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Soon2BSurprise, my credit is just OK. I owned some apartments in the past and one of the two separate buildings went into foreclosure. I sold the other one for a slight profit. However, it took me a while to recover but that's the only blemish on my record. I've never had a late or missed payment on anything else.
Thanks for offering input but some of you are talking over my head. I'm just an average guy and I believe in the KISS (Keep It Simple Stupid) philosophy. I figure if I pay it off and have no other debt, I won't ever go bankrupt. My worst case scenario would be working a job just to pay property tax, insurance, maintenance, expenses and utilities. Hopefully that would be worst case scenario. Our 85k per year looks stable and we can possibly boost that to 110k between us next year as I have a good chance of moving up in the ranks a bit at my employer.
I definitely do not understand how I could be "double taxed" if I paid the mortgage off. I've already paid taxes on the 30k in my savings that I'm going to use. As I pay it back, I'll be paying taxes on it before banking it. I'm only getting $1000 per year mortgage interest deduction now as it is. I looked at my tax bracket and we have a large cushion before the next bracket up. I can see owing taxes on that $1000 of deduction I no longer take but how is that double?
The way the mortgage is structured, paying it off will save you less than the interest rate. You've already paid most of the interest.
From the bankruptcy angle, you would probably have to suffer a permanent loss of income. In which case, having a debt-free house won't save you from the ongoing expenses. It makes more sense to have liquid money for the flexibility and to avoid a forced sale if possible.
The double taxation refers to formally loaning to yourself but is actually besides the point. The interest you pay yourself with after-tax dollars one year would then be taxed again as interest income the following year. Taxes aside though, loaning to yourself will never net you any real income and you will just waste time. All that does is defer your own income, with nothing gained.
Not to be a cloud at the beach but you will create more problems than you will solve with these ideas. And to seek validation for them is like letting the tail wag the dog.
The way the mortgage is structured, paying it off will save you less than the interest rate. You've already paid most of the interest.
From the bankruptcy angle, you would probably have to suffer a permanent loss of income. In which case, having a debt-free house won't save you from the ongoing expenses. It makes more sense to have liquid money for the flexibility and to avoid a forced sale if possible.
The double taxation refers to formally loaning to yourself but is actually besides the point. The interest you pay yourself with after-tax dollars one year would then be taxed again as interest income the following year. Taxes aside though, loaning to yourself will never net you any real income and you will just waste time. All that does is defer your own income, with nothing gained.
Not to be a cloud at the beach but you will create more problems than you will solve with these ideas. And to seek validation for them is like letting the tail wag the dog.
But he would be debt free and that is what he is after. It will take me close to 10 years for us to pay off our mortgage but we will do the same thing. I also do not like debt. I don't see any problems generated by living debt free. Lets forget about calling this self banking. Lets just call this getting out of debt. Paying off the home will allow the OP to save money that they plan on saving. Good for them.
there is no problem with living debt free. You just don't spend more than you have coming in.
Paying off a mortgage is a good idea unless that money could go to paying off things like credit cards because they would usually have a higher interest rate. The most interest is paid when the mortgage is new. Later, the interest charged will be quite small. There are amortization tables so that you can figure exactly what you are paying. Remember that while the interest rate may be .....say, 5%, it's on the unpaid balance per year. so if you owe 100,000 for THIS year you will pay much more than you would if you only owed 50,000.
If you do this, be sure that the mortgage company agrees to accept a payment directly to the UNPAID balance.
We're older than the OP. But we just scrapped all the suggestions and paid off the house. That was in 2006. We all know what happened in 2007/08; real estate crashed.
Point is, we didn't know what was going to happen. I never lost my job, but it easily could have happened and it happened to an awful lot of people.
The best financial model I ever got was to form your assets into the shape of a wedding cake:
Top Layer.....1 month's income placed into the bank every month
Second Layer.......6 month's income. This is where you pay yourself every month and, most importantly, it is where all the money you earn enters the system
Third Layer. The Foundation.....10 years worth of assets, minimum. House; Investments, stuff like that. The third layer is fed by the second until you retire, and then, if need be, money can be removed from The Foundation.
But looking at that model, you can see that whether you keep the money in the house or in the market, it's in the same place. It's a judgement call as to whether or not you keep the money here or there because you are not going to use it; your going to grow it.
Anyway, it's the model I have used for 30 years or so, and has sure paid good dividends....
But he would be debt free and that is what he is after. It will take me close to 10 years for us to pay off our mortgage but we will do the same thing. I also do not like debt. I don't see any problems generated by living debt free. Lets forget about calling this self banking. Lets just call this getting out of debt. Paying off the home will allow the OP to save money that they plan on saving. Good for them.
Nobody likes debt - but the OP is not in some dire financial distress he desperately needs to escape from. It is naive to pay off debt rapidly when you have the means just for the sake of being debt-free. If you want to make the smart move, you go with your best option available.
I cringe when people say they will wait until after they pay off their house to start investing. Time is investment's best friend. You wait 10 years to start - you lose out on 10 years of compounded gains and interest, and that is an enormous, massive setback.
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