Jump to content

Paying off the mortgage


drago
 Share

Recommended Posts

I know most of you bums live out east and the houses are pretty overblown in terms of prices but that usually means your wages will be higher than say...wisconsin. So i think the question is valid.

Why don't more couples or just people in general make more of a point in paying off their mortgage?

I know the tax benefit of writing off the interest you you spend in a given year, as you can do with the taxes, but if you really need to write-off to get in a lower tax bracket, why not write a check to the boys and girls club or the humane society? To my knowledge it is the same write-off (correct me if i'm wrong here).

Anyway, i'm spending every extra dollar i make to pay the mortgage off because it just seems to make too much sense...living for free or pulling straight profit (minus expenses of course) on my duplex seems like a pretty safe bet.

I'm interested to know someone else's thought process as to WHY NOT pay the thing off?

Link to comment
Share on other sites

I'm interested to know someone else's thought process as to WHY NOT pay the thing off?

The write-off is one reason. Living better now (on borrowed money) rather than later, might be another.

I know one theory is that money is worth more today than it will be worth 20-30 years from now. So borrowing heavily now, and paying it back with inflated (lower valued) money later also puts you ahead long term. At current interest rates it makes some genuine sense. I'm living mortgage free right now, but when I move into a new place I'll probably get myself a new 30 year mortgage. Probably invest my extra cash in more mortgaged real estate.

Link to comment
Share on other sites

When I bought my house 15 years ago I had a 30 year mortgage. I refinanced about 10 years ago to a 15 year mortgage. Im down to near nothing. I always pay an extra $50.00-$100.00 a month. Im way ahead of schedule. Problem is my taxes keep increasing and by the time im done with the mortgage my tax bill will replace my mortgage payment. In N.J we are screwed. Im looking for a vacation home either at the Jersey Shore or the Poconos and the rates are low. As soon as I find the right house and deal I will do it. I dont pay off my primary residence for the tax write-off.

Edited by visajets
  • Upvote 1
Link to comment
Share on other sites

When interest rates are higher this makes a lot of sense. I am closing on a refi right now for a new 30 year loan at 4.25%. Paying extra on that doesn't make a ton of sense.

BUT

My payment is going down by over $400 a month. I plan on basically making my current payment which would shave 7 years off the total years that I currently owe. Basically the 30 becomes close to a 15. But paying any more on top of that at 4.25% doesn't make a ton of sense to me.

Link to comment
Share on other sites

When interest rates are higher this makes a lot of sense. I am closing on a refi right now for a new 30 year loan at 4.25%. Paying extra on that doesn't make a ton of sense.

BUT

My payment is going down by over $400 a month. I plan on basically making my current payment which would shave 7 years off the total years that I currently owe. Basically the 30 becomes close to a 15. But paying any more on top of that at 4.25% doesn't make a ton of sense to me.

Paying additional monthly or yearly goes towards the principal and shortens the term of the loan.

Link to comment
Share on other sites

Bought my house in 1998 with a 30-years and re-fied it to a 15-year in 2002 with a 2-week payments(which works out to about 12.5 years). I'm down to a relatively low amount left. Since I'm in AMT income territory, the interest deduction doesn't help much. Suspect that by next spring I'll have money getting 1% in the bank to pay off what's left at 5.25% and will then do it.

Link to comment
Share on other sites

Paying additional monthly or yearly goes towards the principal and shortens the term of the loan.

LOL. Yes, I understand how it works.

My point is when the interest rate is 4.25% and you are getting a tax deduction on that money, you can probably out perform that elsewhere.

  • Upvote 2
Link to comment
Share on other sites

LOL. Yes, I understand how it works.

My point is when the interest rate is 4.25% and you are getting a tax deduction on that money, you can probably out perform that elsewhere.

This.

Not to mention if you ever need to borrow back the money you paid at the accelerated rate, it will cost you money again to borrow it back.

Investing it or even just collecting interest on the money is the better option IMO, you could always pay a lump sum to pay off the mortgage early, if that became beneficial.

Not only would you have made money over the entire time, but you would effectively cut the term and save on the interest that way as well.

Link to comment
Share on other sites

This.

Not to mention if you ever need to borrow back the money you paid at the accelerated rate, it will cost you money again to borrow it back.

Investing it or even just collecting interest on the money is the better option IMO, you could always pay a lump sum to pay off the mortgage early, if that became beneficial.

Not only would you have made money over the entire time, but you would effectively cut the term and save on the interest that way as well.

I bought a rental house when I got out of college. This was before I owned anything myself. The house made money each month and I poured that back into the payment because it was at 7.75%.

Link to comment
Share on other sites

I bought a rental house when I got out of college. This was before I owned anything myself. The house made money each month and I poured that back into the payment because it was at 7.75%.

I'm not saying paying back your mortgage at an accelerated rate is a bad thing, just to way out the options first.

Certainly if you can't do any better earning wise, then paying it off quicker makes more sense.

Still though, if discipline is not a problem, you could collect interest on that extra money for years, and then pay it off with a lump sum.

The reason I bring that up is, because lets say after 10 years you need that extra money you sent in.

It's going to cost you money to borrow it back, where as you could of held on to it and collected interest, and then decided if you wanted to knockout the balance.

Which would land you in the same position anyway, just leaving you with more options.

Link to comment
Share on other sites

If you are paying a high rate of interest, then it is in your best interest to pay down the principal as quickly as possible if refinancing is not an option. I have 7 years left on my 15 yr mortgage @ 4.75% so I feel no pressure to speed up the payments since I need the deduction and the rate is good.

The main argument against pouring extra cash into the principal is the proverbial "rainy day". Save some money just in case you lose your job, get sick, need major repairs or have some other event that requires a substantial expenditure on your part. What happens if you have no job, but that mortgage check is due every single month? (and calling Dad is not an option)

Link to comment
Share on other sites

drago you could pay 1 extra payment a year, (13 payments instead of 12) and knock about 7-8 years off the term of your loan, and save thousands in interest.

I'm probably in that realm for extra cash going in. I'm not sure of my rate off hand but i like the loan because it was set to be paid off in 22 years, reamortizes with every payment... Anyway, i drop 60 bucks extra each month then every 4 months I try to send 2k at it. But like Green DNA said, the rainy day fund gets me a little worried, i'm really not sure how much is enough to leave in there.

I didn't know max bought a rental?? Good call sir max. I did nearly the same thing when I was 24, i don't pull a profit every month but it is a push, including taxes, so i'm ok with that.

Good posts though, i hadn't thought of a few of the points. Thanks.

Link to comment
Share on other sites

Money experts say you should have 6 month rainy day fund to cover all expenses for a that period just in case. I had a rental property 2 family and it was hell. Renters not paying,destroying stuff, moving out and leaving sh*t behind. I sold it and gave it away and only profited $20k.

Im trying to pay off my mortgage ASAP as id like to retire soon and this is my only debt.

Link to comment
Share on other sites

I'm probably in that realm for extra cash going in. I'm not sure of my rate off hand but i like the loan because it was set to be paid off in 22 years, reamortizes with every payment... Anyway, i drop 60 bucks extra each month then every 4 months I try to send 2k at it. But like Green DNA said, the rainy day fund gets me a little worried, i'm really not sure how much is enough to leave in there.

I didn't know max bought a rental?? Good call sir max. I did nearly the same thing when I was 24, i don't pull a profit every month but it is a push, including taxes, so i'm ok with that.

Good posts though, i hadn't thought of a few of the points. Thanks.

Sounds like you have a good deal, the re-amortization schedule is very good feature.

No matter what your rate is, it's based on you paying the minimum amount for the life of the loan, since you are paying extra every month, your rate and term is effectively lowered anyway.

If you have no problem swinging the extra $60 a month, then it's a good idea to keep doing it.

Just be careful about sending in those lump sums every 4 months.

I mean if you have other ways to get liquid money to fall back on then it's no big deal, but if not you want to make sure you save something.

Edited by The Brooklyn Jet
  • Upvote 1
Link to comment
Share on other sites

I know most of you bums live out east and the houses are pretty overblown in terms of prices but that usually means your wages will be higher than say...wisconsin. So i think the question is valid.

Why don't more couples or just people in general make more of a point in paying off their mortgage?

I know the tax benefit of writing off the interest you you spend in a given year, as you can do with the taxes, but if you really need to write-off to get in a lower tax bracket, why not write a check to the boys and girls club or the humane society? To my knowledge it is the same write-off (correct me if i'm wrong here).

Anyway, i'm spending every extra dollar i make to pay the mortgage off because it just seems to make too much sense...living for free or pulling straight profit (minus expenses of course) on my duplex seems like a pretty safe bet.

I'm interested to know someone else's thought process as to WHY NOT pay the thing off?

Dave Ramsey preaches this exact game plan. Pay off all credit card debt first then attack the mortgage.

The tax write offs do not out weigh the benefit of paying your house off and investing that money. If you hear of D Ramsey in your area, I strongly recommend attending his seminars.

Link to comment
Share on other sites

I'm probably in that realm for extra cash going in. I'm not sure of my rate off hand but i like the loan because it was set to be paid off in 22 years, reamortizes with every payment... Anyway, i drop 60 bucks extra each month then every 4 months I try to send 2k at it. But like Green DNA said, the rainy day fund gets me a little worried, i'm really not sure how much is enough to leave in there.

I didn't know max bought a rental?? Good call sir max. I did nearly the same thing when I was 24, i don't pull a profit every month but it is a push, including taxes, so i'm ok with that.

Good posts though, i hadn't thought of a few of the points. Thanks.

At least 1 years living expenses - Mortgage, utilities, food, gas, etc.

Link to comment
Share on other sites

At least 1 years living expenses - Mortgage, utilities, food, gas, etc.

My mom is a big D. Ramsey fan and I do like what he preaches, although I have never heard it first hand. I understand he is so anti credit card that he doesn't even own one. I find that a little funny because credit cards are the best deal going if you pay it off each month...every year i get about 400 bucks in cash for just using their card. Pretty sweet deal for someone that doesn't spend much money anyway.

Link to comment
Share on other sites

My mom is a big D. Ramsey fan and I do like what he preaches, although I have never heard it first hand. I understand he is so anti credit card that he doesn't even own one.

Nope, Debit card or pays cash.

I think the premise is that you can only spend what you have. Also, cash speaks loudest in negotiating.

I find that a little funny because credit cards are the best deal going if you pay it off each month...every year i get about 400 bucks in cash for just using their card. Pretty sweet deal for someone that doesn't spend much money anyway.

Do you mean Amex rebates? Like at Costco?

Link to comment
Share on other sites

I think mortgage games are just different ways to pi$$ in the wind.

I'm shopping for a house I can pay off in 5-10yrs.

My mortgage interest gets me about a 6k tax return. All I have to do is spend 12,000 a year to get it.

A high mortgage balance means I can't move because I can't sell, and 'reinvesting the savings' works as long as I keep my job and housing prices stay ahead of my principal. I don't have a lot of faith in the latter.

Link to comment
Share on other sites

My mom is a big D. Ramsey fan and I do like what he preaches, although I have never heard it first hand. I understand he is so anti credit card that he doesn't even own one. I find that a little funny because credit cards are the best deal going if you pay it off each month...every year i get about 400 bucks in cash for just using their card. Pretty sweet deal for someone that doesn't spend much money anyway.

If you buy anything on line kinda impossible not to ahve some credit account.I pay everything off every month. But some good deals can come to you with credit cards. Several states with 529 college savings plans will give you 529 funds after you register your cards and they deposit auotmatically a small percentage into the plan with every purchase, and that is in most state tax deductible. But the big point stands; having huge credit balances is long-term bad news.

  • Upvote 1
Link to comment
Share on other sites

A mortgage is the single largest investment anyone will ever make in a lifetime. I dont like debt or oweing for anything. My goal is to pay it off as quickly as possible. Pros or cons it dont matter to me. Debt free is what its all about,especially with todays economy.

  • Upvote 1
Link to comment
Share on other sites

A mortgage is the single largest investment anyone will ever make in a lifetime. I dont like debt or oweing for anything. My goal is to pay it off as quickly as possible. Pros or cons it dont matter to me. Debt free is what its all about,especially with todays economy.

Stick with this philosophy. There are people with charts that'll call the debt-free crowd ignorant, but it's hard to land in bankruptcy court without creditors.

I minored in math and tried to play the low-interest reinvestment games a few years back and lost my butt. I'm probably overreacting by joining the miserly no-debt crowd. My car's rusty hood gets me bad looks from people who don't realize they make less money than I do. But cash in the bank and no payments is worth it. I worry less, kick the dog less, and am in a mood to give my kids hugs a lot more often.

Let your neighbors kill their futures with the SUV. Stay the course, and be proud of choices not to keep up with the joneses.

P.S. Buy less 'stuff' in general. Things require maintenance - and rob you of time in your life. Analyze any purchase in terms of the work you'll have to do to keep it up. Talking yourself out of buying crap is a great way to keep cash in the bank for when you really need it.

Link to comment
Share on other sites

Stick with this philosophy. There are people with charts that'll call the debt-free crowd ignorant, but it's hard to land in bankruptcy court without creditors.

I minored in math and tried to play the low-interest reinvestment games a few years back and lost my butt. I'm probably overreacting by joining the miserly no-debt crowd. My car's rusty hood gets me bad looks from people who don't realize they make less money than I do. But cash in the bank and no payments is worth it. I worry less, kick the dog less, and am in a mood to give my kids hugs a lot more often.

Let your neighbors kill their futures with the SUV. Stay the course, and be proud of choices not to keep up with the joneses.

P.S. Buy less 'stuff' in general. Things require maintenance - and rob you of time in your life. Analyze any purchase in terms of the work you'll have to do to keep it up. Talking yourself out of buying crap is a great way to keep cash in the bank for when you really need it.

This sounds like the philosophy of John Cammuta.... Have you ever listened to him?

Link to comment
Share on other sites

The big issue is inflation.

Let's say that you have 30 yr mortgage for 2,000 / month. Assuming a low inflation of 3% after 20 years the 2,000 payment is equivalent to about $1,100 of today's dollars.

After 30 years @ 3% inflation, the 2,000 payment is equivalent to about 825 of today's dollars.

You can do some more math to figure out your expected rate of return on the "extra" money you could invest today vs. the interest that you end up paying over the life of the loan.

Link to comment
Share on other sites

A mortgage is the single largest investment anyone will ever make in a lifetime. I dont like debt or oweing for anything. My goal is to pay it off as quickly as possible. Pros or cons it dont matter to me. Debt free is what its all about,especially with todays economy.

The truth

Just envision having no mortgage payment

Link to comment
Share on other sites

Stick with this philosophy. There are people with charts that'll call the debt-free crowd ignorant, but it's hard to land in bankruptcy court without creditors.

I minored in math and tried to play the low-interest reinvestment games a few years back and lost my butt. I'm probably overreacting by joining the miserly no-debt crowd. My car's rusty hood gets me bad looks from people who don't realize they make less money than I do. But cash in the bank and no payments is worth it. I worry less, kick the dog less, and am in a mood to give my kids hugs a lot more often.

Let your neighbors kill their futures with the SUV. Stay the course, and be proud of choices not to keep up with the joneses.

P.S. Buy less 'stuff' in general. Things require maintenance - and rob you of time in your life. Analyze any purchase in terms of the work you'll have to do to keep it up. Talking yourself out of buying crap is a great way to keep cash in the bank for when you really need it.

So true.

Possessions have a way of owning you.

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

 Share

×
×
  • Create New...