn't it invested? What is your aa?
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Jay69
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Re: pay off mortage?

Post by Jay69 »

Hell pay it off. One less check to write/bill to pay every month, that alone I like. Looks to me you have enough cash, with 3 years out to retirement I see no reason to drag it out if you have the cash.

I'm in the camp to pay off the mortgage and keep life simple.
"Out of clutter, find simplicity” Albert Einstein
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Aptenodytes
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Re: pay off mortage?

Post by Aptenodytes »

Jay69 wrote:Hell pay it off. One less check to write/bill to pay every month, that alone I like. Looks to me you have enough cash, with 3 years out to retirement I see no reason to drag it out if you have the cash.

I'm in the camp to pay off the mortgage and keep life simple.
I see both sides of this. "keep it simple" argues in favor of paying it off. But "stay the course" also rears its head, and raises unanswered questions -- what is the investment plan? What's the AA? Sometimes the lure of an attractive, but artificial, milestone such as paying off the mortgage needs to be resisted in favor of sticking with the plan. Or devising a plan. In his last days my father paid of his mortgage on a well-intentioned impulse -- it left his widow with a big liquidity problem.

Nobody will give you a hard time whatever you do -- a few of us are just saying be sure to pay attention to the "stay the course" siren as well as the "keep it simple" siren. They go together.
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touchdowntodd
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Re: pay off mortage?

Post by touchdowntodd »

personally, i would pay it off ...

but im of the school of no debt > than a little more in investments ..

im in the process of trying to pay my house off myself .. im 3 yrs and 10 months away from completing this on my current schedule, but i am saving on the side to push to have it paid off in 2 yrs and 2 months ..

im 35 now .. and have no intentions upon moving.. niether does the wife .. we are simple people and love where we are :beer

PAY IT OFF .. sleep better at night .. and the others are right that 28k then becomes a 2-3 yr Efund :)
tryin to do this right... thanks guys
Default User BR
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Re: pay off mortage?

Post by Default User BR »

Jay69 wrote:Hell pay it off. One less check to write/bill to pay every month, that alone I like.
If you really find that monthly action so onerous, you can always set up an automatic payment.


Brian
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Re: pay off mortage?

Post by NYBoglehead »

Default User BR wrote:
Jay69 wrote:Hell pay it off. One less check to write/bill to pay every month, that alone I like.
If you really find that monthly action so onerous, you can always set up an automatic payment.


Brian
It's not the monthly action is so onerous, but it's another monthly payment. The OP has the cash to pay off the mortgage. If he invests it, it can very well lose half its value. The bank cannot add mortgage payments once you've paid it off. Paying it off doesn't even drain the OP's cash reserves.
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auntie
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Re: pay off mortage?

Post by auntie »

I would pay it off unless the smaller amount of emergency fund remaining made me nervous. If it did, I'd pay off as much as I was comfortable with and pay off the rest as soon as I reasonably could. But I'm one of those debt hating people. I even feel uncomfortable about my 0% credit card account.
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Default User BR
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Re: pay off mortage?

Post by Default User BR »

NYBoglehead wrote:It's not the monthly action is so onerous, but it's another monthly payment.
So? Who cares how many payments in a month that they have?
NYBoglehead wrote:The OP has the cash to pay off the mortgage.
That doesn't make a good financial decision to do so.
NYBoglehead wrote: If he invests it, it can very well lose half its value.
It could, if one invested in a risky manner. I would recommend that the OP refinance to a nice new low rate before retirement. That provides a nice hedge for the future.
NYBoglehead wrote:The bank cannot add mortgage payments once you've paid it off. Paying it off doesn't even drain the OP's cash reserves.
It does, however, tremendously affect their liquidity approaching a time where their access to home equity will be severely curtailed. If they pay this off then need money in a few years for some sort of uncovered medical situation, they'll end up pulling it back out at much less favorable circumstances.


Brian
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Re: pay off mortage?

Post by NYBoglehead »

Brian,

The OP has identified this money as "extra." Not entirely sure how each person defines extra, but to me it suggests that this is money looking for a place to go. Extra implies that all tax-advantaged space is maxed out and no other debt exits. Extra also implies that there is a fully funded emergency fund (and the emergency fund could be reduced after eliminating the monthly mortgage expense).

The S&P 500 lost more than half its value from Dec 2007 to Mar 2009. It is likely this will happen again at some point in our lifetimes. Bond funds are perceived to be safe, but the NAVs will take a temporary hit when interest rates rise.

They can redirect the 932/mo that they are currently paying towards the house to rebuild cash savings or taxable investing. I don't think this leaves them vulnerable to an unforseen emergency, especially considering that they will still have 28k left of what has been identified as extra.
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Re: pay off mortage?

Post by allsop »

NYBoglehead wrote:Brian,

The OP has identified this money as "extra." Not entirely sure how each person defines extra, but to me it suggests that this is money looking for a place to go. Extra implies that all tax-advantaged space is maxed out and no other debt exits. Extra also implies that there is a fully funded emergency fund (and the emergency fund could be reduced after eliminating the monthly mortgage expense).
The OP have not given much details and your "implies" are just "I assume".
NYBoglehead
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Re: pay off mortage?

Post by NYBoglehead »

allsop wrote:
NYBoglehead wrote:Brian,

The OP has identified this money as "extra." Not entirely sure how each person defines extra, but to me it suggests that this is money looking for a place to go. Extra implies that all tax-advantaged space is maxed out and no other debt exits. Extra also implies that there is a fully funded emergency fund (and the emergency fund could be reduced after eliminating the monthly mortgage expense).
The OP have not given much details and your "implies" are just "I assume".

I should have used the word assume, you are correct to zing me on that one!
Default User BR
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Re: pay off mortage?

Post by Default User BR »

NYBoglehead wrote:Brian,

The OP has identified this money as "extra." Not entirely sure how each person defines extra, but to me it suggests that this is money looking for a place to go. Extra implies that all tax-advantaged space is maxed out and no other debt exits. Extra also implies that there is a fully funded emergency fund (and the emergency fund could be reduced after eliminating the monthly mortgage expense).
That doesn't mean it needs to be put into an illiquid asset, forgoing a nice opportunity for interest-rate and inflation hedging.


Brian
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Re: pay off mortage?

Post by scone »

Pay it off. Take the 28k that's left over, and add the $932 per month for 36 months. That gives you $28,000+(932*36)= $61,552. If you could park that in an investment giving 5% for 30 years, you would get $266,024.20. Which could pay for some of the stuff Medicare doesn't cover.
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wrichards58
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Re: pay off mortage?

Post by wrichards58 »

OK, this is the deal.... we have a cash UL insurance policy that we are closing, therefore we have 217,000 and have to pay around a total of 9,000 for taxes (as our tax guy says)..It really leaves us with around 208,000. We only have at this time 450,000 in 403b and husband pension will be around 3800 a month and mine 1500, and ss will be at 65 around 2500. We plan to retire in about three years. We are maxing out our 403b and ira. We hope to have around 403b 600,000 in savings in three years..... we do not know if we will sell the house but would like to... our house should sell for about 350,000 and we owe 122,000 on it.... We have another house we can live in that is already paid for..................... It is really around 208,000 we have that we need to invest or take some of the money to pay off the mortgage... My thing is what if we stay in the house... The extra 208,000 invested could make us some good money that we could us in retirement............. I wish we had of saved more but our family situation has not allowed it. So now we have cut back allot and are saving more, we are thinking retirement so in three years our lifestyle will not change much..... any help is welcome thanks
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Re: pay off mortage?

Post by grabiner »

wrichards58 wrote:OK, this is the deal.... we have a cash UL insurance policy that we are closing, therefore we have 217,000 and have to pay around a total of 9,000 for taxes (as our tax guy says)..It really leaves us with around 208,000.

our house should sell for about 350,000 and we owe 122,000 on it.... We have another house we can live in that is already paid for..................... It is really around 208,000 we have that we need to invest or take some of the money to pay off the mortgage... My thing is what if we stay in the house... The extra 208,000 invested could make us some good money that we could us in retirement.............
But you aren't losing the money. If you pay off the $122,000 mortgage, you will have $122,000 less to invest in retirement, but you will also have $122,000 less to make in mortgage principal payments, and you will also get rid of the mortgage interest. This is exactly the same benefit you would get if you put $122,000 in an investment earning a guaranteed 6.82%, and used that amount to make mortgage payments. But since you can't put $122,000 in a risk-free account earning 6.82%, getting rid of the mortgage is a better idea.
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wrichards58
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Re: pay off mortage?

Post by wrichards58 »

Thanks that really makes since plus we are debt free people and not having any debt is a good feeling.
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Re: pay off mortage?

Post by madbrain »

wrichards58 wrote:OK, this is the deal.... we have a cash UL insurance policy that we are closing, therefore we have 217,000 and have to pay around a total of 9,000 for taxes (as our tax guy says)..It really leaves us with around 208,000. We only have at this time 450,000 in 403b and husband pension will be around 3800 a month and mine 1500, and ss will be at 65 around 2500. We plan to retire in about three years. We are maxing out our 403b and ira. We hope to have around 403b 600,000 in savings in three years..... we do not know if we will sell the house but would like to... our house should sell for about 350,000 and we owe 122,000 on it.... We have another house we can live in that is already paid for..................... It is really around 208,000 we have that we need to invest or take some of the money to pay off the mortgage... My thing is what if we stay in the house... The extra 208,000 invested could make us some good money that we could us in retirement............. I wish we had of saved more but our family situation has not allowed it. So now we have cut back allot and are saving more, we are thinking retirement so in three years our lifestyle will not change much..... any help is welcome thanks
IMO it doesn't make a lot of sense to payoff the mortgage if you are selling the house soon. Keep enough liquidity and pay off the loan at closing when it actually sells.
If you are staying in the house for a while on the other hand, then it is good to pay it off especially at this rate. Refinancing may be a better option, though, if that's available.
With your relatively low loan balance though, there may be closing costs involved that would make it unfavorable. Only refi if the lender pays your closing costs.
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Jay69
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Re: pay off mortage?

Post by Jay69 »

wrichards58 wrote:Thanks that really makes since plus we are debt free people and not having any debt is a good feeling.

To me this tips the scale to paying it off, I don't know about you but I prefer a "good feeling".

Again I'm on the no debt side of the debate. Life is to short, I would be willing to give up 1-2% without an issue on the amount you are talking about vs what you have already if it made me feel better.
"Out of clutter, find simplicity” Albert Einstein
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Re: pay off mortage?

Post by JupiterJones »

Jay69 wrote:
wrichards58 wrote:Thanks that really makes since plus we are debt free people and not having any debt is a good feeling.
To me this tips the scale to paying it off, I don't know about you but I prefer a "good feeling".
Yup. You might be able to mathematically crunch the numbers and show that staying in debt is financially advantageous. However that fails to account for the value some people (myself included) get from being debt-free. Like most cases where "value" comes into play, it's totally subjective, but it's still an important part of the equation.

JJ
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SurfCityBill
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Re: pay off mortage?

Post by SurfCityBill »

Pay it off within 3 years. Don't carry a mortgage into retirement.

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PacNorWest
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Re: pay off mortage?

Post by PacNorWest »

We got a tax reduction (after mortgage deduction) of about $500.
But that cost us $6000. in mortgage payments.
To summarize, we were spending $6000. in order to recognize a $500. savings.

Next to a T-bill, our house was the safest place to put the money.
We paid of the mortgage. :sharebeer
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Aptenodytes
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Re: pay off mortage?

Post by Aptenodytes »

PacNorWest wrote:We got a tax reduction (after mortgage deduction) of about $500.
But that cost us $6000. in mortgage payments.
To summarize, we were spending $6000. in order to recognize a $500. savings.

Next to a T-bill, our house was the safest place to put the money.
We paid of the mortgage. :sharebeer
I don't want to second guess your decision, but something doesn't smell right here. $500 is only 8.3% of $6,000, and there's no 8.3% marginal tax rate (and if there were you wouldn't be itemizing). So it sounds like you are counting your total mortgage payment as the "cost" of getting a tax deduction. But you only deduct the interest -- the principal helps pay off the house.

In any event, a mortgage is loan that you incur to permit spreading out your obligations over time. There's no way it could ever make sense as a purchase of a tax deduction, so if that's the test you set up it will always fail no matter the circumstances. If that's how mortgages were evaluated nobody would ever get a mortgage.
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Re: pay off mortage?

Post by PacNorWest »

Aptenodytes wrote:
PacNorWest wrote:We got a tax reduction (after mortgage deduction) of about $500.
But that cost us $6000. in mortgage payments.
To summarize, we were spending $6000. in order to recognize a $500. savings.

Next to a T-bill, our house was the safest place to put the money.
We paid of the mortgage. :sharebeer
I don't want to second guess your decision, but something doesn't smell right here. $500 is only 8.3% of $6,000, and there's no 8.3% marginal tax rate (and if there were you wouldn't be itemizing). So it sounds like you are counting your total mortgage payment as the "cost" of getting a tax deduction. But you only deduct the interest -- the principal helps pay off the house.

In any event, a mortgage is loan that you incur to permit spreading out your obligations over time. There's no way it could ever make sense as a purchase of a tax deduction, so if that's the test you set up it will always fail no matter the circumstances. If that's how mortgages were evaluated nobody would ever get a mortgage.
Nope. Mortgage interest only is what you get to deduct.
And those figures are for generalization only, I don't remember the exact amounts.
Besides, that is for the OP to understand and look at on their own (assuming they haven't already paid it off).

A mortgage makes sense under a few circumstances - you can't pay cash, the real estate market is rising, you are adverse to renting, you absolutely cannot stand living with or near a relative. :?
The interest rate deduction is only a salve.
And yes, fewer people are getting mortgages, but I wouldn't say "nobody" would ever get a mortgage.
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zzcooper123
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Re: pay off mortage?

Post by zzcooper123 »

Most retirees have few deductions...couldn't this made a difference if you itemize?
Austintatious
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Re: pay off mortage?

Post by Austintatious »

Pay it off at the first opportunity, so that your only obligations re the property will be taxes, insurance and upkeep. If you invest the money elsewhere instead of paying off the note, and the market suddenly takes a big dive, presto, you'll have bought high in your investing, plus you've wasted a golden opportunity to be debt free and secure in your home. Pay it off, now, and you have a solid investment "bird in the hand". Then start investing all of your monthly payments in Vanguard index funds. That way, even if the market crashes, you'd be buying low as you invest, plus you own your home free and clear. Not to mention that having no or very low debt obligations tends to make one get up in the morning with a smile on one's face.

Good luck.
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Re: pay off mortage?

Post by rixer »

I would pay it off. Your retirement funds are fully contributed and you'll have an extra $900+ per month. The security you'll have will be worth it and when you retire your money will go so much farther. You're always going to need a place to live and never having another mortgage payment is a comforting thing.
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Re: pay off mortage?

Post by DSInvestor »

PacNorWest wrote:I don't want to second guess your decision, but something doesn't smell right here. $500 is only 8.3% of $6,000, and there's no 8.3% marginal tax rate (and if there were you wouldn't be itemizing). So it sounds like you are counting your total mortgage payment as the "cost" of getting a tax deduction. But you only deduct the interest -- the principal helps pay off the house.
Depends on tax situation and the amount of other deductions. In order to fully deduct all of the mortgage interest, the sum of other deductions must be more than the standard deduction. The tax benefit for itemizing is only for the amount of deductions that exceeds the standard deduction. It's entirely possible that the poster paid $6000 in mortgage interest and after all deductions were added, the amount of itemized deductions was say $2000 higher than the std deduction. That $2000 of extra deductions could save $500 for someone in the 25% tax bracket.
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wrichards58
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Re: pay off mortage?

Post by wrichards58 »

Today payed off the mortgage. We did have to pay extra tax of 5,000 on the taxable money. Not only did we pay off the mortgage but the equity line of credit. We sold our boat, too..........so I have about $80,000 extra left to put somewhere. We have maxed out our 403b and ira.........what to open to put it into. hope for a response. thanks
NYBoglehead
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Re: pay off mortage?

Post by NYBoglehead »

Congrats on paying off the mortgage. Excellent choice. With the extra 80k I'd set aside 11k for your Roth IRAs in 2013 (5500/each) and with the remaining 69k I'd set up some automatic investment plan into a taxable account. Also have a little fun with it!
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wrichards58
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Re: pay off mortage?

Post by wrichards58 »

we have already maxed out our ira and 403b. what is an auto investment plan
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FNK
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Re: pay off mortage?

Post by FNK »

Just open a regular account with Vanguard and invest there.

List your portfolio as described here if you want advice about what to invest in.
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