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After 12 years of owning that unit we decided to sell it (we moved to FL and it was to difficult to manage from far away). We sold it for only slightly less than what we owed on the mortgage. It did take us 12 years but we were able to get out from under it without having it destroy our credit, or eat up huge amounts of our cash.
12 years. That's a very long time to hang onto a property. I was a little young back in the late 1980's but I still remember the real estate prices dropping back than. It was the same time the cold war ended. I believe prices dropped like 5% in 1989 and than another 5-10% in 1990 in the Washington DC area. And than it stayed flat for the entire decade of the 1990's.
That will be the situation we are facing today, although at much more extreme levels because of the sheer number of distressed properties on the market. People overbuying or investors getting approved for homes they normally would have needed to put down significant down payments.
So (assuming you are financially secure). Ask yourself, if your were to free up that money. What would you do with it? For me, since I don't owe any other debt (besides by new Florida home), I decided to get rid of the Maryland property at a big loss. It was costing me $3700 a month to keep the property. If I rent it out, I would still be losing money and I couldn't write off any of the passive losses.
You free up $3700 a month and than start multiplying how much you save each year. It adds up very quickly how quickly you can start recouping some of your losses by diverting your money towards other investments (although the stock market volatility hasn't been good lately).
I realize it's a personal choice to hang onto a property to recoup losses. However, with the way real estate today. If you can afford to do it, dump it now and just move on. Or else be prepared to be a landlord for a long time to recoup your losses.
This is the way most financial savvy people view the benefits of mortgage interest tax deductions for home.
You have to compare the rents vs. mortgage payments in your area.
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That's why so many people never bothered to pay into the principal each month cause they felt their homes would have appreciated in value. So while I was paying $700 into the principal each month, people "saved that $700 and spent it on cars, vacation etc".
The part I zeroed in on: "they felt their homes would have appreciated in value." Last couple of years, maybe a bad bet. Makes me wonder how "savvy" those people are. Maybe a little bit more now that they've seen that housing prices don't always go up, and stocks can, indeed, lose some value on occasion.
I am of the mindset I am going to invest at least part of my income to, FOR SURE, get a 4.5% ish return (after tax advantage gets paid down, also-it's not all great, I admit) on paying down mortgage (in the same sense that if you have credit card debt it's a "sure" 12-18% return of not having the interest each month).
If I have higher interest debt, sure, I pay that down first-but I don't. And even though I do put a lot of money into stock and fund investments, always through a tax-advantaged account until it's maxed, I can't see putting everything in stocks-I'm getting slightly too old for that. So my choices for diversification on the XX-age I put into liquid investments are bonds, annuities, or paying mortgage down.
I pay my mortgage down as a component of my diversification. I can't live in a pile of bonds, and I don't want to put it all into stocks.
If it ALL goes south, I could cash out my liquid investments, pay off the modest-ish house, and be fine on my pension. Couldn't do that if I'd frittered away the extra cash on the theory my house would always rise in value.
I would say hold onto your cash. Keep the money in your account where it will earn you compounding interest. Why pay down the mortgage now when you can hold that money and bring it later if you have too. Plus, what if something bad happens to the economy or with your job. I would much rather have cash.
That depends on how much cash you have. If you have a lot of excess cash, it makes sense to pay down a mortgage that surely has a higher rate of interest than the money is earning in a bank account. Compound interest on <1% (which is what the banks are paying these days) doesn't add up to much.
Of course, you should not strip your cash too low to pay down a mortgage. As I said, it's all about how much excess cash you have.
I want to get rid of my mortgage, but I don't want to bring my excess cash below a certain amount, so I'm keeping it for now. I hope it will be gone soon, though.
Thank you all for your posts. Aneftp and Momma Bear, thank you for sharing your experiences, I really appreciate it. I noticed that both of you are in Florida, I am as well.
As an update, a few days after posting here, the buyers came back to me and offered to meet halfway between the contract price and the appraised price. I took the deal. I am still out a lot of cash but it is excess money (I am still left with a comfortable amount as an "emergency" fund and whatnot) and I would prefer to unload the home.
I never went into home buying to make a profit and while I'm disappointed that it ended up being a bad fiscal decision, I feel fortunate that I have the resources to sell and focus on my new home.
(Sorry for resurrecting this necro thread, but there are many threads on this topic already so I don’t want to start another one.)
I’m thinking of paying down my mortgage because all other investments look bad (to me) right now.
Stocks: overvalued historically, Schiller CAPE is ~32 as of now; only time it was higher was during the tech bubble.
Long term bonds: will lose money if / when interest rates go back up to average levels.
Short term bonds: will lose money because interest rates are lower than inflation; still some rate risk.
Stable value/ money market funds: interest rates are lower than inflation.
I found an amazing investment with no risk that has a nice fat 3.375% rate of return: my mortgage. Seems like the best investment out there right now.
Thoughts?
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