Pay off house or invest?

[ezbtr]

I'm in central TX, 20 mins north of Austin. My mortgage is LOW (put half down) 30 year, could turn it to a 15 year easy, at 4%, which is pretty close to what my investments would return, prop tax at approx $300 a month. Playing w/ idea of not having a mortgage again - am technically medically retired, I am 54 and debt free, last kid in college, 3 yrs left and that is paid for(aside).
Thoughts? I don't live fancy, may buy some shooting/fishing land, 5-10 acres and maybe a single wide trailer for weekend visits w/in 2 hour driving distance.

 

[alldodge]

As a non-fin guy, my opinion
Your in good shape but my opinion not debt free (3 yr collage, and mortgage), but real close

Depends on what you have in liquid assets. If you have enough after paying the loan off of at least 3 months of all expenses, and things are stable, then I would pay it off.

Getting 4% is a great yield so long as its constant, but most things are not constant. I'm debt free and been that way for many years. Have some good investments, but paid the house off a long time ago. It nice if there is something that is going to cost a high dollar and you have no bills but utilities and non-mandatory items (cell phone, TV, boat, etc). You look at what the asset's are, and if you really want it, just pay cash (new car, truck, vacation, etc)

When I had a mortgage, I paid all taxes so there was no bank escrow account where the bank can play with the money.

 

[tpenfield]

I became debt free about 4 years ago . . . paid off house, colleges all done & paid. Now saving money and focusing on investments.

My advice is to become debt-free first, then focus on investments. Reason being is that if you do the opposite, then the investments can turn on you and before you know it, you're in double trouble.

 

[dingbat]

Everyone’s situation is different.

We’re both still working. Both 401ks maxed out. Both collage tuitions paid for. Heavily vested in real estate. Roughly 60% of investments.

Your home mortgage interest along is your largrst tax write off. Makes no sense not use it to your advantage if your still working.

Don't know about your area, but 10 acres and a trailer don’t sound like an “investment” to me.

What do you figure your 10 year ROI on the property?

In 2011 we had one year left on our mortgage. Ran the numbers and it didn’t make sense to pay off the mortgage and loose a $10k tax deduction.

An opportunity came up so we sold the house and bought a much larger property in a very desirable area with the potential of a much higher rate of return.

After 7 years the ROI on the property is roughly $1,200 per month after taxes.

 

[Sprig]

No brainer, pay off the mortgage. Debt free should be your goal especially if you are approaching retirement or are retired. It makes sense financially and psychologically you’ll feel better. Yes you can save a little on taxes if you have mortgage interest to deduct but you pay a lot more in interest to the bank than you save in taxes. For example (these are made up numbers but not far off) if you pay $5000 in interest your tax burden may be reduced $1000 to $1250. You are paying $5000 to save $1000.
Also keep in mind with the new tax law you and your spouses standard deduction is $24000 now. You may not be able to itemize if your personal deductions don’t exceed the standard deduction.
If possible debt free is the only way to be.

 

[robert graham]

It feels so good every day when you own your home out-right.....just a warm, fuzzy feeling!.....pay it off!

 

[aspeck]

I am also of the debt-free, pay off the mortgage ilk. Make sure you have several months (4-6) of savings to cover emergency situations, but if you have that left over, then by all means, pay off the entire mortgage and enjoy life without the worry of making payments.

 

[72fj40]

Payoff the mortgage, then use the same amount as the mortgage payment and apply it towards your investments.
There's no need to refi, just pay more so it's ends in 15yrs or sooner, if you don't want to pay it off. .

 

[ezbtr]

Payoff the mortgage, then use the same amount as the mortgage payment and apply it towards your investments.
There's no need to refi, just pay more so it's ends in 15yrs or sooner, if you don't want to pay it off. .

my thoughts as well, will cost maybe $300 a month taxes, plus utilities(cheap - $125 ish) for a 4 bed 2 bath 1650 sq ft, 5 yr old house

 

[AlabamaNewbie]

Pay off the mortgage, continue to make the mortgage payment in to a savings account for 3 more years and don't touch it. Then after 3 years, take that lump of cash money and invest in your property.

 

[dingbat]

Yes you can save a little on taxes if you have mortgage interest to deduct but you pay a lot more in interest to the bank than you save in taxes. For example (these are made up numbers but not far off) if you pay $5000 in interest your tax burden may be reduced $1000 to $1250. You are paying $5000 to save $1000.

Your leaving money on the table....Makes no sense to make early payments on a 4% loan when you can invest that same money with a 7-12% return and.....collect your 30% mortgage interest deduction

 

[tpenfield]

Investing first is all fine and good until your 7-12 % gain turns into a 7-12% loss. Then you are in a tougher situation.

 

[aspeck]

Your leaving money on the table....Makes no sense to make early payments on a 4% loan when you can invest that same money with a 7-12% return and.....collect your 30% mortgage interest deduction

For you, and some others, this makes perfect sense. There was a time in my life that it made sense for me. But as I got older and more responsibilities and less income it was time to shift from an aggressive growth base to a slightly more conservative income based investing (although I still try to reinvest the income most months). There are times and seasons for everything and I would think that Heinz, being on medical disability would need to be more conservative than aggressive.

 

[dingbat]

For you, and some others, this makes perfect sense. There was a time in my life that it made sense for me. But as I got older and more responsibilities and less income it was time to shift from an aggressive growth base to a slightly more conservative income based investing (although I still try to reinvest the income most months). There are times and seasons for everything and I would think that Heinz, being on medical disability would need to be more conservative than aggressive.

He's on a fixed income...no need to worry about loosing his job, and unless he has an ARM or something similar, his interest rate is fixed. At that point it becomes simple math. Where is the better return on the money.....

The only time it makes sense is when the mortgage interest rate outpaces the appreciation of the property. It very well could be that his interest rates exceeds his home's appreciation but we don't have that information to consider.

As for me, I've gotten conservative with age as well. I've not raided an investment account to buy stock options since the mid-90's thou I've been tempted. While my wife was in horrid disbelief at the time, I still praise myself for my "forward thinking" on a quarterly basis.... lol

 

[bruceb58]

I am on the invest rather than pay off the mortgage side. My mortgage was 2.85% so made no sense to pay it off. I do a lot of REITs that make between 10% and 30% per annum. Makes no sense to pay off the mortgage.

 

[WIMUSKY]

For you, and some others, this makes perfect sense. There was a time in my life that it made sense for me. But as I got older and more responsibilities and less income it was time to shift from an aggressive growth base to a slightly more conservative income based investing (although I still try to reinvest the income most months). There are times and seasons for everything and I would think that Heinz, being on medical disability would need to be more conservative than aggressive.

Hey ol' fArt. I'm right there with ya...... Good post.......

 

[dingbat]

Hey ol' fArt. I'm right there with ya...... Good post.......

You guys made my day........“as you get older” advice from guys a good bit younger than myself........lol.

 

[Leardriver]

I am a big fan of owning my home, so that when investments crash, you still have a roof over your head.
Tax deductions are bad math to me. Spending a dollar to write off a dime makes you go through a lot of dollars.

 

[tpenfield]

I am a big fan of owning my home, so that when investments crash, you still have a roof over your head.
Tax deductions are bad math to me. Spending a dollar to write off a dime makes you go through a lot of dollars.

Exactly, Tax deductions on mortgage interest just lessen the net amount that you are spending, but you are still spending, not saving.

The 'new boat fund' tends to grow a lot quicker when you are not paying off debt.

 

[WIMUSKY]

Thing is, once the standard deduction exceeds the interest paid the home is no longer a deduction. For us it was 5yrs before the mortgage was paid.

I still say pay it off. Then you can use your old monthly payment to invest, if you so desire....