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I have a 30 year 6.375 mortgage. I was told you should always put money toward the principal (I have no pre-payment penalties) if you can. But since you can write off interest paid, i am not certain that is a better way to go..any advice?
What are goals? Why do you ask? You can get an accountant to run the numbers between the money saved on writing off mtg. taxes and paying extra. From my experience I'd prefer paying a little extra on the house payment; it seems the the 'benefit' of the mtg. writeoff is just a myth. Even if you pay 1 extra mtg. payment a year you roughly shave 7 years of the loan (about 22 years). You just take your monthly payment, divide by 12, and pay that much extra each year. And/Or, you can get a bi monthly payment which will shave some time off as well without increasing your monthly payment (it works by you paying 1/2 your monthly payment 2x month, say every 2 weeks). Getting 20% equity means you could drop mtg. insurance if you have it. Again, what are your goals?
1) Do I have enough cash on hand to be fine for an emergency, job loss etc.
IF not, save and don't pay down your house. I took a slightly too aggressive mortgage in my first house and went through some tight times after kids arrived so stay liquid.
2) If my house interest rate is 7%, I can pay it down "risk free" or I can invest it somewhere. If I feel I can't get a better return than this...which is somewhat doubtful when considering market risk...then I'd probably be better off just paying down the mortgage.
3) If you can get out of PMI by doing this then that is added incentive.
P.S. Paying down your mortgage used to be heresy to those who KNEW they could get 20% returns every year forever by investing in tech stocks or that could use that money to buy additional properties which would just make you huge guaranteed returns. These people however have mostly gone the way of the Day Traders so I don't have to listen to their fantastical get rich quick for no risk tripe.
Go talk to a financial planer and get there professional opinion after they know your complete situation.
For some people, yes pay it off, for others it is just like chucking money off a bridge.
I have a 30 year 6.375 mortgage. I was told you should always put money toward the principal (I have no pre-payment penalties) if you can. But since you can write off interest paid, i am not certain that is a better way to go..any advice?
6.375% minus your interest deduction would be (roughly 25%) making your "effective rate" about 4.8%
If you are not maximizing your tax deferred retirement plans then I suggest you put as much as you can into these vehicles first. This allows your money to compound (money grows on the amount you invest plus any dividends paid if they are dividend paying stocks, mutual funds whatever) tax free with some of uncle sams money. This is the key, OPM other peoples money. If you have maxed this out and have cash set aside for emergencies (cash for emergencies should be the first thing you do 3-6 months take home pay. After that I would then max out my retirement savings) then I would go for it or buy more real estate and rent it out. Let someone else pay it off for you. So many times I get old folks coming to take an equity line of credit out on their home after they have recently paid it off. When I ask why did they pay it off when they are now borrowing against it they tell me 1 of 2 things 1) I was always told to do it that way and it seemed like the right thing to do 2) I can't take the money with me when I die and i want to enjoy it in my retirement.
Bottom line, manage you money so that while you are alive you can live the lifestyle you desire with a manageable predictable mortgage payment. Hope that the last dime in your checking account gets spent when you take your last breath! (It probably won't work this way...someone will inherit whatever is left). For whatever that's worth...it's my opinion and I am sticking to it!!!!
1) Do I have enough cash on hand to be fine for an emergency, job loss etc.
IF not, save and don't pay down your house. I took a slightly too aggressive mortgage in my first house and went through some tight times after kids arrived so stay liquid.
2) If my house interest rate is 7%, I can pay it down "risk free" or I can invest it somewhere. If I feel I can't get a better return than this...which is somewhat doubtful when considering market risk...then I'd probably be better off just paying down the mortgage.
3) If you can get out of PMI by doing this then that is added incentive.
P.S. Paying down your mortgage used to be heresy to those who KNEW they could get 20% returns every year forever by investing in tech stocks or that could use that money to buy additional properties which would just make you huge guaranteed returns. These people however have mostly gone the way of the Day Traders so I don't have to listen to their fantastical get rich quick for no risk tripe.
Hello mathguy! I have been reading your posts and I like what you have to say...most of the time. However I have to disagree with the fantastical get rich for no risk tripe statement. There is always some layer of risk. If you are not willing to risk then why not put it all in a can and bury it in your backyard?
I am no day trader and I have had some amazing returns on my long term investments. Actually I still do and only 4% of the investments I own (10% of my portfolio is tech stocks) are returning less than 5%. I do not think this is difficult to duplicate if one takes the time to read, understand and manage money with minimized risk. I think paying off a mortgage is an emotional decision unless you have a pretty good idea you can't make a decent ROI.
Hello mathguy! I have been reading your posts and I like what you have to say...most of the time. However I have to disagree with the fantastical get rich for no risk tripe statement. There is always some layer of risk. If you are not willing to risk then why not put it all in a can and bury it in your backyard?
I am no day trader and I have had some amazing returns on my long term investments. Actually I still do and only 4% of the investments I own (10% of my portfolio is tech stocks) are returning less than 5%. I do not think this is difficult to duplicate if one takes the time to read, understand and manage money with minimized risk. I think paying off a mortgage is an emotional decision unless you have a pretty good idea you can't make a decent ROI.
Your point is well taken.
My main gist is that there have been periods of time where "the masses" believe that a 15+% rate of return is normal and sustainable (ie. no risk) and that only a fool would pay down a mortgage.
It seems your portfolio is more stock based than equity which may be age appropriate....another variable.
I think my only actual point is that depending on your age, your mortgage rate, your investment portfolio, other outstanding debts (credit card etc) and your own personal investment appetite for risk....that paying down a mortgage is not always bad.
Me personally, I'm not paying down my mortgage, I've got a lot of family medical expenses for now and for the forseeable future and have had to cut down my 401k contribution rate to the full match level and can't do a Roth either. Also, I'm not *old* so I'd still be interested in higher returning investments and also my mortgage rate is pretty low.
Sorry if I didn't explain myself better at first, I appreciate the discussion.
Location: Ohio, but moving to El Paso, TX August/September
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Quote:
Originally Posted by jp03
Hi all,
I have a 30 year 6.375 mortgage. I was told you should always put money toward the principal (I have no pre-payment penalties) if you can. But since you can write off interest paid, i am not certain that is a better way to go..any advice?
I wish people would get off the you can write off interest mantra. You are spending money to save less money than you are spending.
I wish people would get off the you can write off interest mantra. You are spending money to save less money than you are spending.
It's hard to follow your point, would you care to elaborate?
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