2007-05-23 02:27:25 · 14 answers · asked by chad b 1 in Business & Finance ➔ Personal Finance
It depends. Mortgages recently are generally less than 6%, but savings are 2%.
Mortgage interest is tax deductible, and depending on your incremental tax rate, you will only get 20-33% of that money back. The advantage is that you are paying enough in interest to be able to file long form and deduct a lot of other things.
If you don't have other deductions, or you are not investing what you haven't paid into the mortgage into high yield investments, a mortgage can hurt. This is a complicated question, and for most people the answer is probably to just pay the mortgage off as long as you have a 2 or 3 month cushion of savings in the bank. You would be better served speaking with a financial advisor who could tailor their advice to your personal circumstances.
2007-05-23 02:36:23 · answer #1 · answered by Dorian Grey 3 · 0⤊ 1⤋
Build a 6 month emergency fund.
It doesn't matter what the interest rate is, it doesn't matter about the tax write off, risk matters. If you don't have 6 months of expenses in the bank and a tree falls through the roof of your house, how will you pay for the repair if you don't have savings? If you had the cash to get the roof repaired, you wouldn't stress about it. Some people will say that is what a HELC is for (home equity line of credit), why use credit if you can use cash. (if they say tax write off, why don't you give your church or favorite charity a check for the interest deduction instead of giving the interest to the bank?)
Build your 6 months of emergency fund first then pay down the house. While you are paying down the debt, put 15% of your income into retirement and, if you have children, put money into their college fund and pay down the mortgage.
I also suggest you read The Total Money Makeover by Dave Ramsey.
BTW- Great question!
2007-05-23 10:17:53 · answer #2 · answered by mldjay 5 · 0⤊ 0⤋
It really depends. How much in home equity do you have? If you have under 20% and are paying for PMI it is best to get your equity up to 20% so you can cancel your PMI which in a lot of cases is rather expensive.
Once you do that, you would be smart to get some money into savings, but when putting money into savings you want to put it into a high interest account, you should be able to get a rate close to the 6% or so that your mortgage should be. There are some accounts like this that are out there that will get you close to 6%.
2007-05-23 10:01:46 · answer #3 · answered by cdp1177 2 · 0⤊ 0⤋
Building up your savings account. Your mortgage interest should be fairly low and it doesn't work like credit cards or revolving loans so it's not as important to try to get it paid off quickly. If you lose your job you can live on your savings. You can't live on having your house paid off. I was told that if you make one extra mortgage payment a year then it cuts several years off the life of the mortgage. So, definitely pay extra but build up the savings too.
2007-05-23 09:33:14 · answer #4 · answered by angela 6 · 2⤊ 0⤋
Both are important. What are your goals? Do you want to retire early and not have a mortgage payment over you? On the other hand, do you have money in savings for emergencies? If you are having trouble deciding which is more important, why not do both. Take the money you have in excess, and split it up each month. Pay a bit extra on your mortgage and put the rest away in savings.
2007-05-23 09:32:50 · answer #5 · answered by christelle k 2 · 0⤊ 0⤋
The after tax cost of a mortgage is probably pretty low. Whereas the return on stocks is over 10%.
From January 1926 through December 2006 the annualized total return for the S&P 500 was 10.50% per year.
So it makes sense to me to build your savings. And buy the S & P 500.
2007-05-23 12:33:53 · answer #6 · answered by Patrick M 2 · 0⤊ 0⤋
For most people it is best to pay off house, after you set back enough to have about 6 mo. of basic living expenses for an emergency fund. Normally savings interest is less than your mortgage rate, and the faster you can get debt free the better because long term it is a much more conservative (risk free)position to be in for your future.
2007-05-23 09:41:34 · answer #7 · answered by GABY 7 · 1⤊ 0⤋
Yes, both are important and should be worked on at the same time. Paying off your house is a form of savings in a way of speaking and it is always good to diversify your savings. Plus it is always good to be out of debt!
2007-05-23 09:37:49 · answer #8 · answered by Some Dude 2 · 0⤊ 0⤋
Depends on the interest rates of your mortgage and savings account and the rate at which the property value is increasing.
Generally, unless you have a great return on your savings account, it is better to pay down the mortgage.
2007-05-23 09:32:37 · answer #9 · answered by lunatic 7 · 0⤊ 1⤋
Build up your savings account.
2007-05-23 09:30:51 · answer #10 · answered by rustybones 6 · 1⤊ 0⤋