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I'm in the not going to pay it off camp, not because of the tax deductions, simply because the return on my investments is much higher than my interest rate of 3.5% (30 years fixed). I could sell 2 rentals and pay it off, but my rentals produce a net rental yield of 7% and about 3 - 4% in appreciation. Most of us here could also do better in the stock/bond market, you don't need an aggressive 100% stock portfolio to do better than the current rates. Obviously it's not for everyone, this is a economics forum, so most of us are probably more savvy when it comes to investing. If you're the type to panic and sell out in a bear market or just know nothing about investments and don't wish to know anything, it's probably best to pay it off. There is also the psychological feeling of being debt free, I don't doubt that it's a great feeling.
I'm with you, the tax deductions are nice, but it's really the return above our mortgage rate (3.875%) that makes me really have no desire to pay off ahead of time.
To use some round numbers, we could've paid another $70k+ on top of the 20% down payment when we bought our house five years ago. Instead, we left our funds in broad market ETFs (mostly VTI). Now, every $70k in additional mortgage principal has cost us about $14k (5 years * 4% * $70k) in interest since then. In the meantime, VTI has gone up from around $70/share to $120/share. So, for every $70k we decided not to use for additional down payment, we've netted $36k ($50k VTI increase - $14k interest). Also keep in mind that this additional $36k in assets still has another 25 years of compounding before the mortgage is over.
There will be up markets and down markets, but over 30 years, I'm comfortable that VTI will outperform the sub-4% interest rate. If we could borrow more at sub-4% rates with a 30-year payback period, I would absolutely do it.
When we bought our first, we were not able to get an interest rate below 10%. To buy property for $100,000 at 10% APR, and make payments over 30 years, you would have paid roughly $325,000 plus taxes and insurance. If you were able to sell that same property, after 30 years, you would need somewhere around $400,000 just to break even.
Today if you got an interest rate around 4%, over 30-years you would have paid roughly $177,000 plus taxes and insurance. So you would still need to sell it for somewhere about $200,000 to break even.
Either way that is an extremely risky 'investment'.
Sometimes home prices do appreciate, sometimes they do not.
This is why my Dw and I have never considered Single-Family-Residental ownership as an 'investment'.
Our home mortgages have all been on properties that had positive cash flow. It never entered into our thinking that those properties would appreciate. We built equity every month, our net worth grew consistently, and eventually we cashed out that equity as tax-free profit.
generally because you are consuming a home when living in it and everything related to it is an expense and represents your housing costs .
it can go from an consumption item to an investment when you sell and reap the rewards .
it is no different than my fine art collection . i have no interest in selling it as i enjoy the pieces and they are an expense . when the day comes i decide to transition them to an investment and sell them when the time is right they will not just be an expense . i may never sell them and just keep them for my own enjoyment . .
When you do that do you need to tell the mortgage company to apply extra payments to the principal?
On the website when I pay my mortgage, there are spaces for adding $$ to pay to principal or to interest. I am sure all of them feature something like that.
As a matter of fact, my PITI, insurance, and taxes come to $1459. I round up to $1500 and put the extra toward principal. Not much, but it's something and it works for me psychologically.
On the website when I pay my mortgage, there are spaces for adding $$ to pay to principal or to interest. I am sure all of them feature something like that.
As a matter of fact, my PITI, insurance, and taxes come to $1459. I round up to $1500 and put the extra toward principal. Not much, but it's something and it works for me psychologically.
yeah except your mortgage specifically mentions that you are not allowed to make extra payments.
Usually you can set up a specific monthly amount on top of the mortgage automatically or whenever you have some chunk you want to add, you go into your mortgage website and add that to your principal. Pretty easy once you have the login info.
Unless you paid cash for your house, you probably have some sort of mortgage.
Ours was a 30 year fixed at 3.875%, taken out in the end of November of 2015, first payment due January 1st, 2016, last payment due January 2045.
BUT, we will have it paid off in less than 5 years.
They have already cut it down to last payment due Feb 2033, shaving 12 years off our mortgage with what we have paid down in just over a year.
SO, how long did it take you to pay it off if you paid it off already?
How long will it take you to pay it off if you haven't?
We bought ours in 2002.
Paid it off in 2008.
We made a significant down payment and then I made some money in a real estate investment where I bought a house and renovated it. I used all cash for that activity.
The renovation took 6 months and I did an awful lot of the work myself. I rented it out for 5 years and then someone came along who wanted to buy it. We used that cash to pay off our primary mortgage.
We love having a home paid for. We're 71 now, and there may come a time when we take money out of the house in one way or another. Leaving a large estate for the kids is not a priority with us.
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