Should I pay my house off or not?

Question

My house is almost paid for. I have always heard you should not pay it off then there are others who say yes, pay it off. What are the advanges of paying it off or advanges of keeping some kind of balance on it?

I am retired, have no problems making house payments

Answer 1

Those who say you should never pay it off, are assuming you're using it for full leverage, and investing the difference. If you can earn 10% on your money and only pay 6%, maybe you end up making more money. But if you picked the wrong investment, you could lose everything.

There's also the tax deduction argument, but if it's almost paid off, the interest deduction probably doesn't even exceed the standard deductions anyway. Only if you live in a high-tax state would itemizing even make sense without mortgage interest to deduct.

Pay it off. Then take all your extra cashflow and invest it.

I do mortgages, and I wouldn't advise you to keep yours.

Answer 2

It is not as simple of answer as you may think. The most simple, and safest thing to do is to pay it off. This maybe better if you are older and closer to retirement. If you are not close to retirement you could use the money as leverage and invest the money elsewhere. If your mortgage cost 6% and you invest the cash from the mortgage in an investment that makes you more money than that it would be advantageous for you to do so. It also carries more risk, but if you are younger it should give you more money for retirement.

The two key factors you should consider is how close you are to retirement and what your risk tolerance is.

To give an example of how this works: lets say your house earns 10% growth per year. If you pay off your loan you earn 10% per year in a non-liquid asset. Now if you take out a loan at 6% you only earn 4% on your property. But if you invest this money into another property, stocks, or another investment that returns you 10% you are now earning a 7% interest off of twice the money.

$100,000 earning 10%=$10,000
$100,000 earning 4%=$4,000
$14,000 is 7% of $200,000 and is better than $10,000

That is the gist of how it works in a perfect world, and it becomes effective the longer the investment is able to sit and grow.

Answer 3

NO: Don't pay it off, how old are you? If you are 10 years from retirement, make sure that you have a healthy pile of money sitting in your bank account ($50,000). Refinance so that all bills are paid (credit cards, car notes, any personal loans, and the nest egg in the bank). You will get a right off each year on your taxes, your credit score will go through the roof, you have just arrived at the point in life where you can get ahead of your finances.

I assume that you have all the home you want to buy, if this is so, invest in income property. The primary reason to own real estate is to gain income without work. Do it and you will be able to retire when the time comes regardless what happens with the job.

Answer 4

It depends on how you want to manage your money. Equity in a home is worthless unless used. It's like having a hundred dollar bill. It's worthless until you exchange it for something of value. Equity in your home does nothing for you until you sell it. It's worthless till then.

If you are comfortable with investing, your best bet is to strip the equity from the home through a refi for the max amount you can go and then invest it in something that pays more dividends back then the interest on the loan costs.

For instance, if the loan is at 6.5% interest, and you can take $200,000 out of your home and invest it with a 12% return (pretty common for mutual funds and other such investments) you are creating positive wealth using your home.

An interest-only loan at $200,000 would be $1,083.33 a month. However, it would earn you $2,000 a month in dividends from investing. If this was a mutual fund or 401K with employer-matching, you could really jump start your retirement fund because this money compounds. For instance, you'll earn $24,000 the first year on the $200,000 investment and $26,888 the next year, $30,000 the next, and $33,719 the next. So in four years you've turned that $200,000 in idle equity in your home in to $314,607. And it just keeps compounding from there.

Plus, you still get the tax benefit of writing-off the interest in April.

Talk to a investment adviser about this tactic.

Answer 5

Your house is that one big tax break that is left for almost everyone to take advantage of. Be sure and understand the tax implications of paying off that home loan.

Also, what is your current interest rate?

You may find that it is more advantageous to invest the money you would use to pay of the loan in an index tracking fund (or something else fairly low risk) and still get significantly better return on your dollars than paying the loan off early.

Answer 6

Pay it off. The Tax argument does not hold true if you look at the real numbers.

Let see i pay the man a few dollars less but instead get to pay the bank a lot more. Talk about tripping over a dollar to pick up a penny.

Answer 7

If you CAN pay it off - DO IT!!

Those who say you should warn that you will "lose your tax deduction".

That's downright silly. If you are paying $5000 a year in mortgage interest, then you get to deduct it, and you save several hundred dollars in taxes. (you're out $4000 plus...)

OR - if it's paid off - you pay NO mortgage interest, and you might pay a few hundred dollars more in taxes. (you're out a few hundred)


Which scenario leaves you with more money in your pocket?

Besides - if you don't have enough to itemize after paying off your house - you STILL get a standard deduction, so it's not even like you drop deductions to zero.

Pay it off, if you're smart.

Answer 8

PAY IT OFF!!! The grass never feels the same once it is really yours. The people who tell you not to have a high FICO score which is an I love debt score. Basically you are still in debt so you get a high fico score. If not then it drops down.

Answer 9

you should pay it off. when you pay it off it saves you money on the interest you have been paying on. makes your credit look really nice and you have one less bill to pay. now you can go and buy another house if you like and rent the one you live in and all that income will be free money to you.

Answer 10

The only advantage of not paying it off is that you can write off the interest. Otherwise, its like cutting yourself a check every month...suweet!