Should you pay off your Mortgage?

Discussion in 'Financial Cents' started by Game Ends, May 8, 2015.


  1. Game Ends

    Game Ends Monkey+

    If you have the money, say $100,0000, and you mortgage is $75,000 should you pay it off?
    Should you refinance and put $50,000 toward the new loan?
     
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  2. Ganado

    Ganado Monkey+++

    It depends on what your overall goals are. Are you refinancing for a fixed rate or a floating?
     
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  3. techsar

    techsar Monkey+++

    Also, what are the tax ramifications? You may lose a significant write-off, depending on your circumstances. Floating rates usually are not a good idea, as they can turn around and bite the lender easily.
    Paying off CC and other unsecured (and nondeductible) debt is usually a safe bet.
     
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  4. Yard Dart

    Yard Dart Vigilant Monkey..... Moderator Site Supporter++

    I know for myself, I would pay the house off last due to the tax benefit of that debt. As @techsar stated, pay off all other debt first and then focus on the property pay off. By paying off the other debts first, you will also be able to redirect those old CC payments towards the mortgage. The old snowball effect......
     
  5. BTPost

    BTPost Old Fart Snow Monkey Moderator

    My Father, RIP, "The Banker" taught all his children, that you only go into Debt, for Housing, and Transportation, and even then only for Purchase, not leasing, or Renting. When paying off Debt, UnSecured Debt goes First, and you start with the Highest Interest Rate Accounts, FIRST, and work your way down, till they are all paid off. Then you work on Secured Debt, and start with Transportation Debt First, then Housing Debt... I and all my siblings have followed his advice, and are ALL DEBT Free. Three of the Four, are now reTIRED, and living very comfortably, within our means. The fourth is still working, and building his reTirement Financial Setup, while still being Debt Free... Going into debt, for "Toys" or even "Preps" is just plain DUMB....
     
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  6. Witch Doctor 01

    Witch Doctor 01 Mojo Maker

    depends on your age... the mortgage is usually the most expensive debt you owe... the tax write off at the current interest rates (if you refinanced ) are not that big a tax loss... if you are older pay it off ASAP would be my recommendation, you can use the money from the mortgage to pay of the other debt (average mortgage on a 100 k house if around $800.00 a month plus any mortgage insurance if it was required to get the loan... alternately... pay off the house, take a home owners loan at a lower rate and then pay off all of your other debt thus keeping some tax write offs, lowering your interest rates. ..

    YMMV
     
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  7. tacmotusn

    tacmotusn Mosquito Sailor

    I looked at my total debt a little different. Secured Debt vs Unsecured Debt, then interest rates. Paid off all secured debt first, concentrating on highest interest first. Once all secured debt was paid off started concentrating on highest interest rate unsecured debt. Still working on that and trying to get totally debt free. If for any reason you default on secured debt, your lenders can go after your security (house or car are prime examples). In Florida your house is basically off limits to creditors with your unsecured debt. Prepper wealth can be hidden in many ways. Think about it. My creditors would have a real hard time collecting diddly from me if I defaulted.
     
  8. Airtime

    Airtime Monkey+++ Site Supporter

    TEOTWAWKI for a family so often arises out of lost employment or huge medical bills. Getting debt free so you are not at risk of losing your house and the equity you may have in it is a critical prep. Balancing that you need to have at least 6 months of money in reserve to pay the bills if you were to loose your job. So if the remaining 25k could cover the bare necessities then I'd pay the 75k off and then know you now are reasonably secure in shelter regardless of what happens.

    There is a peace that comes with knowing you own nothing to anyone. It is very liberating and opens doors to changing jobs or careers that may be more fulfilling or enjoyable but lower paying in the earlier years as the monthly mortgage isn't hanging over your head. Looking at these situations from only a financial dimension often yields one direction of guidance but considering a more wholistic perspective which includes the mental and psychological dimensions for the whole family may well yield a very different answer. You need to do what is not only financially wise but also creates calm and security for the family. Toys, TVs, fancy cars, vacations, etc generally does not accomplish that. Living within your means, saving money for later and reducing financial risk eliminates many of the factors that so often split couples.

    AT
     
  9. NotSoSneaky

    NotSoSneaky former supporter

    Refinancing will usually cost you more over time despite having a lower payment.
    Why do you think lenders always push you to do this ?
     
    Motomom34 likes this.
  10. vonslob

    vonslob Monkey++

    It is hard to say because without knowing what your overall financial picture is. Over the year I have seen plenty of tax clients that the mortgage and property taxes are not large enough to make it worthwhile to itemize deductions so the tax benefits of owning a house might not be a consideration. If your mortgage is over seven year you will start losing more and more of the tax benefits of having a mortgage because only the interest paid is deductible not anything that goes to the principle. I say no because you will be taking a very liquid asset and turning it into a very illiquid asset. If you ever need that cash getting to is will be very hard and costly. I believe many financial professionals would tell you the same thing. Now if you were 200,000 liquid I might think about it, but 100,000 in really is not much money in the scheme of things, because that would leave you 25,000 liquid which is not a huge nest egg.
     
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  11. BlueDuck

    BlueDuck Monkey

    I paid my house off 15 years ago. I never saw where that was a bad thing. If you plan on retiring some day, its going to be very difficult with a big mortgage, car payments or high interest credit card bills. Pay for it and its yours.
     
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  12. madmax

    madmax Far right. Bipolar. Veteran. Don't push me.

    My house, my cars, my land, no credit debt, Signed, sealed, and delivered.

    No Obama phone.
     
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  13. ghrit

    ghrit Ambulatory anachronism Administrator Founding Member

    True enough. It also represents an asset that can (sensibly or not) tapped with a reverse mortgage. That is a whole different set of arguments.
     
  14. Motomom34

    Motomom34 Moderator Moderator Site Supporter++

    I liked all the answers but this really stood out. How many of us work for the pay and not the pleasure. I like working but I need to make X amount to cover expenses. If the mortgage was lower I could afford to pursue a career that I enjoyed. When looking at new employment the first thought is will it pay enough. If the mortgage was lowered or gone, it would feel more secure. I know CC are bad but I was told to use them sparingly and making payments would help boost your credit rating, thus you can get lower interest rates when needing to purchase a car or such.
     
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  15. ghrit

    ghrit Ambulatory anachronism Administrator Founding Member

    Recognizing that this is a bit of a thread deviation: CC are an excellent way to assist or mess up credit ratings. Use regularly, pay off each and every billing period, and you are gold. Get yourself behind, and it's asking for trouble with a never ending spiral of financial woes. I dedicate a card for fuel and web based purchases, all contained in the budget. Never do a whimsical buy that isn't budgeted for, and you should be in pretty good shape. In a real emergency, a card can save your butt. (Yes, I know these things. It took a few years to get from under 600 to over 700 rating.)
     
    Tully Mars likes this.
  16. john316

    john316 Monkey+

    if the world goes to pot....and your money is worthless...no job..............you will lose your house!

    if you pay off the house....invest in a house......and...if the world goes to pot....and your money is worthless...no job..............you have a house to live in.
     
    NotSoSneaky likes this.
  17. Game Ends

    Game Ends Monkey+

    I never expected so many comments. Thank all of you very much.
    I should give more details for my question.

    First I am trying to be in the best position when the dollar crashes or other major event. According to Dodd-Frank, the banks can take your deposits to pay their debts, like what Cyprus is doing. If the banks/government takes most of my money will the house be safe? Would refinancing to get a lower balance help? I have no other debts (CC).


    Thanks for all your replies

    I was writing my post as john316 posted his but that is like what I am trying ask.
     
    Last edited by a moderator: May 9, 2015
  18. NotSoSneaky

    NotSoSneaky former supporter

    Search the interweb for "credit score simulator", plenty out there and you can explore the "What if's".
    Some can be spam heavy so use a disposable e-mail.

    Solid gold advice right there !
     
    kellory likes this.
  19. Airtime

    Airtime Monkey+++ Site Supporter

    You don't refinance to lower the balance, you just make additional payments. Refinancing is to get a lower interest rate. Also note with refinancing you often pay "points" when closing the deal which is considered pre-paid interest. They can be several percent of the loan value. Unless you plan to carry the mortgage for 5-10 years or more and the interest is significantly less, you probably don't benefit by refinancing.

    Just dedicate your self to a plan to keep enough money on hand to pay at least 6-8 months of expenses as a rainy day fund and work to pay off that silly loan within the next year or less. You are not far from being able to do that. Then start saving some more for a new used car, kids college, etc. You should save at least 15% and better 20-25% of your income in a mix of things. Mutual funds and IRAs/401k/etc. should be part of the plan because it is quite possible that the $hit won't hit the fan and when retirement comes around, then what? Hard assets that endure and are hard to take away should also be part of your saving plan (boats and trucks don't count).

    And credit scores... unless you plan to enslave yourself again to a job and bank, who cares what it is? They only matter if you go in debt which is generally not good prepping. You should consider that anything against which you have a loan will be lost if the SHTF. Not wise for your home, core transportation, tools of your trade, etc. which should not be at risk.

    AT
     
    Last edited: May 9, 2015
    oldawg, kellory and ghrit like this.
  20. Ganado

    Ganado Monkey+++

    Your thinking is along the correct line. If you decide to refinance please read fine print carefully. BASIL I'm banking requirements are forcing banks to change their language on many documents..... The devil is in the details.

    2 suggestions... 1) Have your food water etc set up and paid for before you pay off house. 2) have home supply of coins not just cash before you pay debt. 3) develop skills

    I had assumed if you had eyes to pay house off all other debt was paid.

    The banks are moving away from cash... This bit is guess.... Barter will become an increasingly important issue as cash disappears.

    Did anyone see case's announcement about charging a 1‰ deposit fee starting May 1st for large accounts ?
     
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