Do I pay off the mortgage and not have a house payment? True there would not be an interest deduction at tax time, but I still have the annual taxes deduction of $7,700. The money I save would be not paying the large interest with my monthly payment, and that looks pretty tempting! That would offset the tax-break. I am 39 and looking for knowledgeable feedback. Thank you.
2006-08-27 20:12:46 · 16 answers · asked by T - III 2 in Business & Finance ➔ Renting & Real Estate
The short answer is no. First, what interest rate do you have on your mortgage? If it's high, or an ARM, you would be best to refinance with a fixed rate loan right now. I know Countrywide and Wells Fargo both offer no fee refi's so you can lock in a lower rate with no cost to you(it's built into the interest rate). Second,you may have inheritance taxes to pay on the 200k. Check with your accountant on any tax liability you may have with that.
Third, let's work through the problem. Let's say your interest rate on your mortgage is 6.5%. With the interest rate deduction, assuming a 25% tax bracket the real rate you are paying on the mortgage is 4.875%. Now 4.875% is pretty low. Can you safely earn greater than that on your 200k? Well, CD's are currently paying 5%+. Real estate investment trusts(REITs) are paying 6-8%, albeit with market risk on principal if a publicly traded REIT or liquidity risk with a private placement REIT. But assuming yu get a REIT paying approx. 7%, you would be better off buying the REIT and keeping the mortgage. Of course, this excludes any appreciation you might get from the REIT. Also, you could instead invest in a Asset Allocation product like one from Goldman Sachs. Since stocks over the long haul average 10%+ returns, investing insomething like that while exposing you to market risk will in the long term pay off by leaps and bounds. The trick is to stick with it for a long time. Check out this site http://www.dinkytown.net/java/InvestmentReturn.html. Punch in 200k at a conservative 8% return over the same time period left on your mortgage, say 25 years. If you assume a 17% tax rate(since capital gains is taxed at a lower rate of 15%) you'll see at the end of 25 years your 200k investment will be worth $977,777. Then look at your ammortization schedule for your mortgage and see how much you'll pay in interest over the course of the that mortgage. You'll probably find you'll pay roughly $190,000 in interest plus your $185,000 for a total of roughly $374,741. Now, I ask you, doesn't that sound a whole lot better than paying off your mortgage now? Good luck with your decision.
2006-08-28 05:36:05 · answer #1 · answered by frederickcardenas 1 · 1⤊ 0⤋
In your statement you did not indicate you were having financial problems with what you are doing now.
I would not pay off the mortgage, you still get the tax break on both the taxes and the county taxes you pay. You should continue to enjoy those items.
If you pay off your mortgage and wanted additional funds for any reason, refinancing your home take time and is a long drawn out process.
If you don't have an emergency fund set aside enough for an emergency fund.
Find an excellent financial advisor that is versed on Real Estate Investment Trusts (REIT) if you find a good one that is managed well you will earn above 12% annually if you put this is a Land Trust this is a tax defered investment for you. Let your Land Trust do the investment as oppose to you the individual. Your land trust can earn money, you the individual can not without being taxed.
There are other ways to earn an excellent return on your funds also. Invest in foreclosuers with a person that find the property, repair them and put them back on the market for sale. Again let your land trust do the investment. This is not risky as your name is on the deed of trust so the worst that can happen is you own a piece of property that was purhchased below market. I am sure there are several in your city or town.
If you want to invest in stocks and bonds there are some that are going annually at around 10-13% you have to have a shrewed broker to accomplish this and knowledgable about munnies and a few no loads that you can invest in. Do this investing under a self-directed IRA or a land trust again.
This put you in charge of your money and make decisions on what and when to invest. You can always use the advise of a broker or financial advisor, but they can not do anything without your ok and approval.
I hope this has been of some use to you, good luck.
'FIGHT ON"
2006-08-27 21:20:14 · answer #2 · answered by Skip 6 · 0⤊ 0⤋
I live with no mortgage, I am 38 and its great! I sold some land that I owned and paid cash for a brand new house. I love the financial freedom. Go for it, then instead of paying a monthly mortgage, take that money each month, put half in a savings and half in a retirement account! If you ever want to buy a new vehicle, take a small mortgage out on the house , then the interest is a write off.
2006-08-27 20:21:41 · answer #3 · answered by Tina G 2 · 0⤊ 0⤋
Instead of just the numbers aspect of it, how would you feel to have a home you own completely? Or to be completely debt free...no car loans, credit card debt, mortgage? You won't have to be using 30, 40, 50% of your net pay to cover debt payments.
Forget the who interest deduction thing. That is just a big scam by the mortgage industry to convince people that the 30 yr mortgage is a great thing. Let's use a simple number....
Say your interest is $10,000 per year. If your tax bracket is 25%, then you'll receive $2500 back in your taxes. Yet you still PAID $7,500 in interest to the bank. Heck, I'll give you $25 if you give me $100.
2006-08-28 01:48:05 · answer #4 · answered by Thundercat 7 · 0⤊ 0⤋
It depends on what your interest rate is on your mortgage, if you can earn a higher return on the 200k than do not pay it off, pay more on your mortgage each month and depending on how much extra you pay each month could save you thousands of dollars in the life of the mortgage, and you would still be earning money on the 200k.
2006-08-27 20:27:05 · answer #5 · answered by mwrutle 2 · 0⤊ 0⤋
First ask yourself at what interest rate are you currently paying? If it's not fixed, consider locking it in at a fixed rate. You would be better off (most likely) by investing your money into tax-defered IRA's and also a Roth IRA and earn higher interest than what you're currently paying on your mortgage. Talk to a financial planner.
2006-08-27 20:20:30 · answer #6 · answered by Anonymous · 0⤊ 0⤋
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2016-11-05 22:37:26 · answer #7 · answered by ? 4 · 0⤊ 0⤋
it sounds great not to have a mortgage but if you the the right interest rates dont pay of invest money half long term half short term you prabably come out paying the house off with what your money has made for you
2006-08-27 20:20:15 · answer #8 · answered by redeme3 2 · 0⤊ 0⤋
If I were in your situation, I would do the following.
First I would improve my living (new house appliances, better car, redo your wardrove, new computer, better TV/HI-FI and that sort of thing.) - around $50K or less
Then invest your money in some relatively safe income producing activity. (government Funds, real estate...) - around 50K or more
After that put some $20K-30K available in an interest bearing bank account.
And finally reduce your MTG with the left over ( around $70K)
2006-08-27 20:26:48 · answer #9 · answered by digiteerx 2 · 0⤊ 0⤋
The tax break you get is only on the interest, not on the principal. If you don't have anywhere else to invest them better pay-off the debt.
2006-08-27 20:20:11 · answer #10 · answered by Dr Dee 7 · 0⤊ 0⤋