Anyone not agree with paying your house off?

[Quad Shot Academy]

Seems like a silly question, but sometimes I wonder. I hear lots of Dave Ramsey fans talking about paying off the mortgage as early as possible and I read lots of finance books years ago that advocate this. But I also hear about people using their houses as tax shelters since the interest is tax deductible, so it lowers your income tax bracket. Also, I figure right when we pay it off, we will have dc in college and want to refinance to pay for college! Would it be better to invest the extra money into a 529 plan? I am just curious if there are alternate points of view on this one! :bigear:

[Renee in NC]

Well, think of it this way. If you have $10,000 interest in a year, the tax savings on that might be $2800. It still costs you $7200 above the tax savings.

 

Dave Ramsey puts college savings before mortgage pay-off as well. I would never borrow against a house for college tuition.

[Denisemomof4]

dh has always said he won't pay off our house of we get a large sum of money. You're right, it's due to tax reasons. BUT, if we can pay off our house earlier (which we will anyway, we pay two extra payments per year and have 12 years to go!) I'd do a LOT of talking because I just can't WAIT to be done with this mortgage!!!

[katemary63]

When we looked at the long term cost of our loan over the next 20 years it was a no-brainer. We're paying ours off with investment money, since that isn't earning much these days.

[Dana]

We were in a 15-year mortgage that we'd have had paid off in about 8 years. We just refinanced with another 15 year mortgage, dropped a bit over 1% in interest and pulled out enough cash to buy a new car :auto:.

 

We figured that having a mortgage payment while our son is in college may help with financial aid. It's not the wisest decision in some ways, but the advantage of having a completely paid for car with low mileage and a bit more cushion in our monthly expenses is nice. (Or was nice... now it'll pay for allergy shots... sigh.)

 

Interest rates are so low right now and we bought well within our means, we don't pay enough to itemize. It does make taxes easier to handle, but we really don't see any benefit with taxes to owning.

 

So we've chosen to keep a mortgage for longer (basically taking out a car loan from ourselves and gambling that owing will be a plus for financial aid).

[2squared]

I, for one, will be paying this mortgage off as soon as we can. My plan is to have it gone before our first hits college age. We aren't committed to paying for college, but at least we will have more financial flexibility at that point.

 

Without a mortgage, life would get so much easier.

[NoPlaceLikeHome]

I would only consider IMO if you had at least a 6 month or even longer emergency fund coupled with adequate retirement savings and college savings. I could be wrong, but one financial person wrote that if you pay off early and lose your job and have no emergency savings then you could still lose house whereas someone with emergency savings could end up ok.

[KS_]

Seems like a silly question, but sometimes I wonder. I hear lots of Dave Ramsey fans talking about paying off the mortgage as early as possible and I read lots of finance books years ago that advocate this. But I also hear about people using their houses as tax shelters since the interest is tax deductible, so it lowers your income tax bracket. Also, I figure right when we pay it off, we will have dc in college and want to refinance to pay for college! Would it be better to invest the extra money into a 529 plan? I am just curious if there are alternate points of view on this one! :bigear:

 

Well, trying to pay extra on a house backfired on us a little. . .I think it's great if you have the extra money each month, and you know that you will be in the house long-term. We *thought* we'd be in that particular house for several more years, and were paying a little extra each month (and our budget was extremely tight - that extra money for groceries or something else would have been nice, but we thought we were being wise). Then dh got a good job offer out of the blue back in his home state, and we were all of a sudden moving. We put the house up on the market and were able to squeak out not owing anything, and so the extra money we had been putting on the mortgage was really wasted. We didn't make any money back on the house and could have used the extra money month to month.

[Renee in NC]

Well, trying to pay extra on a house backfired on us a little. . .I think it's great if you have the extra money each month, and you know that you will be in the house long-term. We *thought* we'd be in that particular house for several more years, and were paying a little extra each month (and our budget was extremely tight - that extra money for groceries or something else would have been nice, but we thought we were being wise). Then dh got a good job offer out of the blue back in his home state, and we were all of a sudden moving. We put the house up on the market and were able to squeak out not owing anything, and so the extra money we had been putting on the mortgage was really wasted. We didn't make any money back on the house and could have used the extra money month to month.

 

If you hadn't paid extra over the mortgage, your mortgage payoff would have been higher and you would have had to pay money at closing.

[cdrumm4448]

My husband and I have always chosen to have a mortgage. He can make more money in the stock market than we're paying in interest on a loan. Although, recently we decided to pay it off early, so we're paid up six months in advance. With the really shaky economy and political climate, we now want to pay it off as quickly as possible. We don't want anyone able to take our home.

 

My husband has nerves of steel regarding the market. In any serious downturn, he has always used it as an opportunity to buy more stock. This is the first time he is considering getting completely out of the market. You guys don't know him, but that's really scary. If he thinks things are so bad he's getting out, the future is not good. Perhaps after November he will feel more positive about things.

[KS_]

If you hadn't paid extra over the mortgage, your mortgage payoff would have been higher and you would have had to pay money at closing.

 

It was a very small amount each month, so I don't think the overall mortgage was reduced by much at all (and this was only about a year to a year and a half that we were in the house). When we priced the house with our realtor, we worked out the price so that we knew the very lowest we could go and not owe anything (so when the counter offer came in, we went back with that number and said we just couldn't go any lower at all).

 

But for us, at the time, even that small amount of money would have been better put into an emergency fund or just to have a tiny bit of breathing room each month and less stress. But I'd grown up hearing about how good it was to pay your mortgage off as soon as possible and funnel the money there, and that's what I was trying to do.

[Danestress]

because you are just getting a credit for the interest you pay. You still pay more than if you just didn't have to pay the interest at all.

 

But here's the thing. If your interest on the mortgage is 5% and you have money investing in a vehicle that is paying 8%, then would it be better to leave the money there rather than use it to pay down the mortgage?

[CAMom]

 

But here's the thing. If your interest on the mortgage is 5% and you have money investing in a vehicle that is paying 8%, then would it be better to leave the money there rather than use it to pay down the mortgage?

 

Right. I was just talking to my financial advisor the other day and he's trying to talk us out of paying off our mortgage.

 

I presented him with this:

 

Let's just say I put a lump sum of $100K towards my mortgage today. According to the amortization schedule, that would save me $91,333 in interest over the life of the loan and my mortgage would be paid off in 9/2016 without adding any additional monies per month.

 

If I took that exact same $100K and invested it in one if the more conservative investments he is currently recommending (because I won't go any riskier), I would earn approximately 3.5% interest and at the end of those same 6 years will have earned $20K on my investment.

 

Which makes more sense? Essentially "earning" $91K in savings on my mortgage or making a mere $20K in interest?

 

BTW, currently my house is worth at least twice what we owe on it and it would be hugely unlikely for it ever to be worth less than what we currently owe.

 

He and I were not seeing eye to eye. I guess I could be being overly simplistic. Or maybe he's just not getting it.;)

[CAMom]

I could be wrong, but one financial person wrote that if you pay off early and lose your job and have no emergency savings then you could still lose house whereas someone with emergency savings could end up ok.

 

How could that happen?:confused:

[rafiki]

.

[Mommyof4ks]

I would only consider IMO if you had at least a 6 month or even longer emergency fund coupled with adequate retirement savings and college savings. I could be wrong, but one financial person wrote that if you pay off early and lose your job and have no emergency savings then you could still lose house whereas someone with emergency savings could end up ok.

 

That depends on what state you live in. Here in Texas no one can touch your house. There are several states that have this policy. If you are paying on your house or your house is paid for, then no one can take it from you if you don't pay your other bills. Other states do allow companies to come after your house, so yes, I would make sure I had an emergency fund if living in another state.

 

Unfortunately cheaters move here to hide behind their house when they get caught, because no one can take it to collect on debts.

[TXMary2]

I would only consider IMO if you had at least a 6 month or even longer emergency fund coupled with adequate retirement savings and college savings. I could be wrong, but one financial person wrote that if you pay off early and lose your job and have no emergency savings then you could still lose house whereas someone with emergency savings could end up ok.

 

 

How does one lose a house that is theirs free and clear? They only way would be not paying property taxes and them placing a lien on the home, but a paid off morgage is a paid off mortgage.

[ChrisOR]

It was a very small amount each month, so I don't think the overall mortgage was reduced by much at all (and this was only about a year to a year and a half that we were in the house). When we priced the house with our realtor, we worked out the price so that we knew the very lowest we could go and not owe anything (so when the counter offer came in, we went back with that number and said we just couldn't go any lower at all).

 

But for us, at the time, even that small amount of money would have been better put into an emergency fund or just to have a tiny bit of breathing room each month and less stress. But I'd grown up hearing about how good it was to pay your mortgage off as soon as possible and funnel the money there, and that's what I was trying to do.

 

I agree with you. In this housing and stock market, cash in the pocket is a good thing. And in my area, people who paid extra on their mortgages are stuck with houses worth half the purchase price.

Edited July 19, 2010 by ChrisOR

[Alyce]

However we only have 3 years left till it's paid off and we bought it 25 years ago. When we bought it the house cost 80,000 dollars and is 2400 square foot. It had been empty for a year, had no air conditioning and an fuel oil furnance. It did come with a 1 yr warranty which was good since the furnace blew up the first winter even though the inspector said it was in great shape. When we bought the house the interest rates were 11% (so we really have it nice now). After about 10 years the interest rates started falling and we refinanced it at 6%. We didn't have enough money to pay even extra off because dh makes very little and I'm on disability. Our house payments are very low, a little over $500/month. My father died last year and left me a large amount of money. We chose not to pay off because the interest we could take with income taxes dropped our income level low enough for Dd to recieve need based grants for college. If we had paid it off we would have had to pay more for her college and my son would be left high and dry. You really do have to look at your options closely before you pay off the mortgage.

[VA6336]

If you paid off your mortgage, owned your house free and clear, had credit card debt, a car payment and little to no savings and the breadwinner lost their job, you wouldn't be able to pay the taxes on your house. Or the electricity, or the water, etc. And you'd have to sell.

 

If you have no consumer debt, no auto debt, have reasonable retirement plans, emergency savings, short-term savings (like for that new furnace for when the 10 year old one dies unexpectedly) and have enough left to live on comfortably (whatever comfortable is for you), then sure, pay off your mortgage. Primary home ownership is one of the most sound, sure investments an American can make and one of the very, very few major investments one can actually enjoy on a day-to-day basis. As long as you have reasonable terms on a standard mortgage, don't owe more than 80% on your home, it's a great investment and worth having a mortgage on.

 

Having a mortgage affects your taxes and there's more to it than just having extra money in your pocket at the end of the paycheck. Call a fee-only financial advisor (http://www.napfa.org or http://www.acaplanners.org) and they'll tell you the same thing, only better than I can. :) They don't want to sell you anything other than the best advice they can give you for your personal situation. Most of them are qualified tax advisors, too, so they can look at your entire financial picture taking everything in to account.

[Quad Shot Academy]

Right. I was just talking to my financial advisor the other day and he's trying to talk us out of paying off our mortgage.

 

I presented him with this:

 

Let's just say I put a lump sum of $100K towards my mortgage today. According to the amortization schedule, that would save me $91,333 in interest over the life of the loan and my mortgage would be paid off in 9/2016 without adding any additional monies per month.

 

If I took that exact same $100K and invested it in one if the more conservative investments he is currently recommending (because I won't go any riskier), I would earn approximately 3.5% interest and at the end of those same 6 years will have earned $20K on my investment.

 

Which makes more sense? Essentially "earning" $91K in savings on my mortgage or making a mere $20K in interest?

 

BTW, currently my house is worth at least twice what we owe on it and it would be hugely unlikely for it ever to be worth less than what we currently owe.

 

He and I were not seeing eye to eye. I guess I could be being overly simplistic. Or maybe he's just not getting it.;)

 

Wow! Those numbers are startling!

[Quad Shot Academy]

Thanks for the input everyone! That is a lot to think about.

[katemary63]

My husband and I have always chosen to have a mortgage. He can make more money in the stock market than we're paying in interest on a loan. Although, recently we decided to pay it off early, so we're paid up six months in advance. With the really shaky economy and political climate, we now want to pay it off as quickly as possible. We don't want anyone able to take our home.

 

My husband has nerves of steel regarding the market. In any serious downturn, he has always used it as an opportunity to buy more stock. This is the first time he is considering getting completely out of the market. You guys don't know him, but that's really scary. If he thinks things are so bad he's getting out, the future is not good. Perhaps after November he will feel more positive about things.

 

:iagree:This is us. For 8 years we've held a mortgage and let our investments earn us back the interest and even pay other expenses above that. Now we're getting out and paying off the mortgage.

[Sebastian (a lady)]

Seems like a silly question, but sometimes I wonder. I hear lots of Dave Ramsey fans talking about paying off the mortgage as early as possible and I read lots of finance books years ago that advocate this. But I also hear about people using their houses as tax shelters since the interest is tax deductible, so it lowers your income tax bracket. Also, I figure right when we pay it off, we will have dc in college and want to refinance to pay for college! Would it be better to invest the extra money into a 529 plan? I am just curious if there are alternate points of view on this one! :bigear:

 

I would think hard about paying off if:

 

I still had other household debt. I would pay off credit cards and other bills first.

 

We were expecting to move soon. I would have to look at the different effects of taking a possible loss on what we owed vs a loss on actual investment.

 

I had kids heading into college soon. I would want to look at the different effects on financial aid of having a mortgage payment vs a high income and a paid off house.

 

We didn't have an emergency fund. It is hard to take value out of a house. So I wouldn't pay a lot into equity unless I already had a healthy savings.

 

If the house were no longer a primary residence but was being used as a rental. When you figure the income from a rental property, you can take the mortgage and interest as an expense. If you pay it off, then you will make more from the rental. That might have the result of pushing you into a higher tax bracket. For us, I have to watch that our rental income doesn't trigger a state income tax in the state where the house is. On the other hand, not having to make a mortgage payment can make it easier to turn down an unsuitable tenant or to weather a month or two of vacancy.

 

FWIW, we do have a house that we now rent out and we did pay it off last year. YMMV.

[Nestof3]

We paid off our mortgage last year, and I just want to say that the freedom from that is wonderful. We wouldn't trade that for any tax savings because there is a peace of mind that surpasses. Now, since we were paying a mortgage and a car payment, and our income is the same, we have that extra to put away every month. It has been a load off of my husband's mind.

[Joanne]

Seems like a silly question, but sometimes I wonder. I hear lots of Dave Ramsey fans talking about paying off the mortgage as early as possible and I read lots of finance books years ago that advocate this. But I also hear about people using their houses as tax shelters since the interest is tax deductible, so it lowers your income tax bracket. Also, I figure right when we pay it off, we will have dc in college and want to refinance to pay for college! Would it be better to invest the extra money into a 529 plan? I am just curious if there are alternate points of view on this one! :bigear:

 

In most cases, if you do the math, the math is in favor of no mortgage debt.

[Danestress]

If you put the money toward the loan, you save a certain amount over the life of the loan and have it paid off in six years.

 

If you invest the money, in those six years of compounding interest, you earn 20. But at the six year mark, you have no money if you pay off the loan (from those sources) and you have $120,000 of compounding interest money if you invest it. But you are still paying a mortgage. I think it's a trickier calculation than what you did. The saved money will continue to earn for as long as you have it, and I think you have to factor that into the equation.

[Ginevra]

If you paid off your mortgage, owned your house free and clear, had credit card debt, a car payment and little to no savings and the breadwinner lost their job, you wouldn't be able to pay the taxes on your house. Or the electricity, or the water, etc. And you'd have to sell.

 

I don't think there are any financial advisors who recommend paying off the house while you still have other debts and no savings. You are right, though, that a forced sale of your house could be necessary if you had no income. However, you are still in a better position because you could always choose to live in a smaller house/less expensive location while freeing up money to make it through your jobless period. (Again, I'm speaking of a person who has no other debt and no mortgage.) Even in a depressed market, owning a home is a tremendous asset that gives you leverage you would not have it your house was owned by the bank.

 

I have thought this scenario through carefully because if (God forbid) I lost my husband, who is the breadwinner and who has the skills and equipment necessary for maintaining our house and land, I would have enough $ from insurance and savings to cope, but I would still put the house on the market as soon as practical, move to a smaller home that I could maintain myself and position myself to earn more income. All of this could be done without the a horrible bank breathing down my neck to make mortgage payments.

 

I am a sold-out, 100% devotee to owning your house free and clear as the ultimate goal of financial stability.

[Claire in NM]

Suze Orman almost never recommends paying off your mortgage before having an emergency fund (8 months of monthly expenses), you've paid off your debt (credit card, personal loans, car loans, etc.) and you're working on building up retirement (amount saved depends on how old you are). One other question she asks is: Do you love your home and do you see yourself staying in your home during your retirement years?

 

Claire in NM

[Marylou]

He and I were not seeing eye to eye. I guess I could be being overly simplistic. Or maybe he's just not getting it.;)

 

It's his job not to get it ;)!

[RegGuheert]

 

But here's the thing. If your interest on the mortgage is 5% and you have money investing in a vehicle that is paying 8%, then would it be better to leave the money there rather than use it to pay down the mortgage?

There is one important difference between the interest earned (saved) from paying off a house and the interest earned from an investment: With the house, both your principal and interest are guaranteed. With most investments, neither are guaranteed.

Suze Orman almost never recommends paying off your mortgage before having an emergency fund (8 months of monthly expenses), you've paid off your debt (credit card, personal loans, car loans, etc.) and you're working on building up retirement (amount saved depends on how old you are).

IMO, emergency funds are a financial trap for many people. In many scenarios in which a family has a mortgage, a couple of car loans and credit card debt, it can take five or more years to build up your emergency fund. Given the same scenario, you can often pay off ALL your debts, including your mortgage, in about the same amount of time. Then you can build up an emergency fund in a couple of months since nearly all your income can go toward the fund and you no longer have much in the way of expenses.

[Laura Corin]

We have two houses: one we bought fourteen years ago and started renting out when we moved abroad; the other is our family home in Scotland. There is a small mortgage on the rental and a large mortgage on the family home. We could sell the rental and completely pay off the family home mortgage. However, the rent from the rental covers the two mortgages and we benefit from its increase in value over time - it's in London, in an area where demand is high, even in bad times.

 

Laura

[NoPlaceLikeHome]

There is one important difference between the interest earned (saved) from paying off a house and the interest earned from an investment: With the house, both your principal and interest are guaranteed. With most investments, neither are guaranteed.IMO, emergency funds are a financial trap for many people. In many scenarios in which a family has a mortgage, a couple of car loans and credit card debt, it can take five or more years to build up your emergency fund. Given the same scenario, you can often pay off ALL your debts, including your mortgage, in about the same amount of time. Then you can build up an emergency fund in a couple of months since nearly all your income can go toward the fund and you no longer have much in the way of expenses.

 

Yes, but what about the scenario where someone loses their job or becomes sick and is unable to work? One book I read gave the example of 2 families where one paid extra to the mortgage and had no extensive 6 to 8 month emergency fund and the other did not make extra payments to house and saved an emergency fund. Then both lost jobs and the one without the emergency fund lost the house since it is very difficult to extract money from a house in time of dire need:(.

I guess I believe that one is not guaranteed to have always have a job or good health:(.

 

IMHO I think an emergency fund and paying off credit cards are much higher priorities as well as retirement funds and college funds.

[NoPlaceLikeHome]

How could that happen?:confused:

 

One could lose a house even if it is paid off if one loses job or health and cannot afford to pay real estate taxes or if their is still a mortgage if they cannot pay the mortgage:(

 

Their lots of houses up for tax sale in our area:(.

[NoPlaceLikeHome]

How does one lose a house that is theirs free and clear? They only way would be not paying property taxes and them placing a lien on the home, but a paid off morgage is a paid off mortgage.

 

True the mortage might be paid off but in our neck of the woods and in many places there are tons of tax sales on houses for non-payment of real estate taxes:( As a result of a tax sale the county can sell your house to get payment for unpaid taxes and you have no home:(.

[cathmom]

If you put the money toward the loan, you save a certain amount over the life of the loan and have it paid off in six years.

 

If you invest the money, in those six years of compounding interest, you earn 20. But at the six year mark, you have no money if you pay off the loan (from those sources) and you have $120,000 of compounding interest money if you invest it. But you are still paying a mortgage. I think it's a trickier calculation than what you did. The saved money will continue to earn for as long as you have it, and I think you have to factor that into the equation.

 

I agree - you still have the $100,000 at the end of the period. I think it's more complicated.

[CAMom]

If you put the money toward the loan, you save a certain amount over the life of the loan and have it paid off in six years.

 

If you invest the money, in those six years of compounding interest, you earn 20. But at the six year mark, you have no money if you pay off the loan (from those sources) and you have $120,000 of compounding interest money if you invest it. But you are still paying a mortgage. I think it's a trickier calculation than what you did. The saved money will continue to earn for as long as you have it, and I think you have to factor that into the equation.

 

Yes, I'm sure my calculation is probably too simple.:)

 

So, I would try to figure out...how long would it take my investment money to earn $91,333 since that's how much I would save in interest on my mortgage. Not to mention that if I paid off my mortgage, I would have an extra $1500 per month that I could invest provided nothing else changed in my situation.

 

I would also have to factor in increase in property value, right? I mean if I paid off my mortgage, it's not like that money is sitting stagnant not earning anything. True, I wouldn't have the money sitting there like I would in an investment but I would have the increased value of my house over the years. (And, yes, I realize that home values have dropped. But, on average, real estate does increase in value.) So, I save the $91K in interest and the value of my home increases.

 

It really is a complicated equation.:)

[cathmom]

Yes, I'm sure my calculation is probably too simple.:)

 

So, I would try to figure out...how long would it take my investment money to earn $91,333 since that's how much I would save in interest on my mortgage. Not to mention that if I paid off my mortgage, I would have an extra $1500 per month that I could invest provided nothing else changed in my situation.

 

I would also have to factor in increase in property value, right? I mean if I paid off my mortgage, it's not like that money is sitting stagnant not earning anything. True, I wouldn't have the money sitting there like I would in an investment but I would have the increased value of my house over the years. (And, yes, I realize that home values have dropped. But, on average, real estate does increase in value.) So, I save the $91K in interest and the value of my home increases.

 

It really is a complicated equation.:)

 

That's true, but it is your money, and since you seem to want to pay down the mortgage, then that's the best thing to do.

[southcarolinamom]

We have two houses: one we bought fourteen years ago and started renting out when we moved abroad; the other is our family home in Scotland. There is a small mortgage on the rental and a large mortgage on the family home. We could sell the rental and completely pay off the family home mortgage. However, the rent from the rental covers the two mortgages and we benefit from its increase in value over time - it's in London, in an area where demand is high, even in bad times.

 

Laura

 

sweet! :D

[Laura Corin]

sweet! :D

 

Completely unplanned - we bought the London house to live in, but then husband was out of work for a year (during my pregnancy and the first few months of Calvin's life) and he had to take a job overseas. The best investment we ever made, but entirely accidental.

 

Laura

[Laura Corin]

The way they work (bear with me, I'm finding this hard to explain).

 

Say you have a 100k mortgage but 20k of savings. You put the 20k in an account (savings or current/cheque) in the same bank as holds your mortgage. They only charge you interest on the 80K difference between your mortgage and the savings, which means, in effect, that your interest rate on savings is the same as your mortgage rate. The money remains completely accessible (the account is just a normal instant-access account) and you get credit for every day the money is there - so you get more credit for the beginning of the month when you have more money in your account.

 

Laura

[StephanieZ]

OK, so this is my take. . .

 

+ What I write below is assuming that bankruptcy is not a possibility. Your home is often protected in bankruptcy, so it might make sense to minimize any debt against your home while putting it against any other thing! For folks for whom bankruptcy is not on the table, read on. . .

 

- Having zero debt and accumulating savings/assets is obviously the ideal goal. Definitely. Pay it off, save it up, let the bank pay you (interest) instead of you paying the bank!

 

- If you have *any* debt, it makes sense for it to be a mortgage because of the tax benefits and the typically better interest rates. If for some reason (say a fabulous 2% student loan), you have much better interest rates on some other debt, then that might be preferable to a home mortgage in certain situations.

 

- Note, if you pay 10,000 in mortgage INTEREST each year and are in a tax bracket with, say, 30% marginal rate, then you save $3000 cash that year in tax savings. BUT, you have PAID $7000 to the bank in interest.

 

-- If you had that mortgage paid off, then you'd have 100% guaranteed yourself not to pay that $7000. . . If you'd kept that mortgage in place and had the money in an investment somewhere. . . can you GUARANTEE you'd have earned $7000 on it? Probably not! You might have even lost on it! (Check out 2008-2009 stock markets!)

 

-- There are more articulate explanations of this theory, but that is my take on it. . . In general, avoid all debt. If you must have debt, a home mortgage (original debt, not home equity line!) is the way to go. . . unless bankrutcy is feasible, in which case, it's a different game altogether!

 

Someday, somehow, I hope to live according to this wisdom, lol. ;);)

[Ottakee]

Well, I am the payee for my brother who is disabled. He just got a chunk of money from an estate. I could pay down his mortgage quite a bit but I want him to have an emergency fund for things like major repairs, car, if his disability checks would be late or stopped for any reason, etc.

 

Basically, I am trying to give him a cushion of 12 months or so and then pay extra. See, if we pay a chunk extra on the mortgage now, it WILL save him quite a bit on the interest but then if something happens, he would default on his loan in 1-2 months and be in trouble. By keeping some back and paying just a smaller amount extra we will have living money for him is something changes.

 

I know this isn't exactly clear.

 

For us, we did pay off our house, we have an emergency fund, we are almost (except a small car loan) debt free, etc. Our situation is a bit different than my brothers. I think you need to look at your situation, how much you have left to pay off, the savings, your emergency fund, the risk of job loss, cut income, etc. before deciding for sure.

[Quad Shot Academy]

One other question she asks is: Do you love your home and do you see yourself staying in your home during your retirement years?

 

Claire in NM

 

I do think this is an important question! We do not have an attachment to our home or even state! If hubby ever got laid off or passed away we would sell as quickly as possible. Because of his specialized line of work, the chances of finding a job in this state would be less that 20% and we would probably want to move closer to his new job anyway since traffic is so bad. With cost of living here, I would never stay in the metro area if he passed away.

 

I do agree with PPs that you should not consider it, if you have other debt or little savings. I know some people are still making money in the stock market but out 401k and 529 plans have made very little money in the past 7 years.

[Quad Shot Academy]

I would never borrow against a house for college tuition.

 

Really, I thought this was the norm? Are student loans cheaper, or would you not borrow at all for college if needed? Of course I hope we have enough savings, can get scholarships . . .

[Danestress]

So, I save the $91K in interest and the value of my home increases.

 

It really is a complicated equation.:)

 

Yeah, but our houses increase in value either way. If we don't sell, I think the increase in the actual value of the house is the same whether we own the homes free of a mortgage or not. 20 years, given the same circumstances and improvements made, it's the same house.

 

For us, it's not a "lump sum" that we could put toward the mortgage. It's more, "If we put $500 extra toward paying the house off or invested that $500, which would be the better use of the money?" If the mortgage rate is low but the interest rate money is earning is high, then that's not so hard. If I save the money into a vehicle yielding 12% rather than pay down a 5% interest, I think I would make more money. But right now, our interest rate on the mortgage is low, but so is the interest rate on our investments. I think our best investments earned 7 1/2% this year (net). So maybe that money did better sitting in the investment than it would have done paying down the loan. For this year.

 

Then to make matter sticky, if the $500 could go into a 401K that DH's employers also contributes to and that has it's own tax advantages, which is better? Obviously it depends on what the 401K earns this year, and we won't know that until AFTER the fact.

 

I really don't know the answer to these questions. And it hurts my brain to think about it.

[spradlin02]

We paid off our mortgage last year, and I just want to say that the freedom from that is wonderful. We wouldn't trade that for any tax savings because there is a peace of mind that surpasses. Now, since we were paying a mortgage and a car payment, and our income is the same, we have that extra to put away every month. It has been a load off of my husband's mind.

 

I 100% agree. Forget all the fancy accounting, the freedom of being mortgage free is unparalleled. It's given us the freedom to much more easily chose our own direction in life. It allows us to take the income cut that will happen when I quit my job in a few weeks.

Edited July 19, 2010 by spradlin02

[spradlin02]

I would also have to factor in increase in property value, right?

 

Nope. Over how many years? I think we're in for a very long term depressed real estate market. Think Japan in the 90's.

[Ginevra]

Really, I thought this was the norm? Are student loans cheaper, or would you not borrow at all for college if needed? Of course I hope we have enough savings, can get scholarships . . .

 

Speaking only for myself, I am not going to do this. :toetap05: They can get scholarships, go to college in-state, go to community college first and then transfer, work part-time or get a student loan. I do not see sending my kids to any college they want that will have them as an obligation of parenthood. We are saving money for them and I hope and expect that between that, scholarship money and other strategies, they can go to college, but if they need additional loans, they can take on their own debt.

[Amy loves Bud]

I agree with you. In this housing and stock market, cash in the pocket is a good thing. And in my area, people who paid extra on their mortgages are stuck with houses worth half the purchase price.

 

You know, we paid off our house a couple years back, and if we hadn't, the money would have been in the stock market and...you guessed...been worth half the purchase price. Which is what happened to our other investments.

 

We're fortunate that our house has not depreciated much in the downturn, but even so, that only matters if you are selling. ETA: It actually helps if you aren't selling, because the tax basis for the house goes down. Not that that has anything to do with paying or not paying the mortgage, but I'd love to see our appraisal drop right about now. But in Texas property taxes are huge, where in many other states it probably wouldn't make a huge difference.

 

Amy, very happy to have no mortgage

Edited July 19, 2010 by Amy loves Bud