Pay off mortgage?

[MonkeyMama]

Not knowing your age, assets, job security, or anything else, I can't say. If you have a good tax guy, I am sure he would consider all this though. As a tax advisor I have definitely advised people to pay off their house. Usually they have more money than they know what to do with and some greedy investment broker told them to keep the mortgage for the "tax break." GEtting a mortgage for the tax break can be a good move (can be significant). Getting a mortgage you don't need, or keeping one ONLY for the tax break, rarley makes any sense.

But sorry - no advice with the little info given.

[zetta]

I'd suggest running your numbers through this calculator:

Invest vs. Payoff

Just because the recent market crash caused the return numbers for the last 10 years doesn't mean they will remain flat for the next 10 years. There was one other decade recently where this happened (can't remember if it was the 60's or 70's) but the following decade had quite good returns.

I'd also look at this decision in the context of your overall retirement plan.

[LuxLiving]

payoff vs. invest calculator

Thanks for posting this Zetta. We were right. It showed me just about the same results my feeble math brain had figured out. We were better off paying ours off! Nice to have more confirmation that it was the right thing to do.

[EEinNJ]

Zetta, that calculator was very helpful. In my case it showed that unless I expect better than a 5% return, I'm better off paying off the mortgage. As others have noted, there's an intangible value in the security of paying off the debt. My own prediction of market returns is the stimulus-induced rebound will continue for the next few months, but in the intermediate term (2-5 years) the will be low single digit returns because of the massive debt burden still in the system.

My retirement is pretty well funded for my age (46), and my non-retirement portfolio is actually larger. I have an EF, I save towards a new car, vacations, etc., and my job will probably last 2-5 years until the owner retires. So I'm thinking for now I'll keep paying extra principle, and pay it off next year.

[disneysteve]

There is a flaw with that calculator. At some point, you lose the interest deduction when the amount gets too small, don't you?

Even so, I ran my numbers and investing at a 6% return it said I was better off keeping the loan. As is, I do make an extra principal payment each month of $100 so the loan will be gone early. I'm just not selling any current investments to pay it off faster.

[tripods68]

In general, if you have the "means" to pay off mortgage (by selling company stocks) you ought to do it coz of the interest cost. Assuming of course, you have contributed to both of your wife's retirement, established EF, and do not have other bills to contend with. In this volatile market it is very hard to generate a consistant return.

The other comment I have, it would appear the student loan was incurred before they got married. At least, that's what sounded to me. Being that, I agree the wife should be responsible paying her own loan.

With no mortgage payment, that extra money could potentially be saved more toward retirements.

[disneysteve]

In general, if you have the "means" to pay off mortgage (by selling company stocks) you ought to do it coz of the interest cost.

Why? What if the stock is doing well and outperforming the interest being paid on the mortgage? I could have sold 2 mutual funds that I own at the beginning of this year and that would have given me just about enough to pay off my 5.875% mortgage (forgetting taxes for the moment). That would have ended up being a pretty stupid decision as those 2 funds are up 39.58% and 19.68% YTD. I'd be mortgage-free but a lot poorer as a result.

[tripods68]

Why?

A smart fund manager money are dime of dozen. The return on investment is often "crap shoot". We can assume the market will consistently gives return, but at the end of the day, we don't really know. When people start thinking "oh yah i could do better" a lot times they've already lost money. It's always better to have a conservative approach no matter what you think you can beat the market.

[melinuxfool]

I'm debt-free except for mortgage (wife has a school loan that's her's to pay).
401k, EF, and brokerage investments all in good shape. My tax guy gave me the idea to pay off the mortgage earlier this year- not really a recommendation, but to think about it.

The mortgage has 14 years remaining, fixed 5 5/8%, owe about 89k. House is worth 350-375k, NJ taxes close to 6k/yr. Payment is very comfortable but I'd save $800/month if paid off. Right now I'd have to sell about 40k in stocks to have the payoff cash. Between winners and losers, I could probably make the sales tax neutral.

So, I could hope for the market to come up and then pay it off, or figure things won't get that much better soon and an early mortgage pay-off is a better investment. Thoughts?

Were I in that situation, I'd do it yesterday. Sell that stock and have a paid for house. I'm sort of a Dave Ramsey fan, so I'll ask a question similar to one he might ask... Are willing to put the roof over your head at risk to make a risky investment (stocks)?

A paid for house offers a lot of security. As long as you pay the taxes, it's yours, and the banker cannot touch it.

[melinuxfool]

Why? What if the stock is doing well and outperforming the interest being paid on the mortgage? I could have sold 2 mutual funds that I own at the beginning of this year and that would have given me just about enough to pay off my 5.875% mortgage (forgetting taxes for the moment). That would have ended up being a pretty stupid decision as those 2 funds are up 39.58% and 19.68% YTD. I'd be mortgage-free but a lot poorer as a result.

What is the level of risk in the investment? When determining whether to pay off a mortgage, you have to include the risk into the equation. Once a home is yours, it's yours. If you have a paid-for house, and lose your job... well, you could probably pay the taxes on a McDonald's salary if necessary.

[disneysteve]

Once a home is yours, it's yours. If you have a paid-for house, and lose your job... well, you could probably pay the taxes on a McDonald's salary if necessary.

While that's true, it is a flawed argument. Let's say I owe $100,000 on my home. I have $100,000 in investments. If I keep the loan and I lose my job tomorrow, I can use the $100,000 I have invested to help pay my mortgage and other bills until I find work.

If, instead, I take the $100,000 and pay off the mortgage today and then lose my job tomorrow, I've now got a paid off house but no money. That is a much more dangerous position to be in.

[melinuxfool]

While that's true, it is a flawed argument. Let's say I owe $100,000 on my home. I have $100,000 in investments. If I keep the loan and I lose my job tomorrow, I can use the $100,000 I have invested to help pay my mortgage and other bills until I find work.

If, instead, I take the $100,000 and pay off the mortgage today and then lose my job tomorrow, I've now got a paid off house but no money. That is a much more dangerous position to be in.

OK, I think I misread the original post. I had it in my head that the 40,000 from the sale of stock was going to cover the total payoff. But I reread the post, and it said he still owed 89,000 dollars.

Since he did say that the emergency fund is in good shape, I'm still going to say to sell the stock and put it toward the mortgage, but I'm a conservative type. I dislike high risk, and I'd consider single stocks to be high risk. The stocks may go up, but they may go down as well. The house... well regardless of its monetary value, it's still a roof over your head. Something we all need until the day they plant us 6 feet under.