If you could pay off your house would you??

[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.