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conventional wisdom suggests I should invest first and worry about the mortgage last (we have no other debt). if you ignore this and put money into the mortgage, what do you do once you pay off the house? complete lifestyle change? start investing... with very low risk options?
No logic in making this an "either THIS or THAT" question -- you'd be putting all your eggs in ONE basket!
If you wish to accelerate your mortgage pay off you can do that WHILE you continue to but aside other funds. If you are turned-off by stocks you can put money into bonds, government securities, money market fund, all kinds of strategies to avoid risks of the stock market.
You would be wise to understand you TOTAL NET RETURN on paying off your mortgage, keeping in mind interest rate, income taxes, appreciation.
It might very well make sense to accelerate your mortgage pay down AND still put money aside.
Houses are notoriously illiquid even in the best of times -- if you absolutely NEED money it is far easier to cash out an investment account than to sell / refinance your home.
Do not forget the lesson of compounding either. If your investments are growing/working for you OVER TIME the 'earnings' that are reinvestment can quickly outweigh any contribution you could ever make "down the road".
conventional wisdom suggests I should invest first and worry about the mortgage last (we have no other debt). if you ignore this and put money into the mortgage, what do you do once you pay off the house? complete lifestyle change? start investing... with very low risk options?
Once you pay off the house, you can pay yourself rent so that you can 'see' your ROI. While most of the people I know are losing their shirts in their 401Ks, my 'investment' is making me 5% tax-free at current market rent. My rent goes into a separate MM fund, and that fund is used to pay for taxes, maintenance, etc.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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I practice some of each.... it really depends on your 'cost of funds' and 'investment returns'.
I have several friends who have paid off their mortgage and use 'Home Equity Loans' for tapping equity. Some have recently paid off their mortgages with a HELOC. I wouldn't bet the bank on something with a variable rate, but it currently makes me glad I paid off a high int. rate investment prop loan with a very small HELOC that is currently below 5%. My house loan is a 7/1 ARM and is at 4.125%. I feel the rates will probably be low for a couple more yrs to help with the 'stimulus'.
If I had a 6% mortgage I would start looking for options, but paying it off may not be prudent at the moment if it will erode your cash position. You may need groceries, or there may be an opportunity to buy some equities when the market finds its bottom and settles a bit. I don't think there is currently any 'good news' that is gonna make the equity market jump out of it's skin and keep climbing, but...I've been wrong in the past.
It depends on your interest rate really. I would consider paying down the mortgage to be a good investment. Sure beats paying interest to credit card companies and what not. Eventually you'll pay off the home early and now you can put 100% of your money towards investing.
I agree. Doing a little of both if you can afford to. Going full swing into one or the other might not be the best choice if something goes wrong. My wife and I try to do a little of everything including CDs, funds, IRA, etc. and we pay extra on our mortgage whenever we can. A little of everything adds up and only spend money you don't need.
Against the advice of my accountant, I paid off my residence/ranch/farm (and my rental properties, too) as a priority of my long term "investment" strategy, putting only minimal amounts into a SEP IRA over the years (along with my SS "contribution").
I'm sure that there's a lot of folks out there who could have used the ongoing tax advantages of the mortgages and the cash flow to better advantage than I for their investments.
However, I'm sitting here now with a livable income from rental properties and a home base that lets me raise all of my beef, poultry, and lamb. With our greenhouses and gardens, we raise most of our herbs, vegetables, potatoes, corn, squash, eggplant, and onions. We raise enough to have product for sale at the local farmer's markets ... where we sell all that we have available. This is all done naturally/organically, and we raise alfalfa for sale, too.
Our food bill at the supermarket is only for staples (flour, sugar, salt, EVOO, vinegar, citrus, apples, and so forth), and we don't spend very much there. We buy no "convenience" foods, and very little in the way of canned goods.
We keep our horses for recreation, too, at little cost to us, and have enough land to ride on our own trails.
So I'm able to get by on much less cash flow now than when I was working to pay off my mortgages and make investments. Since that income stream is what gets taxed, and I've been able to scale down my businesses (in favor of farming and recreation), I now pay minimal taxes, too. By living in an area with low tax rates and low per acre property valuations (hence low property taxes), my overall financial situation is pretty solid. I'm appalled when I read about folks that need more money per month just for property taxes than I need to live on ... and they still have their mortgage payment to make.
Considering how badly my SEP has done over the last 15 months (mostly mutual funds, well rated), I'm far ahead in net worth and stability by having paid off my mortgage instead of losing the money in the market and still needing a large income stream after-tax to pay off the mortgage. I've got all the house and infrastructure I need to get by on.
In my view, it's not how much money you make, it's how much you keep of that income. 20-20 hindsight today says I made the right decision for my situation. Your situation will vary ... and you really need a good accountant and investment advisor to keep you informed of your options.
a very wise post. deflation, a complete blind side for the 21st century consumer, comin your way.
liquidity is everything. listen to radio host dave ramsey like your life depends on it.
First have 6-12 months cash socked away in an MM "just in case". Then pay off debts.
I'm putting more money into paying off my mortgage right now as the future looks very iffy and I want my home mortgage free and have as little debt as possible.
Debt makes you a slave to the banksters.
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