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Old 12-28-2018, 10:59 PM
 
Location: Formerly Pleasanton Ca, now in Marietta Ga
5,291 posts, read 4,026,944 times
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I wouldn't pay it off. If we do it a recession having the cash will be a nice safety net that can last a lot longer than your emergency fund.
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Old 12-29-2018, 11:46 AM
 
3,913 posts, read 7,962,685 times
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Unless the original poster will be buying his next home with cash, it would be better to save the $100,000 for the new home purchase. His new mortgage rate will most likely be higher than 3% so the extra cash down would save much more than $7500.

There are savings accounts that pay 2% or greater. 2 year CD’s pay 2.5%. He can park the $100,000 there in the meantime.
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Old 01-04-2019, 04:08 AM
Status: "Excited to move to Vegas!" (set 6 days ago)
 
Location: Beaverton, OR
5,407 posts, read 5,834,561 times
Reputation: 6022
Quote:
Originally Posted by Electrician4you View Post
No. Donít pay it off. The interest is deductible. At your rate itís pointless to pay it off early.
My most current mortgage is 3.25 and Iím not paying it off early
Move the money in a better % rate account
The interest isnít really deductible for many people. If state taxes and property taxes are only deductible up to $10,000 or whatever thatís absolutely nothing. Thatís blown for me way before we even get to property taxes, so it has no more benefit anymore since the new tax law.
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Old 01-04-2019, 04:12 AM
 
70,871 posts, read 71,228,648 times
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yeah , it could be like spending 3 or 4 bucks at a carnival to win a 1 dollar prize , if you win anything. unless you are earning a higher return the interest is just driving up the cost of the house . not many realize depending on rates , you end up spending two to three times the price of the house
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Old 01-04-2019, 05:46 AM
 
Location: Censorshipville...
2,679 posts, read 6,239,535 times
Reputation: 1544
Quote:
Originally Posted by semispherical View Post
Hereís a question for all you financial gurus. I am trying to decide whether it makes sense to pay off my mortgage at the beginning of 2019. Here are the facts:

The property is my residence. The remaining principal is about $100K. It is a 15 year mortgage at 3%. If I let the mortgage amortize to the end of the 15 years (2027), I will pay about $20K in interest over that time.

I plan to sell within about 2 years and downsize to a smaller property. If I sell at the end of 2020, I will have paid about $7500 in interest up to that time.

The money I would use to pay down the mortgage is currently in a savings account at the credit union earning about 1%.

I also have a ladder of CDs that I could use to put a down payment on a replacement property and the feds have started making me take RMDs from my 401(k) so I wonít be cash poor.

Until now, Iíve had enough deductions to itemize and the mortgage interest has been a big part of it. But with the rewritten tax law it is going to make more sense to take the standard deduction unless I have huge unanticipated medical bills, so I lose any tax advantage to keeping the mortgage.

The way I am looking at this is that even though the 3% interest Iím paying is a screaming good deal, Iím only earning 1% on the savings account, so might as well put that money where it will do me more good. I will also save at least $7500 in interest payments, assuming I sell by the end of 2020. The downside is that I will be less liquid by $100K. It seems that paying the mortgage off is marginally better financially and has a nice psychological kick to it as well.

Have I missed anything?

Thanks!
In your case I would seriously consider just keeping the mortgage for the following reasons

1. Cash is way more liquid. It would be easier to put down a good size down payment on your downsize home with cash. Move it to Ally or other online bank get a better interest rate.

2. Home prices fluctuate. If you sink your 100k cash into paying off the mortgage, and home values plummet for unforeseen reasons what will that do to your plans? It may take years for the value to recover to be able to sell and get your 100K back. Will that push your downsize plans back?
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Old 01-04-2019, 05:54 AM
Status: "On The Lookout" (set 24 days ago)
 
Location: The Triad (NC)
28,400 posts, read 61,782,091 times
Reputation: 31965
Quote:
Originally Posted by semispherical View Post
Is it time to pay off the mortgage?
It's almost never the time to; especially not when we have adequate income; earned or investments.

The concern is in HOW MUCH OF that income (earned or investment) is spent on our housing costs (all the bills)...
eg: target 12/52's of NET; that the WEEKLY net income be adequate to cover the MONTHLY costs.
And that's as true whether we have a mortgage or rent.
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Old 01-04-2019, 05:57 AM
 
Location: Jacksonville, FL (Mandarin)
2,383 posts, read 5,255,459 times
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Have you considered letting your current home become a rental, when you decide to purchase another? Let rent income pay your mortgage (and then some?).

Last edited by EricBoyd; 01-04-2019 at 06:08 AM..
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Old 01-04-2019, 06:05 AM
 
651 posts, read 270,840 times
Reputation: 737
The OP is obviously over 70 years old. OP alsosaid that he has laddered CDs and has cash coming from the RMDs, so additional liquidity does not seem to be a need. If the OP is not getting after tax returns of 3% with these funds, the OP is better off paying off the mortgage.
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Old 01-04-2019, 06:37 AM
 
4,417 posts, read 2,574,723 times
Reputation: 10261
Quote:
Originally Posted by GeoffD View Post
The OP taking RMDs so they're at least 70 1/2. They're going to sell in 2 years so, unless they're way higher income than I'm guessing, it hardly matters if they pay it off or not since it's a 3% note. Married and taking the standard deduction, you're still in the 12% bracket at $100K AGI. With 2018 tax law, the OP probably can't itemize. Moving the cash somewhere, the OP might get close to 3%. Income taxes on $3K of interest income in the 12% bracket will be chump change so there's no point worrying about tax avoidance.



Personally, I'd just move the cash parked in a brick & mortar bank to something that pays better. Ally Bank pays 2% for vanilla savings. They pay 2.30% for an 11 month CD product with no penalty for cashing it in. They pay 2.75% for a 1 year CD. Pick some combination of those or go chase higher intro rates elsewhere.
OP, i agree.

When we bought our housein nov. 2015, we got a locked in rate of 3.78%, which would have been 3.56 had we chosen to wait til the mortgage actually closed, but the fed WAS talking about raising rates then, so we locked in. We also started rapidly paying down the mortgage right away, but as rates rose, we stopped doing the extra pay...not with that low a rate! So id stick with the payments if i were you OP.

I also agree with this posters second statement. An online account is better to park savings or CDs, with the higher rates that they are paying. It is loosely tied to your brick and mortar so you van move monies around, but you get a much higher interest rate online.

Go to Bankrate.com and look around. CIBC is paying 2.39% on savings.

In you position I'd just pay the regular mortgage payment, and sock away the extra money in the online accounts. Then sell, and move once.
But thats me.

Best to you...

Last edited by galaxyhi; 01-04-2019 at 06:46 AM..
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Old 01-04-2019, 06:41 AM
 
70,871 posts, read 71,228,648 times
Reputation: 48456
Quote:
Originally Posted by EricBoyd View Post
Have you considered letting your current home become a rental, when you decide to purchase another? Let rent income pay your mortgage (and then some?).
be careful here because you can take tax free excluded gains and make them in to taxable gains by exceeding the rolling 5 year period if you can't sell the house in time . plus any tenant problems and you have the burden of supporting both houses .
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