Yes I agree it would take perhaps more discipline, however you still fail to account for the 1277 potential savings per month and the compounding effect of such savings.

You cant justify your logic by saying that some wont have enough discipline to save, and therefore your logic remains intact. You have reached the wrong conclusion to make such a general statement and saying that its always been wrong to pay off your mortgage is certainly an incorrect conclusion.

And for the same family that might dip into their mtg savings account, the same family can just as easily dip into their cd's or use them as collateral for a personal loan.

Walt said:

quote:

Rick - to pay off the house the have already lived there for 15- 30 years. Many people live in a house for a life time

Actually, we've had the house 13 years and do not plan to stay in it. We are trying to complete some unfinished projects and will then put it on the market (hopefully next year).

We decided not to wait and will have the house paid off next week.

Then we'll be saving for the Allegro Bus that we want...:-)

Good for you, I knew you would do the right thing.

Walt52. I would be privileged to be the first person you meet who paid off their mortgage and took the money and consistently invested it.

At age 24 we bought a home and paid it off in 6 years. In additiion, we did not buy BMW's or whatever and instead lived frugally, never owing anyone any money but instead investing through the years. No mortgage, rent, car payments, credit card bills or any of that other stuff that saps ones money away. (sounds like we didn't have any fun at all)

At age 45, we had accumulated enough to go ahead and retire. We have now been retired for 20 years. I only share this as a, yes it really works example, of what getting out of debt can do. I always recommend that folks pay down debt no matter how good the alternatives look on paper.

Chuck and Ayn, I am glad you decided to pay that house off. Your sense of well being not owing that money will make you wonder why you did not do it sooner. As Windbreaker said, good for you.

quote:

Walt52. I would be privileged to be the first person you meet who paid off their mortgage and took the money and consistently invested it.

Here is the second....Our story is almost identical to Dick's. Paid off the house as fast as we could. Invested it all along the way. Bought a second house at the beach which we paid off in 3 years. Yes, we had cars and such, but only if we paid cash. NEVER paid interest on a credit card. Not once. "Retired" and went fulltime at 48.

If you didn't owe anything on your house would you borrow 22k on it to put it into a savings account? Pay the house off and continue paying your house note to savings or investments.

The only reason I can think of for doing that is that you are about to be sued and you want to protect your house. I could be wrong but I think it would be less costly to you just to get a blanket libality coverage.

What you are suggesting is one of the last things I would do. You will always pay more on a loan than you will get out of savings, that's how banks make their money.

You'd be a fool to put money in a "savings" account.

My mortgage is 5.5%, I'm getting an average of 7+ percent return on my money. It's really a no brainer for me. (This is of course is not net)

To each their own and what makes them warm in fuzzy.
I live in a Hurricane and flood zone. If my house it wiped out by a Katrina type incident and the insurance company balks, the dirt is all theirs and I lose very little.

Now let's say in a few years rates go up to 9%, I will take advantage of this 9% because my money is not tied up in a house. Of course I could walk into the bank tomorrow and just pay it off.

There is no single right answer. What some think is the right thing to do, is the wrong thing for others. Time factor is also a consideration.

For us our time frame to sell is approx. 10 years.

I'll give you two examples. Both examples have $1500 coming out of your pocket each month.

Mortgage payment is $1500 on approx 260k.

Let's say I paid off the house and invested the 1500 every month and my return is 5 percent.

After 10 years I would have $281k before taxes. Sounds pretty good.

OR

I take out a mortgage for 260K and pay $1500 per month. Either way $1500 is coming out of my pocket.

Invest the 260k and get the same 5 percent return. (The percent doesn't really matter as it would be the same for both examples).

After 10 years I would have $428K before taxes. 46K in equity and Approx 3-4k in tax write offs each year for a total of 30-40K in tax savings over 10 years.

428K + 46 + 30k= A gross return of 504k...

A gross of 504k
Or a gross of $281k...

Again, for us it's a no brainer. Paying off the house would be too costly for us.

Looking at ONLY MONEY and not the benefit of tax right offs, our break even is 22 years.

For the closed minded , there is no other thing then pay it off. That's old school thinking.

OPM = Other peoples money. That's what the banks do.

Paying cash all the time is just not the right thing to do all the time... For example I have a new 40k truck, I could easily have paid cash, but why? They gave me 0% interest. I'll use their money and keep mine working, I'd lose money paying cash. I'm buying a new mower for our large lot, yup financed @ 1.9%, I'd be a fool to pay cash when I'm making more in investments.

BTW, I retired at 41 and have been retired for 6 years. Wife has 10 more years to get her pension and then we're off.

Will we pay cash for our new bus? That of course will depend on the loan rates at the time.

Again, there is no single right answer. Just different ways to look at the equation.

This message has been edited. Last edited by: Walt52,

If you add 46k in equity into your 504 total, you should also add 260k into the 281 total.

Which changes the entire conclusion. 504 vs 541

Instead of looking at gross, you should be considering net worth. Net worth is a far better measure.

Walt,

You are so right. There is no single answer. OPM is just fine as long as you have the guaranteed resources to justify it.

However, speculation using OPM without the savings to "back it" has contributed mightily to the current housing crisis. (I understand this is not your situation, but is in fact the situation of many of those caught up in todays crisis).

In your calculations, you said "Mortgage payment is $1500..." and went on to explain leveraging interest rates. But what happens if you can no longer afford the $1500 mortgage payment? Life throws a lot of curve-balls.

For those without a "guaranteed income", i.e. those who are susceptible to a lay-off, business closing, market fluctuation, or other blow to income, paying off the home is just one step in a secure financial future.

There are many factors to take into consideration. It's tough to get it all in without making a 3 page post.

I used general numbers for the sake of being brief.

It's a left pocket right pocket thing. If things start to go bad, I can just pay off the mortgage.

Then again if things go bad and mortgages/interest rates go through the roof, I have the liquidity to take advantage of that.

IF you had an investment that lost 20% in one year and was projected to lose more, what would you do? Most people would bail out in a heart beat, but that's exactly what is happening now with some people on their paid off homes.

For some people they are losing gains, some people are losing more then that.