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Old 08-20-2008, 01:19 PM
 
37 posts, read 129,926 times
Reputation: 28

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I have a real estate / mortgage question.

Is there any reason not to pay off my house if I plan on moving in 3 years?

A question like that is obviously way more complex than that, but without getting into the nuts and bolts of it, what is the general opinion on moving with:
1) A paid off current house and small down payment for the next house

or

2) A large down payment for the next house, but still carrying a fair amount of debt on the current one.
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Old 08-20-2008, 01:39 PM
 
Location: DFW, TX
2,935 posts, read 6,390,095 times
Reputation: 571
Quote:
Originally Posted by RN7676 View Post
I have a real estate / mortgage question.

Is there any reason not to pay off my house if I plan on moving in 3 years?

A question like that is obviously way more complex than that, but without getting into the nuts and bolts of it, what is the general opinion on moving with:
1) A paid off current house and small down payment for the next house

or

2) A large down payment for the next house, but still carrying a fair amount of debt on the current one.

Is there a situation where you would purchase your next house without selling your first house right away? If not, then it shouldn't matter much in either case.

If you pay off your home now, you'll avoid paying interest on a loan. You'll also eliminate the temptation of spending that money on unnecessary things. But if an emergency should arise, it's also equally as difficult to liquidate some of that value.

If you pay off the house, make sure you have 3 months of living expenses in an emergency fund. That should help mitigate the risk of any bumps in the road.
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Old 08-20-2008, 11:46 PM
 
Location: Dallas/Fort Worth, Texas
4,197 posts, read 14,331,018 times
Reputation: 2676
What are you planning to do with the current house when you move to the new one? If it's paid off and you rent it, then you have 100% income - taxes and upkeep.

Will you be able to get a mortgage without PMI on the next house?

Very difficult to give you advice without knowing the big picture...

Do you need tax deductions? It really is more of a question for a tax/financial advisor than a mortgage/real estate professional.

Naima
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Old 08-21-2008, 12:07 AM
 
Location: DFW, TX
2,935 posts, read 6,390,095 times
Reputation: 571
Quote:
Originally Posted by nsumner View Post
Do you need tax deductions? It really is more of a question for a tax/financial advisor than a mortgage/real estate professional.
This is always a red herring. The tax deduction on interest is little more than a way to reduce the effective interest rate on a loan.

Look at it this way... a person is paying a lender $10,000 in interest in a year to save $2,800 on their federal income taxes (assuming 28% marginal bracket). Give me $10,000 and I'll pay $5,000 of your federal income taxes myself
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Old 08-21-2008, 10:40 AM
 
33,364 posts, read 52,923,580 times
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frankly you need to look at the appraisal value of the home--putting your money into a home that is losing value faster than you need to is just not cost effective...

you need to consider how expensive your mortgage is and what you could get with investing the extra money you would be spending to paydown your mortgage faster

if you have an arm that is going to kick in within the next three years you MIGHT be better off to put your money in your house
stock market is going to be iffy for several years--IMO there is more bottom coming--wait until Fannie and Freddie are closed down--the market will really go down...
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Old 08-21-2008, 12:08 PM
 
37 posts, read 129,926 times
Reputation: 28
Thanks for the input, I'm leaning heavily on paying it off. All the advice and opinion I'm getting from various places seems to lean in that same direction.

I'll sell this house when I buy the next one, hopefully at the "same" time. I'm not interested in keeping it as an investment or rental income.

I lead a simple life with few deductions. The sum of my deductions (including mortgage interest) was equal to the standard deduction for 2007. So there is no tax benefit. .... Not that I could find an investment to out perform the mortgage expense anyway.

The appraisal values in my area have increased slightly from year to year. Market value seems to have increased slightly as well. There have never been many homes for sale at one time in my neighborhood in the 10 years I've lived there. I think that's a good thing. At least there wouldn't be heavy competition from other sellers in the area. My hunch is that market value for my house will remain stable or increase slightly.

The money I'll use comes from an employer sponsored discount stock purchase plan. So it is all tied up in one tech stock. It has had outstanding performance for many years but it is clearly un-diversified and much more risky than a paid off house.

Although I understand that any investment could be considered part of a retirement portfolio, I'm investing the "right" amounts into a separate 401k and this is not my emergency fund. I have no real reason to put a hold on this investment.

The only reason I can find not to pay it off is that I know having a big wad of cash on hand would offer me greater flexibility in buying the next house (mainly in that I wouldn't have to make my next house offer contingent on selling my current one).
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Old 10-07-2008, 01:52 PM
 
29 posts, read 129,616 times
Reputation: 18
Default Getting Mortgage Company to Take Less for a Payoff?

I am in the same boat as a lot of the posters here. I want to pay my mortgage off in full but am wondering if I can work with the mortgage co. to take a bit less. I would think the way things are going with the economy they would take less? Is this an option? Does anyone know how to deal with all this? I had a mortgage for $124K. Close to 4 years later I owe $111K. Since this all went to principal can I get them to take a bit less and how do I do that?
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Old 10-07-2008, 04:52 PM
 
Location: DFW, TX
2,935 posts, read 6,390,095 times
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Quote:
Originally Posted by LookinatMass View Post
I am in the same boat as a lot of the posters here. I want to pay my mortgage off in full but am wondering if I can work with the mortgage co. to take a bit less. I would think the way things are going with the economy they would take less? Is this an option? Does anyone know how to deal with all this? I had a mortgage for $124K. Close to 4 years later I owe $111K. Since this all went to principal can I get them to take a bit less and how do I do that?
Sounds unethical to me... you signed a contract with the ammortization schedule attached to it. I wouldn't want someone who owed me $100 to offer me $80 because the economy is bad, even though they can afford to continue to make payments.... would you?
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Old 10-07-2008, 05:11 PM
 
Location: Dallas/Fort Worth, Texas
4,197 posts, read 14,331,018 times
Reputation: 2676
Quote:
Originally Posted by LookinatMass View Post
I am in the same boat as a lot of the posters here. I want to pay my mortgage off in full but am wondering if I can work with the mortgage co. to take a bit less. I would think the way things are going with the economy they would take less? Is this an option? Does anyone know how to deal with all this? I had a mortgage for $124K. Close to 4 years later I owe $111K. Since this all went to principal can I get them to take a bit less and how do I do that?

What you are describing a doable and is called a "short sale": These are some of the requirements that you must meet before the bank will even consider a lower pay-off:

You must be late in your payments at least 2 months.
You must prove hardship such as loss of a job, or pay-cut
Your house must appraise for at least the amount that you owe

Naima
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Old 10-07-2008, 05:17 PM
 
Location: NW Montana
6,258 posts, read 13,770,102 times
Reputation: 3440
Quote:
Originally Posted by LookinatMass View Post
I am in the same boat as a lot of the posters here. I want to pay my mortgage off in full but am wondering if I can work with the mortgage co. to take a bit less. I would think the way things are going with the economy they would take less? Is this an option? Does anyone know how to deal with all this? I had a mortgage for $124K. Close to 4 years later I owe $111K. Since this all went to principal can I get them to take a bit less and how do I do that?
good example as to why we are in this mess.
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