Pay off mortgage sooner?

mkarim · Jan 1, 2011

So guys, what's your take on this, assuming your mortgage rate is 5%?

thekunk07 · Jan 1, 2011

i say pay it off, i don't believe in good debt

Steve Smith · Jan 1, 2011

Listen to theKunk.

MrG · Jan 1, 2011

It depends upon how confident you are that you can draw a decent return elsewhere with the money you'd be putting toward paying off the mortgage early.

thekunk07 · Jan 1, 2011

there are no decent returns anymore. nothing more liberating than a lack of house/car payments

TyCooN · Jan 1, 2011

Originally Posted by thekunk07

there are no decent returns anymore. nothing more liberating than a lack of house/car payments
Do you just simply save all that money that you used to use to pay off the house and car?

mkarim · Jan 1, 2011

Originally Posted by thekunk07

there are no decent returns anymore. nothing more liberating than a lack of house/car payments
I tend to agree. With any investment, you can lose money. But paying down your principal gives you guaranteed return, albeit a relatively small one. IMO there's nothing like a roof over your head that's all paid for.

MrG · Jan 1, 2011

^^ In that case, it sounds like you (and Kunk) answered your own question.

mkarim · Jan 1, 2011

Originally Posted by MrG

^^ In that case, it sounds like you (and Kunk) answered your own question.

True but it would be good to get other viewpoints.

scurvyfreedman · Jan 1, 2011

Do you have a safety fund that allows you to meet 9-12 months of expenses after you've paid off your mortgage. If not, I'd keep the safety fund there to make sure that nothing bad happens, especially in this economy. If you've got enough cash to pay off the mortage and then another year's worth of expenses saved up, then there's no reason not to do it.

mkarim · Jan 1, 2011

Originally Posted by scurvyfreedman

Do you have a safety fund that allows you to meet 9-12 months of expenses after you've paid off your mortgage. If not, I'd keep the safety fund there to make sure that nothing bad happens, especially in this economy. If you've got enough cash to pay off the mortage and then another year's worth of expenses saved up, then there's no reason not to do it.

I don't mean payoff using a lump sum. I just refinanced from 6.25% to 4.75% (30-year). I meant making extra payments every month or whenever I can to pay it off sooner as oppsed to putting that extra money in stocks/mutual funds etc

scurvyfreedman · Jan 1, 2011

The same thing holds. I wouldn't put any extra toward the mortgage until you have 9-12 months of expenses saved up and set aside (and b/c the mortgage isn't paid, that's one of the expenses). Presuming you have this emergency fund there's no harm in paying it off faster. But, don't sign up for the every other week program. It's much better just to put more towards principal yourself and keep the required payments the same just in case.

Although if you're not maxing out your tax deferred benefits through a 401k or IRA, the 4.75% (you're really only paying 3/4 of that after tax benefits), it may be more financially beneficially to max out your retirement savings and then pay off the mortgage.

mkarim · Jan 1, 2011

Originally Posted by scurvyfreedman

don't sign up for the every other week program. It's much better just to put more towards principal yourself and keep the required payments the same just in case
Thanks. Yes those biweekly programs are just a way for banks to keep your money for free. They keep your first half-payment and only apply it when they receive the second half-payment.

Originally Posted by scurvyfreedman

Although if you're not maxing out your tax deferred benefits through a 401k or IRA, the 4.75% (you're really only paying 3/4 of that after tax benefits), it may be more financially beneficially to max out your retirement savings and then pay off the mortgage.
Yes that's what I was thinking. I am currently maxing out both my 401K and Roth every year but I would have to reduce my contributions if I make extra mortgage payments. If I pay off my mortgage first and then max out retirement savings, it may be too late to have significant savings (I'm 40).

thekunk07 · Jan 1, 2011

i still have a mortgage and am in the process of buying a new house, but paying it off/down is job 1. i have 2 friends who are done paying and got 15 yrs when everyone else was doing 30s and now they are sitting pretty.

Originally Posted by TyCooN

Do you just simply save all that money that you used to use to pay off the house and car?

deaddog · Jan 1, 2011

Its all about taxes, liquidity and risk. If you have maxed out your tax-advantaged retirement accounts, maxed out your kid's 529 college plans, don't need the cash flow (that is you have a 12 mos of liquid assets and a reasonably secure income) and you are pretty sure that you cant make a guaranteed return of 5% plus in alternative investments, then you pay it down. IN other words, if you have a mortgage balance of $200,000 and you have a big chunk of cash just sitting in CD's or money markets, then you pay it down.

To me, the key in these high risk/low return investment climates is to carry as little debt as possible.

Plus you get the psychological benefits if you're into that kind of thing.

Pay off mortgage sooner?

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