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Established Member
Posts: 19
Registered: ‎09-01-2008
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Should I pay off my home?

My 91 year old aunt and I just had a interesting conversation, she was adament that if I have the money I should pay off my home.

Other people say that my aunt is old school and it is not advantages to pay off your home because of the tax write off.

 

I have been giving some thought and I would like some advice or any other ideas out of the box they can suggest?

Here is my situatuon.

 

Loan: 110K

Home value 430K

Payment: 620.00 with a year fix at 5.3%

 

Savings 220K liquid.

Debt 9K student loans, no other debt.
Take home pay 4K after taxes per month 

 

 

Here is the caveat, I am serious thinking about taking an early retirement in 4 years @ 50 to start another career overeas (working with children)
I will have a small retirement of about 1k per month and was thinking of renting out the home and letting property managment company handle it.

I should be able to have an additional 60k in savings before I leave.
 

 

 

Valued Contributor
Posts: 2,300
Registered: ‎08-25-2011
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Re: Should I pay off my home?

Unless you are making more with your money in savings, its always a good idea to pay off a mortgage.

 

Yes it is a tax write off, but why would you want to pay interest just to write it off, if you could just throw the money straight into savings that you pay for interest and save even more cash.

 

Your Aunt doesn't have old school thinking, she is smart.

Established Contributor
Posts: 538
Registered: ‎05-16-2012
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Re: Should I pay off my home?


Mkris7 wrote:

My 91 year old aunt and I just had a interesting conversation, she was adament that if I have the money I should pay off my home.

Other people say that my aunt is old school and it is not advantages to pay off your home because of the tax write off.

 

I have been giving some thought and I would like some advice or any other ideas out of the box they can suggest?

Here is my situatuon.

 

Loan: 110K

Home value 430K

Payment: 620.00 with a year fix at 5.3%

 

Savings 220K liquid.

Debt 9K student loans, no other debt.
Take home pay 4K after taxes per month 

 

 

Here is the caveat, I am serious thinking about taking an early retirement in 4 years @ 50 to start another career overeas (working with children)
I will have a small retirement of about 1k per month and was thinking of renting out the home and letting property managment company handle it.

I should be able to have an additional 60k in savings before I leave.
 

 

 


Ric Edelman had an interesting discussion on why it's not better to pay off your mortgage and how it differs from people who say you should... here's a quick Q&A from his website from a quick google search, he has written some pretty exensive articles on it too...

 

http://www.ricedelman.com/cs/education/paying-off-your-mortgage

FICO 08 EX: 802 EQ: 780 TU: 804

Total Credit Lines: $133,700
Valued Contributor
Posts: 2,300
Registered: ‎08-25-2011
0

Re: Should I pay off my home?

He is just saying what I said.

 

You don't pay off your mortgage if your cash is earning you more interest then your rate on your mortgage.

 

That is logical. but tough to do.

Moderator Emeritus
Posts: 7,225
Registered: ‎09-16-2011
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Re: Should I pay off my home?

[ Edited ]

tooleman694 wrote:

He is just saying what I said.

 

You don't pay off your mortgage if your cash is earning you more interest then your rate on your mortgage.

 

That is logical. but tough to do.



If you didn't have the deduction from the mortgage interest, you'd still be able to get a standard deduction, so the reasoning that you save on taxes doesn't hold a whole lot of weight unless you compare it to the amount you'd get from standard deduction...

 

If that reasoning holds true, why don't you leverage out all of the equity in the house and invest it in you're savings since it earns more in savings anyways?

 

Besides, you'll be able to deduct even more on your taxes.... since you'll be paying more interest.

 

(I'm playing devils advocate with that suggestion)

 

dude, I'd pay off the house.

 

 

I've actually decided with my own houses to leave them financed until my investment strategy changes (I'm 30, and I have one mortgage with 19 yrs left on it and one mortgage with 25 yrs left on it).  When I'm old enough to consider preserving wealth instead of growing wealth through investments, I'll totally pay off the houses.


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Established Contributor
Posts: 538
Registered: ‎05-16-2012
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Re: Should I pay off my home?


tooleman694 wrote:

He is just saying what I said.

 

You don't pay off your mortgage if your cash is earning you more interest then your rate on your mortgage.

 

That is logical. but tough to do.


agreed.. but giving him a point to research... and reasoning why... 

 

FICO 08 EX: 802 EQ: 780 TU: 804

Total Credit Lines: $133,700
Established Contributor
Posts: 538
Registered: ‎05-16-2012
0

Re: Should I pay off my home?

[ Edited ]

webhopper wrote:

tooleman694 wrote:

He is just saying what I said.

 

You don't pay off your mortgage if your cash is earning you more interest then your rate on your mortgage.

 

That is logical. but tough to do.



If you didn't have the deduction from the mortgage interest, you'd still be able to get a standard deduction, so the reasoning that you save on taxes doesn't hold a whole lot of weight unless you compare it to the amount you'd get from standard deduction...

 

If that reasoning holds true, why don't you leverage out all of the equity in the house and invest it in you're savings since it earns more in savings anyways?

 

Besides, you'll be able to deduct even more on your taxes.... since you'll be paying more interest.

 

(I'm playing devils advocate with that suggestion)

 

dude, I'd pay off the house.

 

 

I've actually decided with my own houses to leave them financed until my investment strategy changes (I'm 30, and I have one mortgage with 19 yrs left on it and one mortgage with 25 yrs left on it).  When I'm old enough to consider preserving wealth instead of growing wealth through investments, I'll totally pay off the houses.


Ric goes into more than just that, basically saying that debt free does not mean you have wealth. It's not completely about the tax deducation, but about having liquid cash. If you pay off a $500,000 house immediately, but that house is now worth $250,000, assuming it's now a buyers market, you have lost 50% of your "savings"  and it's still not immediately liquid since you still have to sell it. But if that $500,000 is tied up in a loan where you're getting a tax deduction, in addition to the fact that you can invest your liquid cash you would otherwise use to pay off the loan, you could not only continue to make money ($500,000 is still worth $500,000) but you have the cash available if you need it for something.

FICO 08 EX: 802 EQ: 780 TU: 804

Total Credit Lines: $133,700
Established Member
Posts: 19
Registered: ‎09-01-2008
0

Re: Should I pay off my home?

Thanks, many good points on the issue. I need to really sit down with my CPA and look at my whole financial picture.

I'm a good saver but need to be savy about the rest of my financial health.

Also I will be 50 in three years do I'm looking at preserving my assets because I want be over seas in a few years were I can live a simple down scaled life as either an educator or social worker.
Established Member
Posts: 19
Registered: ‎09-01-2008
0

Re: Should I pay off my home?

Lots to think about but a great starting place thanks to you guys!!!!

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