Financial advice

[huntfish]

I asked this exact question and here was the response. If you have a 4% mortgage but are earning 10%, why would you throw away 6% earnings that are compounded yearly for the next 20 years. It worked out being almost $100,000. You have the peace of mind that you do have the funds to pay out the mortgage but why give away money?

 

[The Original Rooster]

I asked this exact question and here was the response. If you have a 4% mortgage but are earning 10%, why would you throw away 6% earnings that are compounded yearly for the next 20 years. It worked out being almost $100,000. You have the peace of mind that you do have the funds to pay out the mortgage but why give away money?

^^^This!^^^
Put your money in something that gains interest at a rate at least equal to your mortgage's rate. That way you get to keep your nest egg but still pay your house off without losing anything in the long run. If you want to pay it off sooner either make extra payments or refinance to a shorter term loan.

 

[NE GA Pappy]

If I read correctly, you are on disability, trying to get on SS. So, in reality, you aren't going to pay a lot in taxes anyway. The interest you pay is a deduction, not a credit, so unless you have offsetting income, it is just money you paid out.

I wouldn't advise you to go an any aggressive investments with the money, because you don't have any income to speak of to build it back up when the market crashes. And it will crash at some point. I am really conservative, and I like knowing where I stand. If my house is paid of, all I have to do to stay in it is pay those dadblasted taxes every year. On a fixed income, that is a lot easier to do than making payments and paying taxes.

I would bet good money that the people in here advising you not to pay it off and invest do not have a house that is paid off. And the ones that are telling you to pay it off probably do have a paid off home. Until you are living in YOUR house, with no debt hanging over it, and know that no one can move you out regardless..... you can't know how freeing that feeling is.

 

[Jim Baker]

I would bet good money that the people in here advising you not to pay it off and invest do not have a house that is paid off. And the ones that are telling you to pay it off probably do have a paid off home. Until you are living in YOUR house, with no debt hanging over it, and know that no one can move you out regardless..... you can't know how freeing that feeling is.

I have owned my home for 25 years. I have lived in it for 36 years. My advice to keep making payments and keep investing is really premised on to little information therefore there are a lot of ifs.

IF the OP has the discipline to save the bulk of the $1400 mortgage payments paying off would make some sense. If he has a long time horizon before he has to begin withdrawing from his retirement accounts Paying off makes less sense. But it is hard to say with the little info we have.

 

[normaldave]

It's never a bad idea to pay off the house. While you're at it, consider looking for a new financial advisor.

Don't play with the math, it looks good on paper, but seldom works out in reality. Would you take out a home equity loan against your house for $ 270K, just so you could invest it?

Have mercy people...

 

[NE GA Pappy]

IF the OP has the discipline to save the bulk of the $1400 mortgage payments paying off would make some sense.

That is what I did. I made 2 payments a month, 1/2 on the 1st and 1/2 on the 15th until mine was paid off. I still make payments into a savings account on the 1st and 15th for the same amount. I use that account to pay my taxes and my house insurance, and just let it grow and grow.

I figured I did without that money for years while I was paying off my house, and I won't miss it now if I put it straight into a savings account

 

[NE GA Pappy]

Don't play with the math, it looks good on paper, but seldom works out in reality. Would you take out a home equity loan against your house for $ 270K, just so you could invest it?

Have mercy people...

a great way to look at it... and no, I wouldn't borrow any money to invest

 

[notnksnemor]

It's never a bad idea to pay off the house. While you're at it, consider looking for a new financial advisor.

Don't play with the math, it looks good on paper, but seldom works out in reality. Would you take out a home equity loan against your house for $ 270K, just so you could invest it?

Have mercy people...

Apples and oranges.
Are the investments pre-tax?

If so, he will pay income tax on the $270K withdrawn.
I don't think paying off a mortgage is considered a direct roll-over.

 

[normaldave]

I turned 60 in July, I receive a long term disability check from a private insurance company that I opted into several years ago. I owe $270k on my house, which I could pay off, and STILL have money being invested.

I may have misunderstood, sounded like he could payoff the house early without touching his existing retirement account, for example reducing or pausing his contributions for a while, and no, I don't think we should withdraw or borrow from our retirement accounts either.

FWIW, I did not stay at a Holiday Inn Express last night...

 

[Jim Baker]

It's never a bad idea to pay off the house. While you're at it, consider looking for a new financial advisor.

Don't play with the math, it looks good on paper, but seldom works out in reality. Would you take out a home equity loan against your house for $ 270K, just so you could invest it?

Have mercy people...

If the OP takes money out of savings to pay off mortgage it would be the same as taking out a loan. Which is the point. He would be creating another payment of having to build back up his
saving. He would be losing the power of compounding to eliminate diminishing interest payments.

 

[Jim Baker]

That is what I did. I made 2 payments a month, 1/2 on the 1st and 1/2 on the 15th until mine was paid off. I still make payments into a savings account on the 1st and 15th for the same amount. I use that account to pay my taxes and my house insurance, and just let it grow and grow.

I figured I did without that money for years while I was paying off my house, and I won't miss it now if I put it straight into a savings account

Me too. But I did it while the equity of my previous home was invested. I assigned the equity as down payment on the home I am in now. Of course this was in the day of 8 to 9% CD rates and 11 to 12% mortgage rates. I put the equity in a 5 year CDs.

Oh, I agree to the blessing of no mortgage payments. And them Dadblasted Property Taxes.
I now pay more in taxes and homeowner's insurance that my original mortgage was in 1984.

 

[notnksnemor]

Me too. But I did it while the equity of my previous home was invested. I assigned the equity as down payment on the home I am in now. Of course this was in the day of 8 to 9% CD rates and 11 to 12% mortgage rates. I put the equity in a 5 year CDs.

Oh, I agree to the blessing of no mortgage payments. And them Dadblasted Property Taxes.
I now pay more in taxes and homeowner's insurance that my original mortgage was in 1984.

Exactamundo.
You will always have prop tax and ins. as long as you have a home and a heart beat.

 

[Tight Lines]

The thing is, if invested properly the base investment he has could be returning 10% easily without significant risk. If you did that on $500K then in 4 years you would have $730K and could pay off the house with the increase and still maintain the base investment. The issue here is the investments are basically cash.

Again though, get a different financial advisor not a bunch of guys on a hunting forum.

 

[huntfish]

The thing is, if invested properly the base investment he has could be returning 10% easily without significant risk. If you did that on $500K then in 4 years you would have $730K and could pay off the house with the increase and still maintain the base investment. The issue here is the investments are basically cash.

Bingo.....

 

[Jim Baker]

The thing is, if invested properly the base investment he has could be returning 10% easily without significant risk. If you did that on $500K then in 4 years you would have $730K and could pay off the house with the increase and still maintain the base investment. The issue here is the investments are basically cash.

Again though, get a different financial advisor not a bunch of guys on a hunting forum.

You said it better than I. Harnessing the power of compounding is the key.

And the advice you get here is most often worth what you pay for it.

 

[BeerThirty]

The OP's question wasn't necessarily about returns. One of the things here that most are disregarding is available cash. I get the argument about favoring the investments if the returns are greater than the interest on the mortgage, but earnings aren't everything. There might be a scenario where one might rather have the liquidity from available funds as opposed to money being tied up in the home as an asset. Making money isn't everyone's top priority when they enter their golden years, it might be spending it.

 

[buckmanmike]

I like the idea of having my home paid off. Great feeling. Plus people are saying you can make x% in investments and your mortgage is only x%. You need to factor in the expense of risk. There is always risk involved with EVERY investment. Including your home.

 

[Tight Lines]

I like the idea of having my home paid off. Great feeling. Plus people are saying you can make x% in investments and your mortgage is only x%. You need to factor in the expense of risk. There is always risk involved with EVERY investment. Including your home.

Agreed, and debt free is always best. However, I have no tax deductions, so for me, the mortgage is at least some offset of taxes and today alone I made my mortgage payment in my 401K that I self manage. That doesn't include the one I don't manage.

 

[NE GA Pappy]

Agreed, and debt free is always best. However, I have no tax deductions, so for me, the mortgage is at least some offset of taxes and today alone I made my mortgage payment in my 401K that I self manage. That doesn't include the one I don't manage.

would you rather have the money you spend on interest each year, or the much smaller amount that you save in taxes by paying the interest?

If you paid 10,000 in interest, it might save you 3,000 in taxes. If you paid off the loan, seems to me that would save you 7,000.

 

[Tight Lines]

would you rather have the money you spend on interest each year, or the much smaller amount that you save in taxes by paying the interest?

If you paid 10,000 in interest, it might save you 3,000 in taxes. If you paid off the loan, seems to me that would save you 7,000.

I'd rather pay off the loan, but I also live in a house that we are going to sell and move from, so paying the small amount of interest at 2.75% is trivial compared to the growth of the investment portfolio. It's all relative though, it could go the other way soon enough...