Pay off Mortgage or not?

[captain10]

Hey Guys-
Another long time lurker here that has enjoyed and learned a lot from reading everyone's posts! My wife and I are 33 and have approx. 200k in investments and around 80k in cash. Our only debt is our 30 year mortgage of 240k @ 4.75%. What are some opinions on to pay off the mortgage or not? I have read myself silly reading the pros and cons of this issue. I have also done the math and the long term significance looks like if we were to put our monthly current mortgage payment into a index fund with a 6% annual return; we might actually come out ahead in the long run. Our house is probably worth around $330k in today's economy. Thanks for your input!

 

[W2R]

Welcome to the Early Retirement Forum, Captain10. We suggest that you go to the 'Hi, I am..." section of the forum and introduce yourself, if/when you have a moment.

Meanwhile, here are some threads from our FAQ on paying off the mortgage or not:

http://www.early-retirement.org/for...f-the-mortgage-or-invest-the-money-30644.html

Many of us have paid off our mortgages and enjoy being completely debt free. Others feel that a good, low interest mortgage is helpful from an investment standpoint.

 

[Nords]

http://www.early-retirement.org/for...out-losing-your-ass-ets-15237.html#post983329

 

[GregLee]

In looking at those previous postings, I haven't so far noticed people taking into account the service charges they pay a financial institution for collecting their mortgage payments. Maybe that's because those charges are negligible? (My mortgage payments were to the previous owner of my home, and there were no service charges.)

 

[Nords]

In looking at those previous postings, I haven't so far noticed people taking into account the service charges they pay a financial institution for collecting their mortgage payments. Maybe that's because those charges are negligible? (My mortgage payments were to the previous owner of my home, and there were no service charges.)

Who pays a service charge for making their mortgage payments?

More to the point, what company could run a business charging people for the privilege of paying their mortgages? Most banks make money from the tax/insurance-impound escrow accounts, but I think they make far more from servicing mortgages for other companies (and getting the payment from the companies, not from the mortgaged homeowner) or from selling mortgages to other companies.

I know there are companies collecting fees for "mortgage acceleration" or "debt consolidation", but these seem to be business models built on the concept of the "stupid tax".

 

[tulak]

Hey Guys-
Another long time lurker here that has enjoyed and learned a lot from reading everyone's posts! My wife and I are 33 and have approx. 200k in investments and around 80k in cash. Our only debt is our 30 year mortgage of 240k @ 4.75%. What are some opinions on to pay off the mortgage or not? I have read myself silly reading the pros and cons of this issue. I have also done the math and the long term significance looks like if we were to put our monthly current mortgage payment into a index fund with a 6% annual return; we might actually come out ahead in the long run. Our house is probably worth around $330k in today's economy. Thanks for your input!

I went through this a couple of months ago. Well, still going through it, since we haven't closed on the new mortgage yet...

At the time, I asked my spouse, would you rather have 200k in the bank and a 1k/month payment or nothing in the bank with no payment. Her answer: 200k in the bank. That pretty much sealed it for me.

In your case, do you really want to have no mortgage with only 40k in the bank?

As a side note, rates are low right now. If you plan on staying in your house a long time, then a 30-year fixed @ 4% is going to be as close to free money as you can get (at some point). If you plan on selling sooner, then you could always do a Penfed 5/5 ARM. That's one product that had us tempted, and if we went with the "let's pay off the mortgage as quick as we can" plan or were planning to move within the next ten years, then we would have went with it.

 

[johnoh]

Pay it off, or some large part of it, for two reasons

1 - If someone wanted to borrow money from you right now and would pay you 4.75% and there was a 0% chance of them defaulting, would you loan them the money? Yes. That's exactly the financial impact of paying off your mortgage.

2 - Paying it off puts you in a whole new category of wealth-builders by drastically increasing your monthly savings rate. That is, if right now you save/invest 20% of your pre-tax income, after paying off your mortgage you will be able to save/invest 30% (just an example). It feels great to have a large difference between what you make and what you spend.

 

[Milton]

Many of us have paid off our mortgages and enjoy being completely debt free.

Absolutely. Doing so provides a nice sense of freedom, and also frees up future cash flow for investment purposes.

Others feel that a good, low interest mortgage is helpful from an investment standpoint.

IMO, "no interest" (i.e. no mortgage) is better that "low interest".

 

[harley]

I'm in the process of refinancing mine (again). I contacted our agent about paying down the mortgage to decrease them monthly draw, and she told me that I qualify for a HAMP refi. I was so amazed to finally qualify for a gov't program that I just had to do it! So I'm keeping the mortgage amount the same, but getting a 4.25% mortgage with 0 points (vs. the old 4.875%). The payback is only 14 months, and we'll be here much longer than that. The only reason we have a mortgage is that our house is fairly expensive and I don't want all that money tied up in it. Plus the tax break is nice while it lasts. It's keeping us in the 15% bracket which is helping with the Roth conversions. There are so many ways to consider the mortgage situation, just find the one that makes the most sense to you and go with it.

When we finally give up the high life and move to a smaller place, I'll definitely retire the mortgage. I have to admit it will be nice to live on a smaller draw down.