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2) If my house interest rate is 7%, I can pay it down "risk free" or I can invest it somewhere. If I feel I can't get a better return than this...which is somewhat doubtful when considering market risk...then I'd probably be better off just paying down the mortgage.
3) If you can get out of PMI by doing this then that is added incentive.
I think Mathguy is got the right idea. #1 should take priority, and the money should be kept fairly liquid (ie savings or MMA).
As for #2 and #3 here is were you would need to ask questions as to what you're saving your money for and when you look to spend it, and what risk is acceptable to you.
If you're saving for retirement and your in your 20s it might make sense to invest the difference for example, but if you're older it might not. The returns you're looking for are also not as simple to calculate, if you're in the 25% tax bracket you might have an effictive rate on your mortgage of .75 * 6.35%.
The question is what is your effective rate on your investments, if you up it in a taxable CD at 5.5% APR then your effective rate is LESS than .75*5.5%, (you may or may not have to pay state/local taxes on this too). If you can put money into a Roth IRA for retirement then it may well just be 5.5%.
Roth IRA limits phase out above a certain income though, and it is limited at 5k for example. Your total marginal tax may vary, you may pay long term capital gains tax on your investments, you may have it in an IRA or 401k.
The risk that is acceptable to you is another issue. If your retiring in 37 years you can accept more risk for retirement investments. Less for saving for your newborns college fund, and even less for a teenagers college fund.
Liquidity might be an issue, the only ways to tap into the equity is to take out another mortgage, a HELOC, or sell and and move to a small place/ lower housing cost area, (the last of which makes sense if you have a kid going off to college).
Of course college savings has all its issues, including FAFSA and college financial aid and what counts as assets in terms of receving aid. (My school didn't count home equity, my parents paid off the mortgage so fast then)
I wish people would get off the you can write off interest mantra. You are spending money to save less money than you are spending.
Really? So what is your financial plan? If the rate of inflation is around 4% and you are saving (after our little measly tax deduction) about 4% by paying your mortgage off early, show me where the profit is?
On my last mortgage I always rounded up to the next even hundred or so, and when we sold the house we were ahead on the mortgage by a couple of years after on 8 years. Of course this makes sense if this is your main debt (no cc or equity loans) Even though it didn't make a whole lot of difference it made me feel good that I was "ahead" of the game.
I also paid mine off early. Worked for me and it felt good psychologically to be mortgage free. Just make sure that you don't put too much of your money into prepaying it. Have your retirement accounts in order, no credit card debt, and emergency fund in place first.
I have a 30 year 6.375 mortgage. I was told you should always put money toward the principal (I have no pre-payment penalties) if you can. But since you can write off interest paid, i am not certain that is a better way to go..any advice?
I wish people would get off the you can write off interest mantra. You are spending money to save less money than you are spending.
Go ahead and save your paltry 4%...I on the other hand will be more than glad to make my 12%+ rate of return. I bet Warren Buffet, Donald Trump and Bill Gates don't pay off their real estate financing loans. I bet you they carry a mortgage on all of their real estate investments and invest their money. It's called leveraging and is a basic fundamental in securing one's financial future. Best thing is I don't have to prove it....a calculator will.
said to be Mortgage free.............just say it a couple of times an d you will see how great it makes you fell MORTGAGE FREE, MORTGAGE FREE,MORTGAGE FREE,MORTGAGE FREE,MORTGAGE FREE........you see it is not always about dollars and cents it's got to be a great feeling........I can still remember when my parents paid theirs off.........a lot less stress and a real feeling of accomplishment..........I took a 15 year fixed over a 30 year fixed i only have 12 years left compared to 27...........if i still had 27 years left ...................................
I think the key thing to remember is that everyone's financial situation is different. What works for one household will not work for anothers. For DH and I, it made more financial sense to pay off our home. But that doesn't mean that it is the best thing for someone else. Blanket advice via the internet should be taken with a very large grain of salt.
said to be Mortgage free.............just say it a couple of times an d you will see how great it makes you fell MORTGAGE FREE, MORTGAGE FREE,MORTGAGE FREE,MORTGAGE FREE,MORTGAGE FREE........you see it is not always about dollars and cents it's got to be a great feeling........I can still remember when my parents paid theirs off.........a lot less stress and a real feeling of accomplishment..........I took a 15 year fixed over a 30 year fixed i only have 12 years left compared to 27...........if i still had 27 years left ...................................
As others have mentioned, it's also nice to say "I have enough money to write a check for my mortgage, but it's making me 10% a year in investments instead of 4% by paying off the house". You have to be somewhat disciplined to make this work, and have a bit of tolerance for the year to year swings in the stock market, but it's not impossible by any stretch.
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their is a lot to be
