The savings account obviously pays quite less and the money can rather be used to pay off part of the mortgage loan (principal). Is this the right way to go? I have almost 30% of Mortgage Money and that will leave me with nothing in my bank account and I will be living on paycheck. I am afraid to pay the mortgage just if I could not make some payments later ..get sick or something...Any other view/suggestions?? Thanks
2006-11-27 09:22:34 · 7 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
It sounds like you are asking this. What is better to pay the mortgage or keep a cashflow available?
My answer is to keep the cashflow availeable. Find a CD or something safe that will give you a better interest rate.
If it was credit card interest then I would say pay the credit cards because they are at 18% and not tax deductable. But your mortgage payments are interest payments. Until your loan is paid down to the last 5 years most of what you pay is interest. All of this interest is tax deductable. You will not be paying your loan down any faster and you will not be ahead anything significant.
If you want to pay your loan down faster ask your lender about bi monthly payments. These work to cut your compounded interest and actually save you more money on your overall loan. They may even allow you to have more cash flow and flexability.
Paying off your home is not a great idea. It removes a significant tax deduction you have. Imagine your taxes ten thousand dollars higher at the end of the year. So you are better to make 3-5% on a CD then to put that money to the mortgage and make one percent, once you include the loss of the tax deduction.
I would suggest finding a little home business that can also subsidise your income and add a new tax deduction. You can virtually write off almost anything within reason when you have a home business. It will earn you maybe an extra 1000 a month plus give you a 3000 to 5000 dollar tax break. If you incorporate you can save all your money from taxes. Including your IRA and make it work for you.
2006-11-27 09:44:09 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Depends on your interest rates.
If you have a very low mortgage rate, you might be able to find a CD or money market that pays more (remember to take out taxes from interest). If you could do that, it would make sense to put the money away fro a while and think about it.
While it feels good to take a swipe at the mortgage, that money in the house isn't earning anything; it just sits there. The house will appreciate the same whether you have 20% or 80% equity, so if you keep the money out of the mortgage you could earn money from it.
If you have a high mortgage rate and pay PMI, you might be better off refinancing the loan to get rid of the PMI and lower your payment.
Of course organizing your budget according to the other suggestions is a good idea; I just thought I'd throw a few more options in here.
Good luck! You're smart NOT to buy a car with that!
2006-11-27 09:42:29 · answer #2 · answered by n0witrytobeamused 6 · 1⤊ 0⤋
Before anyone can intelligently answer that question some other questions need to be asked of you such as: How much money are we really talking about here? Do you have a financial planner that you can discuss some options with the savings you have that would bring a good return yet still be available in an emergency? Is the housing market solid where you live? If values are consistently going up, I wouldn't recommend paying down your mortgage unless you are nearing retirement age or otherwise anticipating a reduction in income. Much more to know. Meet with a financial planner ASAP.
2006-11-27 09:34:31 · answer #3 · answered by larry r 3 · 1⤊ 0⤋
I would only pay against the mortgage if you have funds in excess of your three or six month safety cushion. Even then I would look at investment alternatives first. Can you earn as much or more than the after tax cost of the mortgage buy investing in something other than a bank account.
2006-11-27 11:13:03 · answer #4 · answered by waggy_33 6 · 0⤊ 0⤋
Paying of the mtg is good and paying ahead is good however you should save back about 6 months for emergency fund.
Other places to get good information websites would be daveramsey.com or clarkhoward.com they have down to earth budget information and what to do with your hard earned monies.
2006-11-27 09:32:10 · answer #5 · answered by Scott 6 · 1⤊ 0⤋
Pay half on the morgage and save the rest for a rainy day.
2006-11-27 09:27:25 · answer #6 · answered by nobodys_lover069 1 · 0⤊ 0⤋
Keep some for emergency use..medical, vehicle repair, etc...
2006-11-27 09:30:42 · answer #7 · answered by phyllis_neel 5 · 0⤊ 0⤋