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Message
Convince me that paying extra on my mortgage is bad
Posted on 2/2/09 at 2:29 pm
Posted on 2/2/09 at 2:29 pm
OK, I understand that I can write off my interest on my taxes.
But I still don't see why paying down your debt (in the case, a mortgage) as fast as possible is bad.
If I can comfortably afford to put an extra $5,000/yr. towards my mortgage, why shouldn't I?
The reason for this thread is so that I make the right decision. I am not saying I am going to pay down my mortgage early. I just want to more fully understand the situation.
But I still don't see why paying down your debt (in the case, a mortgage) as fast as possible is bad.
If I can comfortably afford to put an extra $5,000/yr. towards my mortgage, why shouldn't I?
The reason for this thread is so that I make the right decision. I am not saying I am going to pay down my mortgage early. I just want to more fully understand the situation.
9
Posted on 2/2/09 at 2:34 pm to WikiTiger
it just depends what the opportunity cost of that $5k is. If it would be making 10% and your mortgage is 6%, you're stupid to pay it off. If it would be making 0, then paying off the mortgage is equivalent to a guaranteed 6% investment.
Posted on 2/2/09 at 2:38 pm to WikiTiger
Another thing to consider is the Money Talk alarmists seem to favor a strong cash position right now and depleting your cushion to pay off cheap debt may not be the best move to make in the next 6 - 12 months.
Posted on 2/2/09 at 2:50 pm to TigerinATL
Yeah, these two have summed up the two sides of the coin neatly.
1) Investing in your mortgage is by far a better return than anything else you'll get in this economy.
2) But there's a good chance we're all going to lose our jobs and you need to have a huge stockpile of cash to get you through the tough times.
1) Investing in your mortgage is by far a better return than anything else you'll get in this economy.
2) But there's a good chance we're all going to lose our jobs and you need to have a huge stockpile of cash to get you through the tough times.
Posted on 2/2/09 at 2:53 pm to Cold Cous Cous
also setting up a bi weekly payment can help you greatly. it cuts 10yrs off a 30yr mortgage. and your just makeing one extra payment a year.
Posted on 2/2/09 at 2:53 pm to WikiTiger
My two cents: Pay toward any smaller debts first. Eventually, your house will go up in value, but your car, credit cards, and student loans won't.
I agree with the greater flexibility that having cash on hand gives you, but something else to consider is your ability to save. Some people just can't look at a large number in their savings account. They start thinking about trips, cars, etc. If you are a disciplined saver, then you may want to keep more cash on hand in the near term, but ultimately I revert to my first point.
I agree with the greater flexibility that having cash on hand gives you, but something else to consider is your ability to save. Some people just can't look at a large number in their savings account. They start thinking about trips, cars, etc. If you are a disciplined saver, then you may want to keep more cash on hand in the near term, but ultimately I revert to my first point.
Posted on 2/2/09 at 2:57 pm to TigerOfNWLA
I think a lot of it depends on your skill. If you have a degree in something that is still in high demand with this economy, I wouldn't worry to much about your job.
If you don't have a skill or degree, I would tend to have more cash on hand.
If you don't have a skill or degree, I would tend to have more cash on hand.
Posted on 2/2/09 at 2:58 pm to TigerOfNWLA
quote:
My two cents: Pay toward any smaller debts first. Eventually, your house will go up in value, but your car, credit cards, and student loans won't.
I agree with the greater flexibility that having cash on hand gives you, but something else to consider is your ability to save. Some people just can't look at a large number in their savings account. They start thinking about trips, cars, etc. If you are a disciplined saver, then you may want to keep more cash on hand in the near term, but ultimately I revert to my first point.
Thanks. Just to clarify, I have zero debt (besides the mortgage). And I am also a great saver. (Friends and family just call me a cheap bastard.)
Psychologically, I do not do well with debt. I hate owing money. So my natural inclination is to pay off the mortgage as fast as possible. But damn near everything I read says that paying off a mortgage quickly is not a good idea. So I just want to make sure I am doing what's best for the long term.
This post was edited on 2/2/09 at 3:03 pm
Posted on 2/2/09 at 2:59 pm to TigerOfNWLA
quote:
Eventually, your house will go up in value
Great. Maybe everyone's house will eventually be worth what was going for 5 years ago. No guarantee that a house will appreciate.
Posted on 2/2/09 at 3:00 pm to WikiTiger
quote:What exactly have you been reading?
But damn near everything I read says that paying off a mortgage quickly is not a good idea.
Posted on 2/2/09 at 3:00 pm to WikiTiger
quote:
Psychology I do not do well with debt. I hate owing money.
There is good value in being able to sleep at night, FWIW.
Posted on 2/2/09 at 3:02 pm to Cold Cous Cous
quote:
What exactly have you been reading?
Various financial blogs, message boards, etc.
They always seem to cite the interest tax write off and the fact that historically the market earns 10% so paying down a mortgage of less than a 10% interest rate is just dumb.
This post was edited on 2/2/09 at 3:02 pm
Posted on 2/2/09 at 3:02 pm to WikiTiger
quote:
If I can comfortably afford to put an extra $5,000/yr. towards my mortgage, why shouldn't I?
That's exactly what I did. Paid off the 20 year mortgage in 15 and I'm free and clear. Feels great and didn't hurt the lifestyle a bit.
Posted on 2/2/09 at 3:07 pm to WikiTiger
"historically" is shite. The market won't be earning 10% any time soon fwiw imho hth.
Posted on 2/2/09 at 3:16 pm to WikiTiger
Piece of mind is worth quite a bit to me. My wife and I have a 30 year loan if we throw in an extra 1800 a month it will be paid off in 5 years. Dont get me wrong I know alot of people cant afford to add that much extra a month but we both have pretty good jobs and no other payments.So were on a pretty tight budget.Its gonna be nice to know im 33 and if I lose my job big deal i dont have any payments. We also saved quite a bit and put it in a mma just in case.
Posted on 2/2/09 at 3:24 pm to keeton350
quote:
Piece of mind is worth quite a bit to me. My wife and I have a 30 year loan if we throw in an extra 1800 a month it will be paid off in 5 years. Dont get me wrong I know alot of people cant afford to add that much extra a month but we both have pretty good jobs and no other payments.So were on a pretty tight budget.Its gonna be nice to know im 33 and if I lose my job big deal i dont have any payments. We also saved quite a bit and put it in a mma just in case.
To me that's awesome. I wish I could afford an extra $1800 per month. But just think, after 5 years of paying the mortgage + $1800 (let's say that comes out to $3600 per month), then you'll be 33 years old and have the ability to save almost $3600 per month and invest that however you want. That's over $40,000 per year. And you'll own your home outright. I just don't see how that could be bad.
Posted on 2/2/09 at 4:24 pm to Cold Cous Cous
quote:
2) But there's a good chance we're all going to lose our jobs and you need to have a huge stockpile of cash and a wheelbarrow to get you through the tough times.
Fixed!
Posted on 2/2/09 at 4:28 pm to WikiTiger
quote:
then you'll be 33 years old and have the ability to save almost $3600 per month and invest that however you want. That's over $40,000 per year. And you'll own your home outright. I just don't see how that could be bad.
That would be incredibly awesome.
No mortgage! Do it! Do it! Do it!
Posted on 2/2/09 at 5:42 pm to WikiTiger
if you have sufficient cash saved up and you don't have a better investment opportunity for your money right now (likely), then sink that money in your mortgage.
Posted on 2/2/09 at 10:17 pm to ewilliams20
my theory is that inflation is coming at some point in the future. I would prefer to pay off a loan after inflation than before.
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