Payoff mortgage or invest?

[FelixDeCat]

When I was in the biz starting in '91 and ending a few years ago, people with cash would ask me sometimes which choice was better. It wasnt relevent to my position to answer that for them. However, to entertain the question I told them "that all depends on you." There are so many variables ranging from a person's mental state to the price of tea in China.

I now know the correct answer - payoff your mortgage if you can that way if your "investments" sour you wont HAVE to worry about paying off your mortgage.

 

[HAL9000]

When I was in the biz starting in '91 and ending a few years ago, people with cash would ask me sometimes which choice was better. It wasnt relevent to my position to answer that for them. However, to entertain the question I told them "that all depends on you." There are so many variables ranging from a person's mental state to the price of tea in China.

I now know the correct answer - payoff your mortgage if you can that way if your "investments" sour you wont HAVE to worry about paying off your mortgage.

..

 

[mshan]

If you have a very low interest rate, and especially if you got that very low interest rate with low down payment (I'm assuming 30 year fixed), why would you want to pay that off any sooner than absolutely necessary, unless you are retired and just want peace of mind that you own house outright.

Put money you would have tied up in home that, over very extended periods of time should only increase at rate of inflation (plus no leverage on investment) doesn't make sense if you can get 4% or less after tax money and didn't even put down 20% to get that rate.

Plus if Fannie and Freddie go away, some people say 30 year fixed will also go away and you will have to get mortgage Europeans get (adjustable rate).

Rates are at historic lows and the spread for jumbo loans has shrunk dramatically. As CNN Money explained:

Normally buyers have to take out a jumbo loan to finance any mortgage beyond the $417,000 threshold ($729,000 in high-cost cities such as New York). These loans have higher interest rates because they are considered non-conforming — or higher risk — and are not backed Fannie Mae or Freddie Mac.
In 2009 buyers of high-end homes paid 1.8 percentage points more in interest than the average buyer. But in 2010, that spread had shrunk to just 0.6 points more.
​

They can also fix that rate for 30 years. The 30-year-fixed-rate-mortgage may be a victim of the new lending reforms. Mark Zandi, chief economist of Moody’s Economics addressing the administration’s recent report on reform:

“A private system would likely mean the end of the 30-year fixed-rate mortgage as a mainstay of U.S. housing finance. A privatized U.S. market would come to resemble overseas markets, primarily offering adjustable-rate mortgages.”

http://kcmblog.com/2011/03/14/if-prices-are-falling-why-are-the-rich-buying/​

 

[OCGuy]

Depends on the interest rate.

 

[Drako]

It depends on a lot of things, but in general, I would pay off the mortgage.

 

[TuxDave]

When I was in the biz starting in '91 and ending a few years ago, people with cash would ask me sometimes which choice was better. It wasnt relevent to my position to answer that for them. However, to entertain the question I told them "that all depends on you." There are so many variables ranging from a person's mental state to the price of tea in China.

I now know the correct answer - payoff your mortgage if you can that way if your "investments" sour you wont HAVE to worry about paying off your mortgage.

Depends if you think your investments can outpace your interest rates 😛

 

[Train]

Lots of Factors:

- Interest Rate on the mortgage
- Avg rate of return on "other investments"
- Tax deduction on mortgage interest
- how liquid do you want your assets?
- lots more....

 

[highland145]

Logically, do what saves/makes you the most.
High rate mortgage = pay it.
Earinig more on your $$ than your mortgage interest= keep investing.

But a lot of people aren't logical about their $$

 

[highland145]

Lots of Factors:

- Interest Rate on the mortgage
- Avg rate of return on "other investments"
- Tax deduction on mortgage interest
- how liquid do you want your assets?
- lots more....

You still gave away 100% of your $$ to get a slight tax break vs. keeping your $$ and giving the Uncle your tax owed.

Edit: Agree, lots more factors.

 

[Texashiker]

Payoff mortgage or invest?

Payoff mortgage - and even if everything else goes wrong, you can at least have a roof over your head.

Personally, I like the security a paid for house provides.

 

[Elbryn]

When I was in the biz starting in '91 and ending a few years ago, people with cash would ask me sometimes which choice was better. It wasnt relevent to my position to answer that for them. However, to entertain the question I told them "that all depends on you." There are so many variables ranging from a person's mental state to the price of tea in China.

I now know the correct answer - payoff your mortgage if you can that way if your "investments" sour you wont HAVE to worry about paying off your mortgage.

the correct answer is historically you stand to have the most gain by investing and capturing the spread. in actuality, past returns have no bearing on future returns. If your risk tolerance/investment time horizon allows you to stand the volatility and potential risk of loss, that's your best bet to maximize your return. add in the tax loss harvesting opportunity in down markets, you can goose the return a bit by saving on income taxes or use to offset other gains.

if you cant stand the volatility and want to tilt toward risk aversion by reducing debt load, then you pay off the house.

your correct answer seems to indicate that you may not be able to stand the volatility that may occur in the marketplace and would feel better with the house paid off. personally, once my investments grow large enough to pay the mortgage off, i'm going to pay the house off and reinvest the difference. until then, i'm ok with investing the difference. if it takes longer because of down markets, so be it. i'm ok with that as we bring in enough otherwise.

 

[TheSlamma]

Wife and I paid ours off May 2010, 7 years after buying the house.

It's awesome to not have to sweat bills at all anymore (we have zero debt of any kind). Allowed us to add 4 more stamps to our passports in just the last year.

The feeling of financial freedom is something I highly recommend.

 

[FelixDeCat]

Depends if you think your investments can outpace your interest rates 😛

If it were that simple, nobody would even ask the question. But since there are so many ways to invest money including starting a business, speculating on price movements of financial instruments, lending the money out via Prosper, etc.

NOW the next thing to address is the person doing the investing. We all like to think of ourselves as people who can tolerate various levels of risk. But when it comes down to the nitty-gritty, and you are down 50% or more since making your "investment", will you sell at the bottom for fear that you will lose even more? Do you like to sleep at night? 99% of people cant call a bottom and go broke trying.

Of course you dont have to take such extreme risks. You can be conservative and diversified. But my point is that it is better to speculate with money you can afford to lose. If you lose it all, will you still have a roof over your head? 😳

 

[Broheim]

pay off your mortgage, invest when you're debt-free unless you wanna become part of the foreclosure statistic...

 

[rh71]

so you're asking whether I would allow myself to save every penny I make from that point on (save for taxes), or gamble.

 

[OCGuy]

pay off your mortgage, invest when you're debt-free unless you wanna become part of the foreclosure statistic...

Huh?

 

[mshan]

If sentiment in this thread is any indication of that of general population regarding investing in stock market (high quality mutual funds for long run), it suggests to me we are no where near a top in this stock market bull run.


🙂

 

[FelixDeCat]

the correct answer is historically you stand to have the most gain by investing and capturing the spread. in actuality, past returns have no bearing on future returns. If your risk tolerance/investment time horizon allows you to stand the volatility and potential risk of loss, that's your best bet to maximize your return. add in the tax loss harvesting opportunity in down markets, you can goose the return a bit by saving on income taxes or use to offset other gains.

if you cant stand the volatility and want to tilt toward risk aversion by reducing debt load, then you pay off the house.

your correct answer seems to indicate that you may not be able to stand the volatility that may occur in the marketplace and would feel better with the house paid off. personally, once my investments grow large enough to pay the mortgage off, i'm going to pay the house off and reinvest the difference. until then, i'm ok with investing the difference. if it takes longer because of down markets, so be it. i'm ok with that as we bring in enough otherwise.

Yes, but what if you lose your jobs or become sick and disabled? SSI is usually bearly enough for food and utilities and maybe pay rent on a very cheap apartment (12k a year). Can you live on 12k a year?

 

[ViviTheMage]

Home is a solid investment, throw it in there.

 

[TuxDave]

If it were that simple, nobody would even ask the question. But since there are so many ways to invest money including starting a business, speculating on price movements of financial instruments, lending the money out via Prosper, etc.

NOW the next thing to address is the person doing the investing. We all like to think of ourselves as people who can tolerate various levels of risk. But when it comes down to the nitty-gritty, and you are down 50% or more since making your "investment", will you sell at the bottom for fear that you will lose even more? Do you like to sleep at night? 99% of people cant call a bottom and go broke trying.

Of course you dont have to take such extreme risks. You can be conservative and diversified. But my point is that it is better to speculate with money you can afford to lose. If you lose it all, will you still have a roof over your head? 😳

Unless I misunderstood the OP, he's referring to money you can afford to lose. So the monthly mortgage fee has been paid off and his other expenses are done and he has $1K sitting around. Does he pay additional money into the mortgage early or invest it. I don't think anyone's going to to invest money that is necessary to pay the mortgage.

 

[Capt Caveman]

Lots of Factors:

- Interest Rate on the mortgage
- Avg rate of return on "other investments"
- Tax deduction on mortgage interest
- how liquid do you want your assets?
- lots more....

This.

Personally, I took money out of my house thru a home equity loan @ 3.75% and bought Visa stock at IPO for $45/share. It's now at $77(peaked at $97) and pays me a quarterly dividend.

 

[TheSlamma]

Yes, but what if you lose your jobs or become sick and disabled? SSI is usually bearly enough for food and utilities and maybe pay rent on a very cheap apartment (12k a year). Can you live on 12k a year?

It's not just a good fallback, but also a great opportunity for many people.

I always wonder if the number of people who owned their homes outright went up drastically in the next month how many people would quit their jobs they don't want to be in and go do a career/job they wanted to do instead because they would have the security of not loosing the roof over their head?

I think in many cases people's debts make them stay in jobs or careers they dislike. I know people with degrees in things like Zoology but the money in their passion stinks so instead they are web developers. Work to live.. don't live to work.

 

[spidey07]

Every calculator out the shows you increase your wealth more by not paying off the mortgage. The difference is even larger now with rates so low.

 

[Train]

Every calculator out the shows you increase your wealth more by not paying off the mortgage. The difference is even larger now with rates so low.

Can you link to some of these calculators?

I'm a formulas guy, and I can't really see a formula even being possible for more than a year out at best. Theres just way too many fluctuating variables.

 

[Brovane]

Actually my Mom is in this situation right now. She is retired and is going to turn 66 this year. She worked 39 years as a school teacher so she has a pension for the rest of her life. She is actually bringing home slightly more than when she was working because she isn't having any money taken out for retirement. She is divorced so no husband to worry about. Originally she had a 15 year mortgage that would have been paid off when she was 75 but when she retired she wanted to get a lot of work done on the house. So we worked out the numbers and she refinanced into a 30 year mortgage about 2 years ago and pulled a bunch of equity out and got everything done around the house both inside and out she wanted. Her mother(my grandmother) passed away in January of this year. She inherited a bunch of stock in Sempra. She sold the stock and now has enough money to pay off her mortgage plus have extra left over. We are debating back and forth if she should pay off the mortgage or invest. I am telling her to pay it off since she is conservative in her investments and she would probably feel more secure paying it off. That being said she has guaranteed income the rest of her life from her pension. As guaranted as a pension can be. She has a IRA but it only has a little over $60k and she has no reason to even start withdraws until at age 70 she is required. Any opinions?