patrick.net

It's good advice as long as he invests the money instead of blowing it on drugs and hookers.

Ironman says

Also, where is the house and what's the appreciation in the area? Are home values going up or down? Locking up money in a house in a depreciating or stagnant market versus investing it has to be evaluated.

The house is in Portland, OR which has seen high appreciation in the last few years.

But what does it matter if the house is stagnant vs. appreciating unless you are going to bail with a non recourse loan?

I wonder if there are more ways to make the itemization work to your favor?

Ironman says

It does if you're gaining or losing equity, if he needs to sell. If he's paying 4.125% (effective 3% after tax credit) but the house is losing 5% value every year, he's going backwards. He would be better taking his money and investing it someplace else besides the house. If the market has been going up 3% - 5% a year, it's like a future savings plan for his money.

This is why you don't ask Ironman for financial advice. Portal is correct, of course. Whether the property is gaining or losing value matters not in the decision about whether to pay off a mortgage early. You already own the asset so you are getting the appreciation or depreciation regardless of how fast you pay down the mortgage. The relevant factors are mortgage rate and expected return on investment.

My biggest reason and only reason is the unpredictable ever more greedy insurance industry.
Every year since I bought 5 years ago, they have raised the insurance by $300 to $500 a year. This year they tried to raise it up by $5000, they made me jump through some hoops. Do some home repairs, basically replace several Items in the house that was fine, and I had to clean and paint my roof, then got it reinspected. And then was made to feel like the $1200 they raised it was a hell of a deal.
While I was put on notice that inspections in the next 3 to 5 years, could bring these back out. Unless I take out about $70,000 loan and replace all my windows with high impact windows, and a few roof modifications, that eventually I will be raised up to $7000 to $10,000 a year or more. Then even then if I do all of those upgrades, there's no guarantee that the insurance companies still wont find other ways to raise insurance. All of this during a Hurricane drought in South Florida if anything the prices should be going down not up.

If I can't afford an extra grand or two a month now, then I sure as hell wont be able to afford it 5 years from now. So I did the math and figured if the worst case scenario for Insurance was a reality now, with the extra money I would have to pay to insurance company a year. If I instead put that to my mortgage I would be paid off in 5 years.

So fuck it! That's what I'm doing.

DieBankOfAmericaPhukkingDie says

While you're waiting for service describe the FREE!DOM! of life without debt, the ecstasy of never having to deal with satanic monsters like banks any more, the endless orgy of unending days of TOTAL! FUCKING! FREE!DOM!

Why do you hate the nanny state, and the warm comfort of peeing/shitting your pants, er ah having the government taking care of you?

http://lenpenzo.com/blog/id1131-12-good-reasons-why-you-should-and-should-not-pay-off-your-mortgage-early.html

Pretty good article showing pluses and minuses. Note it is an older article (2010) during the "oh my gosh inflation!" sentiment era. I pretty much scratch inflation off the list of negatives to early paying off the mortgage. There has been deflationary pressure for years, hence the super low interest rates.

tatupu70 says

The relevant factors are mortgage rate and expected return on investment.

As tat' says ... what are you doing with the other capital/investments you have? Is it advantageous to keep the debt, and plant the money elsewhere to grow?

Personally, I'm strongly considering paying off our house in a year or two. My lizard brain looks at stock gains as "fake money", as well as home value gains as "fake money" (fake money ... maybe more accurately said as 'the potential to be real money').

That means there are only two real things in my brain : income and expenses. ;) (dividends = real money though.)

Will the money he saves earn him more than 4.15% return?

Most people are better off paying their mortgage off and saving all that interest over X years. There is no better feeling than not owing anyone a penny, a free man!

Rew says

There has been deflationary pressure for years, hence the super low interest rates.

Good point.

Ironman says

Does he have un-reimbursed business expenses, car usage for business, medical deductions, other charities, stock losses, provide any support for a parent, etc.?

That's about all the deductions he has that I know of.

Portal says

Let me know your opinions on the advice I gave him.

Re-fi into shorter duration mortgage. 10-15 years. Rates are very low, and maybe can get below 3.00%.

Try to beat 3% with the money that would have been applied to paying off the mortgage. Put your money to work for you.

FortWayne says

Most people are better off paying their mortgage off and saving all that interest over X years. There is no better feeling than not owing anyone a penny, a free man!

I respectfully disagree. There is no worst feeling than owning the property 100%. If there is a flood/earthquake or other SHTF, you own it all. If the bank owns 80% of it, it is their problem. They have the house, you have all the money.

There is no dilemma here, there are plenty of choices than pay off a long term mortgage that costs less than 3%, net of tax.

If you think it is such a good deal, would you lend me 400K at 3% interest rate, fixed over 30 years? You have recourse and monthly payment, that's it. Hell fking no. So the debt is an asset like no other

SFace says

I respectfully disagree. There is no worst feeling than owning the property 100%. If there is a flood/earthquake or other SHTF, you own it all. If the bank owns 80% of it, it is their problem. They have the house, you have all the money.

If a bank owns 80% of your property it owns your life, it owns you. Nothing better than throwing those debt shackles off and being free.

And if you worried about flood, get insurance. There is no price one can put on freedom, and paying interest to some bank all the life isn't a goal.

payment #1 and payment #360 is the same. Saying the bank owns you is quite a stretch. You basically ate them alive. Would you sign a 30 year lease with no rent escalation, hell fking no.

Freedom comes from financial independence, which is a function of wealth, which is asset less debts. All the rich ass mofo have huge debt and ALL the assets.

It's just my preference that I let the bank takes 80% of the house and me the other 20. Every asset in this world is own by some bank that takes the first 60%. With insurance, you would know that you are on the hook for the first 20% anyway. I can do that letting the bank take 80% all the same.

Ironman says

Tatty doesn't know the difference between an "Asset" and a "Liability", so he just spews his nonsense...

CIC--why do you persist in this? You only look like a fool again and again.

Ironman says

How does that square up with your first comment above? If he puts $360K into the house, and it loses 5% of value, where's he at by end of the year on his investment?

Conversely, if he carries a $360K mortgage at 4.125% (effective 3% after tax) and invests that $360K in an index fund returning 5%, where is he at by the end of the year on his investment?

Show us your brilliance with your housing and math skills.

As usual you completely miss the point. Paying off a mortgage early avoids the interest on the loan so you are basically earning the mortgage rate on that investment. If you can find an investment outside with an expected return greater than the mortgage rate, then it pays to invest. If not, it's better to pay down the mortgage.

If your house appreciates you get the gain either way. If it depreciates, you get the loss either way. It's irrelevant to the question at hand.

I have to say that it's extremely hard to believe that you ran a business if you can't even understand this simple of a concept.

Portal says

I have seen a lot of commentary on whether or not a person should pay off his mortgage early. I believe it depends on too many factors to decisively say.

I want to share my friends experience and the advice i gave him.

Total Income - 145,000$/Yearly

Home Purchase Price - 450,000$

Mortgage Loan - 360,000$

Interest Rate - 4.125%

My advice to him: Do not pay off the mortgage early.

Best strategy:
1. Refinance to a 15 year no cost loan. 2.75%
2. Invest your money in home builder stocks, preferably an ETF. It will triple in the next few years.
3. Sell the stock after it triples.
You will have enough to pay the capital gains tax, pay off the mortgage, and still have a load of cash.

Strategist says

2. Invest your money in home builder stocks, preferably an ETF. It will triple in the next few years.

You are awfully cocky about that!

indigenous says

Strategist says

2. Invest your money in home builder stocks, preferably an ETF. It will triple in the next few years.

You are awfully cocky about that!

Just wait and see. I put my money where my mouth is.

Strategist says

Just wait and see. I put my money where my mouth is.

The point is why?

If you get a 30 years mortgage and plan to pay it early, you are basically pissing money away.

If you plan to accelerate the payment, then do a 15 year or 5 year. Instead of 4.125% APR, it goes down to 3.375% APR or 2.25% net of tax.

indigenous says

Strategist says

Just wait and see. I put my money where my mouth is.

The point is why?

We have a severe shortage of homes, which keeps getting worse. We need to build 1.5 million units per year, and then some, just to catch up with 9 years of under building.
Homebuilder stocks can only go up in the next few years.

Ironman says

No it's not. If you think there won't be any appreciation, why would you put a big chunk of liquid cash into it instead of investing that cash into something where you know you'll get a better return. Do you normally invest large sums of money in an item knowing that it's going to fall in value?

How do you not see this?? The cash return is the interest you avoid paying. That is the guaranteed return. It has nothing to do with the appreciation or lack thereof of the asset.

Ironman says

You really have difficulties with seeing the big picture, don't you. Why is that?? You get fixated on the stupidest little point not part of the discussion.

All the libbys have that problem.

Ironman says

On a depreciating asset, why would someone tie up their liquid funds and lose value, when they can get get a better return using OPM?

You are bringing up something this is irrelevant, quite impressive. Depreciating/Appreciating, you make up all the rules.

In the end, the decision is whether to pay off the mortgage to avoid the 3% cash net of tax, or deploy that cash somewhere for a return better than 3% net of tax. The person will own the home and ride with it regardless.

Ironman says

No it's not. If you think there won't be any appreciation, why would you put a big chunk of liquid cash into it instead of investing that cash into something where you know you'll get a better return. Do you normally invest large sums of money in an item knowing that it's going to fall in value?

If he pays as bank asks over 30 years he'll end up paying $299,988.78 in interest to a bank. That's real significant money, cutting that interest even in half is probably financially wise.

FortWayne says

If he pays as bank asks over 30 years he'll end up paying $299,988.78 in interest to a bank. That's real significant money, cutting that interest even in half is probably financially wise.

horrible advice

It's not smart to count the interest expense and not consider interest/gains earned.

IMAN, YOU ARE TRULY HOPELESS. GB for good.

SFace says

horrible advice

It's not smart to count the interest expense and not consider interest/gains earned.

how so?

300k is interest paid, it's money he pays for the privilege of borrowing it. keeping money in the bank earns roughly 0.5% in savings these days... way below 4.15 he would be paying in interest. i don't see why not pay something like that off faster.

FortWayne says

There is no better feeling than not owing anyone a penny, a free man!

There's always property tax that keeps you bound...just saying

FortWayne says

how so?

300k is interest paid, it's money he pays for the privilege of borrowing it. keeping money in the bank earns roughly 0.5% in savings these days... way below 4.15 he would be paying in interest. i don't see why not pay something like that off faster.

He could buy stocks that average 5% return between dividends and gains fairly easily. The long term return including dividends and appreciation of any conservative portfolio is far higher than that.

While the original poster is likely wrong about how much his tax write off is worth (you have to compare itemizing with the interest, to not itemizing. Unless he has a ton of other write offs, likely MOST of the interest is used to just get him to the line where writing it off becomes better.) he is still seeing a bit of a savings.

But, on a bigger issue fortwhine, why the f F**K are you giving financial advice? you do know that you are one of the stupidest people here right?

Ironman says

Go back and ask the people who bought houses in the 2005 - 2007 window if they were better off putting a huge chunk of their cash into their house (only to watch it vaporize when the bubble burst) or if they were better off hanging on to the cash, investing it somewhere else, and taking a large mortgage.

Makes no difference at all, unless you walk away from the house in a short sale or foreclosure.

what the hell are the two stupidest people in this forum, ironvagina, and fort whine, doing giving financial advice? seriously!

Ironman says

The OP was talking about carrying a mortgage and investing the cash instead. He wasn't talking about NOT taking a mortgage and saving that interest portion. He was talking about deploying that capital elsewhere that will bring a higher ROI then the interest rate.

I'm the one who actually gets it. You've now had multiple posters on here trying to tell you how you're wrong. I'll try once more.

You're right that he wants to deploy the capital elsewhere that will bring a higher return than the interest rate. So far so good. That's where the savings are. And it's true whether the house gains or loses in value.

Ironman says

On a depreciating asset, why would someone tie up their liquid funds and lose value, when they can get get a better return using OPM? Once again, you're not qualified to discuss financial matters here. Go back to the Sesame Street forum.

Here's where you go off the rails. He owns the asset whether he has a loan for 50%, 80%, or if he owns it outright. The additional money he puts in to pay down the loan doesn't gain or lose value. That gain or loss is going to happen whether the money is in stocks, bonds, or in the house. Like others said, the only way this isn't true is if you plan to default.

Ironman says

Go back and ask the people who bought houses in the 2005 - 2007 window if they were better off putting a huge chunk of their cash into their house (only to watch it vaporize when the bubble burst) or if they were better off hanging on to the cash, investing it somewhere else, and taking a large mortgage

Their money vaporized wherever it was invested unless they defaulted on their house. If the house loses $200K in value, it doesn't matter if you have $10K invested in it or $500K invested in it--you lose $200K.

youareworthless says

Makes no difference at all, unless you walk away from the house in a short sale or foreclosure.

what the hell are the two stupidest people in this forum, ironvagina, and fort whine, doing giving financial advice? seriously!

Why would anyone take financial advice from an anonymous board no matter who is posting?

Tenpoundbass says

My biggest reason and only reason is the unpredictable ever more greedy insurance industry.

Every year since I bought 5 years ago, they have raised the insurance by $300 to $500 a year. This year they tried to raise it up by $5000, they made me jump through some hoops. Do some home repairs, basically replace several Items in the house that was fine, and I had to clean and paint my roof, then got it reinspected. And then was made to feel like the $1200 they raised it was a hell of a deal.

While I was put on notice that inspections in the next 3 to 5 years, could bring these back out. Unless I take out about $70,000 loan and replace all my windows with high impact windows, and a few roof modifications, that eventually I will be raised up to $7000 to $10,000 a year or more. Then even then if I do all of those upgrades, there's no guarantee that the insurance companies still wont find other ways to raise insurance. All of this during a Hurricane drought in South Florida if anything the prices should be going down not up.

If I can't afford an extra grand or two a month now, then I sure as hell wont be able to afford it 5 years from now. So I did the math and figured if the worst case scenario for Insurance was a reality now, with the extra money I would have to pay to insurance company a year. If I instead put that to my mortgage I would be paid off in 5 years.

So fuck it! That's what I'm doing.

Once you have paid off your mortgage, insurance is optional. Just a thought there.

Personally, I would rather pay off the mortgage in my 40s even if I could hypothetically have a higher net worth in my 60s if I were to make minimum monthly mortgage payments and "invest the difference" between prepayment and minimum payment into the stock market. The freedom and security that comes with paying off the death pledge so much earlier in life is absolutely priceless and I am currently working on that project.

dublin hillz says

The freedom and security that comes with paying off the death pledge so much earlier in life is absolutely priceless

Yes it is! I paid off my mortgage five years ago and my wife and I love the security of having a paid off house and less cash outflow every month. Unless you have a very large mortgage and high taxes or also have kids, it's hard to beat the standard deduction. We hadn't been able to itemize for years and so just finally bit the bullet and paid the house off. The only caveat is to not leave yourself cash poor (i.e. don't leave yourself with almost no cash reserve) when paying off you note. We still had an intact two+ year emergency fund after paying the house off.

zzyzzx says

Once you have paid off your mortgage, insurance is optional. Just a thought there.

That's the idea. That the rate they'll be charging for insurance. I could put those premiums in a house mantainance fund.
And be way ahead of the game. If a big one does come that would level my house, or that I would have more than $20K in damage. I would be in the house and wont be here the next day to file a claim anyway.

DBOAPD,

Try to be less reserved & speak your mind.
lol

HEY YOU says

Try to be less reserved & speak your mind.

It is all part of the therapy, he doing very well don't you think?