Is it a bad decision to payoff mortgage early

[sana8410]

I was so eager that I paid off a 4.4% $150k 15y mortgage in a few years. now some people are analyzing and suggesting that i should have run it out.


thoughts?

[solid12345]

A few years isn't too bad but if you can buy a house in cash instantly, think twice what kind of investments you could make with $100 grand.

[RodeoX]

I say pay it slow. If you have a way to make more than the 4.4% your paying, then you are better of not paying. I assume your rate is locked in? If it is a balloon mortgage then I would think differently.

[zolace]

It's good to pay off a mortgage if you intend to borrow money for a commercial venture or something along those lines. Bankers tend to be a little extra impressed by a paid off mortgage. It tells them you may have an interest in being responsible with any other loan.

This applies to traditional bankers only.

[Rigon]

If you could have split two loans on a build project, work out what a $75,000 mortgage over 5 year would have been, and do another $75,000 mortgage over the next 5 years after, - its the cheapest way to borrow $150,000 by far, and then no real compulsion to pay off early.

[noviapriani]

Don't listen to them. Paying off any debt with an interest rate above the savings rate is almost always a sound financial decision (high income individuals excepted).

[sana8410]

i should have just kept the mortgage. i know im gonna kick myself a few years from now when interest rate goes back up.


I originally planned to keep the mortgage while saving up cash for down payment of the next property. but it hurts to see 4.4% mortgage interest going out the window every month while a bunch of cash is sitting doing nothing in the 0.5% saving account. so i chickened out and decided to pay off this mortgage first. now i have $150k sitting there doing nothing.

[zolace]

i should have just kept the mortgage. i know im gonna kick myself a few years from now when interest rate goes back up.


I originally planned to keep the mortgage while saving up cash for down payment of the next property. but it hurts to see 4.4% mortgage interest going out the window every month while a bunch of cash is sitting doing nothing in the 0.5% saving account. so i chickened out and decided to pay off this mortgage first. now i have $150k sitting there doing nothing.

You probably are much better off having paid it, particularly if you intend to go into business as an owner. In general, asking for financial advice on here is silly, and asking for advice as you did, which is to say you didn't give any idea of what your longer term plans are, is pointless.

[Brewins]

Q1 - can you make more than the discount if you invest the money, instead of pay the mortgage?
Q2 - is there a reasonable chance for you to lose your main income?

Q1 y and Q2 no = pay mortgage early is a stupid idea

Q1 n = pay your mortgage

Q1 y and Q2 y = not enough data for a definitive answer

[noviapriani]

i should have just kept the mortgage. i know im gonna kick myself a few years from now when interest rate goes back up.


I originally planned to keep the mortgage while saving up cash for down payment of the next property. but it hurts to see 4.4% mortgage interest going out the window every month while a bunch of cash is sitting doing nothing in the 0.5% saving account. so i chickened out and decided to pay off this mortgage first. now i have $150k sitting there doing nothing.

You made the right decision for several reasons. First, based on the price of the home and your mortgage interest rate, there is almost no way it made sense for you to itemize, unless you had some massive additional deductions. So, you were getting zero benefit from the mortgage interest tax deduction. Even if you did get a benefit, unless your income is very high putting you in one of the higher marginal rate brackets, the benefit was likely de minimis.

Second, your rate, although low by historical standards, is actually very high when compared to the return on savings and low risk investment at the moment. By paying off early, you got a guaranteed 4.4% return with essentially zero risk, something you would never find in the current market.

Third, this will positively affect your ability to borrow in the future. A fully paid off long term debt is something lenders like to see even more than outstanding debts that are current. Moreover, you have cash now and as they say cash is king. This will allow you to make a larger downpayment, reducing the debt to equity ratio on your next house purchase and thereby reducing the risk to the lender. The lender will offer a lower rate for a better loan to value ratio. You will also be in a position to consider paying points to reduce your rate.

[fdiini]

Depend on your interest rate and rental yield.

If the rental yield is higher, then it is not a good idea to pay it off as you can use the same money to buy another property with similar yield.

[Razick]

I was so eager that I paid off a 4.4% $150k 15y mortgage in a few years. now some people are analyzing and suggesting that i should have run it out.


thoughts?

I think it should depend on how much you could make in a low-risk investment. If you could make more than 4.4% without too much risk, then it might be better to keep the mortgage. Personally, I think you made a pretty good decision. Being debt free is never a bad thing.

[beetcoin]

probably depends on multiple factors, like your income and your investment opportunities. if you can make more than 4.4% back with little risk, then why not just pay the loan over the years.

how much of that 150k is part of the home? as in how much is your home worth?

[BTCmoons]

I would say it is not a bad decision. Paying off your mortgage, essentially gives you a 30 year guaranteed rate of return of your interest rate. It will also give you piece of mind that you will likely not lose your house to foreclosure if you were to lose your job or have another major financial setback (you could still lose it to tax foreclosure if you don't pay property taxes).

[Lethn]

Don't listen to those morons, they want you in debt so that when everything collapses they can take away your house, don't forget, even if you only technically owe a small amount on the mortgage, you've still put your house up as collateral and Thomas Jefferson warned central banks would come and start taking everyones homes and land through their systems. Hell, I even heard on the news once about how a bank ( I think it was RBS ( Royal Bank of Scotland ) ) went and deliberately fucked over businesses with bad advice etc. so that they could then buy them up for cheap.

Finish the mortgage, build up some savings and of course invest in some precious metals too to prepare for the inevitable hyperinflation, my parents seem to think this way and think that not paying off their mortgage would be a cheap option but I'm going to see if I can't convince them somehow that it isn't lol, they're old though and don't know any better.

[jaberwock]

Have a mortgage is already bad, in my opinion.They can't take your house if you don't have one, you don't lose the opportunity costs of investing our money, and you have no debts, so you will be a better shape for a crysis, and still have credit if some business opportunity appears.


I would pay the mortgage debt, however, only if I still had some reserve after quitting the debt, because protection against crisis and stuff is worth some interest.

[michaelwang33]

i should have just kept the mortgage. i know im gonna kick myself a few years from now when interest rate goes back up.


I originally planned to keep the mortgage while saving up cash for down payment of the next property. but it hurts to see 4.4% mortgage interest going out the window every month while a bunch of cash is sitting doing nothing in the 0.5% saving account. so i chickened out and decided to pay off this mortgage first. now i have $150k sitting there doing nothing.

It was probably better that you paid off your mortgage. You no longer have this debt hanging over your head that would force you to do work that you may not like tomorrow but have to do to keep your house. If something were to happen that would cause your income to drop (get sick, get laid off ect) the you would not need to worry about having a mortgage to pay.

Impersonally think this piece of mind is worth a lot.

[money420weed]

probably depends on multiple factors, like your income and your investment opportunities. if you can make more than 4.4% back with little risk, then why not just pay the loan over the years.

how much of that 150k is part of the home? as in how much is your home worth?

This is very true. As mentioned above, you should keep in mind he value of having piece of mind that your house is paid for. You should also remember that the 4.4% you "earn" by paying off your mortgage is guaranteed, while any other investment is not.

[Bitsaurus]

If you have a good income stream paying it off was a good choice.  You just need to hustle and build up enough for downpayment on #2 when the housing market tanks again... and it will.

Unless you had massive income there's no benefit to having to pay the bank 4.4% and then have them return 2/3 of 0.25% back to you.

[Kluge]

There are some benefits to keeping it, not the least of which is the comfort of having plenty of cash on hand (though this really isn't an issue for long since you're knocking off such a big monthly expense). Due to how stupid the system is, paying it'll probably also negatively affect your credit score a bit. So long as you have good job security, though, you can always use it for a HELoC (rates are similar to traditional mortgage and you can lock in at a fixed rate) if you should want to, and while you don't, you're saving all that cash you'd otherwise be sending to The Void in interest and fees while also being able to really build your savings/retirement by knocking what I'm guessing was a ~$1k/mo bill.

Way more important than savings rate vs. mortgage interest is mortgage interest vs. inflation (at least in the US, where the savings rate is practically 0%). It's probably one of the best times in history to get a fixed-rate mortgage (and pretty much any cheap debt you can get your hands on) in the US, but that doesn't mean it's a good time to get or keep/refinance a mortgage for you. Inflation/Fed rates have been astoundingly low, which has to eventually change, likely quite significantly where your debt is devaluing significantly faster than the interest rates you can lock into today with you having access to savings rates >0%. Of course, right now, you could use all these different "accelerated checking" schemes (credit unions in particular are good for this, but they're always named something different) which actually pay decent interest (~5% annually) if you jump through a bunch of hoops (generally, something like ACH deposit 1-3 times [Paypal] and use your debit card 5-12 times [Amazon Prime membership will do you well, here, though Meritline can be a great choice, too]), and they usually have maximum deposit limits of $5k-25k.

With or without the mortgage, there are all sorts of different ways to play it -- you have tons of options open -- go have a nice dinner and burn your mortgage papers up if you haven't already. Important to note, too -- there's nothing wrong with being safe... if you're happy with where you are, all you're really doing each day you work is decreasing the amount of time until you can retire.