Pay off mortgage or make monthly payments and invest the rest?

[Ross]

You pay off your home then bank that for a decade or two on top of everything else, we are told by advisor who gets it all when you are gone, you won’t come close to spending it all

 

[WeiserBucks]

Listening to smart people talk gives me heartburn. Wish I understood it all better.

 

[Rich M]

Listening to smart people talk gives me heartburn. Wish I understood it all better.

It is just diff of opinion. You can split the difference for best of both worlds. If you have extra $1,000, put $500 extra in retirement and $500 extra into mortgage.

The main trick is to have the extra $$$$. Many folks dont have that luxury (for a myriad of reasons).

What would you do if you got $10k? Invest, pay off debt, 1/2 and 1/2, or blow it? Tells you all you need to know about your financial savvy.

 

[cowdisciple]

There really is not a mathematical case for paying extra principal on a mortgage with a rate less than or equal to the 10 year Treasury rate.

Change how the math makes you feel, because the math is irrefutable.

 

[WeiserBucks]

There really is not a mathematical case for paying extra principal on a mortgage with a rate less than or equal to the 10 year Treasury rate.

Change how the math makes you feel, because the math is irrefutable.

What about those of us that suck at math?

 

[Rich M]

There is no feeling in the world like owning a house free and clear. Sometimes it may not make better financial sense but it sure does make for a less stressful life.

I’m just not stressed by my mortgage.

We did have a period where finances were stressful and it sucked.

What about those of us that suck at math?

He’s saying dont pay off yer mortgage if your money can make more interest in a treasury bond or any other “safe” investment than you are paying the bank.

 

[Snowwolfe]

Remember, even if you make more money from the money you divert from your mortgage you then most likely will be faced with a higher tax bill from Uncle Sam. Lots to consider.

 

[HuntHarder]

Remember, even if you make more money from the money you divert from your mortgage you then most likely will be faced with a higher tax bill from Uncle Sam. Lots to consider.

Hopefully you can itemize and deduct your mortgage interest. Then, it is a double win

 

[Tahoe1305]

Remember, even if you make more money from the money you divert from your mortgage you then most likely will be faced with a higher tax bill from Uncle Sam. Lots to consider.

I higher tax bill means you made more money….thats always still results in making more money.

And in fact that may not be the case for some because your home is a tax right off (depending on how it’s used and deducted). So paying it off quicker hurts that tax benefit.

 

[MidwestElkHunter]

I am avoiding paying off my home. Have very little left on the loan, but at 2.99% interest it doesn't make any sense considering I will lose a mortgage deduction. I have been using our extra cash to put in CD's (@5.25%) then moved over to a money market (@5%) and now have it in a high yield savings (@ 4.25% + deposit bonus).

To me it is better to have the money just in case it is necessary, and we are still getting a higher interest rate than the house loan.

I have also been maxing out my 401k since our extra cash is liquid.

 

[cowdisciple]

There isn't a lot of math if the mortgage rate is less than the Treasury bond rate (4.41% 10 year at the moment). Take the extra money and buy bonds.

It definitely gets more interesting if the mortgage rate is somewhat higher than the Treasury rate. There's value in having bonds anyway. You can always sell them if you need cash. Selling part of the house you live in is significantly more costly and difficult. But you are either taking a little risk in equities to make up the spread or else paying a bit for that flexibility in missed opportunity cost.

Or you can always buy an index fund. You'll make the most over the long term, but there's more risk. The biggest risk scenario is a major market downturn at the same time you lose your income source, and unfortunately those things often go together. But even there the risk is acceptable for many. I personally wouldn't put that money in individual stocks or any kind of derivative product where there's a risk of total loss.

I chose an intermediate route personally. I wanted to match the duration of my mortgage more closely with my expected retirement date, so I refinanced into a 2% 15 year. Now my monthly payments are higher but they're almost entirely principal anyway because I got a rate reduction in return.

 

[Dave_]

I try to do both. I want my house paid off by the time I retire for peace of mind. But I get the math of investing it ( We are pretty lucky at 3.3% interest). I put just enough extra principle to pay it off at the earliest I see myself retiring. The rest goes into retirement investments.

I think alot of folks don't have the self control to invest the extra money if it wasnt automatically taken out with thier monthly mortgage payment. I would bet most people in this country would find other way to send the extra money before they invest if it sits their checking account for to long.



Sent from my SM-G975U using Tapatalk

 

[WeiserBucks]

My rate is 2.2% and I owe $90k. My credit union offers a 5% SA, what would you smart people do?

 

[CorbLand]

Listening to smart people talk gives me heartburn. Wish I understood it all better.

If you getting heart burn, your using the wrong organ when it comes to money. A headache would be better.

The math on this one is really easy.

Let’s say you borrow 1000 dollars at 2%. In one year, you would owe 1020.

If you take that 1000 and invest it in something that earns 4%, in one year you would have 1040.

You then take that 1040, pay back the money you borrowed plus the interest and you have 20 bucks left over.

 

[CorbLand]

My rate is 2.2% and I owe $90k. My credit union offers a 5% SA, what would you smart people do?

Pay the minimum payment on your mortgage and anything extra you have would go straight into that SA.

You will be making 2.8% on your money.

Edit to add.
Fixed a fat finger.
You will have to pay taxes on the money you make, but you will not pay more than you make and if your tax bracket is high enough to cut it your profit that much, your accountant should be finding better ways for you to make money and/or not pay taxes.

Do not let the fear of taxes get in the way of making money. You aren’t taxed more than you make. I hate paying taxes but I don’t fear paying them.

 

[NMJM]

There is no feeling in the world like owning a house free and clear. Sometimes it may not make better financial sense but it sure does make for a less stressful life.

No better feeling? What about the feeling of having investments that are double than what your house is worth?

 

[Tahoe1305]

No better feeling? What about the feeling of having investments that are double than what your house is worth?

And your house is still worth double even though it doubled using the banks money……..(in addition to the investments)

 

[Natebonebusta]

I’m not a huge Ric Edelman fan, but I once heard him talk about low interest mortgage rates. If it were 3% or under he wanted as much as he could get for as long as he could get it.

He also said if your payment is $1000 let’s say, $1000 in 2010 won’t buy the same amount of goods in 2025. You locked in at $1000 per month at 2010 and other than taxes and insurance that mortgage will never change. That $1000/mo in 2025 dollars certainly won’t buy that house from 2010. The only way to buy that 2010 house today is with more dollars.

Since we’re gun folk around here, think about how much 1lb of Varget, H4350, or XBR 8208 was in 2010, can you buy a 1lb container for the same amount today? Answer is NO, but that mortgage (the principal and interest) will be the same for the duration of the loan if fixed.

All that to say I’ll continue to invest the difference with an under 3% interest rate.

 

[2buffalo]

My house was paid off I bought 50 acres with a home equity loan when rates were cheap, built the house out of my pocket, sold it this past winter for 3x what I had into it 8 years later.

 

[Fun Guy]

Pay it all off. Once you are debt free, then you can start thinking investment. Fortunate to have been debt free for five years, it’s priceless. I recommend the John Goodman monologue about the “FU Position” in the movie The Gambler. An invaluable four minutes IMO.