Anybody read the "Don't Rush To Pay Off Your Mortgage" article on MSN???

[MrBond]

Originally posted by: BlueWeasel
What if you have all of those things, though?

Wife and husband contributing ~20-25% (total, including max company matches) to 401k, have a emergency savings fund, life and disability insurance, and no CC debt. Would it be better to take the extra $200 a month (equal to 3 extra payments per year) that I put toward principal and invest? Possibly in a Roth IRA, since we are both already getting the maximum company match on our 401k's?

Look into some no-load mutual funds in a Roth IRA. It makes the most sense to save a lot for retirement while you're young, because when you get older and have more expenses (kids/etc), it's harder to save. If you've saved while you're young, that money can be working away earning interest.

I am fortunate to have parents who saved early for their retirement and they both retired at about 55. They're living *really* well and it makes me want to sock away as much money as possible for my retirement so I can have fun like they are.

 

[smack Down]

Originally posted by: msparish

Originally posted by: puffff
i think there's great value in terms of having a paid off home because of the security it gives you. once you own your home, you wont be as concerned with any life altering events later in life, such as job loss. someone with a mortgage must find a way to make those monthly payments. someone without just has to worry about putting food on the table.

If you had been investing all that money the entire time, you'd be even more secure.

Edit: Meant the extra towards principle each month, not buying a home in general.

Not really. If the market tanks are you going to be able to live in your e-trade account.

The fincial advisors suggest investing because that way they get to sell two products instead of zero.

 

[bsobel]

Not really. If the market tanks are you going to be able to live in your e-trade account.

Nothing in the strategy mentioned would force you to sell during a downturn. The market tanking would worse case push off the time until you could pay down principal. But if your going to argue that historic market returns won't hold up over the AVERAGE then you might as well not save at all

 

[ultimatebob]

The article neglects to mention an exception for PMI... If you're paying it, it's not a bad idea to put extra money towards your principal in order to get the required 20% equity needed to get off of PMI as quickly as possible.

 

[Jadow]

I'm torn on this. I understand the fact that I can make more than 4% (int rate - tax deduction) on my investments, however I'd also like to get debt free. I don't pay a lot extra each month, usually around 50 bucks.

 

[bsobel]

Originally posted by: Jadow
I'm torn on this. I understand the fact that I can make more than 4% (int rate - tax deduction) on my investments, however I'd also like to get debt free. I don't pay a lot extra each month, usually around 50 bucks.

You have to consider your debt as 'mortgage amount - invested funds = actual debt' If you can't do that, it will drive ya nuts. I'm paying off just about 1m in loans over the next 3 weeks, if it wasn't for the invested side offsetting it (and property value itself) I'd probably wigged out long ago

 

[DrPizza]

I don't think it's foolish...
For many investment portfolios, by your mid to late 30's, part of that portfolio would be in guaranteed things like savings and some bonds - it's quite likely that the interest rates earned in that portion of the portfolio are lower than the interest rate you're paying on your mortgage.

 

[spidey07]

Originally posted by: puffff
money spent paying it down is still making money. you earn roughly the interest rate you borrowed the money at.

Good luck with wasting your money. I'm serious. You are wasting money and throwing away a potential 100s of thousands of dollars by paying down your mortgage.

Engineer is a prime example. He slaved away all of that OT and has only the house to show for it. If he would have poured that money elsewhere he"d be close to reitirement and not ever have to work again.

 

[thomsbrain]

Originally posted by: redgtxdi
But if you read the article it says that EVEN IF you've got money socked away.......(let's say a year's worth of unemployment).........and plenty of insurance......and anything for the kid's future is financially taken care of.........that leaves the only debt being the mortgage.


Why not pay down the mortgage??

Only other real option is to squander the dough, no?

no, the entire point is that you invest that extra money elsewhere, and when the house is paid off, you've made more on your investments than you would have saved paying off your mortgage early. the same is true for a lot of car loans. if you have $25,000 cash and buy a $25,000 car, you're better off getting a loan and investing the leftover cash.

 

[z0mb13]

Originally posted by: DivideBYZero
Meh. Dunno about the US, but you can get Equity Release loans in the UK.

is this the same thing as reverse mortgages?

 

[Engineer]

Originally posted by: spidey07

Originally posted by: puffff
money spent paying it down is still making money. you earn roughly the interest rate you borrowed the money at.

Good luck with wasting your money. I'm serious. You are wasting money and throwing away a potential 100s of thousands of dollars by paying down your mortgage.

Engineer is a prime example. He slaved away all of that OT and has only the house to show for it. If he would have poured that money elsewhere he"d be close to reitirement and not ever have to work again.

Not even close. You've got to consider how much I actually paid off on my home. $100,000 paid off vs investing that $100,000 would not have had me even close to retirement right now unless I hit a hot stock or two. Not to mention the partially offsetting interest I would have been paying on the mortgage. And not to mention that retirement is much easier without a mortgage payment so I'm offset there too.

So now I've got 23 years and 4 months of payments plus the extra that I was sending to invest. Oh, and it's not that I wasn't investing also, just not to the same level as some of you. I think I'm doing quite OK. While the market was tanking from 2001-2003, my extra money was taking nearly 7% from early mortgage payments.

Oh, and "only the house" to show for it"? An early "bah humbug" for you Louisville bastages!

 

[spidey07]

Originally posted by: Engineer
Not even close. You've got to consider how much I actually paid off on my home. $100,000 paid off vs investing that $100,000 would not have had me even close to retirement right now unless I hit a hot stock or two. Not to mention the partially offsetting interest I would have been paying on the mortgage. And not to mention that retirement is much easier without a mortgage payment so I'm offset there too.

So now I've got 23 years and 4 months of payments plus the extra that I was sending to invest. Oh, and it's not that I wasn't investing also, just not to the same level as some of you. I think I'm doing quite OK. While the market was tanking from 2001-2003, my extra money was taking nearly 7% from early mortgage payments.

Oh, and "only the house" to show for it"? An early "bah humbug" for you Louisville bastages!

dude, you're sitting pretty. But I don't want to work past 50. By outpacing my mortage by 10-12 percent year over year returns I am literally and FINALLY building wealth. Regardless of any retirement plans, 401k, pension, etc, that crap is gravy.

What I fear is you are not running the numbers on is time.

-edit-
Go CARDS!
Hope you guys put together a good wildcat season because we sure ain't.

 

[Engineer]

Originally posted by: spidey07

Originally posted by: Engineer
Not even close. You've got to consider how much I actually paid off on my home. $100,000 paid off vs investing that $100,000 would not have had me even close to retirement right now unless I hit a hot stock or two. Not to mention the partially offsetting interest I would have been paying on the mortgage. And not to mention that retirement is much easier without a mortgage payment so I'm offset there too.

So now I've got 23 years and 4 months of payments plus the extra that I was sending to invest. Oh, and it's not that I wasn't investing also, just not to the same level as some of you. I think I'm doing quite OK. While the market was tanking from 2001-2003, my extra money was taking nearly 7% from early mortgage payments.

Oh, and "only the house" to show for it"? An early "bah humbug" for you Louisville bastages!

dude, you're sitting pretty. But I don't want to work past 50. By outpacing my mortage by 10-12 percent year over year returns I am literally and FINALLY building wealth. Regardless of any retirement plans, 401k, pension, etc, that crap is gravy.

What I fear is you are not running the numbers on is time.

So you could have guaranteed me 10-12% over my 7% mortgate from 2001-2003? I'm on pace to have well over $1,000,000 by the time I'm 50 and that's figuring 8% returns and no additional increase in my current investment rate. Also, the above is not only in retirement accounts as I would like to take some of the money before age 55 (401k limit). Am I guaranteed to make it? No but I'm in the 3rd inning, not the bottom of the 9th!

 

[spidey07]

Originally posted by: Engineer
So you could have guaranteed me 10-12% over my 7% mortgate from 2001-2003? I'm on pace to have well over $1,000,000 by the time I'm 50 and that's figuring 8% returns and no additional increase in my current investment rate. Also, the above is not only in retirement accounts as I would like to take some of the money before age 55 (401k limit). Am I guaranteed to make it? No but I'm in the 3rd inning, not the bottom of the 9th!

Understood. But go back and re-rerun your numbers. 10-12% > 7%.

I'm not gonna preach anymore. You're set dude, just speak to a financial planner and don't look at the dollar amout because a million isn't much anymore. It's a barely sustainable egg.

 

[PowerEngineer]

I'm not one to assign special significance to being completely "debt-free". IMHO the calculation of your net worth is a much more meaningful measure of your financial wellness.

Housing and education are the only two things I ever want to borrow money for. I'm now happy to keep a mortgage that is more than offset by other outside investments I would only pay down my mortgage (assuming "emergency" funds, etc.) if the rate or return for outside investments became less than my mortgage rate (5.75% fixed 30-year). With all the tax-sheltered opportunities (e.g. IRA's and 401k's), that doesn't seem likely.

I do not understand those who advise people to be mortgage-free at the time of retirement. With property taxes and operating expenses, this hardly eliminates your housing expenses (or your exposure to their inflation). I also suspect that retirement will be a good time to down-size and relocate anyway.

My 2 cents...

 

[Vic]

The issue is simple. I have read here many times this belief that (new) rich people got that by stealing. That might be true in some rare cases, but in general NO. They get that way by taking risks (that payoff) with other peoples' money (i.e., they borrow money, make a smart investment, etc.). That's what capital and capitalism is. Your house is the best collateral most people will have ever acquire, and the best opportunity to borrow money for your own potential profit that most people will ever get. Don't squander it.

 

[FreshPrince]

sure there's value in paying off your house early..

if your investments bomb and let's say your lucky enough to sell to break even, guess what? you've already paid 10-15 years worth of interest and that's just money down the drain. So, I still think there's great value in paying off your mortgage early.

if you get laid off later and you've already paid off your house, you can get a job at McDonalds and still keep your house. You can't do that if your money is tied up in investments and you have to sell early, therefore taking a HUGE cut in taxes as well.

money makes money only if you know what your doing and the market agrees with your plan.

there's a reason why the older folks get into real estates because it generates the most stable revenue. the master plan should be to pay off your first house as soon as you can so that you can start on that 2nd house and use the rent money to help pay for it. Let that build to 3 houses and you're set. You can retire on the rent money.

I guess I'm just too conservative.

 

[Engineer]

Originally posted by: spidey07

Originally posted by: Engineer
So you could have guaranteed me 10-12% over my 7% mortgate from 2001-2003? I'm on pace to have well over $1,000,000 by the time I'm 50 and that's figuring 8% returns and no additional increase in my current investment rate. Also, the above is not only in retirement accounts as I would like to take some of the money before age 55 (401k limit). Am I guaranteed to make it? No but I'm in the 3rd inning, not the bottom of the 9th!

Understood. But go back and re-rerun your numbers. 10-12% > 7%.

I'm not gonna preach anymore. You're set dude, just speak to a financial planner and don't look at the dollar amout because a million isn't much anymore. It's a barely sustainable egg.

And I understand that....that's why I'm increasing the crap out of my investments as I go!

Also, 10-12% > 7%...but could you have guaranteed me that during the downturn? A saying at work...."That ole hindsight is good, ain't it!?!?".

Oh, and I'm not saying you're wrong either. Everyone has a threshold and goals and one of mine was to pay my house off early but not at the expense of neglecting all other investments entirely. Actually, since I've hit that goal, I've had an empty feeling as I search for a new goal, not to mention since I've paid it off, I have thought about telling my work to fvck off more than you know (the expectations and stress are wearing me down not to mention pay politics that goes on there).

And to be honest, it's not me that you should worry about, it's the millions of people that could care less about anything and save absolutely nothing. When the bottom drops from SS or taxes are jacked through the roof to support it, those fools will be left holding nothing but declining dollars, if they even have that.

Again, my 2 cents to everyone...it's up to you. Don't neglect your retirement funds and emergeny funds. All I can say is for me, it was the right choice and I don't regret it for one moment.

 

[Engineer]

Originally posted by: Vic
The issue is simple. I have read here many times this belief that (new) rich people got that by stealing. That might be true in some rare cases, but in general NO. They get that way by taking risks (that payoff) with other peoples' money (i.e., they borrow money, make a smart investment, etc.). That's what capital and capitalism is. Your house is the best collateral most people will have ever acquire, and the best opportunity to borrow money for your own potential profit that most people will ever get. Don't squander it.

Damn Vic, now I want to go take a mortgage out on my house and invest it!

(j/k).

 

[Legend]

I get into arguments/conversations both in real life and on forums about how homes really aren't that great of an investment. People seem to have been brainwashed into thinking "a home is a great investment" and that "you lose money on rent." While it's true you lose money to rent, but do you get a return on the following in home ownership?

1. Property taxes
2. 2-3x utilities
3. Loan interest
4. home repairs
5. Insurance

Nope...down the drain. And there's a lot of situations where those expenses alone are more per month than renting an apartment. Then you have to pay a lot more money for the actual equity. Money that could be put into a common investment portfolio, making an average of 12% a year, much more than most homes will make. You've also got to buy a lot more furniture. That's a fvcking lot of commitment there...what if your car dies and you need a new one? It's asking for years of debt.

I'll eventually get a house, but not soon for the above reasons. Especially because I'm about to start working in Austin TX. From what I hear Texas doesn't have a state income tax, so they get their money on property taxes. It adds to the burden of home ownership.

 

[Legend]

Originally posted by: FreshPrince
sure there's value in paying off your house early..

if your investments bomb and let's say your lucky enough to sell to break even, guess what? you've already paid 10-15 years worth of interest and that's just money down the drain. So, I still think there's great value in paying off your mortgage early.

Investments bomb? What is it 1930? We've got a global economy now and a lot of government checks in place to prevent that from happening again. Just because some poor investors chased high performing tech stocks in the late 1990s doesn't mean your investments are going to bomb.

Anyone that has a diversified portfolio is going to lose at worst 20-30% in the course of one year. But historically it always rebounds to something very healthy.

 

[DaveSimmons]

The best option for you can be tricky to calculate since:

- extra mortgage payments give you a guaranteed return, though not the full % of your rate since you lose the interest deduction on your taxes.

- investments in something like an S&P 500 index mutual fund will almost certainly return around 10% a year over decades, but you pay taxes on all of the gains if you can't put the money into a Roth IRA.

I'd say investing is clearly better for the first $4K a year if you can put it into a Roth IRA since it's a higher return with tax-free growth.

After that, the main advantage of investing over extra mortgage payments is that you can sell part of the assets without needing to open a home equity line of credit.