Author Topic: Another paying off mortgage question  (Read 2851 times)

OzzieandHarriet

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Another paying off mortgage question
« on: February 04, 2014, 08:46:00 AM »
If all goes as planned, we should be netting ~$240k in the next month or so after selling an investment property. We will need to pay capital gains tax/depreciation of about $52k, but that won't be due until next year at tax time.

We owe about $175k on our house (worth about $450k -- yes, we bought it before the prices shot up, so no, we didn't pay anywhere near that much), with about 15 years left to go on a 20-year loan @ 3.875, paid biweekly. So we could pay it off with enough left over to pay the taxes. The mortgage payment is pretty low (<$1200/month), and overall, we'd save ~$55k in interest by paying it off early. If we invested the money, we'd earn about $10k a year if it earned 5% -- but could lose some if the market goes down, of course. If we pay it off, we could save the $1200 a month that we've been paying and invest that. Even if we earned nothing on that money, we'd save up the payoff amount in less than 10 years.

We have been inclined NOT to pay it off, but now I'm wondering if it's better to do it. We've been mucking around with this mortgage ever since we bought the place in 1999 -- refinanced a couple of times for various reasons, thinking we were being clever but really probably it's all been a wash. I am not working anymore except for a little freelancing; husband is and is planning to continue, and his income is more than sufficient for our needs. We also have really enough to retire on if he decides he doesn't want to work anymore, unless some crazy extra expense comes up. I'm 56 and he's 54. OTOH, that's a lot of funds to be tied up in a house.

So what do you think? Is there anything I'm missing here? TIA

lackofstache

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Re: Another paying off mortgage question
« Reply #1 on: February 04, 2014, 08:54:48 AM »
If you've got enough savings to retire on now, I'd pay it off. It may not have the most return, but it's guaranteed & with a fairly short time left to invest before "normal retirement age" I'd take the guarantee. Invest the $1200/mo until your husband stops working and then live off the money you've saved.

curler

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Re: Another paying off mortgage question
« Reply #2 on: February 04, 2014, 08:56:07 AM »
I think this really depends on how you feel about debt.  Some people (myself included) would just feel a lot better if they didn't have a mortgage.  It is one less thing to worry about, and knowing that you own your home free-and-clear can be a sense of pride.
From a purely financial perspective, investing the money in the stock market will probably return higher gains.  (But it is also more of a risk).

Another Reader

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Re: Another paying off mortgage question
« Reply #3 on: February 04, 2014, 09:05:30 AM »
I have a 30 year mortgage at 3.125 percent for more than what I paid for the house 25 years ago.  The actuarial tables say I will likely be dead when it matures.  Over the years, I have made a lot more by investing in real estate and stocks because of leveraging the house.  Would I pay that mortgage off to feel "secure"?  Heck, no.  My rental income and dividend income at this point are several times the mortgage payment, so it's paid without any worries.  Besides, I live in earthquake and brushfire territory.  Leveraging well above lot value makes the bank my ally if the house is destroyed.

OzzieandHarriet

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Re: Another paying off mortgage question
« Reply #4 on: February 04, 2014, 10:12:24 AM »
I don't care so much about the psychological boost of paying off the mortgage.

What I'm thinking now is to take the money and invest it for a year until the taxes are due, then reevaluate after we pay them. That way we have more options. Once the money is sunk into the house, it's kind of pain to get it back out (though possible, of course). If the investment loses a huge amount of value and it isn't wise to liquidate it at that point, we have other resources available for paying the tax bill.

I'll run it by the husband and see what he thinks, but he's been reluctant to pay off the mortgage, too.

tooqk4u22

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Re: Another paying off mortgage question
« Reply #5 on: February 04, 2014, 05:28:44 PM »
You really should look into a 1031 exchange....you may not have enough time at this point but it would be a way to avoid/delay the the $52k taxes.


OzzieandHarriet

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Re: Another paying off mortgage question
« Reply #6 on: February 04, 2014, 05:37:46 PM »
You really should look into a 1031 exchange....you may not have enough time at this point but it would be a way to avoid/delay the the $52k taxes.

I thought about that, but an exchange only delays the day of reckoning, tax-wise. Eventually you do have to pay it, and the longer you depreciate the property, the more you pay.

This venture was the result of a 1031. The transaction costs alone probably ate up any profit, aside from the fact that value of the property went down since we bought it.