Is it a bad decision to payoff mortgage early

[umair127]

Sure, there are logical arguments for both sides. But, no one can dismiss the peace of mind you may feel by having paid it off. Sometimes that is more important than the numbers. Use that argument when talking to people. It's your money and your emotional state. They shouldn't argue with that.

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[Rigon]

or rent it out and buy another house. I have a few friends who started doing that, and have since quit their jobs and do that as their sole source of income.

how did they do during the recession?

they cant hire someone or their relatives to do the property management? doesnt seem like a full time job all the time .seems to be a solid source of income especially when this country is getting more and more crowded .

He did okay. I shouldn't have said it's his sole income, but it's definitely his primary income. I think he probably pulls three shifts part time at a gas station.

He started by buying one house and fixing it up. While renovating it he realized he could divide it into something for him, and a rental space. Eventually he found the second house he could do the same to, so moved out of his and rented it, moved into the beat-up house, and lived there while he renovated.

Now I think he has 10 that he rents out and an 11th that he lives in. 10 rental places keeps him pretty busy but hiring someone to manage it would kill his profit.

Are those 10 houses together in one place or one area or scattered?

They're relatively close. I've only been to one, a three story house that he rents the first two floors and lives on the third. But they're all probably within a few miles of each other.

perhaps i should do a cash out refinance to get cash to buy the next house instead. that way i get to keep all the tax benefits of a primary residence loan?

Do you itemize? Are you in a high enough bracket that the savings on your marginal rate offset the differential interest?

yup,let's go with the the hypothetical 25% married jointly bracket ...

Assuming you are married filing jointly at a 25% federal marginal rate, and you have a $150,000 mortgage at 4.4% interest over 15 years, then your average annual federal tax savings is about $950. For comparison, you are paying about $3,700 in interest per year. So your net is negative $2,750. Over the term of the mortgage, it's negative $41,000.

By contrast, the 2014 standard deduction for married filing jointly is $12,400.

So, unless you are itemizing deductions in excess of about $15,000 annually, then you are better off with the mortgage paid off from a tax perspective.

[noviapriani]

or rent it out and buy another house. I have a few friends who started doing that, and have since quit their jobs and do that as their sole source of income.

how did they do during the recession?

they cant hire someone or their relatives to do the property management? doesnt seem like a full time job all the time .seems to be a solid source of income especially when this country is getting more and more crowded .

He did okay. I shouldn't have said it's his sole income, but it's definitely his primary income. I think he probably pulls three shifts part time at a gas station.

He started by buying one house and fixing it up. While renovating it he realized he could divide it into something for him, and a rental space. Eventually he found the second house he could do the same to, so moved out of his and rented it, moved into the beat-up house, and lived there while he renovated.

Now I think he has 10 that he rents out and an 11th that he lives in. 10 rental places keeps him pretty busy but hiring someone to manage it would kill his profit.

Are those 10 houses together in one place or one area or scattered?

They're relatively close. I've only been to one, a three story house that he rents the first two floors and lives on the third. But they're all probably within a few miles of each other.

perhaps i should do a cash out refinance to get cash to buy the next house instead. that way i get to keep all the tax benefits of a primary residence loan?

Do you itemize? Are you in a high enough bracket that the savings on your marginal rate offset the differential interest?

yup,let's go with the the hypothetical 25% married jointly bracket ...

Assuming you are married filing jointly at a 25% federal marginal rate, and you have a $150,000 mortgage at 4.4% interest over 15 years, then your average annual federal tax savings is about $950. For comparison, you are paying about $3,700 in interest per year. So your net is negative $2,750. Over the term of the mortgage, it's negative $41,000.

By contrast, the 2014 standard deduction for married filing jointly is $12,400.

So, unless you are itemizing deductions in excess of about $15,000 annually, then you are better off with the mortgage paid off from a tax perspective.

fuck mortgage worries, ye should whack ten grand or a hundred grand whatever ye have going spare on rhodium

since scoffing on yer last xmas turkey, in 8 months rhodium has increased by about 50% from 900 dollars to about under 1350 dollars an ounce, nearly 250 of those dollars in the last 30 days on a rocket rise up expected to go to 2000 dollars in a month or two at this rate

http://www.kitco.com/charts/popup/rh0365lnb.html

[umair127]

Numbers-only speaking, it was probably a good idea, anyway. Because, 1: Your debt-to-credit ratio is the main factor in determining your credit score. So paying it off is good for your score. 2: If the interest you're paying on a loan is higher than the interest you are earning for having that money in the bank, then you save money by paying off the loan.

[noviapriani]

rhodium has lovely volatility ...

http://www.kitco.com/scripts/hist_ch...rly_graphs.cgi


it was up to 10,000 dollars an ounce in july 2008 then down to fuck all 1000 dollars january 2009, then back up to 3000 dollars in march 2010 then down to 900 dollars last xmas, now back on a roll rising up fast 50%

[wenben]

Can use the liquidity you have to buy bitcoin or lend it out.

[TheGer]

You made the best decision paying it off.  When everything goes to shit you don't want to be owing the Banks or the Government anything.  They will roll over you and take everything you have.

Be sure to have all ownership documents in order, to prove without a doubt everything is paid off and legally in your name.

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?

[boumalo]

You made the best decision paying it off.  When everything goes to shit you don't want to be owing the Banks or the Government anything.  They will roll over you and take everything you have.

Be sure to have all ownership documents in order, to prove without a doubt everything is paid off and legally in your name.

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?

In case of massive inflation and you have a fixed interest rate it is a good thing to have loans and real assets

[kuusj98]

Why would it be bad to pay it off so fast? You know hoe much rent you saved right?
I don't know how it is in your country, anyway...

[JohnnyLightning]

Debt is slavery, although in some income tax brackets a little slavery is preferable to rape.

[Possum577]

It depends on what you'd be using the extra money (that would be used to payoff the mortgage early) for otherwise?

IF it's just sitting in a savings account, earning very little interest, it might be smart to payoff the mortgage early, resulting in a 4.4% return on that money (in the form of having avoided the interest).

If you're able to make more than 4.4% on that extra money it would not be as wise to payoff the mortgage early.

The question can't be answered as simply as I just described it but this is how you should start to think about it. Remember that owing no one is always better than owing someone.

[TheGer]

I'm sorry but that defies logic.

Doesn't matter how low your interest rate is, You're paying money in to a black hole if you owe interest on anything.  Paying it off as quick as he did he essentially recovered the entire cost of the house as he avoided just as much in interest(or more) than the principal on the house he bought.  That's a win and a better reason to pay off early than any reasoning that could be given on stretching it out over the whole loan term.

As was stated earlier.  Owing no one is better than owing someone.

You made the best decision paying it off.  When everything goes to shit you don't want to be owing the Banks or the Government anything.  They will roll over you and take everything you have.

Be sure to have all ownership documents in order, to prove without a doubt everything is paid off and legally in your name.

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?

In case of massive inflation and you have a fixed interest rate it is a good thing to have loans and real assets

[Kluge]

I'm sorry but that defies logic.

Doesn't matter how low your interest rate is, You're paying money in to a black hole if you owe interest on anything.  Paying it off as quick as he did he essentially recovered the entire cost of the house as he avoided just as much in interest(or more) than the principal on the house he bought.

All fiat money is debt. Annual inflation is effectively the annual interest rate the government charges you for holding it. Holding cash as an asset is, in reality, a liability. Just because there's no bill or receipt showing how much value your USD loses each month, that doesn't mean it's not happening.

If your mortgage is @ 3.5% annual and CPI increases 4%/yr, you are effectively making .5%/yr on your debt even though nominally, it looks like you're losing wealth (when in reality, you're gaining wealth and losing money). 4% annual inflation, though, is historically low, so it's clearly a fantastic time to buy since inflation rates always cycle and you can get a fixed-rate mortgage at 3.x% with good credit. What to buy is a bigger question... Idunno about houses.

[Fray]

I'm sorry but that defies logic.

Doesn't matter how low your interest rate is, You're paying money in to a black hole if you owe interest on anything.  Paying it off as quick as he did he essentially recovered the entire cost of the house as he avoided just as much in interest(or more) than the principal on the house he bought.  That's a win and a better reason to pay off early than any reasoning that could be given on stretching it out over the whole loan term.

As was stated earlier.  Owing no one is better than owing someone.

If you can earn more by investing the money you borrow then you will end up with more money at the end of the day. The issue is that it is very difficult to get any kind of guaranteed return with any investment.

I agree that not owing someone (a mortgage company) money on your home does provide piece of mind which in itself should be worth something.

[bigasic]

A relative of mine is a CPA and a very good one.. He is against being in debt. I just got my house interest down to just above 3 percent and I have diversified my money, silver, gold, bitcoin, cash. I want to invest my cash into something that makes something, but I dont spend more on bitcoin, (i will a little but not too much) and I asked if it was better to put my money into a 401k or moneymarket that averages 7-10 percent a year.. He advised me to pay off my house. But I only pay 3 percent, why not use that money to make  7 to 10? I dont get his thinking. now if I was paying 6 or more percent, i can see his thinking, but I dont get where hes coming from.

Doesn't it make sense to keep paying a low interest loan and invest in something that makes money? He's insistent that hes right, but he hasn't had the time to explain it to me.. next time i visit with him, I want to know, lol.. I think he just so against being in debt that it doesnt matter what interest your paying.. Gotta listen to him though, he is very comfortable with a meager salary by not getting into debt, paying cash for everything and investing properly..

I wish I would have listened to him when I was younger, I would be in a much better position than im in now..

IMHO, I think if you have a low interest mortgage, like mine, its a good idea, unless you can easily pay it off, but ive heard from a lot of people that renting is better off financially, until you can pay cash for a house..

[Timetwister]

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?

4.4% is low, but I'd probably had also paid it, so I could forget about it, I don't like owing money to anyone. If you were comfortable with it, you could had invested in the stock market, which produces 5.2% real return (at least for the last 113 years!).

[Leina]

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?

4.4% is low, but I'd probably had also paid it, so I could forget about it, I don't like owing money to anyone. If you were comfortable with it, you could had invested in the stock market, which produces 5.2% real return (at least for the last 113 years!).

Stock are over valued these days. Municipal bond still have attractive yield.

[johncarpe64]

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?

4.4% is low, but I'd probably had also paid it, so I could forget about it, I don't like owing money to anyone. If you were comfortable with it, you could had invested in the stock market, which produces 5.2% real return (at least for the last 113 years!).

By this measure investing in the stock market would have been the better bet, before taking taxes into consideration. Taxes would eat up a lot of these gains, and you would pay taxes on your pre-inflation gains (not inflation adjusted).

[Timetwister]

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?

4.4% is low, but I'd probably had also paid it, so I could forget about it, I don't like owing money to anyone. If you were comfortable with it, you could had invested in the stock market, which produces 5.2% real return (at least for the last 113 years!).

By this measure investing in the stock market would have been the better bet, before taking taxes into consideration. Taxes would eat up a lot of these gains, and you would pay taxes on your pre-inflation gains (not inflation adjusted).

Well, you don't need to materialize all capital gains. Maybe you have enough with the dividends. So you don't pay that much in taxes. It also depends on your tax bracket, of course.

[Bonam]

Paying off that mortgage is a 4.4% risk free rate of return investment.

Can you get 4.4% risk free anywhere else? What level of risk does investing in the stock market for potentially higher returns pose? Keep in mind tax costs when investing in stocks as well.

In any case, now that your mortgage is paid off, you can, if you choose, take out a HELOC at a comparable rate for a significant fraction of your home's value and invest it in the stock market, if you think that is a good choice.