Comments on: Should I Pay Off My Mortgage Early, or Have One at All?

By: Anita

Anita — Sun, 12 Feb 2012 00:07:22 +0000

Evolution of Wealth…. couldn’t agreee with you more… and if you need the deduction for mortgage interest where else are you going to get it but from your mortgage payments? With the downturn of the economy, I saw a young business woman lose her business and then the $750,000 inheritance she put down on her home. Even with so much equity in the house, her small mortgage payment was too muh for her to handle and so as you said, the bank was happy to take it all away from her.

By: Scott

Scott — Wed, 01 Feb 2012 01:03:00 +0000

My take is this: If you pay cash and own your house outright no matter what happens to you or your family you will never, ever be kicked out of your home. That’s amazing security.

By: johann

johann — Sat, 21 Jan 2012 21:28:00 +0000

Here’s an idea nobody’s floated yet. Why not use the cash to buy the home at a discounted price, and then take out a loan on the house afterward at 4% and invest that money at a rate higher than 4%?

Or, one step further. Several people have mentioned the tax advantages of owning real estate, but the best advantages are reserved for landlords.

Let’s assume our friends have $250,000. Right now, they’re considering two options, paying for a $250K house with cash, and having no investments, or keeping $250K in investments, and paying a mortgage payment that would cost them roughly $1600/mo.

Why not get the best of both worlds? Instead of buying a $250K house with cash, buy a $1M 8-plex, paying 25% down. Then they can rent a home for themselves to live in for $1600/mo. The income from that 8-plex will net them roughly $1600/mo (assuming they get $200/mo in cash flow over the mortgage payment for each of the 8 tenants). So now, their personal housing costs are $0/mo, and they still have the four parts of Internal Rate of Return that favor real estate investors: 1. Amortization, 2. Appreciation, 3. Cashflow, and 4. Tax incentives. Once that 8-plex mortgage is paid off, they’ll be millionaires, having effectively leveraged that initial $250K, and once the mortgage is paid off, they’ll have retirement income from the rental property.

By: MoneyNing

MoneyNing — Sat, 14 Jan 2012 04:22:21 +0000

Mathematically, it seems to make more sense if you just have one loan and use the extra cash from the first loan to get the second house. However, you are in effect putting more risk in your primary house if you do this as well because you just increased the chances that you might not be able to come up with the new payments in the future.

Whether that will change your decision or not will depend on what your finances are but with this approach, you are actually getting a bigger loan your primary house for the lower rate and using those funds to buy the condo. This way, you can deduct taxes from your mortgage and end up getting a better deal.

By: Allen West

Allen West — Fri, 13 Jan 2012 21:29:25 +0000

I have a quandry as I approach retirement at the same time my 7 yr ARM is up. I have a surplus of funds above my retirement that I can use to pay off my mortgage completely plus I’d like to buy a Condo in FL. Should I refinance 50% of my home and use the other 50% for the second home in FL. Money is cheap now and pricing down in FL. Is it best to have primary residence paid off or balance the costs across both properties to have 50/50 on each. Seems I’d save closing /refi costs on the primary if I went full on a pay-off. Is it harder to get seond homes with 30-40% down?

By: June Eulberg

June Eulberg — Fri, 06 Jan 2012 23:57:29 +0000

Right now, the housing market is great for a buyer but it’s better if you don’t.
In my opionion after listing to lots of experts the housing market hasn’t hit bottom yet. It would be better to rent and wait till the housing market stabilizes before buying. You would get the best deal and an opportunity to see if you can invest in a better interest paying investment. Maybe like gold stocks or ipod etc companies. Homes are not building equity at this time. You can’t sell them for even replacement value. Anyway, that’s my evalutation for what its worth.

By: Jeff

Jeff — Thu, 05 Jan 2012 14:35:17 +0000

I agree with Hugh, while there’s still a tax deduction for mortgage interest, and with the interest rates so low put 20 – 30% down.

By: Oakspar

Oakspar — Thu, 10 Nov 2011 21:11:36 +0000

Sure, the intrest on a mortgage is deductable, which serves as a reduction in rate – meaning that the real interest rate you pay in the long term is always lower than the one on your bill. That rate, however, will never reduce to 0%.

It is also true that the return on principle is 0%.

However a 0% investment is greater than any % of interest payment. That interest paid is a loss.

Now, if you invest the cash at a rate that is higher than the rate you are paying, you make money investing borrowed money, but you still have to buy that house (over 15, 20, or 30 years). Refinancing will cut your profits handily, so I will assume a normal mortgage.

The problem is, the money you invest will be depleated to pay the monthly mortgage bill or you will have to use your actual income to pay that bill. If you pull from the investment, you will see the initial profit dwindle to insignifigance quickly. A lot of work for a small margin.

If you pay the house off in cash, and then invest your income each month, you will sleep better at night, save yourself a lot of work and risk, and at most loose out on so little potential profit that you could have covered it mowing the neighbor’s grass for $10 a week.

By: Uffe

Uffe — Mon, 31 Oct 2011 20:56:44 +0000

we just purchased house me and my wife.
yes 25 years mortgage, as all have said here so far.

If I had the money to free in the mortgage tomorrow I’d do it.
I would not want to run around looking for investment.
Currently mortgage is just below 5% p.a so in case i’d need to beat that
well I need to earn 9-10% per anno. Does not seem alot i’d any day pay out mortgage first and then pay myself a mortgage “saving” of the same in the bank/bonds or similar pretending having a mortgage go for nice holidays, early retirements, upgrade on the house using my monthly saving..

We human’s are so easily fooled again and again,
tried the stock market myself earned 2 times the rest not
gave it up and started to save regular basis. no more foolish investments take the saves ones.

Cooledit

By: Veoletta Hayward

Veoletta Hayward — Mon, 03 Oct 2011 00:39:24 +0000

If you do the math you will realize that mortgaging your house forces you to pay three times the purchase price. The deduction for mortgage interest is nowhere worth what you actually pay in interest. People seem to forget that in order to write off the interest, first they must pay the interest. It’s a no brainer to me. Imagine the security of knowing that you have a ‘free’ roof over your head (except for taxes and insurance) for the rest of your life. Knowing that, no matter may happen to you financially in the future, you’ll probably be okay because you don’t have a mortgage. I worked my butt off and paid my house off in four years. Because of that and some mortgage free rental property (because we worked hard to pay those off as well), I and my husband were able to fully retire at age 45. PAY CASH for the house.