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another mortgage question
Old 02-11-2011, 11:07 AM   #1
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another mortgage question

I know this has already been discussed to death but there are a lot of people on this forum that have researched/analysed this and probably know a lot more about it than I do so here goes.....if someone wants to give their input/insight:I have enough money in 2 CD's to pay my mortgage is earning 2.75% thru 7/2015 the other is earning 5.5% thru 9/2012interest rate on my mortgage is 5.75% but is due to adjust to prime + 2% in march 2011 (my extra principal payments for many years have put balance to under 50K) payment monthly is $840 (includes taxes/insurance)earnings per year on CD's approx $1500interest paid yearly on mortgage approx $2100my tax bracket has been 25% but DH retired last year and if I get to retire at end of sept like I plan we should drop down to 15% tax bracketOn the surface it would appear to be a "no brainer" $2100/earn $ loss of $600 but I know there is more to it than just simple what would you do? pay off mortgage or keep cash?note: this would NOT deplete our cash reserves and mortage is our ONLY debt

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Old 02-11-2011, 11:17 AM   #2
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In a similar position last fall. Mortgage for just under $50k, at about 6%. Similar tax bracket. Had enough money to pay off out of taxable investments, and still leave an acceptable emergency fund.

Due to health problems resulting in me working half-time money was tighter than years past. Looked at refi. Bank wanted to charge to much in fee's to make it worthwhile. We paid it off. Ultimately not having the debt hanging over our heads made the decision easy for us. Haven't regretted it, and am putting the monthly mortgage amount into savings.

We looked at it as making a guaranteed 6% on our money. Not great, but no risk.

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Old 02-11-2011, 11:40 AM   #3
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Going on 2 months now mortgage free. Mine was 174k when I paid it off. This will be the first real month I have not had to pay the mortgage payment. Just knowing my $1300 extra in my paycheck is a nice feeling. Takes my monthly expenses down from $5200 to $3900.

I am investing the mortgage payment to build back up my investment accounts. On the positive side your payment of 840 a month it will only take a few short years to rebuild your cash stash.

I do have a kind of puppy love feeling about being completely debt free now. It is a feeling that can only be described as puppy love.

If you are retiring it makes sense to keep the outgoings as low as possible. Because it means the nest egg can be that much smaller.

The decision to pay off my mortgage wasn't an easy one. You have to look at what emotion is worth to you. For me messing around with the float of 4.5% to what I could actually make on my money in the long term really only amounted to a few thousand dollars. I think the freedom that came with the payoff amounted to many more thousands in piece of mind.

Sometimes a bird in the hand is worth two in the bush, even when you have a shotgun full of bird shot!
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Old 02-12-2011, 12:02 PM   #4
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Based on what you’ve provided, you’re paying $50/mo on the mortgage more than the CDs make, but well within your disposable income capability. But you have a variable rate mortgage. This is very risky in the long term, since interest rates will probably start increasing in the not to distant future. Near term for 1 to 2 years, rates may stay essentially the same. .

Since a 50K mortgage is too small to refi, I would wait for the mortgage to adjust and see what the payments adjust to. If payments stay essentially the same, I would continue to make extra principal payments. If the payments cause this negative $50/mo to go to a negative $100/mo, I’d break the 5.5% due 9/2012 CD if the penalty was less than $1800 and use it pay down the mortgage or pay it off.
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Old 02-12-2011, 12:05 PM   #5
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Originally Posted by HpRyder View Post
...Since a 50K mortgage is too small to refi...
At my C.U. $50k was the lower limit on what they would re-fi, HpRyder.

Just FYI.
You can't enlighten the unconscious.
But you can hit'em upside the head a few times to make sure they are really out...
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