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Message
re: 30,20 or 15 year mortage?
Posted on 2/4/10 at 2:13 pm to meauxjeaux2
Posted on 2/4/10 at 2:13 pm to meauxjeaux2
quote:I'm sure there are instances where having more deductions makes a vast difference. But for the average home buyer, it makes no sense to keep sending the bank $10,000 every year just to avoid sending the government $2,000.
I know that income taxes that you only get to claim the interest
0
Posted on 2/4/10 at 2:18 pm to bryso
quote:That makes no sense.
have fun working your whole life.
For example, I could payoff my mortgage several times over. However, that would involve liquidating some market investments. In 5yrs time I'd be less well off for having paid off the house. How exactly is that a good idea?
Working your whole life?
Unless you'd anticipate being underwater on home value 10-15yrs down the road, if you ended up working too hard to meet the note, you could simply sell the home and downsize.
This post was edited on 2/4/10 at 2:20 pm
Posted on 2/4/10 at 3:01 pm to NC_Tigah
quote:If you had liquidated in 2007 then paid of your house you'd look like a genius right now ~ but I digress...
In 5yrs time I'd be less well off for having paid off the house. How exactly is that a good idea?
mathematically speaking, it makes more sense to invest in market instead of paying extra on your mortgage. (unless your mortgage rate is >10% heaven forbid) but everyone doesn't live life solely for mathematical purposes. life is day-to-day, and any number of circumstances could strain your finances. and if you were debt leveraged to the hilt and forced to liquidate in Feb 2009 you'd be cursing yourself for all the money you lost. i'm paying off my house early because it's what I want. when i'm 50 i won't have a house payment, or child support, and i will be free to pursue another career if I want. and, if i lose my job, I won't have to worry about a house payment, or selling stock or mutual funds that may be in the tank. yes, it's emotional - but i already have 15% going towards retirement so i'll have plenty of money when I'm 65 - I'm not worried about that. And that's just it - I don't have to worry along the way either. The same things that concern me are probably not the same concern to the more sophisticated investor, but to each his own.
Posted on 2/4/10 at 3:30 pm to Lou
I can respect the fact that you want to be sure everything is covered in case you lose your job. But remember the whole point is to be sure your investments earnings >>> your mortgage bill, otherwise you're doing something wrong. If your earnings are in fact greater then it doesn't matter if you lose your job, you're still covered.
To be fair, this won't work for a 401(k) since you can't withdraw from a 401 so easily. So how about this - instead of paying off the mortgage early, use the money to build up a downpayment on a mortgage for a second house and rent it out. Rinse and repeat.
Lots of people do quite well buying properties and renting them out, as I'm sure you know. You can't do this by paying off a mortgage, you have to take on additional mortgages.
Just be aware this propensity to pay off a mortgage early for your piece of mind is costing you money (and maybe a vacation or two down the road). That's your business of course, but this is a money board after all. The financially sound way is to mortgage to the hilt while rates are as low as they are.
To be fair, this won't work for a 401(k) since you can't withdraw from a 401 so easily. So how about this - instead of paying off the mortgage early, use the money to build up a downpayment on a mortgage for a second house and rent it out. Rinse and repeat.
Lots of people do quite well buying properties and renting them out, as I'm sure you know. You can't do this by paying off a mortgage, you have to take on additional mortgages.
Just be aware this propensity to pay off a mortgage early for your piece of mind is costing you money (and maybe a vacation or two down the road). That's your business of course, but this is a money board after all. The financially sound way is to mortgage to the hilt while rates are as low as they are.
Posted on 2/4/10 at 3:52 pm to foshizzle
quote:
foshizzle
After retirement accounts and rental properties what is the next most common investment vehicle used to achieve...
quote:
investments earnings >>> your mortgage bill
???
Posted on 2/4/10 at 4:53 pm to foshizzle
quote:I know, that's why i readily admitted that mathematically you shouldn't. I also said "i already have 15% going towards retirement so i'll have plenty of money when I'm 65 - I'm not worried about that" If I was not putting money in a Roth or a 401K and instead putting every dime on paying off a mortgage, then yes, that would be foolish. But if I take an extra $100 or $200 and put in on my mortgage instead of going out to eat, or to the bar,or buying some clothes - I think that's a good use of my money. Not as good as investing in the market I know.
Just be aware this propensity to pay off a mortgage early for your piece of mind is costing you money
Posted on 2/5/10 at 1:35 pm to Lou
quote:
mathematically speaking, it makes more sense to invest in market instead of paying extra on your mortgage. (unless your mortgage rate is >10% heaven forbid) but everyone doesn't live life solely for mathematical purposes. life is day-to-day, and any number of
I am looking at this backwards over 30 years, and life is not very predictable. Go back just 15 years and look at the predictions by the economic genuises of the day, most of them look like idiots today. Nobody can predict what the value of your investments will be in 15 years but you will know with a good deal of confidence that your house could be paid for. The return may be lower, maybe not, but you have eliminated risk. Thats the problem with the simplle mathematical analysis everone is doing, no one is factoring in risk.
Posted on 2/5/10 at 3:00 pm to JWS3
quote:Or, since the value of homes can go down or stagnate, you could simply bury the money in the backyard to be really sure.
but you will know with a good deal of confidence that your house could be paid for.
I'm kidding a little, but on the other hand, had you recently paid off a 15yr home mortgage in Grosse Pointe Mi, you'd be out a boatload of money.
Obviously there are many mitigating factors. Whatever the choice, you want to maximize return in a given risk strata. As you approach retirement, that risk strata/tolerance should be adjusted lower. Generally, homes are less risky, like a large low return CD. But in the end they are still worth no more than the market will bare. That certainly does not equate to "risk-free".
Posted on 2/5/10 at 3:39 pm to NC_Tigah
quote:
I'm kidding a little, but on the other hand, had you recently paid off a 15yr home mortgage in Grosse Pointe Mi, you'd be out a boatload of money.
You are correct, but like any other equity only if you sold, which you could be forced to do, that is another risk. My perspective is that too many people make these decisions based on simple math, assuming everything will work out perfectly, with no allowance for risk. Then there is the emotional factor, I am an older guy, don't know what my place is worth, but it is paid for, we like it, and having no payments make it that much more enjoyable, whats that worth? I have no clue, that function seems to be missing on my calulator.
Posted on 2/5/10 at 5:09 pm to JWS3
quote:That is worth every penny.
having no payments make it that much more enjoyable, whats that worth?
After all,
Peace of mind and freedom to do what you want to do in life is what all that money's about in the first place.
Sounds like you're there!
Posted on 2/5/10 at 5:46 pm to Lou
quote:
But if I take an extra $100 or $200 and put in on my mortgage instead of going out to eat, or to the bar,or buying some clothes - I think that's a good use of my money.
It's a better use of your money than going out to eat etc., of course. I don't mean to imply it's a bad choice.
But it is an even better use of your money to invest it as I have described.
Posted on 2/5/10 at 6:03 pm to JWS3
quote:
I am an older guy
As I wrote earlier, your calculation is then somewhat different. My suggestion assumes you have the "long run" working for you. Not to be macabre about it, but there it is. In that situation your task is to use up wealth while you can. That's what it's for, after all.
If paying a mortgage early pleases you more than a vacation, you aren't alone. Both will use up wealth but paying the mortgage first won't nearly as much obviously, simply because it earns money. Just not as much as the alternatives.
Frankly, I'd prefer the vacation. That is what disposable income is for, after all.
The reason I responded to this thread in the first place is all the people saying that paying a mortgage early is a good financial decision. It isn't a terrible one but it is clearly not a good one either. It is exactly the same as buying any other instrument with the same interest rate (taking taxes into account) where you can't withdraw very easily. Paying a 5% mortgage when you are in a 25% tax bracket is exactly equal to buying a 3.75% bond that never matures and that you can't sell. There are worse choices but there are also better ones.
Posted on 2/5/10 at 10:34 pm to foshizzle
quote:
Frankly, I'd prefer the vacation. That is what disposable income is for, after all.
Its not really an either/or situation, short term sacrifice is fine, but not for the life of a mortgage. If there is no money left for vacations/fun at the end of the month, your down payment was too small, or mortgage too big. Rent till you can really afford to buy, but thats already been the subject of 100s of other threads.
Posted on 2/10/10 at 4:12 pm to C
quote:
damn this thread confused the frick out of me. I've been trying to pay off my house as quickly as possible. I was happy getting the 4% savings by paying it off early.
It really depends on how much your interest rate is on your home. If you are at say 6% or higher, then you should be trying to pay it off as quickly as possible (or refinance if you have a long time left). If you are in the 4-4.5% range, you can really invest the payment difference and make more over time than pushing so hard to pay off your house.
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