Now they are definition of parasites if there ever was any.
I made my last 438 k mortgage payment just now. My bank doesn't seem happy.
- Thread starter Calculator2
- Start date
Now they are definition of parasites if there ever was any.
Thanks, but my home is paid off and it is staying that way.
Actually, I heard a financial columnist talk about a way to pay your house off quickly using a HELOC. Basically, you take out a HELOC, deposit your paycheck every week into it and pay all of your bills out of it. Keeping a higher balance in it from your paycheck (assuming you don't live paycheck to paycheck and normally have a decent balance in your checking account) decreases the interest you pay and can lead to you paying off your mortgage in seven years or so instead of thirty.
I didn't listen to the details at the time because I was getting ready to pay my house. But maybe someone else knows exactly how it works.
My background is in public accounting. Read all the posts above - some are correct and some are wrong depending on your financial condition. Basically, balancing between profitability and liquidity is the game. How these two variables are balance depends on your risk tolerance level. Don't pay of your mortgage early if there're higher rate debts outstanding. The higher rate s/be paid 1st like credit cards and HELOC. Excess fund s/be in profitable investments like stocks, govt bonds & CD's and savings to ensure positive cash flow for daily usage and max returns. You don't want to be house rich and cash poor. Or cash rich with loadshit of debts. Not paying off your mgte early means your excess fund is increasing cashflow, tax benefit deductions (your home basically pd by uncle Sam) and your income increase (lower tax liability). Objective: Increase max tax deduction when income at highest level or defer income at lowest tax deductions. Idle fund convert into max rate of investment.
Good luck.
Good luck.
I think you made some very good points that I hope are obvious to most people. Certainly it makes no sense to pay off a 5% mortgage when you are paying 24% interest on credit card balances. It is also very important to have at least 6-12 months of expenses in savings before paying off your mortgage.
However, if you are debt free with the exception of a mortgage and you have adequate savings, putting more money into CDs or government bodnds to earn < 2% on your money does not make sense to me. According to BankRate.com, the average 1 year CD yield is currently 1.42% and short-term Treasuries pay even less. You can get a higher rate of return if you lock your money up for 5 years, but will miss out if interest rates rise as they almost certainly will.
I think the argument that your mortgage is tax deductible and therefore paid by Uncle Sam is incorrect. If the average American in the 25% tax bracket pays $1000 in interest on their mortgage every month, they only save $250 in taxes. That means they are still paying $750 in interest. Personally, I would rather pay off my mortgage and save the additional $750 per month
Using my example of being in the 25% tax bracket, instead of paying 5% on their mortgage, they are really only paying 3.75% due to the tax deduction. Since they cannot get a guaranteed 3.75% in a short term CD or government bond right now, I still believe that it makes sense to pay down their mortgage.
My wife scans the local paper every week reading the numerous foreclosure notices. Seems she finds someone we know virtually every week.
Being a financially-minded type, I skip to the details. It's sad to see when someone has a $400K home which they owe $200K on and are losing it all to foreclosure.
There is an argument to being either fully paid-off or fully-leveraged, but avoid being halfway in between.
A competent investor does not have to take on a lot of market risk in order to earn returns comparable to mortgage rates. In general, I believe it wiser to invest that extra monthly cashflow outside the mortgage until reaching the point of capability to choose to pay off the mortgage entirely.
By doing so, you maintain much greater flexibility (think of it as purchasing options). When the money is put into retiring the note, one can run into great difficulty should the need arise to pull that value back out. The times in our lives that could potentially cause us to need that cash (job loss, extended illness/disability, etc.) are precisely the times when a lender will have no interest in giving you access to your home equity.
So, those greedy, no good financial advisors are not always just looking out for themselves. Sometimes, we know of what we speak.
AM.
Being a financially-minded type, I skip to the details. It's sad to see when someone has a $400K home which they owe $200K on and are losing it all to foreclosure.
There is an argument to being either fully paid-off or fully-leveraged, but avoid being halfway in between.
A competent investor does not have to take on a lot of market risk in order to earn returns comparable to mortgage rates. In general, I believe it wiser to invest that extra monthly cashflow outside the mortgage until reaching the point of capability to choose to pay off the mortgage entirely.
By doing so, you maintain much greater flexibility (think of it as purchasing options). When the money is put into retiring the note, one can run into great difficulty should the need arise to pull that value back out. The times in our lives that could potentially cause us to need that cash (job loss, extended illness/disability, etc.) are precisely the times when a lender will have no interest in giving you access to your home equity.
So, those greedy, no good financial advisors are not always just looking out for themselves. Sometimes, we know of what we speak.
AM.
"Using my example of being in the 25% tax bracket, instead of paying 5% on their mortgage, they are really only paying 3.75% due to the tax deduction. Since they cannot get a guaranteed 3.75% in a short term CD or government bond right now, I still believe that it makes sense to pay down their mortgage."
You are correct as long as your return is higher when paying off the mgte, it should be a preferred option. Generally speaking, those who can pay off their mgte early are likely in higher tax bracket resulting in higher tax liability when interest deductions are lower. As such, early retirement of your long term mgte will reduce your liquidity as explained by "Attacking Mid" posting above, especially during tight credit economic conditions. Even the banks are hoarding cash and decreasing lendings. Thus, making it more expensive to borrow if the needs arise or even get any borrowing at all. To be captive in that economic conditions can be costly and in effect if your borrowings are more than your savings then no savings are realized at all. So, if the taxes are reduce, your additional fund should be earning higher rate of return and a life saver. This has the effect of uncle Sam paying your mgte since your additional funds are earnings higher return. Moreover, present value has greater purchasing value than future value. It's like $1 today is worth more than a $1 10 yrs from now.
You are correct as long as your return is higher when paying off the mgte, it should be a preferred option. Generally speaking, those who can pay off their mgte early are likely in higher tax bracket resulting in higher tax liability when interest deductions are lower. As such, early retirement of your long term mgte will reduce your liquidity as explained by "Attacking Mid" posting above, especially during tight credit economic conditions. Even the banks are hoarding cash and decreasing lendings. Thus, making it more expensive to borrow if the needs arise or even get any borrowing at all. To be captive in that economic conditions can be costly and in effect if your borrowings are more than your savings then no savings are realized at all. So, if the taxes are reduce, your additional fund should be earning higher rate of return and a life saver. This has the effect of uncle Sam paying your mgte since your additional funds are earnings higher return. Moreover, present value has greater purchasing value than future value. It's like $1 today is worth more than a $1 10 yrs from now.
There are many reasons not to pay off your mortgage:
1. If the hyperinflation scenario is expected, then it is better to invest in real assets than pay off the fixed rate mortgage, not to mention, that the future payments will be in the inflated currency.
2. There are tax deductions benefits such that these benefits combined with the expected return in other investments are a better option.
Having said that, paying off a mortgage is a great thing to do, just for the peace of mind.
1. If the hyperinflation scenario is expected, then it is better to invest in real assets than pay off the fixed rate mortgage, not to mention, that the future payments will be in the inflated currency.
2. There are tax deductions benefits such that these benefits combined with the expected return in other investments are a better option.
Having said that, paying off a mortgage is a great thing to do, just for the peace of mind.
I always tell my friends they should pay off their homes. The mortgage payment saved is like an extra paycheck that can be invested for a higher return than the lousy tax deductions on interest.
Pay off the house you live in and then use the freed cash flow to leverage into income properties such as apt. complex or office buildings.
Pay off the house you live in and then use the freed cash flow to leverage into income properties such as apt. complex or office buildings.