Author Topic: Should I pay off the house?  (Read 11056 times)

xclonexclonex

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Should I pay off the house?
« on: January 23, 2016, 05:35:36 PM »
Hello everyone,

As the title suggests, I want your advice on whether it is a good idea for us to pay off our house.

Short version
Loan remaining - $134,097
Total in savings - $138,141 (this might vary just a little bit, excluding investments)

Should I pay off the house?

Long version

We closed on a house on December 18, 2015 The price of house was $167,622. I put a down payment of $33,525.00 and after closing costs etc., the remaining loan balance is $134,097, 3% on a 15 year term.

Here is our financial situation

Take home pay - $4367.68 per month
Wife’s take home pay - ~$1000

Checking - $4,031.00 (my direct deposit account)
Checking - $1,100.00 (wife's direct deposit account)
CD - $98,642.63 (5 year CD opened in 2014 at 2.30%)
Online Savings - $34,367.41 (1.05% interest)
401k - $9,305.34 (contributing 3%)
Vanguard Roth IRA (VFFVX) - $1,390.99 ($50 per month auto deposit)
Vanguard Roth IRA (VTSMX) - $2,735.86 ($50 per month auto deposit)
Betterment - $1,253.19 ($100 auto deposit)
Cash - $95.00
Overseas account - $403.29
Total - $153,324.71

I intend to make an early withdrawal on the CD, and combine that with the amount in my savings accounts, and pay off the loan. The reason I want to do this is because I am paying over $300 in interest per month and over the life of the loan, I will end up paying a little over $30000, and I feel that I might as well use the money I have right now to pay off the bank and live rent free.

I am 32 years old, and my wife is 27 years old. We are in good health, and our jobs are “stable”.

I am thinking about keeping $2000 in emergency money at hand and pay off the house. Is this a good idea? Any advice is appreciated.

Thanks.
« Last Edit: January 23, 2016, 05:53:20 PM by xclonexclonex »

Mermaid3011

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Re: Should I pay off the house?
« Reply #1 on: January 23, 2016, 05:56:18 PM »
May I ask what the interest is in % p.a.?
And is there a penalty if you pay off the whole amount early?
(my mortgage only allows 36k i.e. 10% per year to be paid on top of my mortgage payments without penalty)

Many people here will tell you to invest and rather take advantage of the low market right now (buy low, sell high).
I personally believe that a guaranteed 3 or 4% return on your money (i.e. the interest you are NOT paying by paying off your mortgage) at low (or no) risk is worth more. But that's just me.

If I were in your shoes I would keep a little more than 2k in savings as an emergency cushion (like 10k?) and pay off the rest of the mortgage. In about 6 months you'll be mortgage free and you can start investing your extra cash however way you like. The markets will still be crappy then. LOL


xclonexclonex

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Re: Should I pay off the house?
« Reply #2 on: January 23, 2016, 05:59:37 PM »
May I ask what the interest is in % p.a.?
And is there a penalty if you pay off the whole amount early?
(my mortgage only allows 36k i.e. 10% per year to be paid on top of my mortgage payments without penalty)

Many people here will tell you to invest and rather take advantage of the low market right now (buy low, sell high).
I personally believe that a guaranteed 3 or 4% return on your money (i.e. the interest you are NOT paying by paying off your mortgage) at low (or no) risk is worth more. But that's just me.

If I were in your shoes I would keep a little more than 2k in savings as an emergency cushion (like 10k?) and pay off the rest of the mortgage. In about 6 months you'll be mortgage free and you can start investing your extra cash however way you like. The markets will still be crappy then. LOL

Thank you very much for your advice. I updated the post with the interest rate. Its 3% for 15 years.

I also believe that the money I am saving on paying interest is worth more because I can invest that money. Once I pay off the mortgage, I want to maximize the Roth IRA and increase 401k contributions as well. I also want to enjoy my life a bit. We haven't taken a vacation in over 2 years now.  I would like to start living a little, and also plan for kids.

This is my main motivation for wanting to be rent free.

Thanks for your time.

Retire-Canada

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Re: Should I pay off the house?
« Reply #3 on: January 23, 2016, 05:59:43 PM »
I'd invest that money in the market and pay off the house over 15yrs at that rate. You'll get a better return - most likely.

Inflation is eating away at what you owe. The longer you take to pay it off the less you'll actually pay. Your interest rate is low so the actual borrowing cost of the money above inflation is low.

« Last Edit: January 23, 2016, 06:01:34 PM by Retire-Canada »

Mermaid3011

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Re: Should I pay off the house?
« Reply #4 on: January 23, 2016, 06:10:48 PM »
3% is pretty good - and as you can see RetireCanada is suggesting to use the money and invest over 15 yrs, hoping that you'll make more than 5% in the market (which is likely over 15 yrs but not 100% certain).

I totally get why you want some live a little time now and I think after saving quite a bit in your age you certainly SHOULD travel and do the things you wont be able to do so easily once you have kids. I have NEVER regretted traveling and my adventure of moving to a different continent. Go for it!

Now... another reason for paying off the mortgage could be this: your monthly expenses will be lower and you'll be able to maybe even take a month long leave without breaking the bank!

Congrats and whatever you do: it will be the right thing! I dont think you will ever look back and regret your decision.   

redcedar

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Re: Should I pay off the house?
« Reply #5 on: January 23, 2016, 06:16:15 PM »
One question - why did you get a loan in the first place? That may shed some light on what your plans were at that time - last month.

I know that the loan closing costs are sunk costs at this time but I am having a hard time wrapping my head around paying those costs for a few months of financing.

katsiki

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Re: Should I pay off the house?
« Reply #6 on: January 23, 2016, 06:19:46 PM »
You might want to see if the bank will recast your mortgage after a large payment.  If so, what is that large payment?  50K, more or less.  Just another option to think about.

xclonexclonex

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Re: Should I pay off the house?
« Reply #7 on: January 23, 2016, 06:45:04 PM »
I'd invest that money in the market and pay off the house over 15yrs at that rate. You'll get a better return - most likely.

Inflation is eating away at what you owe. The longer you take to pay it off the less you'll actually pay. Your interest rate is low so the actual borrowing cost of the money above inflation is low.

Thank you.

I honestly hadn't thought of things this way. I am sure it has a lot to do with my personality. I am very conservative, and I am very afraid of debt or gambling (I know investing is not the same as gambling, but my brain has a hard time believing this). I will give this some thought tonight.

3% is pretty good - and as you can see RetireCanada is suggesting to use the money and invest over 15 yrs, hoping that you'll make more than 5% in the market (which is likely over 15 yrs but not 100% certain).

I totally get why you want some live a little time now and I think after saving quite a bit in your age you certainly SHOULD travel and do the things you wont be able to do so easily once you have kids. I have NEVER regretted traveling and my adventure of moving to a different continent. Go for it!

Now... another reason for paying off the mortgage could be this: your monthly expenses will be lower and you'll be able to maybe even take a month long leave without breaking the bank!

Congrats and whatever you do: it will be the right thing! I dont think you will ever look back and regret your decision.   

It seems as if you and I think the same way. I want to lower my monthly expenses, travel and do things I haven't done. I would also like to take some time off, and not be weighed down by debt. If I pay off the mortgage, and save 6 months of income (which shouldn't be very challenging if health and job situation don't change), I will take a couple of weeks off and do something fun. Like I said, we worked a lot over the last two years, and I feel like I am getting old and not enjoying life. This will almost be like a new start for us.

One question - why did you get a loan in the first place? That may shed some light on what your plans were at that time - last month.

I know that the loan closing costs are sunk costs at this time but I am having a hard time wrapping my head around paying those costs for a few months of financing.

To be very honest, the reason I went with the loan at the time was because I was doing things the traditional way, so to speak. Now that I looked at the first month's statement, I just don't feel like doing this for another 15 years...I want to get over with and start new. I am not sure if makes sense. There isn't a real logical reason behind this.

You might want to see if the bank will recast your mortgage after a large payment.  If so, what is that large payment?  50K, more or less.  Just another option to think about.

I am not sure what this means. Could you perhaps shed some light on this?

Thanks.

katsiki

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Re: Should I pay off the house?
« Reply #8 on: January 23, 2016, 06:47:51 PM »
http://www.bankrate.com/finance/mortgages/what-is-mortgage-recasting-and-why-do-it-1.aspx

My understanding (have not done it) is that they re-amortize your loan after a large payment.  You might pay $40K and get your balance under $100K.  They will re-calculate your mortgage based on the remaining balance.

You're in a great position!  Good luck.

iluvzbeach

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Re: Should I pay off the house?
« Reply #9 on: January 23, 2016, 08:06:12 PM »
With regard to re- casting your loan, it's something we literally did just this past week. We bought one house and sold another two months ago, but we didn't make the new purchase contingent on the sale of the old house. We initially put 20% down on the new place, then last week wired 270K to apply toward the principal balance, using proceeds from the old place. The mortgage company re-cast the loan and our payments will go from $1800/month to $300/month, no penalty involved and the rate and other terms remain the same. We'll keep paying the higher amount or more, just so we can pay the place off in the next few years, but the interest itself is significantly less and we have the flexibility to pay the lower amount in the event of a financial emergency.

xclonexclonex

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Re: Should I pay off the house?
« Reply #10 on: January 23, 2016, 08:49:15 PM »
http://www.bankrate.com/finance/mortgages/what-is-mortgage-recasting-and-why-do-it-1.aspx

My understanding (have not done it) is that they re-amortize your loan after a large payment.  You might pay $40K and get your balance under $100K.  They will re-calculate your mortgage based on the remaining balance.

You're in a great position!  Good luck.


Thank you very much! I do think we got lucky in terms of having good health and no debt.

With regard to re- casting your loan, it's something we literally did just this past week. We bought one house and sold another two months ago, but we didn't make the new purchase contingent on the sale of the old house. We initially put 20% down on the new place, then last week wired 270K to apply toward the principal balance, using proceeds from the old place. The mortgage company re-cast the loan and our payments will go from $1800/month to $300/month, no penalty involved and the rate and other terms remain the same. We'll keep paying the higher amount or more, just so we can pay the place off in the next few years, but the interest itself is significantly less and we have the flexibility to pay the lower amount in the event of a financial emergency.

Thanks for letting me know.

IF you don't mind my asking, would have chosen to recast your mortgage if you had the means to pay off the house? If you did have the means to pay off the house, why did you chose to still pay a small mortgage?

Appreciate your advice.

tobitonic

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Re: Should I pay off the house?
« Reply #11 on: January 23, 2016, 09:06:01 PM »
I'd suggest saving 6 months of expenses first, and then paying it off. We paid ours off in 3 years and have no regrets. A paid off house is its own retirement vehicle (combined with a modest salary, such as social security, a pension, a part time job, etc).

xclonexclonex

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Re: Should I pay off the house?
« Reply #12 on: January 23, 2016, 09:20:28 PM »
I'd suggest saving 6 months of expenses first, and then paying it off. We paid ours off in 3 years and have no regrets. A paid off house is its own retirement vehicle (combined with a modest salary, such as social security, a pension, a part time job, etc).

That sounds very reasonable.

MDM

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Re: Should I pay off the house?
« Reply #13 on: January 23, 2016, 09:21:09 PM »
One can debate the merits of a likely 7% (or so) return in the market over 15 years vs. a certain 3% return on pre-paying the mortgage.

Seems much harder to argue in favor of pre-paying the mortgage, however, when you have 401k and IRA space yet to be filled and could save 15% on pre-tax contributions.

Rewdoalb

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Re: Should I pay off the house?
« Reply #14 on: January 23, 2016, 10:12:24 PM »
1: Your question involves personal preference so take everyone's advice with a grain of salt.

2: It doesn't make sense to put more than an emergency fund into a low CD. Pay the mortgage, invest it, or some of both.

If I were you, (am not though):
- take the extra time off that you've been wanting to take. Don't pay off the mortgage to do this. You have more flexibility with all your current savings...use some of them for the vacation or whatever.
- Begin maxing out your 401k or as much as you can each year. Fund the 401k from your paycheck obviously (don't know your budget situation but try to make that work).
- Max your Roth IRA each year. If you can't find this from income cash flow, convert a portion of cash savings each year. Edtt: you can do this with the online account for 3 years and then use your CD once it's matured. Btw what is the penalty for cashing in your CD early?
- Set goals to make incremental extra payments on mortgage but nothing too drastic. My suggestion is the equivalent of one extra payment per year, can break it into chunks if you prefer. That'll probably pay as much principal as 2-3 monthly payments do, which will accelerate your payoff by a few years. Run the numbers yourself (or post your mortgage details) and set a goal based on this concept.
« Last Edit: January 23, 2016, 10:18:07 PM by Rewdoalb »

xclonexclonex

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Re: Should I pay off the house?
« Reply #15 on: January 26, 2016, 12:29:39 PM »
Seems much harder to argue in favor of pre-paying the mortgage, however, when you have 401k and IRA space yet to be filled and could save 15% on pre-tax contributions.

Is there anything particularly wrong with paying off the house and then aggressively contributing to 401k and Roth IRA? I anticipate that I can save up to $4000 per month if I pay off my house...

2: It doesn't make sense to put more than an emergency fund into a low CD. Pay the mortgage, invest it, or some of both.

Thank you. I definitely intend to do something else with that money than to leave it in a CD. Whether to put it in the market or pay off the mortgage... I am not sure.

MDM

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Re: Should I pay off the house?
« Reply #16 on: January 26, 2016, 01:24:49 PM »
Seems much harder to argue in favor of pre-paying the mortgage, however, when you have 401k and IRA space yet to be filled and could save 15% on pre-tax contributions.
Is there anything particularly wrong with paying off the house and then aggressively contributing to 401k and Roth IRA? I anticipate that I can save up to $4000 per month if I pay off my house...
$4,000 * 12 = $48,000.

For most people, the maximum 401k + IRA = $18,000 + $5,500 = $23,500.

Depends on your definition of "particularly wrong," but wouldn't you expect putting $23.5K into the tax-advantaged accounts will give you a much better return than paying off the house?

If you say that no ROI is better than not having a mortgage, well, then you have your answer.

mountainstache7

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Re: Should I pay off the house?
« Reply #17 on: January 26, 2016, 01:29:46 PM »
Based on your response that you don't like debt, this is one of those personal choices where it may be best to pay off the house. All that said, I would say to make sure before you pay off the house that you have at least 6 months of emergency fund still in savings before doing so. You will have more freedom and sleep better at night. I'm not discounting the other opinions that investing is the better way to go, it can be, but in your situation and based on your personal preferences I'd pay it off. Once the mortgage is gone, you can put your full focus into investing your extra cash each month. You're in a fantastic position either way you go.

Dicey

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Re: Should I pay off the house?
« Reply #18 on: January 26, 2016, 02:09:52 PM »
To everyone who says they hate mortgage debt, I always ask if that means they also hate creating wealth. After the blank stare, I explain the time value of money. The more you invest and the sooner you do it, the fewer actual dollars you will have to save to retire early with a Big Ball o' Money (BBoM). Then I mention the concept that a fixed mortgage, at nearly lifetime lows, will never go up, but rents surely will, so inflation escalates rents, but not fixed rate mortgages. Long, fixed-rate mortgage=great inflation hedge. Finally, I remind them that interest is tax-deductible, so a 3% loan actually costs less than that after taxes, assuming you itemize, because you do, right?

If they express a wish to travel, I remind them that it costs money to buy plane tickets, hotels, gas, etc. You can't pay for it with home equity, no matter how paid off your house is. Sure, you can borrow against your paid-off house, but rates tend to be variable and higher than a first mortgage and the deductibility is very limited.

You are free to do what you want, but there are hard ways to do things and there are smarter, more efficient ways too, which is why you're here and asking these great questions, right?

Disclaimer: Should you live in a cheap COLA, where your mortgage is so small that itemizing the  mortgage interest does not exceed the standard deduction, you have my blessing to ignore this advice. But then, that's not most people. "Kill the Mortgage" is an easy concept to understand. The wiser route is more nuanced. Be smart. Taking the road less traveled has big rewards in the wealth creation game.

One more thing: There a lot of people who eschew EF's and taxable accounts. If your goal is to FIRE, remember that you'll need something to live in until you reach "retirement" age. Sure, there are backdoor Roths and substantially equal withdrawals and the like, but you don't want to be pulling money out of the market should it happen to be down when you need it. Like now.

Tyson

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Re: Should I pay off the house?
« Reply #19 on: January 26, 2016, 02:46:28 PM »
I'd pay off the mortgage, but only because I've gone through periods of extended unemployment.  My view nowadays is this - if you lose cashflow and you still have a mortgage, the bank can take your house if you miss payments.  Paying off the mortgage prevents that from ever happening.  Does that mean you might lose a couple of years of the time-value of money?  Sure.  But I could live with that. 

mountainstache7

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Re: Should I pay off the house?
« Reply #20 on: January 26, 2016, 04:28:57 PM »
Agreed @tyort1. We should be protecting our needs(shelter/food/water) over our wants(travel/FIRE) first and foremost.

onlykelsey

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Re: Should I pay off the house?
« Reply #21 on: January 26, 2016, 04:36:40 PM »
I would only do it once you had a significantly larger cushion than you do, and I'd do it in one fell swoop (so you don't mostly pay it off and then let a small misstep mean repossession by the bank).  You likely will do better than 3% in the market, but you could adjust your exposure by getting in something riskier to balance out this low guaranteed return, if that fits with your risk profile.

justajane

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Re: Should I pay off the house?
« Reply #22 on: January 26, 2016, 04:44:21 PM »
I'd pay off the mortgage, but only because I've gone through periods of extended unemployment.  My view nowadays is this - if you lose cashflow and you still have a mortgage, the bank can take your house if you miss payments.  Paying off the mortgage prevents that from ever happening. 

The OP has 98K in liquid cash. Why would he or she miss a payment, even in the event of unemployment?

And a bank will take your home if you don't pay your taxes.

mountainstache7

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Re: Should I pay off the house?
« Reply #23 on: January 26, 2016, 05:02:07 PM »
If the house is paid off, you should be able to pay the taxes with just about any job that exists or with unemployment. The OP shouldn't be sitting on that much liquid cash in this situation anyway. It should either be used to pay of the house or invested elsewhere.

justajane

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Re: Should I pay off the house?
« Reply #24 on: January 26, 2016, 05:22:17 PM »
If the house is paid off, you should be able to pay the taxes with just about any job that exists or with unemployment. The OP shouldn't be sitting on that much liquid cash in this situation anyway. It should either be used to pay of the house or invested elsewhere.

We intentionally bought a house with a low enough mortgage that, if push came to shove, we could likely pay it with minimum wage jobs. It wouldn't be fun or easy, but we could do it.

I agree that the money should be invested.

mountainstache7

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Re: Should I pay off the house?
« Reply #25 on: January 26, 2016, 05:59:55 PM »
That is impressive that you have a low enough payment to do that. I'm jealous :)

There are several ways to skin a cat. I won't disregard anyone's opinion on how to best FIRE as there is wisdom in those opinions. We are definitely discussing personal finance and with that there are factors that can't be measured with math. If the OP will sleep better at night with a paid off home versus investing that money right now then that's what they should do. I'm not saying that's it's the most efficient way to FIRE but for them it may be the best way. I've gone the way of maxing all tax deferred accounts and attacking my mortgage with everything extra, but I feel that is what's best for my situation. Once the mortgage is gone, all extra cash will be funneled into index funds and RE. There is no one perfect method for all people to FIRE. Sometimes it's best to keep it simple. It's not for everyone, but it's working great for me and could for the OP. Without knowing everyone else's situations that may not be the best route.


Retire-Canada

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Re: Should I pay off the house?
« Reply #26 on: January 26, 2016, 06:25:24 PM »
I'd invest that money in the market and pay off the house over 15yrs at that rate. You'll get a better return - most likely.

Inflation is eating away at what you owe. The longer you take to pay it off the less you'll actually pay. Your interest rate is low so the actual borrowing cost of the money above inflation is low.

Thank you.

I honestly hadn't thought of things this way. I am sure it has a lot to do with my personality. I am very conservative, and I am very afraid of debt or gambling (I know investing is not the same as gambling, but my brain has a hard time believing this). I will give this some thought tonight.

You might want to read this:

http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/

mountainstache7

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Re: Should I pay off the house?
« Reply #27 on: January 26, 2016, 07:06:36 PM »
Good read

xclonexclonex

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Re: Should I pay off the house?
« Reply #28 on: January 27, 2016, 05:05:14 AM »
Depends on your definition of "particularly wrong," but wouldn't you expect putting $23.5K into the tax-advantaged accounts will give you a much better return than paying off the house?

If you say that no ROI is better than not having a mortgage, well, then you have your answer.

It does make a lot of sense when you put it that way. Investing my money in the market will yield better returns in the long run, especially if I were to get into the market now that its kind of low. What I need to figure out is if the ROI is better than not having a mortgage. At the moment I am not sure if I can give a solid answer. I will need to talk this over with my wife.

I wish I could speak to someone in my family about this, but I can't.

The more you invest and the sooner you do it, the fewer actual dollars you will have to save to retire early with a Big Ball o' Money (BBoM). Then I mention the concept that a fixed mortgage, at nearly lifetime lows, will never go up, but rents surely will, so inflation escalates rents, but not fixed rate mortgages. Long, fixed-rate mortgage=great inflation hedge. Finally, I remind them that interest is tax-deductible, so a 3% loan actually costs less than that after taxes, assuming you itemize, because you do, right?

This makes a lot of sense. We intend to itemize our taxes for 2016. I can't for 2015 because we were renting until December. We closed on the house on Dec. 18.

You are free to do what you want, but there are hard ways to do things and there are smarter, more efficient ways too, which is why you're here and asking these great questions, right?

Definitely. I want to know what is the best thing to do long term, not just for now. So although I am not a huge fan of paying interest to the bank, I realize that a fixed mortgage will guard against inflation, and renting is not a good idea long term.

Disclaimer: Should you live in a cheap COLA, where your mortgage is so small that itemizing the  mortgage interest does not exceed the standard deduction, you have my blessing to ignore this advice. But then, that's not most people. "Kill the Mortgage" is an easy concept to understand. The wiser route is more nuanced. Be smart. Taking the road less traveled has big rewards in the wealth creation game.

I am not entirely sure if itemizing taxes would be beneficial for me. I do live in an low cost of living area, and we are going to filing jointly. So I am not sure if I will beat the standard deduction.

frugaliknowit

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Re: Should I pay off the house?
« Reply #29 on: January 27, 2016, 11:18:03 AM »
1.  Don't touch the IRA's!

Why didn't you just buy the house for cash?  You paid a lot of fees!

That said, if you want to pay off the house, first make sure you have both your 2015 and 2016 IRAs fully funded and have an adequate emergency fund (3-12 months).

Altons Bobs

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Re: Should I pay off the house?
« Reply #30 on: January 27, 2016, 12:06:24 PM »
I would not pay off your mortgage at all, not because you can get better returns in the stock market because there is no guarantee, but because you don't have a cushion at all if something goes wrong and you need the money.  It's a good feeling to be mortgage free, but in this case I think it's not a goo idea.

Tyson

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Re: Should I pay off the house?
« Reply #31 on: January 27, 2016, 12:45:47 PM »
I would not pay off your mortgage at all, not because you can get better returns in the stock market because there is no guarantee, but because you don't have a cushion at all if something goes wrong and you need the money.  It's a good feeling to be mortgage free, but in this case I think it's not a goo idea.

This is actually a very good point.  I would recommend saving up some cushion, and THEN pay off the house.  It does 2 things for you.  First, and most obviously, it' covers you if anything unexpected (and expensive) comes up. 

Second, and maybe more importantly, it forces you to be disciplined about your budget for a significant period of time.  If you do it this way, you are already in the frugal "groove" so to speak and it's going to be pretty easy to just keep going in that manner after the house is paid off.  Because one real danger I see is unconscious lifestyle creep.  If you pay off the house before being frugal, it's easy to say "Hey, look at all this extra money we have every month now!" and then 'treat' yourself.  And thus begins the creep.  Better to be disciplined for a while first. 

neo von retorch

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Re: Should I pay off the house?
« Reply #32 on: January 27, 2016, 01:01:22 PM »
So you are asking if it's a "good idea." Math says no. Feelings say maybe. But the Mustachian way is to pursue freedom of choice, lasting joy... and to make smart, efficient choices that maybe aren't the most pleasurable "right now." If you invest $140k and average 4% return, you make $465/mo. Is this more than you're paying in interest to the bank? (Will you invest the money, most of it, or just keep it in a low interest savings account?)

acroy

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Re: Should I pay off the house?
« Reply #33 on: January 27, 2016, 01:21:33 PM »
To everyone who says they hate mortgage debt, I always ask if that means they also hate creating wealth. After the blank stare, I explain the time value of money. The more you invest and the sooner you do it, the fewer actual dollars you will have to save to retire early with a Big Ball o' Money (BBoM).

Amen!

you're paying $300/mo in interest
the 138,141 savings, invested at average yield of 7% (pretty safe), gives $805/mo

The loan is making you 505/mo. Congratulations!!! Stay the course!!

Retire-Canada

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Re: Should I pay off the house?
« Reply #34 on: January 27, 2016, 01:42:03 PM »
This mortgage calculator shows you the impact of inflation on your payments.

https://ostermiller.org/calc/mortgage.html

Dicey

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Re: Should I pay off the house?
« Reply #35 on: January 28, 2016, 11:28:09 AM »
Why didn't you just buy the house for cash?  You paid a lot of fees!
Unless you paid points to acquire the mortgage (boo, hiss), the rest of the fees should be the same. It's just an easier process if you pay cash. Sort of. Maybe. #askmehowiknow.

I'd also like to remind folks that the idea that you will sleep better at night when your mortgage is dead is just that: an idea. It's kind of like the people who imagine their lives will be all lollipops and rainbows when they pay off their credit card/student loan/car/whatever. The reality is that you may discover (as we did) after you pay cash for your house, you kick yourselves every time you notice how low mortgage loan rates are. And I'm no CPA, but no, you can't go out later and get a big-ass mortgage and get the same deductibility privileges as an origination loan, per IRS rules.

There are many better things to do with your money that pre-pay a cheap, fixed-rate mortgage. FWIW, we didn't pay cash for our house until AFTER we were FI, and we had loads of cash on hand due to the sale of a couple of other properties. We still kinda wish we hadn't, even though we have our BBoM for retirement.

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Re: Should I pay off the house?
« Reply #36 on: January 29, 2016, 10:28:55 AM »
Thanks a lot for your replies, and your guidance. I really appreciate it.

I think based on everything written here, I can draw the following conclusions -

1. Invest the money I have in a Cd in the market and earn a whole lot more

2. If I am not going to invest then I should pay off the mortgage.

At the moment, I did some math and here is what I found -

Wells Fargo Mortgage   -$335.24
Cd Interest per month   $190.07
Savings Interest per month   $19.85

Total      -$125.32

So at the moment, I am paying -125.32 in interest every month. That doesn't look so terrible. I have close to 40k in the savings account. I will keep 6 months of income in the savings and then I will start investing the rest.

Whether I am going to break the CD or not, I haven't quite decided. Its going to cost me $1065 to break the CD...

I need to think about this.


xclonexclonex

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Re: Should I pay off the house?
« Reply #37 on: January 29, 2016, 10:31:25 AM »
Unless you paid points to acquire the mortgage (boo, hiss), the rest of the fees should be the same. It's just an easier process if you pay cash. Sort of. Maybe. #askmehowiknow.


No, I certainly dd not pay to acquire points.

Could you tell me why this is a bad idea? I heard about paying interest upfront to reduce the monthly payment, but I am not quite sure what this really means..

Thanks.

 

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