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If you need a mortgage, get a mortgage. It is still more stable than rent.
If you have a mortgage and are in the end years of it, most of the payment is going toward principal anyway, so think about where that payment comes from, and if you paid off the mortgage would that money come from a taxable account where the tax (such as from your IRA) would be considered income. You might end up paying as much in tax to pay it off as you are paying in interest to the mortgage company.
It's more a matter of liquidity...if you have tons of investments on top of the house I guess go ahead and pay it off? It's a tough call but most people here go the emotional route.
Maybe it matters more if part of your retirement is based on selling the house and moving...I'd not want to tie up any money in that case! What if it took forever to sell? You'd want as much other money available as possible.
If you're staying put for the next 10 years...whatever.
I have a 2.5% 15 yr mortgage because it is a cheap way to borrow money and I would have to take funds from a IRA account to pay it off with a real tax hit. I am very comfortable with the mortgage as a financial instrument in my situation and would be unlikely to make financial decisions for psychological reasons.
It's more a matter of liquidity...if you have tons of investments on top of the house I guess go ahead and pay it off? It's a tough call but most people here go the emotional route.
Maybe it matters more if part of your retirement is based on selling the house and moving...I'd not want to tie up any money in that case! What if it took forever to sell? You'd want as much other money available as possible.
If you're staying put for the next 10 years...whatever.
Yes. I never want to be cash poor because I paid something off. It's a good idea in the long run. Don't pay interest if you don't have to, but I'd rather have Lawyers, Guns, and Money.
14 years left on my 15-year mortgage at 3.125% interest. Have AT&T and other stocks that pay 5%, so dividends after-tax net 4%. Tax break is now minimal. The numbers work but I am wondering if anyone found any intangible psychological benefit of just paying it off, take a small hit just to get it off the Excel budget. Forever.
I'm not a financial genius, just a plain old nuts&bolts Joe, but it seems to me, it's worth paying it off. Assume (lots of calculators online to play with):
mortgage amount= $250K
mortgage term= 15 yr
mortgage rate= 3.125
monthly (P/I)= ~$1700
At the end of the term:
Total mortgae interest paid= ~$63,474
Total tax savings (30% bracket)= ~$23,500
It cost you $40K to get the $23.5K tax savings
If instead you paid off the mortgage and invested the monthly payment for the next 15 years:
monthly investment= ~$1700
Rate of return (let's be conservative)= 4.5%
cash invested= $306K
RoI= $94K
value of investment in 15 years= ~$400K
Like I said, I see only the obvious, maybe some intricacies I'm missing, and please correct me if I'm wrong. As far as my mortgage, we paid it off about 8 years ago and I'm retiring next year, really is one less thing to worry about.
Last edited by snowtired14; 05-15-2017 at 02:51 PM..
the tax savings is a wild card . if they can't clear the standard deduction the benefit is zero . on the other hand keeping that mortgage and investing that money may produce a whole lot more than 4-1/2% . time is your friend so the more you get invested and the longer you give it to ride the better the out come generally .
so waiting to pay off a mortgage to free up money going in may not work well . your 15 years may be like 2000- to 2015 when markets failed to even produce even a 2% real return . on the other hand the 15 years starting in 1987 returned 15 years of 14% returns cagr .
what if's rarely mean a thing when it comes to this stuff . you can't predict the outcomes .
but you can also say that being liquid and having lots of accessible money and not tying up more than is required in a property by paying off the mortgage , may feel even better .
nothing worse than having to spend money on loans , to get back your own money if you under estimated your needs , especially at a point in time you need that money for those emergencies . .
paying off that mortgage makes you less liquid and with less of a cushion , so i don't buy in to that as a reason . that is why so many end up being house rich and cash poor .
i still can see paying off a mortgage as a goal but when you start to try to reason about financial reasons for doing it the reasons are rarely going to be that valid .
paying off the mortgage is generally going to work out to be more a mental thing than financial .
Last edited by mathjak107; 05-15-2017 at 03:22 PM..
but you can also say that being liquid and having lots of accessible money and not tying up more than is required in a property by paying off the mortgage , may feel even better .
nothing worse than having to spend money on loans , to get back your own money if you under estimated your needs , especially at a point in time you need that money for those emergencies . .
paying off that mortgage makes you less liquid and with less of a cushion , so i don't buy in to that as a reason . that is why so many end up being house rich and cash poor .
i still can see paying off a mortgage as a goal but when you start to try to reason about financial reasons for doing it the reasons are rarely going to be that valid .
paying off the mortgage is generally going to work out to be more a mental thing than financial .
The completely logical part of me knows you are right. But the rest of me always saw debt as just another form of slavery to be avoided at all costs! You will say this is irrational but when I am in debt, all fun stops till it's paid off and I can breathe again. I am busy figuring out how I can make 1 can of tuna last for 6 meals and how hot it has to get in the house before it becomes dangerous without the AC on!
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