Pay off my mortgage

[DrRoy]

Paying off 4.25% debt looks better than getting 2% MM returns. Unless you anticipate needing a bunch of cash sometime soon.

+1. Even on an after tax basis it is better.

 

[HadEnuff]

About 10 years ago I was looking at the same decision. If I remember correctly, the interest rate was a tad over 5%, and I decided to pay it off.
However, when I decided to do a major remodel of my lake "cottage", so that it could become my retirement home, I needed to go through the hassle of getting a new mortgage.

I was kicking myself for having paid the first mortgage off, but, as it turned out, the new mortgage was at 2.75%. Currently, that mortgage is only around $85K, and I have the cash, I could pay it off, but at this point I've decided that 2.75% is pretty cheap money, so I'm keeping it.

In my case, having the cash around the last two years, instead of paying it off, has allowed me to live off of that cash, without pulling from IRAs, and has saved me a considerable sum thanks to ACA subsidies. Don't know if you are in that boat, or might be in that boat soon, but that's something to consider if you are.

 

[joeea]

My grandparents lost their farms during the Great Depression when the banks closed their doors. If banks have any kind of crisis they will foreclose on everyone.

That being said, when I retired I had an outstanding mortgage. It was to an apartment building we lived in, that had a nice positive cash flow. I was confident that we were going to keep it filled with tenants and it was a 'good' risk.

So you are imagining some sort of future crisis where banks will foreclose on everyone.

Yet you kept a mortgage anyway.

Seems contradictory to me. And there's no chance banks will "foreclose on everyone".

 

[pb4uski]

... My grandparents lost their farms during the Great Depression when the banks closed their doors. If banks have any kind of crisis they will foreclose on everyone. .....

Just curious on how they will foreclose on mortgages that are current on payments ? ...

They can't foreclose if payments are being made.... the judge would through the bank out of the courtroom.

 

[JoeWras]

If I had a mortgage on my home before retiring, I would pay it off.

My grandparents lost their farms during the Great Depression when the banks closed their doors. If banks have any kind of crisis they will foreclose on everyone.
.

Grandparents? How about us?

2010 was a nasty year. Banks foreclosed without any sympathy at all. Saw it happen to my neighbor. Their vacate warning was so short (few days), they left 1/2 of their belongings in the house before it was shackled. Of course, my neighbor also played chicken with the bank for over a year It didn't have to happen that way. Still, it left shockwaves with us neighbors.


I loved the happy dance at the courthouse. The clerks at the courthouse gave us a few hip-hip hoorays too!

 

[Offgrid Organic Farmer]

Just curious on how they will foreclose on mortgages that are current on payments ?

A bank can call in any loan at any time. They do not have to justify their actions to their depositors.

When they locked their doors they refused access to their customer's accounts, they effectively seized all deposited money.

... There are good arguments on the debt free side, but fear of foreclosure when you are current isn't one of them.

Being current on servicing loans is hard to do 6 months after they have locked their doors and refused to allow access to your accounts.

... What actually happened in my area of Arizona (a mortgage crisis hotspot) in 2009 was that some people who had a large mortgage fared the best of anyone financially. They strategically defaulted on a high % mortgage house after buying an equivalent house at a distressed price. Those of us with higher equity or paid off real estate never had an opportunity to default (not that I necessarily would consider it). There is an old saying "If you owe the bank a thousand dollars, they own you. If you owe the bank a million, you own them."

And how long did the banks lock their doors in 2009?

If you have direct deposit, you kind of need access to your bank account before you can have any money.

 

[Offgrid Organic Farmer]

So you are imagining some sort of future crisis where banks will foreclose on everyone.

Yet you kept a mortgage anyway.

Seems contradictory to me. And there's no chance banks will "foreclose on everyone".

In 2001, I had my pension and we had reduced our properties down to just one. It was at capacity with tenants and cash flow seemed good.

We had transferred the equity that we had built, from other properties into that one remaining property.

In 2004 it seemed rock solid to us, so we re-financed that property and walked away with the cash. To use the cash to buy our retirement home.

In hindsight it may have been a mistake.

On the other hand, our farm has no debt and my pension has continued to pay us through-out.

 

[Texas Proud]

Grandparents? How about us?

2010 was a nasty year. Banks foreclosed without any sympathy at all. Saw it happen to my neighbor. Their vacate warning was so short (few days), they left 1/2 of their belongings in the house before it was shackled. Of course, my neighbor also played chicken with the bank for over a year It didn't have to happen that way. Still, it left shockwaves with us neighbors.


I loved the happy dance at the courthouse. The clerks at the courthouse gave us a few hip-hip hoorays too!

Excuse me.... they had not paid their mortgage for over a YEAR and the warning was a few days



REALLY? You believe it is the bank that did something quickly? It took them a year to do something...


I think your neighbor took advantage of the situation and got over a free year of living in a house... losing 'half' his stuff was a bargain....

 

[hesperus]

The 4.25% is definite. Stock returns etc. are maybe. Pay it off. Jmho.

+1 Guaranteed 4.25% return vs unknown. Take it, run with it and celebrate owning it free and clear.
It is a wonderful feeling to be debt free

 

[wdberry62]

Easy choice for me - pay it off; provided that it doesn't impact your emergency cash situation.



My feeling is that everyone underestimates the risk associated with debt when they get into interest paid vs. interest earned analysis. Plus - it's a huge emotional lift to be debt free.

 

[Crabby Mike]

A bank can call in any loan at any time. They do not have to justify their actions to their depositors.

When they locked their doors they refused access to their customer's accounts, they effectively seized all deposited money.


Being current on servicing loans is hard to do 6 months after they have locked their doors and refused to allow access to your accounts.


And how long did the banks lock their doors in 2009?

If you have direct deposit, you kind of need access to your bank account before you can have any money.

The FDIC was created in 1933 to prevent bank runs like those seen during the Great Depression. Also, I do not agree that a bank can call your mortgage "at any time," assuming you're current on your payments.

 

[MI-Roger]

I am firmly in the "Keep the Mortgage" camp - normally. But in this case the OP identified the money he has available to pay off his 4.25% mortgage is currentlty only earning 2%.

Pay off the mortgage! You are losing money each month by keeping the mortgage.

Or........ restructure your investments so that the funds are earning more than 4.25%

 

[pb4uski]

A bank can call in any loan at any time. They do not have to justify their actions to their depositors.

When they locked their doors they refused access to their customer's accounts, they effectively seized all deposited money. ...

Not only are you Offgrid, you are also off base. A bank cannot call a home mortgage loan at any time... they need to adhere to the contractual provisions just like the borrower does. Also, today very few residential mortgage loans are owned by banks... most are packaged into mortgage backed securities.

If a bank is taken over, they commonly "lock their doors" overnight or for a weekend at most... the definitely do NOT seize deposited money though access other than ATMs might be limited for a bried period of time. Unless a depositor is trying to do a large cash withdrawal at that specific time then they wouldn't even notice.

The FDIC was created in 1933 to prevent bank runs like those seen during the Great Depression. Also, I do not agree that a bank can call your mortgage "at any time," assuming you're current on your payments.

+1 particularly for a residential mortgage loans.

 

[Texas Proud]

I am firmly in the "Keep the Mortgage" camp - normally. But in this case the OP identified the money he has available to pay off his 4.25% mortgage is currentlty only earning 2%.

Pay off the mortgage! You are losing money each month by keeping the mortgage.

Or........ restructure your investments so that the funds are earning more than 4.25%

Your last part is what is important IMO.... why is OP keeping that money in a MM account? It makes no sense unless it is emergency money... and if it is emergency money then he will need to fill it back up after paying off the mortgage, hence he is not paying it off with that money...

 

[Seagirt]

I think the OP was asking whether to invest the money for the long term, or pay off the mortgage.

I think keep it simple, pay it off. Retirement is a time to relax and enjoy the fruits of your hard work, not a time to stress about how your investments are doing. You could also get another mortgage if you really needed it.

But edited to add, maybe you should wait until your primary home situation is sorted.

 

[RenoJay]

I love being debt-free. It removes an emotional hurdle most people carry around. I vote for pay it off.

 

[Firedafter30]

My heart says pay it off, but that might not be the best option. A few months ago, I sent 40k to my mortgage because my 5 year adjustable is going to reset to a higher rate next year - and I wanted to lower my balance.

But, this book I just read (by a financial planner), says "Do not pay off your mortgage"!
He says, once you send the money to your mortgage, you lose the financial flexibility - you loose access to that cash. And you can invest the money, and perhaps do much better than paying off the mortgage.

 

[Badger]

I paid off all loans many many years ago. I hate loan payments and use cash or CC that is paid off each month (this includes any large amounts I might want to spend on houses, cars etc). I don't owe any money and don't need the hassles. I won't borrow again and be beholden to some lender. I won't have to now. That puts me in a better financial situation than most with loan payments.


You need to decide for yourself. As for me I don't always believe the "experts" or financial planners. I may not have the "book learning" that others have or understand the fancy equations but from what I have seen they couldn't match my accomplishment from the same income. If they were all so smart then why are they still working?


I do, however, pay attention to and respect a few of the members who post here.



Cheers!

 

[retired1]

The 4.25% is definite. Stock returns etc. are maybe. Pay it off. Jmho.

+1

 

[Seagirt]

My heart says pay it off, but that might not be the best option. A few months ago, I sent 40k to my mortgage because my 5 year adjustable is going to reset to a higher rate next year - and I wanted to lower my balance.

But, this book I just read (by a financial planner), says "Do not pay off your mortgage"!
He says, once you send the money to your mortgage, you lose the financial flexibility - you loose access to that cash. And you can invest the money, and perhaps do much better than paying off the mortgage.

I think that can be good advice when you're younger, you may end up house poor: all your assets tied up in your home. There are other financial priorities that also need attention when you're working: Pay off other debt, build an emergency fund, take advantage of tax sheltered/employer contributed savings plans, take advantage of long term investment growth potential, keep up with home maintenance, invest in your own professional development and your children's education, etc.

But I believe that after retirement it's better to not carry a mortgage, because you're no longer earning any outside income. And there's more risk from downturns in the market because your time frame for needing the money is now much shorter.

 

[Surewhitey]

I may not have the "book learning" that others have or understand the fancy equations but from what I have seen they couldn't match my accomplishment from the same income. If they were all so smart then why are they still working?

Agreed!

 

[joeea]

You need to decide for yourself. As for me I don't always believe the "experts" or financial planners. I may not have the "book learning" that others have or understand the fancy equations but from what I have seen they couldn't match my accomplishment from the same income. If they were all so smart then why are they still working?

That's why we should all be patients of unemployed doctors.
If they were all so smart then why are they still working?

 

[Al18]

I would consider paying an additional 25% per month. Ballpark estimate is you'll have it paid off in 8 years.

 

[FIREarly]

It is always a wise decision to pay off your mortgage. There are a lot of ways you can do this but after you pay off your mortgage YOUR INCOME is YOURS. Then you can invest for 401k/IRA/small party to celebrate paying off your mortgage.

Make sure to have enough money leftover so you are not pushing yourself too tight. It might turn out to pay off more than half and have safety money. Paying off your mortgage is always great! You know your account better.

Dave Ramsey will tell you to pay off your mortgage. This is not to start a conversation about him but he has a plan that has proven to work.

Grant Cardone talks about ways to get you to 10x ($10,000,000). He believes real estate is one of the best ways. Paying off your mortgage sounds great. I will type it one more time because it feels good typing it. Paying off your mortgage feels great!

Take what works for your. Leave what doesn't. You will make the right choice for yourself.

 

[RunningBum]