If you could pay off your house would you??

[AKcharger]

I was thinking about workin' to pay off our house here in Fl, but then I thought If I just kept or invested the money instead of paying off the house I'm getting a pretty sizable loan for only 4%.

What do you guys think...

[Aero426]

Not knowing your situation, I don't think there is any one right answer.    Getting your money at 4% is tough to beat.    If you are early in the game and plan to stay long term, if I could kick in extra per month towards principal and effectively shorten a 30 year to a twenty, or a 15 to a ten, sure, I'd do it.   

In my situation, I am down to the last couple years of a ten year.  So my principal payment is increasing dramatically by itself.   Even at my "higher" 5% interest rate, because of a relatively small amount owed, I don't see a reason to make extra payments this late.

[green69rt]

Like areo426 said "it depends"   You kind of have to do some figuring and also take into account where the "payoff" money is coming from.  If it wipes out your liquid savings then probably a bad idea, but if it's money setting around in some kind of MM account drawing 0.02% then yes.  Getting 4% fixed return on money in today's market is a prize!

One thing that does change is that there's nothing like owning you house free and clear.  It just feels good.

One item, here in Texas I have heard that you should take your deed to the county court house, or wherever, and have the deed reissued with no lean notations on it.  I don't now why, something to do with old mortgage companies getting their paperwork screwed up and coming back to you saying you still own them money.   My last mortgage was sold at least 5 times before I got it paid off so there are 5 companies that could screw things up.

[Daytona R/T SE]

I did it last year. 

Do it and never look back. 

[NHCharger]

When I built my house in 99 my goal was to build it mortgage free, missed by 30k 
Did pay it off a few years later. As mentioned it feels good to be mortgage free. Allows you to spend money on other things. One thing I don't do is piss money away on vacations.
Of course I pay over 10k a year in property taxes 

[twodko]

Like the skivvies it Depends on many factors.

I have a 4% loan and its a great rate to have
BUT if you the mortgage interest tax write off
it might not be prudent to payoff ones hone.

[dyslexic teddybear]

Mortgage free from 08......lost the house to fire, so the insurance paid off the small amount left. I rebuilt, doing most of the work myself. It's livable, and I am finishing it as my wallet permits.

I LOVE no payments. JMO....never again. Ever.  

For me, no way any deduction would be worth aggravating my payment allergy. Others may have a different situation.

[ITSA426]

Having money to invest, play with, or save, is better than being able to deduct a portion of it.  If you pay the house off you can apply the payment money toward any other debt.  Living debt free is best for peace of mind and overall security.  But as has been said every situation is different.  I paid the house off 20 years ago.

[Lord Warlock]

The sooner the house is paid off, the sooner you can think of being debt free, or able to buy one or two of those toys you've been putting off.  There are always considerations however that could change your position.  If you need the deductions to offset income, can understand why the extra interest helps.  It is smarter to pay off anything at a higher rate first, but there is also a draw to get rid of the big albatross once and for all.  I've been refusing to refi the house again because it is the best asset we have, and only owe about 7 years left on it, and even at the 5.25 rate we have, the draw to pay it off quicker is always present, but the rate isn't bad overall, its nothing compared to what we paid on our first house in 85, 13.89% when other loans were at 16% for mortgages back then.

If you were getting down to the 5 year mark, I'd seriously consider it, you still have to put aside property taxes each year for it, but it is invariably cheap to live once you can stop paying rent/mortgage.

[XH29N0G]

I approached it like the others have said by looking into it as an investment at XX% and then comparing with options.  I paid mine off shortly before the market went south so I had my money in something that was saving me 5% rather than being flat.   Not having the stress of knowing it will need to be paid regardless of circumstance also has its benefits.   

[AKcharger]

Thanks guys, good points. My situation is after the move to Florida last year everything is going great so we're going to sell our home in Alaska this summer. IF all goes well we SHOULD walk away with enough to pay off the Florida house. We don't have any debt (drive old cars, live normal) and I've always planned to pay-off the house ASAP but since this is truly a once-in-a -lifetime deal, I got thinking about investing instead.

There's always other angles to things and I always come here for life advice!! 

...One item, here in Texas I have heard that you should take your deed to the county court house, or wherever, and have the deed reissued with no lean notations on it.  I don't now why, something to do with old mortgage companies getting their paperwork screwed up and coming back to you saying you still own them money...

Hmmmm interesting 

[green69rt]

Just one point about the deduction for mortgage interest.   The standard deduction is pretty high now so you really need a lot of deductions to make it worthwhile.    Usually what happens is that as you get close to paying off the house the amount of interest (deductible) drops of dramatically so you end up paying 4% interest and not getting any additional tax benefit.   4% of $30,000 is $1200 and that's not even close to the standard deduction, of course there are other deductions you need to consider.

[Steve P.]

OR ~~~~ you could pay off MY HOUSE!!!!   

[draftingmonkey]

You have received some good advice and I'll throw in a couple of thoughts.

Will the investment income have a higher return than the interest you are paying on your mortgage?  If your investment return is smaller than the interest on your mortgage you are losing money.

Since you are planning to retire does this investment have a guaranteed return and if not can you afford to lose the money if your investment opportunity fails or loses value?  Opened a brokerage account 15+ years back and when the crash came lost a lot of the value.  So here I am after all that time and the account is only about 15% above what it originally opened at.  As my pappy always told me nothing is guaranteed in life.

We payed off our house in '12 due to the fact that investment return was so bad.

[John_Kunkel]

Forget all the other issues, pay it off so you have the security of a roof over your head if the SHTF.

[AKcharger]

OK, more sage advice...
- Didn't think about interest vs. std deduction
- Mutual funds or 401K that I would put $$ into aren't spectacular so would it go above 4%   

OR ~~~~ you could pay off MY HOUSE!!!!   

I'd be happy to! just send me you'll full name, address, Social Security# Bank routing number and mother's maiden name and I'll get right on it!   

[Steve P.]

Hahahahahahahaaaa....   

[69rtse4spd]

Another thought, if you need the tax break, could you put the money in a checking account that takes the payment out each month. My best friends brother won two million on a scratch off game. Gets paid once a year, money set up like this. The bank takes out the house payment & insurance all at once.   

[ws23rt]

I was paying off my mortgage at an accelerated rate (extra 1k per month) in the nineties because of the interest rate 12%.  I also was making more money per month than I needed to live on.
Like others have said you need to pencil out where the best use of your earnings should go. That means taking into account the current market for the dollar.

Their is a lot of value in knowing the house is paid for.   That alone is worth missing out on a few bucks that can be gleaned by hanging on to the mortgage longer.
My mortgage has been paid off now for nearly ten years and I got over the interest subtraction that used to make me smile at tax time.
Now what I see is an increase in the properties value that translates to higher property ---TAXES--

So now my home (investment) is an expense (beyond insurance and maintenance)and cost me a large amount every month for the privilege of owning it. It's like paying rent to live in my own home that is bought and paid for. I now am paying nearly the same amount in taxes that my original mortgage payment was.

One sure thing about working and planning for the future is the tax factor needs to be accounted for.  If you have money and stuff it will be tapped into---taken from you---because you have some.--oops a bit of a rant--

[RECHRGD]

I was paying off my mortgage at an accelerated rate (extra 1k per month) in the nineties because of the interest rate 12%.  I also was making more money per month than I needed to live on.
Like others have said you need to pencil out where the best use of your earnings should go. That means taking into account the current market for the dollar.

Their is a lot of value in knowing the house is paid for.   That alone is worth missing out on a few bucks that can be gleaned by hanging on to the mortgage longer.
My mortgage has been paid off now for nearly ten years and I got over the interest subtraction that used to make me smile at tax time.
Now what I see is an increase in the properties value that translates to higher property ---TAXES--

So now my home (investment) is an expense (beyond insurance and maintenance)and cost me a large amount every month for the privilege of owning it. It's like paying rent to live in my own home that is bought and paid for. I now am paying nearly the same amount in taxes that my original mortgage payment was.

One sure thing about working and planning for the future is the tax factor needs to be accounted for.  If you have money and stuff it will be tapped into---taken from you---because you have some.--oops a bit of a rant--

I agree completely!!  Although I retired in '07 and carry no debt, my income gets eaten into by the, never ending inflation.  The taxes and utility rates always rise and I've taken that into account by not taking all the income I could from investments and letting them grow.  There is talk now of the possibility of a future "wealth tax" where they will start to go after your net worth.  In other words, if you've done every thing right and gotten to a place where you can retire off of your own investments, they want a piece of that too, not just taxing the income derived.   back on topic....  Pay off the house!!  Unless I misunderstand the original post, he's taking out a big loan and wants to invest it or pay off the house with it. If that's really the case and he pays off the house with it, that is only trading one loan for another.  If the money is used for investment purposes, then that puts the borrowed money at risk.  Not a good thing.......

[Todd Wilson]

Forget all the other issues, pay it off so you have the security of a roof over your head if the SHTF.

YUP! I agree!   You cant be hurt too bad if you own your house! Unless you don't pay your taxes!


Todd

[Green71R/T]

Having your house paid for also gives you a little more freedom.  As my mechanic friend says,"No I won't work on your Ford. My house is paid for."

[AKcharger]

 

[ACUDANUT]

According to my CPA, Pay it off. The rewards are not worth the little you get back from the FEDS.  Peace of mind knowing you own it too, would be awesome.

[ws23rt]

According to my CPA, Pay it off. The rewards are not worth the little you get back from the FEDS.  Peace of mind knowing you own it too, would be awesome.

I agree.   That also goes for any debt that can't be zeroed out at the end of the month. The option of not paying off debt is to spend money in order to continue to owe.

[RallyeMike]

It seems like it's pretty hard to make much in investments these days unless you are some kind of insider, guru, or have hours and hours to put into it. As long as you have enough of an emergency fund, why pay interest?

That was the conclusion I came to ..... so I wrote a big check last year. The last amount will be paid off in the next couple of months and I'm looking forward to being debt free.

[ws23rt]

It is not a simple thing to make good investments. However some/many do invest in retirement accounts and savings while still spending much in interest to stay in debt.

My daughter and son in law were doing this for many years. They would ask for advice from me about money. I said over and over--pay off the highest interest debt first and fast.---They kept saying they needed some savings for trouble---So I said you guys have credit cards yes?---Use that as a safety net until they are all paid off.
It took a long time. --They told me how hard it was to write a check for a few thousand dollars to a credit debt that only asked for a hundred.---I get the mind set that credit gives us.
They are now debt free and hundreds of dollars richer per month.---They also can't stop thanking me for nagging them about it.

Add---The topic of money still comes up but the problem now is they are accumulating money.--eek---Now what do we do? ---The money makes no interest in savings.  I don't intend to steer this to an investment advice topic but I do find it funny that they got out of debt and now have another problem.

[charge69]

My home has been paid off for a while and it is a blessing in many ways but, remember, property taxes, school taxes and other associated costs (insurance) have to be planned for.  These costs can be little to significant so, whatever you do, plan ahead for these expenses!

That said, paying off a mortgage is the prudent thing to do in most cases!

[AKcharger]

Well, the choice seems clear!  As always best life advice right here at DC.com!

I'm with ya' on the tax thing...make me wonder how people will afford to buy a house in a few years!

Don't know about wealth tax but I'm expecting a "means test" for social security. I'm 100% sure I'll never get it and my payments will be redistributed to "others"

[Dino]

Paying off the house was the best thing we could have done.  The security it brings is priceless and we wish we would have done it sooner.

[NHCharger]

Bill, another thing to consider is the name on the deed. For some reason our house is currently in my wife's name only, can't remember why we did that. We have a meeting with a lawyer next month to put the house into a trust. Putting your house in the right kind of trust can protect you or your kids from numerous issues down the road. Everyone is so sue happy these days you never know when an insignificant incident can come back to haunt you in the form of a lawsuit

A friend of mine has been through two divorces and bankruptcy's. Said that if the house wasn't in a trust he would have lost it long ago.

[Hard Charger]

if I had a mortgage small enough I would pay it off with an low interest equity line. this would preserve the tax benefit. keep the credit score happy and the wolves at bay. I am still a good 17 years from retirement, I will need to get the kids out of school and will have a good 4-6 new cars to purchase.

I would also pay of the cards and use the credit line as a financial vehicle for the kids college tuition, car purchases household projects etc. Not for increasing my debt but for controlling it. I already pay the tuition and cards etc. out of pocket, the credit line would just make it easier.

my customers tell me they think it important to carry a mortgage to keep a good relationship with there banks. Also If they had a claim against them it helps to have a bank on the deed when fighting it.

[DixieRestoParts]

According to my CPA, Pay it off. The rewards are not worth the little you get back from the FEDS.  Peace of mind knowing you own it too, would be awesome.

I agree.   That also goes for any debt that can't be zeroed out at the end of the month. The option of not paying off debt is to spend money in order to continue to owe.

I agree, and then invest the former money you would use for a  payment.

[AKcharger]

...Putting your house in the right kind of trust can protect you or your kids from numerous issues down the road...

hmmm never thought about that...tell ya' what,  this is turning into a very informative  thread!

[Bob T]

...Putting your house in the right kind of trust can protect you or your kids from numerous issues down the road...

hmmm never thought about that...tell ya' what,  this is turning into a very informative  thread!

Trust can be contested and broken apart too if the primary intent was to avoid bankruptcy, just saying. At one stage here you could only gift $30k to the trust per annum which takes a long time to get a house into it, but the rules have changed recently. Not that I'm suggesting you are looking at that avenue or situation.
Quite a few people I know, contractors and so on have started trusts when they started to gain assets like rental properties, just a mechanism to manage risk and provide protection for the long term should there be an unforeseen event in the future.

I cut my mortgage from 25 years to 16 by making it a fortnightly payment and upping the minimum payment by a ( sometimes just ) do-able amount and can still live and have some fun, I worked it out the 9 years saves me $220k in payments. Got 5 years left to clear it.

[bull]

I can't think of any scenario or combination of scenarios where being in debt is better than being debt free. Although owning a house and making payments is better than renting because you are building equity. A mortgage is really the only acceptable kind of debt you should have but I wouldn't prolong one more than necessary.

A guy at work once told me he didn't want to pay his house off because he was afraid of losing his tax interest write-off. I couldn't believe my ears. I asked him how much his refund was and how much his house payment was. His payment was about $700 and his refund (only part of which included the interest deduction of course) was $3,500-$4,000. I asked him to multiply 12 x $700 and then tell me which amount was bigger. Yeah, $8,400 is quite a bit more than $4,000 and though part of that payment most likely included taxes and insurance most of it was principle and interest and he'd still be money ahead.

Pay your debts off first, then save/invest.

[BSB67]

If the you are talking about best financial choice, I comes down to what you think you can earn with you investment of the same $.  Five years ago, investing would have been a far more financial savvy move than paying off your house.

CPAs are not financial advisors.  I know several CPAs.  I don't take advise from any of them.  Good ones will tell you to go see a financial advisor.

Any assests you place in an irrevocable trust will be secure for those that you identify as beneficiaries.  It is probably the best way to achieve gifting to others or the next generation without government intervention.

[69charger2002]

We paid out house off 5 years ago this month. Best feeling ever to be debt free. If you have the choice, get that house paid for. You will be amazed how much extra spending money you have once that big note is gone. Just set aside the insurance premium and property taxes for each year at some point. You can spread it out if needed, but if you plan right, you can prepay the entire year and not have to worry about those payments either..

[AKcharger]

I'd try and make one annual payment to be free the rest of the year 

[hatersaurusrex]

My plan is to pay my house off in the next 3 years.  I bought it last year.

I like knowing that if I suddenly can't work or something that I own my house outright and I could pay my living expenses working a crap job somewhere.     I pay cash for my vehicles too for the same reason.

[69DAYTONASE]

Every penny you pay in interest to someone else is a penny less in your pocket. The majority of your loan payment is interest at the beginning of your loan, and a 50/50 split at the middle, and at the end the majority is principle. So the earlier you pay it off the better. If you can pay it off do it and get out of debt. All predictions are that we are heading for a major economic down turn that will be worse than the Great Depression. That aside, it is an enormous relief knowing you own your home. We paid our first home off after 6 years and never looked back, just do it! You will have much less stress in your life.

[stripedelete]

If the you are talking about best financial choice, I comes down to what you think you can earn with you investment of the same $.  Five years ago, investing would have been a far more financial savvy move than paying off your house.

BSB67, I'm quoting you for continuity of conversation only.

With the 20/20 vision of hindsight, investing in the market would have paid off in spades.   The question one has to answer in making that decision is "would I mortgage a paid off house to buy those equities". 

There is very often a mathematic case for not paying it off.   Imo, the math only makes sense if you have never lived completely debt free.

[bakerhillpins]

Well, in our case my in-laws own the note on the house so there is no rush to pay it off. It's a tax deduction and my in-laws get to use the same $$. So from my point of view our family gets 2 times the mileage out of the same dollar.  They used it as a stable investment for their retirement years and it worked quite well during the crash too.

I invest the leftovers, which have done well since the crash but you never know. I have also been laid off 2 times during the time they have owned the note. It's really nice not to have to worry about the bank during those times.

[BSB67]

If the you are talking about best financial choice, I comes down to what you think you can earn with you investment of the same $.  Five years ago, investing would have been a far more financial savvy move than paying off your house.

"would I mortgage a paid off house to buy those equities". 

That should be the question that everyone asks themselves.  And sometimes the answer is yes.  Of course, this is different and less beneficial than the choice of not paying off your mortgage.

[draftingmonkey]

Every penny you pay in interest to someone else is a penny less in your pocket. The majority of your loan payment is interest at the beginning of your loan, and a 50/50 split at the middle, and at the end the majority is principle. So the earlier you pay it off the better. If you can pay it off do it and get out of debt. All predictions are that we are heading for a major economic down turn that will be worse than the Great Depression. That aside, it is an enormous relief knowing you own your home. We paid our first home off after 6 years and never looked back, just do it! You will have much less stress in your life.

Which is also a good reason to not refinance every times the rates drop a bit.  All you do is start the interest payments over again as the principle has barely been paid on.  Do the math before thinking that you are really saving any money in the long term.

[Paul G]

I have 24 months left then the mortgage is paid. I too paid extra payments for a good many years. I cant deduct interest any more. Most of the monthly payment is principal now. So i stopped paying extra and will let the 24 months run out.

It was well worth the sacrifice to get the house paid off. I am looking forward to the mortgage burning party. In 24 months.

[ws23rt]

It looks like the general opinion is to pay off the mortgage.

If the debt (any debt) was at 0% it is still someone else's money and it is owed.  Once out of debt the money that used to be spent on the debt can be accumulated. That money can even grow if invested carefully.

So now we have a situation just the opposite of being in debt and even earning interest on our own money. How cool is that.

The whole cycle of getting in debt starts early in life when success doesn't come fast enough. Of course saving up to buy a house (for instance) is tough or impractical. But signing up for 30 years is a long haul for anyone.

I was fortunate to be able to buy my first house at age 21 in 1972. For 14K, my payment at $142 per month was almost more than I could handle but was near the rent cost at the time. This was a 15% loan with a ten year balloon. When the ten year time approached I started to sweat some but was able to refinance just in time.
Came across the place I'm in now in 1985. It was 9 acres in town with two houses for 90K and the big house has room for three cars in the basement. In order to get in this place I had to jump into a bigger costly debt again, part of which was to borrow money on the original house. My friends said I was a fool to step so far out on a limb. Now I had two properties and a big monthly bill. Renting the first house turned out to be a mess so I sold it for 85K.
This new place also had a ten year balloon and I refinanced just in time at 12%.  In 2005 or so I made my last payment and the property is appraised now at around 900K. During all this time my only debt was the mortgage.

Sharing my little story about mortgages reminds me that buying a house/property is seldom easy early on in life and going into debt is reasonable. The up side is we have to pay to live someplace so it's better in the long haul to buy vs rent.

At no time while I owed on my mortgage did I feel the comfort that I feel now that it is done. Since I paid off the mortgage I've been adding the money (I got used to spending) into mutual fund investments and just last year that has made me 50k in value.

The bottom line is when you use other peoples money there is a price. When you have a pool of your own money it can pay you for having it. That's what the folks that loan money do.

[bull]

Simple math: if your annual mortgage interest tax refund + annual investment return > your annual mortgage payment amount, you would make money. I seriously doubt that's possible though.

[BSB67]

Simple math: if your annual mortgage interest tax refund + annual investment return > your annual mortgage payment amount, you would make money. I seriously doubt that's possible though.

Your simple math is wrong.

And it is interesting that you doubt that it is possible with the mortgage rates where they have been and the DJI going from 8000 to 18000 in 6 years. 

[bull]

Simple math: if your annual mortgage interest tax refund + annual investment return > your annual mortgage payment amount, you would make money. I seriously doubt that's possible though.

Your simple math is wrong.

And it is interesting that you doubt that it is possible with the mortgage rates where they have been and the DJI going from 8000 to 18000 in 6 years.  

How is my math wrong? All I said basically is if A makes you more money than B, invest in A.

[NHCharger]

Bill, met with the lawyer today about the trust. There are a lot of other things to consider besides just putting your house into a trust. He went over all our assets and is going to do a Lifetime Planning Program as well.

Right now the house is just in my wife's name. We both have a will. However if she dies first the house still goes into probate. He said lawyers love writing wills because they get paid twice, once for writing the will, and once for probating the will. Because we are still semi-young (55 & 56)  he said a revocable trust is what to set up. In this trust we can put our house, all the rental properties and my cars. He said an irrevocable trust is something you set up when you start to get close to nursing home age. If I want to sell any of my rental properties it's very easy to remove it from the trust. He said think of a revocable trust as a big protective basket, that you can add or remove items from. An irrevocable trust is much different because you do not have direct control over it.

As far as the Lifetime Planning he is setting up a Health Care power of Attorney, Living Will, and a Financial (Durable) Power of Attorney.

He also strongly advised us to add an insurance umbrella policy for our house, said it is well worth the extra 300-400 a year. Said most people only carry the minimum and a 100k per incident policy won't be enough if your grandsons friend falls out of a tree on your property, lands on his head and has a long term hospital stay. I checked with my insurance company (I have the minimum  ) , 100/300k policy. In order to get an umbrella policy I would need to raise the coverage to 200/500k. So doing that, plus a one million dollar umbrella policy would cost me an additional $360.00/year.

It really irritates me that I have to spend my money to protect all my assets that I have busted my ass to get over the years. One thing that promted this was a flooring contractor I know rearended a pregnant woman at a stop light, 2 mph impact, no damage to either car. She refused medical treatment at the scene and drove home. Friend said she was screaming she had to get home to make supper for her husband. A year later he gets served papers. Physical and emotional trauma to her, possible brain damage to her infant son, she's now afraid to ride in a car, can't work, wants to be compensated for all the income she will now lose for the rest of her life, etc... He has the same insurance coverage I have. He's afraid he will lose everything. His attorney fees are emptying his bank account.

[BSB67]

Bill, met with the lawyer today about the trust. There are a lot of other things to consider besides just putting your house into a trust. He went over all our assets and is going to do a Lifetime Planning Program as well.

Right now the house is just in my wife's name. We both have a will. However if she dies first the house still goes into probate. He said lawyers love writing wills because they get paid twice, once for writing the will, and once for probating the will. Because we are still semi-young (55 & 56)  he said a revocable trust is what to set up. In this trust we can put our house, all the rental properties and my cars. He said an irrevocable trust is something you set up when you start to get close to nursing home age. If I want to sell any of my rental properties it's very easy to remove it from the trust. He said think of a revocable trust as a big protective basket, that you can add or remove items from. An irrevocable trust is much different because you do not have direct control over it.

As far as the Lifetime Planning he is setting up a Health Care power of Attorney, Living Will, and a Financial (Durable) Power of Attorney.

He also strongly advised us to add an insurance umbrella policy for our house, said it is well worth the extra 300-400 a year. Said most people only carry the minimum and a 100k per incident policy won't be enough if your grandsons friend falls out of a tree on your property, lands on his head and has a long term hospital stay. I checked with my insurance company (I have the minimum   ) , 100/300k policy. In order to get an umbrella policy I would need to raise the coverage to 200/500k. So doing that, plus a one million dollar umbrella policy would cost me an additional $360.00/year.

It really irritates me that I have to spend my money to protect all my assets that I have busted my ass to get over the years. One thing that promted this was a flooring contractor I know rearended a pregnant woman at a stop light, 2 mph impact, no damage to either car. She refused medical treatment at the scene and drove home. Friend said she was screaming she had to get home to make supper for her husband. A year later he gets served papers. Physical and emotional trauma to her, possible brain damage to her infant son, she's now afraid to ride in a car, can't work, wants to be compensated for all the income she will now lose for the rest of her life, etc... He has the same insurance coverage I have. He's afraid he will lose everything. His attorney fees are emptying his bank account.

Good info here.

It is stupid what you need to do to protect your assets.  You need a lawyer, and accountant, and a financial/estate planner, and they have to specialize in this specifically.

The challenge with the irrevocable trust (and you need one if you plan to truly past along something to you kids with certainty) is to know when to get it.  You should have it at least 5 years before you go into a care system. 

The government at large has been taking our money forever and they are really really good at it.  They control the rule book.  IMO it is really hard for middle class to leave a legacy.

I would not be surprised if they start doing some sort of a money grab on 401Ks soon (in some fashion) .  It is just too much money sitting out their that they actually believe it theirs.

[BSB67]

Simple math: if your annual mortgage interest tax refund + annual investment return > your annual mortgage payment amount, you would make money. I seriously doubt that's possible though.

Your simple math is wrong.

And it is interesting that you doubt that it is possible with the mortgage rates where they have been and the DJI going from 8000 to 18000 in 6 years.  

How is my math wrong? All I said basically is if A makes you more money than B, invest in A.

There may, or may not be tax implications on both sides of the equation, and the effect of compounding interest over time.  And if you need to sell your house for whatever reason, your return on that investment will be less, assuming an appreciating market.

[AKcharger]

Thanks for the info NH

- will get more data on the revocable trust
- already have increased insurance, with our pool, I saw that as a threat
- messed up about contractor friend. Is his car insurance fighting it??? Was there a police report. If not I'd say...prove I hit you! Still messed up no matter how ya slice it

[bull]

DC.com is a great place for Charger advice but I'd take advice on marriage, finances, legal issues, etc., wih a big grain of salt.

[stripedelete]

I would not be surprised if they start doing some sort of a money grab on 401Ks soon (in some fashion) .  It is just too much money sitting out their that they actually believe it theirs.

We have until the first two thirds of the baby-boom is dead and then it's Katie-bar-the-door........

[ws23rt]

DC.com is a great place for Charger advice but I'd take advice on marriage, finances, legal issues, etc., wih a big grain of salt.

I'm with you on this.    I'd also expect that most are just wanting to chat about the subject to get a feel for what others are going through.

I for one am at the time of retirement and now more than ever am looking at the math as well as the political trends.
My pension (that I am not yet taking) is very good and I have worked at building it for 40 years. I don't have a warm fuzzy feel that I will get it as promised for the next 20 years.
This is an example of what I think many are up against when planning for the future.

[NHCharger]

Bull, I'm just giving a general synopsis of my one hour meeting. Putting your property into a trust certainly isn't for everybody. If you only have one property and plan on selling and moving to a retirement home in your golden years a trust probably isn't needed. I plan on being carried out of my house (or shop) in a pine box.
Besides owning my house outright, my wife and I also own six rental units. I also co-own three with my Dad, so I potentially have a lot to lose. I should have done this ten years ago. I'm not endorsing any particular method of home ownership. Simply showing that there are alternatives that can make things easier for you and your heirs, and possibly save a lot of time and money if your estate planning is done right.

If anyone is interested all this planning is going to cost me $3,000.00. The majority of it for transferring ten deeds into the new trust. I would think that lawyers fees for probating a will would easily be more than that.

[BSB67]

DC.com is a great place for Charger advice but I'd take advice on marriage, finances, legal issues, etc., wih a big grain of salt.

I'm with you on this.    I'd also expect that most are just wanting to chat about the subject to get a feel for what others are going through.

I for one am at the time of retirement and now more than ever am looking at the math as well as the political trends.
My pension (that I am not yet taking) is very good and I have worked at building it for 40 years. I don't have a warm fuzzy feel that I will get it as promised for the next 20 years.
This is an example of what I think many are up against when planning for the future.

Right.  Are you in the private or public sector?

For the private sector, several years ago, Congress passed a law to require companies to do more to fund their pension obligations, which I believe has helped.  But many companies are still falling behind and the governments Pension Benefit Guarantee program is running out of money.  They are concerned that the pension obligations will cause more bankruptcy's. Just late last year Congress passed a law that allows companies with defined benefit plans to cut back on promised private sector pension pay-out to retirees.  So, the retirees retirement pension check just gets smaller.  No bankruptcy.  This is for retirees that are currently receiving benefits.   

Public sector pensions will be a train wreck too, but for state and federal employees, the tax payer will likely eat most of that.

The housing/economic crash, the tuition debt bubble (which is now on the tax payer due to Obama Care), and the pension debt bubble.  Where will all the money come from?  The Administration just made known that the they plan to expand the tuition debt forgiveness program.  If you paid for your own college, and/or you and your children are paying for their own way to college a education, this is unbelievably frustrating.

Okay, I'm convinced, I'm going to pay off the house and get a irrevocable trust.

[AKcharger]

DC.com is a great place for Charger advice but I'd take advice on marriage, finances, legal issues, etc., wih a big grain of salt.

I'd actually say it's a pretty good place for advice. Our demographics on D-C.com are pretty much white, middle to upper middle class males 40-60 so our experience are going to be somewhat similar, why not benefit from another's experience? Now of course ya' have to filter but this place was spot on whe I asked about staying in the Air Force and giving Meth a try just once.

Now one more house question:
If I pay off all but say $30,000, do I still pay the same percentage to interest as I do now or does it work the same way as if I paid it down to $30,000 and most of the payment goes to the principle?

[Paul G]

Now one more house question:
If I pay off all but say $30,000, do I still pay the same percentage to interest as I do now or does it work the same way as if I paid it down to $30,000 and most of the payment goes to the principle?

The more you reduce your principal balance the less interest you will pay over the life of the loan. The monthly payment amount stays the same, the number of payments you have to make is reduced.

Check this option out;
If you get paid every two weeks and allow one half of the mortgage payment to be set aside each pay, then make your payment once a month, when you have a 3 payday month send them an extra half payment to be applied to principal, your 30 year fixed rate loan will be paid off in 21 years.

[AKcharger]

Well I'm thinking that if I have to pay a realitor I'm going to be about 20-30K short on the pay off so I was hoping most of my current payment would change and go mostly to principle

[ws23rt]

I've read your original post and your last post and still find it hard to understand what you intend/want to do. ??

This is my understanding of how (for example) a 5% 30 year fixed loan works.---$100,000---

-- 5% of $100,000 = $5000. This is the annual interest.---
--divide this $5000 by 12 (months in a year) and you get about $417. This is the interest per month.
--$536.82 would be the monthly payment. (for 30 years)
--The first monthly payment will lower the principal by $119.82 leaving $99,880.18 principal owing.
--The second month payment would be interest on the balance ($99,880.18) %05= $4994.01 divide this by 12 (months) =$416.17
--The second month interest is- eighty three cents- less that the first month.
--The total of all payments would be $193,256.49

If you are near the end of the mortgage term your $536.82 monthly payment is mostly against the principal like the interest is at the beginning.

The same loan over 15 years would be at $790.79 per month and a total of payments $142,343.24. ---A savings of $50,913.25---

The only way your current payment could change is if you established a new contract/mortgage  for the balance you owe.

Bottom line is owing money for less time equals less money spent.

[taxspeaker]

OK I think the advice that this is a great place for car info, but be careful about tax/financial/legal advice is spot on. There is a lot of good info here and some things that kind of concern me. Just to establish bona fides, no other purpose:I am a 40 year practicing CPA and CFP in individual and small business tax and financial planning who put himself through college as a Chrysler mechanic and happen to have written Amazon's best seller on Social Security and Medicare and quoted often on Fox business.

Here are some absolutes:
Umbrella liability insurance-absolutely
"Paid For"-absolutely-we always forget the psychological value of these words, more important than tax issues
Pay off high rates first-absolutely
Wills-absolutely
Health care directive & living wills-absolutely
401-k is the best tax loophole in America for the average person(right now anyway)
Shania Twain-absolutely (oops)

Not so absolute-see a professional attorney AND CPA:
Trusts for home ownership-you almost always lose your home sale tax exclusion if its in a trust-few attorneys consider this
Living trusts-excellent on paper, hard to accomplish in real life because things change daily
Pay off the home early-good on paper but talk with a financial planner and see above!

Side comments:
If you pay off the home in some states you lose a property tax mortgage exemption
State taxes play a significant part of planning, but not in AK or Florida!
Social Security, no matter what you hear or read, is not broke-read the trustee's report (I have), but Medicare is in trouble
Tax on wealth, Roth's etc-yes I worry about that for my kids but not so much for me
Inflation-will come screaming down the pike in a few years like a Mustang trying to get out of the way of a HemiCuda

I'm not meaning to offend anyone trying to be helpful here since we are all trying to help each other.
Thanks
Bob

[AKcharger]

WS - I apologize for any confusion. Let me rephrase:
Yes, as a natural course of things as you pay down your loan over time more of the payment goes to the principle...I got that. My question is if you just dump $70k on the loan will the mortgage company AUTOMATICALLY change a majority of your payment to the remaining (smaller) principle OR since the loan is only a a year and a half old, continue the formula where most of the payment still goes to interest as the term of the loan is short and SLOWLY phase in that ratio to pay down the principle..they want to make $$

Taxspeaker - copy all, and thanks for the tips. I understand where $$$ is involved professional help is required, but nice to get ideas here...I've picked up on things I've never considered....oh and I didn't know you were semi-famous...cool 

[Paul G]

The mortgage company recalculates your interest payment every month. You can get an amortization schedule from them with each months payment amount, interest and principal, for the full term of the loan. When you send additional money to be applied to the principal, the next month when they recalculate your interest portion of the payment, they calculate the interest owed on a smaller principal amount.  

Go here; http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx

You can enter your mortgage balance, term in months or years, interest rate of the loan, and it will calculate the payment amount and show an amortization schedule. You can even put in one time additional principal payments, (like you asking about) or additional principal payments each month. It will show you how making additional principal payments will shorten the life of the loan. Saving you TONS of money in the long run.

To some this may be the first time you are hearing this. Or the first time you are using a mortgage calculator. But paying down your mortgage by sending additional principal payments, in my opinion, is the smartest thing a person can do. The amount of money you save on the other end of the loan, by paying a little more each month in the beginning of the loan, is the smartest money you can spend.

I am at the back end of the my mortgage loan. I pre paid principal for years. I decided to stop sending in additional principal now. I only have 24 months left to pay. The additional money I would send in at this point is almost a 1 to 1. Meaning, $100 sent in today only takes about $100 of the loan at the other end, the other end being 24 month from now.

I took out the mortgage in 1998. It should have been paid in 2028. It will be paid off in 2017. A 30 year mortgage paid off in about 19 years. I did this by sending in an additional 1/2 of a monthly mortgage payment, doing that twice a year, every 3 payday month. When you get paid every two weeks there are 2 three payday months every year. It was virtually painless. Every paycheck I took out the same amount for the mortgage. Plus bonuses got sent in to pay down principal once in a while over the years.

I am 56, in two years I could retire if I really wanted to. No mortgage payment at that point. Paying the mortgage early is a wonderful thing.

[Paul G]

BTW, you must specify to your mortgage company what you want them to do with the additional money you give them. It could go to escrow instead of principal. You must specify that you are paying down principal, and check them each month to make sure they get it right. Call them and let them know what you intend to do. GMAC gave me a different address to send additional principal payments.

I hope this helps.

[ws23rt]

WS - I apologize for any confusion. Let me rephrase:
Yes, as a natural course of things as you pay down your loan over time more of the payment goes to the principle...I got that. My question is if you just dump $70k on the loan will the mortgage company AUTOMATICALLY change a majority of your payment to the remaining (smaller) principle OR since the loan is only a a year and a half old, continue the formula where most of the payment still goes to interest as the term of the loan is short and SLOWLY phase in that ratio to pay down the principle..they want to make $$


I have confusion about this stuff myself and don't consider myself an accurate authority. What I learned was from my experience with my mortgages.

When the mortgage contract is established the term --monthly payment--( for example) is fixed.  One owes the monthly payment every month.

If there is no "prepayment penalty" in the contract then every dollar extra you pay goes to the principal. This does not lower the monthly payment due but does bring the pay off date closer. Their is no recalculation of the original loan by the mortgage company. Their is however a change in how much of the monthly payment goes to interest vs principal. This change is generated by the size of your payment.

Others may have said this in other ways.  

Sometimes looking at something like this needs to be done in different ways until the light bulb flashes.--The ah ha moment-- this is simple.  Owe as little as possible for the least amount of time.

The title of this thread is "If you could pay off your house would you?"---The simple answer is a question. It will cost more money if you don't so how much are you willing to spend to put it off?

[ws23rt]

BTW, you must specify to your mortgage company what you want them to do with the additional money you give them. It could go to escrow instead of principal. You must specify that you are paying down principal, and check them each month to make sure they get it right. Call them and let them know what you intend to do. GMAC gave me a different address to send additional principal payments.

I hope this helps.

That's a good point  One needs to know if they have a prepayment penalty and what it is if they do.

I had a very rough time paying my mortgage in the eighties when the work market cut my wages. The discomfort I felt at that time made a lasting impression. As things picked up I started paying extra every month and soon 1k extra per month was the norm.
When I made the last payment about ten years ago I encountered another problem.  What to do with the money I used to spend on the mortgage.  A whole new set of issues to be solved. I now need to pay attention to how much others are paying me for using my money.

[skip68]

Very very smart Paul.      
If you can afford it Paul's method is the way to go.  You can cut a 30 year loan down to a 15 year by just applying extra money towards the principal every month.  

[AKcharger]

When I made the last payment about ten years ago I encountered another problem.  What to do with the money I used to spend on the mortgage.

I hope to struggle with this "problem" myself in a few months