Would you pay off your mortgage if you could?

[PrincessPerky]

if I had exactly enough no, but if I had a decent retirement fund and EF, yes..because it is my house, and I actually have a back of the mind, yes I know it is silly, fear that the dollar will not work for my whole life time...if the dollar stops working having 10million in the bank but no house makes you way poorer than barely any in the bank and a house (preferably with land to garden)

Yeah fine, so it is mostly silly, and mostly mute (I haven't even got a decent EF) but still the issue is there.

[rebeccae55]

Disney Steve, I appreciate your input. Definitely something there to consider.

Here's some more info:

I made $55,000 last year. For the last several years until October of this year, I put 17% of my income into my 401K and Roth IRA. My employer matches dollar for dollar up to 5% so the total contribution last year was 23% of income, $12,650. I am getting a really late start on retirement. My total is currently $92,000. With the exception of about $2,800 in bond funds, this is all invested pretty aggressively in the market (primarily funds, only about $5,000 in individual stocks).

Not that I can count on it, I except to inherit somewhere around $300,000 from my dad. When and whether I receive that will determine when and whether I retire. God willing, I will work as long as needed. But if things go well, I'd like to retire at 65 and then possibly work part time.

In October, I decided to reduce my 401K contribution to pay the extra $400/month on the mortgage. This year IRA contributions go up $1,000 so my contributions haven't changed much. 15.5% to Roth and 401K, 20.5% including employer contribution for $11,275. This assumes no raise. While I can't count on a raise, I've received one every year since I started and plan to raise my 401K contribution once I do.

So I feel like I'm putting about as much as I should at this point, taking into account that I don't have a crystal ball. I think since I am getting a late start, one of the most important things I can do is lower my expenses. That way, if I have to stop working or cut back on it, I can sell this house (currently worth about $275,000 and I owe $117,000) and use cash to buy something substantially less expensive. The less I owe on it, the more I have available for something else. Who knows where the market will be when I'm ready to downsize?

Thoughts, anyone?

[mrvirgo]

My tax guy told me paying my mortgage off would not make any difference in lowering my taxes if I paid it off. So I did so in 1992. I've been saving my mortgage money ever since. I have not been sorry for a moment.

[FrugalFish]

No, I would not pay off the mortgage and leave myself without a cushy emergency fund.

There's a lot of talk about the tax benefits of deductible mortgage interest, but there are probably a few people, like myself, who have very few deductible expenses and don't pay enough in property taxes and mortgage interest to take itemized deductions- actually, we're not quite there this year, but next year we likely will be. Still, I have to agree that a lot of folks got such great mortgage rates over the past few years, that you really can do better in the market than in paying off your mortgage; OTOH though it isn't a bad guaranteed investment. As interest rates go up in the coming years, I suspect there will be a lot of talk about the benefits of prepaying a mortgage.

We're doing a little of everything- main focus is saving for retirement, but we also focus on prepaying our mortgage. Our life would be a lot simpler if we had no mortgage.

[TBH]

I go back and forth on whether it's a good idea to prepay, which is silly. Since I don't have a whole lot of extra cash to prepay with, it's a purely intellectual excercise.

My mortgage balance is pretty low ($47K). I don't have that much in cash, but I could probably scare it up, or most of it. However, that would leave me with no emergency fund whatsoever, which would be foolish since a.) my income fluctuates and b.) I have medical problems.

But say somebody handed me $47K tomorrow, and I still had my healthy EF balance as well. Would I pay off the mortgage?

I really don't know. I think I'd have to buy a 3 month CD with the money so I could think about it. But I'll tell you this--it would be a question of which was the best for me psychologically, not a question of whether I'd make a couple percentage points more if I invested the money. I'm not confident enough in my investing skills to let that be my main reason for NOT paying off my mortgage.

[Snowgirl]

I have enough in my retirement account to do that, but it'd be foolish! As others stated, I see no reason to tie all my assets in my mortgage and be cash poor. My payments fit well within my budget, and my investments grow at a better rate (over 10%, except last year with the Canadian stock market tanking...). But I'm still young and my home will be paid off before I'm 40, way before I retire, which will enable me to sock more in non-retirement investment then. Right now I just maximize my tax deferred retirement account at 18% of my salary, and let it grow. With the actual contribution levels and projected growth, I could completely retire by 55, and even support mortgage payments if I still had any! I think the overall plan fits well, especially since I don't intend to sell my house when I retire.

[disneysteve]

But I'll tell you this--it would be a question of which was the best for me psychologically, not a question of whether I'd make a couple percentage points more if I invested the money. I'm not confident enough in my investing skills to let that be my main reason for NOT paying off my mortgage.

This is a great point and shouldn't be ignored. As much as we talk about what is best from a dollars and cents standpoint, it doesn't matter if going a certain way would keep you up all night worrying. Sometimes you have to consider the emotional aspect of your decisions.

Here's my personal example. I finished school in 1993 and had to start repaying $102,000 in student loans. I was lucky and those loans were at very good interest rates, around 4%. Surely, I could have done much better investing my money and just paying the minimum on the loans. However, my daughter would have been a college graduate by the time I repaid those loans if I hadn't accelerated the payments and that just struck me as insane. So I paid them off in 12 years instead of 25. Having the loans just really bugged me so I worked hard and got rid of them early. It wasn't the best financial decision but it worked best for me at the time.

[Like2Plan]

We did pay off our mortgage early. I am planning to retire in about 3 years and I want to get our expenses as low as possible.

The money we are saving from the mortgage payments will not go into investments. We are saving to have some maint/repair and improvements done to our property and we want to do each project with cash upfront. After we get a handle on that, I expect we will put the money into a travel account where we can draw from it whenever a good deal comes up.

[scfr]

I have enough in my retirement account to do that, but it'd be foolish!

It would indeed be foolish to use your retirement account to pay off your mortgage. However, OP stated that retirement savings were not in quesrtion.

If you have consistently maxxed out your tax-deferred retirement savings and are on-track where you need to be as far as retirement savings, if you have a cushy EF, and if non-tax-deferred savings would just be sitting in a high-interest MMA, then it is quite likely pre-paying your mortgage is a good option for you.

[disneysteve]

If you have consistently maxxed out your tax-deferred retirement savings and are on-track where you need to be as far as retirement savings, if you have a cushy EF, and if non-tax-deferred savings would just be sitting in a high-interest MMA, then it is quite likely pre-paying your mortgage is a good option for you.

This pretty well describes my situation. And that's why I do currently prepay my home equity loan with a small portion of the money designated for savings. Once the HEL is gone, I'll redirect that portion to the primary mortgage. But as scfr says, I've got a good EF, I max Roths for my wife and me, my wife puts 50% of income into her 401K, we fund a 529 for our daughter and we have some other taxable investments. After all of that, some of what is still available goes to the mortgage.

[Coleroo]

we would in a heart beat... to us its psychological. we're only both 25 years old...having our mortgage payments (which we hate being tied to) until we're 53 is a huge burden on our minds.

Granted though, we have 8.99% interest mortgage and only 4.25% savings interest. plus our mortgage is only 80k. we can't really say what we'd do if those numbers were different.

[Snowgirl]

It would indeed be foolish to use your retirement account to pay off your mortgage. However, OP stated that retirement savings were not in quesrtion.

Guess I've skipped over that too quickly, sorry!

If you have consistently maxxed out your tax-deferred retirement savings and are on-track where you need to be as far as retirement savings, if you have a cushy EF, and if non-tax-deferred savings would just be sitting in a high-interest MMA, then it is quite likely pre-paying your mortgage is a good option for you.

Well, I don't think it will happen for a long time, because we spend it all! Besides retirements (18% of income), and a 3/6 months EF (3 months if we both lose our job, 6 months only one job lost), all our "saved" money eventually get spend on home improvement, or big purchases: vacation, appliances, ... But otherwise, I still don't think I'd pay it off, would rather invest in stocks to get more return (mortgage is only 5.75% currently, variable rate), still, we already pre-pay a bit with the bi-weekly plan, which gets us to that mortgage paid by 40, unless we move up!

[lucasrd]

Only if I had so much cash it wouldn't make a dent.

I'm a firm believer in the power of compound interest. If you look at the curve it is pretty flat for a while then ramps up exponentially later in life. I can't justify giving myself a set-back early on the curve.

for instance I could pay off my mortgage today, but doing the math it would set me back years on the compound interest curve. Rather i'll make the payments, let compound interest work it's magic and have much more money later in life.

[simpleyme]

another thing that motivates me want to pay my mortgage off sooner than later is my loan is commercial and I have to send a copy of my tax returns to the bank
I hate doing that ,I am not sure why I hate it so much

[toptaxguy]

Typically if you can earn more through alternative investments after tax, then you are better off investing the money. If you can earn less than 5.5% on investments, then pay off your mortgage and invest your free cash.