Are you paying extra on your mortgage?

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spidey07

No Lifer
Aug 4, 2000
65,469
5
76
Originally posted by: 5LiterMustang
Originally posted by: spidey07
Originally posted by: Jzero
Originally posted by: 5LiterMustang
Never paying off a house is one of the worst ideas ever...debt sucks no matter what its on. No debt>debt everytime.

Not true, and that's the whole crux of this article.

exactly. There are times when debt is good, and house is one of them.

Debt on a house is not good, its merely acceptable....but NOT good. A paid for house is better then a mortgaged house.

I'd rather have the mortgage and outpace interest. But that's just me. Read the article, this approach is very common to building wealth.
 

Engineer

Elite Member
Oct 9, 1999
39,230
701
126
I will have my mortgage paid off in 2 years (7 years to pay off a 30 year mortgage). When the market soured in the late 90's, I decided that the market was overvalued and stopped the Roth IRA and started paying extra toward the house. Considering how the market has done for the last few years, I think the 7% on the house has been very good.

And like I said, I'm already at $13,000 per year in the 401k plan and, in 2 years, will be able to max 401k and 2 Roth's out + other stuff (big house payment).

And besides that, I hate having debt. It hangs over me like a big fvcking storm cloud! *grumble*

;)
 

DrPizza

Administrator Elite Member Goat Whisperer
Mar 5, 2001
49,601
166
111
www.slatebrookfarm.com
So, what would dcwilbur say about my situation:
Shorter term mortgage, built up a lot of equity.. refinance home for 30 years, investing that equity in a new home, keeping the first home since rent will more than pay off the mortgage, mortgage payment on home #2 is only $240... shouldn't take too long to pay more into home #2 to gain a lot of equity in it... plus, we can pay extra onto home #1 as well... then, if all is going well with renting #1, we can use the equity in #1 and #2 to buy some other investment properties. Bad idea?
 

mugs

Lifer
Apr 29, 2003
48,920
46
91
Originally posted by: Budmantom

If I borrow a $1 from you and I have to pay you back $3, that's not a good thing.

This however is a necessary evil in getting ahead in the real estate market.


Tom

If you borrow $1 from him and pay him back $3 over 30 years, and in those 30 years you turn the $1 into $5, I'd say that IS good.
 

alent1234

Diamond Member
Dec 15, 2002
3,915
0
0
there is a certain amount of risk involved. If the investments aren't doing very well in the short term and you lose your job you may have to foreclose on the home losing any equity.
 

Engineer

Elite Member
Oct 9, 1999
39,230
701
126
Originally posted by: alent1234
there is a certain amount of risk involved. If the investments aren't doing very well in the short term and you lose your job you may have to foreclose on the home losing any equity.

hence you should always try to keep a 6 month reserve for payments. :)

 

TitanDiddly

Guest
Dec 8, 2003
12,696
1
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Proverbs 18:17 - NKJV - The first one to plead his cause seems right, until his neighbor comes and examines him.
 

AgaBoogaBoo

Lifer
Feb 16, 2003
26,108
5
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Let's say you have a $100k home, jsut for example

You pay off $50k, but get laid off soon after and have some serious economic issues and your bank forcloses on the home. What happens to that 50k you worked so hard for? Is it all gone? (Assume you can't find a job at all soon enough)
 

FreshPrince

Diamond Member
Dec 6, 2001
8,361
1
0
I'd much rather pay off my house sooner than to worry about the fact that the bank can take away my house if I ever lose my job...

I have 1 more year to go! woohoo, then I'm a free man :D

I can buy anything I want, invest in anything, or just put it all in a bank and save for 4 years...which will allow me to buy another house and rent that one out. Retire and live off the rent, or save another 4 years and buy/rent out another house....so on and so on....until I get 3 or 4 houses to rent...

that way I can really retire and live off the rent money ;)
 

PowerEngineer

Diamond Member
Oct 22, 2001
3,566
736
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Originally posted by: Budmantom

Interesting read but to say that his thinking is flawed would be an understatement.

Oh, I'm afraid that saying his thinking is flawed is an overstatement. If you have a cheap 30 year mortgage, then you're itemizing on your federal taxes and deducting the interest patments which makes the effective cost of borrowing the money even lower. If you use the money you would otherwise require to pay down your mortgage to avoid other indebtedness or make investments that earn more than your martgage cost, then going for a 30 year mortgage makes ecnomic sense. Of course, if you just blow the "extra" money instead, then you making a big mistake.

Just my 2 cents...
 

Budmantom

Lifer
Aug 17, 2002
13,103
1
81
Originally posted by: AgaBoogaBoo
Let's say you have a $100k home, jsut for example

You pay off $50k, but get laid off soon after and have some serious economic issues and your bank forcloses on the home. What happens to that 50k you worked so hard for? Is it all gone? (Assume you can't find a job at all soon enough)


You would get what was left after EVERYBODY is paid their fees.


Tom
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
If you have a low interest rate on your house then it can definitely be a good way to do it, because any extra money put on the mortgage could very well make more money invested elsewhere. Combined with the fact that interest is tax deductible and for some people it would make perfect financial sense to pay it off as slowly as possible.
 

wyvrn

Lifer
Feb 15, 2000
10,074
0
0
Originally posted by: Budmantom
Originally posted by: 5LiterMustang
Originally posted by: Budmantom
Originally posted by: FlyLice
Originally posted by: Budmantom
Originally posted by: rh71
Originally posted by: Pliablemoose
The author is also assuming that if you do this, you'll invest the extra $ or pay off high interest CC debit.

Most consumers do neither and wouldn't.
You missed his point about rising salaries while your interest remains the same.


The author assumes your salary will always rise, it's easy to get 8% on your investments and that your house is a great tax shelter.

My income increased much in the last 5 years, my investments have taken a beating(not real estate) and even when I owned 3 houses the tax benefit was not substantial (even if you include depreciation).


Tom

It's very easy to earn 8% on your investments over a 30 year period. Just put it in Ticker symbol: SPY.


It is easy but is it guaranteed?


Tom

It's not guaranteed in real estate either


My savings is guaranteed.



Tom


Not so fast.

You have to keep the house in tip-top condition in order to sell it for it's full value. There is time and money involved there, which if you don't have a job, then you are going to take a loss on selling a distressed house. Also what is not mentioned anywhere here is that selling a home takes time, and if sell quickly because of loss of job, you are going to get less than full market value. On the other hand, you could take a line of credit, but there are costs associated with that, and now you have a loan you have to pay off again. Better get another job quick!

Also, is it guaranteed that the neighborhood and school system around you will remain at their levels? Remember real estate is much about location, and I can name you several areas around my town where real estate prices have shrunk considerably due to the bad element moving in, which leads to lower tax revenues, which leads to weakening schools and community services, which leads to lower property values leading to lower again tax revenues... it spirals out of control.

I would also like to point out that if you lose your income, and are house rich but cash poor, and do not pay your property taxes as a result, the local municipality has the right to take your house and auction it off, at WELL below the market value to savvy investors, to pay off the debt. I have attended such auctions and have seen homes sell for 50% of their market value. Ouch!

In the cases above, it would help to have a more liquid investment which you could tap in case you lost your income, especially when you get older and it is harder to find reliable employement. That investment in your home is not as guaranteed as you thought.
 

huesmann

Diamond Member
Dec 7, 1999
8,618
0
76
If you own a single house and you live in it, it is NOT an investment.

If you already live in a house you own, and you buy another house, THAT is an investment.

Even if your single house appreciates in value 1000%, if you sell it you got nowhere to live. You still gotta buy a new house. Unless you move from a city to BFE, you're gonna pay about the same for a new house.

If you get second house as a rental property, then sure, that house is an investment. You can get the renters to basically pay your mortgage for you. Then you own the house that they've paid for.
 

LordSnailz

Diamond Member
Nov 2, 1999
4,821
0
0
Okay, so I'll buy what he's saying, now where do I put my money so that it'll get that 8%? Which index?
 

Budmantom

Lifer
Aug 17, 2002
13,103
1
81
Originally posted by: LordSnailz
Okay, so I'll buy what he's saying, now where do I put my money so that it'll get that 8%? Which index?


That's the tricky part.... with my house I get 6% and my rental I get 7.375 GUARANTEED.



Tom

 

spidey07

No Lifer
Aug 4, 2000
65,469
5
76
If you pay extra on your mortgage you're a financial idiot.

Seriously. Its been shown time and time again that in the long haul it is a poor financial decision.
 

StageLeft

No Lifer
Sep 29, 2000
70,150
5
0
Originally posted by: Modeps
If I could pay off my house tomorrow, I would.
Me too, unless I had some say with the money, in which case I'd throw it elsewhere and continue to pay a fairly low interest rate (just below 6%), and get the benefits of deductible interest, so really my mortgage is not causing any lack of sleep.

 

Budmantom

Lifer
Aug 17, 2002
13,103
1
81
Originally posted by: spidey07
If you pay extra on your mortgage you're a financial idiot.

Seriously. Its been shown time and time again that in the long haul it is a poor financial decision.


So where does a financial guru like yourself put the extra money?

Tom
 

Rudee

Lifer
Apr 23, 2000
11,218
2
76
Originally posted by: Vic
Originally posted by: Budmantom
The only guaranteed "investment" is my 6% mortgage.


Tom
Your mortgage is not an investment. It is a liability. Please put it in the appropriate accounting column.

Exactly. Glad to see someone understands this.

 

Budmantom

Lifer
Aug 17, 2002
13,103
1
81
Originally posted by: Rudee
Originally posted by: Vic
Originally posted by: Budmantom
The only guaranteed "investment" is my 6% mortgage.


Tom
Your mortgage is not an investment. It is a liability. Please put it in the appropriate accounting column.

Exactly. Glad to see someone understands this.

My mortgage is not the investment, the amount that I apply over my mortgage is.

Tom