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The flip side of being house rich and cash poor can be a pretty sucky life. It can cost money you don't have free for loans to borrow against the house.
How are you cash poor? Once he has his house paid of in 5 years he has saved himself $200K in interest payments if he carried it for 30 years. Also you now have a mortgage payment in your bank account every month instead of sending it to someones else.
How are you cash poor? Once he has his house paid of in 5 years he has saved himself $200K in interest payments if he carried it for 30 years. Also you now have a mortgage payment in your bank account every month instead of sending it to someones else.
It happens it's a current cashflow issue but you are adding you decades of interest into a single figure when that's not how it's scheduled to be paid
according to a mortgage calculator if i pay off my 30 year mortgage in 5 years, i'll save $200K in interest. i know a lot of ppl think due to low interest rates we shouldn't pay off mortgage early and rather invest that money, but it seems to me this might be a more stable investment than putting the extra money into stocks that may or may not be stable. any thoughts? my interest rate right now is 3.8
If by "stable" you mean low or no volatility, yes the mortgage paydown is better. However, it is unlikely that you'll come out ahead this way (but it IS possible, if you happen to have market crashes at just the right (or wrong, depending on how you look at it!) time. Also, if you sell the house sooner, the effective length of the loan is correspondingly shorter, thus your effective time horizon for the "investment" in the loan is also correspondingly shortened. To compare apples to apples, the alternative investment must be evaluated over the same time frame. The CAGR over the entire period is not quite the correct figure to use, and neither is the simple mean return, because a portion of the loan effectively "matures" each month. The math is complicated here, but if you really want, and I have time, we can discuss it. )
according to a mortgage calculator if i pay off my 30 year mortgage in 5 years, i'll save $200K in interest. i know a lot of ppl think due to low interest rates we shouldn't pay off mortgage early and rather invest that money, but it seems to me this might be a more stable investment than putting the extra money into stocks that may or may not be stable. any thoughts? my interest rate right now is 3.8
I think it's a great idea if you can do it. You will be basically living somewhere almost free with mainly taxes and utilities and insurance to pay.
How are you cash poor? Once he has his house paid of in 5 years he has saved himself $200K in interest payments if he carried it for 30 years. Also you now have a mortgage payment in your bank account every month instead of sending it to someones else.
By accelerating the payments in to home equity and not something more liquid many folks find they painted themselves in to a corner
If they do not have ample amounts of liquid assets they can find themselves in a cash crunch when unexpected expenses catch them short.
Taking an equity loan when you need more money and lost a job is not going to work well when you have no cash to pay it back.
I plan on making my 15 year mortgage a 5 year mortgage. After that, I'll start working on building up my taxable investments. I will feel better knowing have a place to live and only have to worry about minor bills and property taxes. I prefer a known return to the unknown. I do have an emergency fund so I have some cash in case I suffer a job loss or something.
I don't necessarily agree with the view that paying off your house is safe. Will you have any other savings? If all of your net worth is in your house, and you have no emergency savings, what happens if you lose your job? What happens if you need big repairs done?
I think you already give up a lot of optionality when you buy a house (I did). But if you put every $1 you make in the mortgage, this severely limits your financial flexibility and puts all of your net worth in a single asset, which also is volatile.
I would say, keep your mortgage, until you have built a sufficient cushion of other investments that will allow you to be flexible.
I am a big believer in goals. If one of your goals was a paid off house and you can reach that goal then as long as you have enough liquid assets go for it.
What i wouldn't do is put the carrot on the stick and put the money back in the risk pool and swing for the fences .
Only money that has not reached goal stays in the risk pool
The flip side of being house rich and cash poor can be a pretty sucky life. It can cost money you don't have free for loans to borrow against the house.
This is why you have an emergency fund that is liquid to cover you when Murphy knocks on your door.
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