I owe 155K on my mortgage, paid off only about 7K. Should I prepay as much as I can even if I sell securites?

Question

I can prepay down to 90K or the whole mortgage but would need to sell some bonds, cash, and investments. Does it make sense to knock this down at the cost of losing securities? I am thinking that getting more principal and paying off interest is a good way to go. Currently my mortgage is about 750 interest and 200 principal.

Answer 1

John Cumuta in his book, Transforming Debt into Wealth, says Yes, pay it off now!

I really don't understand the answer above this one. It really doesn't have anything to do with the time in the house. If your house is paid for, you don't have a mortgage, you aren't paying interest, and any income, etc. you get you can invest. If you move tomorrow, you still have all this equity in your home.

If you read the Truth in Lending Statement that accompanies your mortgage contract, depending on the rate of interest and years of loan, you can pay double the amount of the loan in interest. We took out a loan last year for 137,500 and the TIL statement said that over the life of the loan we could pay 299,989. Is that ridiculous? We make large extra principal payments every month and have wittled our loan down to less than 100,000 at a savings of over 1200 dollars a year in interest so far. We plan to have this puppy paid for in a few years.

We never charge anything that we can't pay for when the bill comes because the interest rate on credit cards is ridiculous to the point of usury. Unfortunately the banking industry has Congress in their pocket as the new bankruptcy law exhibits.

Yes, you can write off your mortgage interest but you also have to pay it to write it off. How much does it impact your tax itemizations? You need to consider this aspect but the only people really benefiting in this is the bank. Do you really like paying 9000 a year in interest just because you can write a portion of it off of your taxes?

Answer 2

Tricky to answer because of many factors, such as what are your living expenses (outside of mortgage), what is your income, how well are your investments doing, what kind of mortgage and rate do you have, do you have other debt, how close to retirement are you, etc.

Without knowing the answers to those questions, advice could be off by a lot. However, I have to say there is a GREAT DEAL to be said in the security of NOT owing a penny on a mortgage AND the stock market as people are seeing again is NOT a sure thing.

What you might want to do which is somewhat of a compromise, is simply get in the habit of paying off something extra each month on the principal. I can't see a downside to that. (If worse came to worst you could probably get a home equity loan, so it's not entirely irrevocable to do that). If you're only seeing $200 a month go to prinicipal now, write a separate check each month, marked "PRINCIPAL ONLY" for that or more and you will see a good result in a fairly short space of time as your $155K drops nicely. I'm assuming, of course, that you have NO pre-payment penalty.

For another financial pro who supports NO MORTGAGE, check out, All Your Worthy by Elizabeth Warren--she's a law professor at Harvard specializing in bankruptcy law.

Let's face it, a lot of stuff is a crap shoot now. Having no REAL worries about experiencing a foreclosure is worth the loss of a tax deduction.

Answer 3

Being in the mortgage industry, I would advise you, if you have the disposable cash to pay down as much if not all of it if you can and that is only if this home is your home (you intend on staying in for the next 5+ years) and not just a house you live in. As everyone somewhat knows the mortgage market is a scary place right now and having the future security of knowing your property will allow you the ability to either pull out cash when you need it or be able to negotiate a sale and not be forced to demand an amount that this current market may not support in the future is a smart move.
You will never lose the money you put into it but you will have the luxury of waiting for the market to turn around in your favor.

By the way, I have often been interested in getting into securities can you introduce me?

Answer 4

This really depends on the amount of return you have been making on your investments. You have to take into account the tax savings you get on the interest you pay on your mortgage and also what your interest rate is on you mortgage. There is a mortgage calculator at www.LowestRateMortgageRefinance.com that can help you determine if it is best for you to pay down your mortgage or not. Basically if you are making more on your investments than you are paying in net interest on your mortgage you should not pay off your home but the mortgage calculator can tell you all the benefits of each choice.

Answer 5

It depends on if you are making more than 5% off of your investments. Interest is tax deductable so factor that into your equation. If your investments are making more of a return than you are paying in interest, you are making money, if not, sell them and pay down your loan. Also consider compound interest, on your investments, over time that will add up to a lot more than you are spending on interest on your home loan.

Answer 6

NO. The interest on mortgages is tax deductible. Pay off credit cards and other loans, but leave the mortgage alone.

Answer 7

if you are worried for the future and can pay it off go to maybe 50 thousand which you could easily pay off in less than 10 years it doesnt make sense to pay all of it off if you dont plan on living there for a long time the way the housing market is its really a gamble since we dont know when things will start looking up

Answer 8

Because mortgage interest is tax deductible this is not a good idea.