Pay off mortgage or keep cd

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frisbeeaddict
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Joined: Tue May 22, 2018 7:53 am

Pay off mortgage or keep cd

Post by frisbeeaddict » Tue Jun 12, 2018 2:06 pm

Maybe a no brainer, though wanted to get opinions... we owe just over 100k on home mortgage at ~3% fixed rate. We have that much in no penalty cd that is earning 2%. Any reason to keep cd vs paying off mortgage, esp now considering we will not be itemizing mortgage interest deduction any longer...

Goal33
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Re: Pay off mortgage or keep cd

Post by Goal33 » Tue Jun 12, 2018 2:07 pm

The only reason to not pay it off is to maintain liquidity, at a cost that you can calculate.
A man with one watch always knows what time it is; a man with two watches is never sure.

soccerrules
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Re: Pay off mortgage or keep cd

Post by soccerrules » Tue Jun 12, 2018 2:24 pm

3% is not a bad mortgage rate.
What percentage of your portfolio does the $100K (in the CD) represent ?
Why isn't the $100K in the market ?
How close are you to retiring ?
Are you going to stay where you are for the next 5, 10, 20 years ?
Do you have any other debt?
Do you want to be debt free and feel this will help you sleep at night ?

Hard to really give a good opinion without knowing more about your full financial picture/plan.

I have $80K left on my mortgage. I want to be debt free (and will be in 5 years paying out as is, before FIRE). My current viewpoint is to leave the "pay-off $" in my taxable account in the market and risk that the market will return better than my 4.15% rate. I do not really need the monthly cash flow by eliminating the payment, so I will leave it for now. As the balance drops, there will probably be a tipping point where I will just probably pay it off.
Don't let your outflow exceed your income or your upkeep will be your downfall.

euroswiss
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Re: Pay off mortgage or keep cd

Post by euroswiss » Tue Jun 12, 2018 3:23 pm

duplicate post - sorry
Last edited by euroswiss on Wed Jun 13, 2018 8:10 am, edited 1 time in total.

euroswiss
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Re: Pay off mortgage or keep cd

Post by euroswiss » Tue Jun 12, 2018 3:24 pm

The new tax law (limit of itemized deductions) may also influence this decision.
As previous poster mentioned, based on the limited info we have, liquidity may be a main concern when paying off. However, it should be easy to get a HELOC once you are all paid off so that will increase your flexibility again. I would pay it off.

delamer
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Re: Pay off mortgage or keep cd

Post by delamer » Tue Jun 12, 2018 3:32 pm

soccerrules wrote:
Tue Jun 12, 2018 2:24 pm
3% is not a bad mortgage rate.
What percentage of your portfolio does the $100K (in the CD) represent ?
Why isn't the $100K in the market ?
How close are you to retiring ?
Are you going to stay where you are for the next 5, 10, 20 years ?
Do you have any other debt?
Do you want to be debt free and feel this will help you sleep at night ?

Hard to really give a good opinion without knowing more about your full financial picture/plan.

I have $80K left on my mortgage. I want to be debt free (and will be in 5 years paying out as is, before FIRE). My current viewpoint is to leave the "pay-off $" in my taxable account in the market and risk that the market will return better than my 4.15% rate. I do not really need the monthly cash flow by eliminating the payment, so I will leave it for now. As the balance drops, there will probably be a tipping point where I will just probably pay it off.

Agreed. This decision needs to be made in the context of your whole financial picture.

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grabiner
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Re: Pay off mortgage or keep cd

Post by grabiner » Tue Jun 12, 2018 7:58 pm

frisbeeaddict wrote:
Tue Jun 12, 2018 2:06 pm
Maybe a no brainer, though wanted to get opinions... we owe just over 100k on home mortgage at ~3% fixed rate. We have that much in no penalty cd that is earning 2%. Any reason to keep cd vs paying off mortgage, esp now considering we will not be itemizing mortgage interest deduction any longer...
Taxes, duration, and liquidity.

If you can deduct that mortgage interest at 24%, paying off the mortgage gives a 2.28% return rather than a 3% return. If it is only partly deductible, the return will be somewhat between the two.

Paying off the mortgage gives you a guaranteed return every month for the rest of the mortgage term. Therefore, it is equivalent to buying a bond or CD portfolio with a duration equal to about half the mortgage term. If you have 10 years left on that mortgage, you are buying a 5-year bond portfolio with a yield of 2.28% or 3% after tax. Compare that to the CD, which has a duration equal to its time to maturity.

Finally, do you need the liquidity? What will happen if you pay off the mortgage, and then you lose your job or your home needs a new roof? It is worth paying a bit extra to have funds which can be accessed penalty-free if needed.
Wiki David Grabiner

frisbeeaddict
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Re: Pay off mortgage or keep cd

Post by frisbeeaddict » Wed Jun 13, 2018 9:56 am

I'm assuming that since we are most likely going to take standard deduction next year, which will negate possible mortgage interest deduction, we will have no tax benefit(deduction?) to keeping mortgage?

We have plenty of liquidity, so perhaps I'm asking more from a technical point of view if there are still tax benefits etc of keeping a mortgage that I'm not aware of.

Curious, why do you compare return of half of the mortgage term vs entire term in comparison with CD.

Thank you

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