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Would you keep cash or...
Old 02-21-2009, 05:36 PM   #1
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Would you keep cash or...

Looking at the current economic cr*pola and possible j*b loss gets me looking into whether to hold cash or pay off mortgage now or in 4 years.

If I lose my j*b, I'm thinking of RE, the big question I have is should I take part of cash I have and pay off the mortgage now or wait 4 years with idea of putting about half into stock market soon and ride it for 4 years?

Mortgage is ~$90K, I've looked at refinancing, save a little but nothing great over the four years (~2K). I've also run firecalc with paying of mortgage now or waiting 4 years (with everything else covered for those 4 years) and it is essentially the same over 30+ years (both over 95% success rate).

If you had to choose and have no idea about when or if you might lose your j*b, which would you do, I'm really torn, I keep on thinking "cash is king", but also know no mortgage would be nice.
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Old 02-21-2009, 05:44 PM   #2
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I tend to be conservative to the point of paranoia when it comes to job security issues, so I'd personally stockpile the cash unless I were supremely confident my job was secure. But that's just my personal preference. I'm willing to take longer term risk with investments, but I won't take short term risks with my liquidity if I don't feel my job is 99.9+% secure.

I guess I'd want to know how much cash you'd have left over (in terms of months of living expenses) if you paid off the mortgage. If you still had 9-12 months left (usually 3-6 but not in this job market IMO), I'd be more inclined to pay off the mortgage while you can barely get 2% on your cash.
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Old 02-21-2009, 05:52 PM   #3
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I would not pay off the mortgage now. See the Housing Stimulus thread. On 4 March the government will announce details of a program that could let you pocket up to $4500 every year courtesy of your fellow taxpayers. It's free money, and you might be a candidate if you lose your job. No mortgage= no taxpayer money in your pocket. In fact, it might make sense to get a higher mortgage now if you can in order to qualify for more moola if/when you lose your job.

As it happens, the government must want us to keep our mortgages, since that's what they are encouraging. Comply and you will be rewarded. Disregard their desire and you will pay the bill for the more compliant members of society.

Aside from all this--having cash is much more important than having no house payment if you find yourself prematurely retired. You can always pay off the mortgage, but having cash in your pocket gives you options that might be very important.
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Old 02-21-2009, 06:44 PM   #4
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Ziggy - thanks for the comments - I'm conservative (financially) also - I have enough cash for slightly over 4 years with cash for some remodeling ~$40K and replace one car $20K and still pay-off mortgage, but still think having option maybe better.

Samclem - thanks for the link, I'll certainly wait for the details - I hadn't read Obama's plan. Although it would work for us if I lost my job, I think it's stupid to "help" out people that aren't closer to foreclosure than that - of course Congress has to pass screw it up somehow. At least for now it looks like it makes sense to just hang.
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Old 02-21-2009, 07:28 PM   #5
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As a tenured Professor, my job is very secure, I'd have a small pension coming, and my house is paid off too (no debt at all). Yet I still insist on keeping a number of years of living expenses in cash and near-cash. In my case it's bordering on the irrational, but I don't care.

Listen to your gut. At this moment in time, cash is truly king, especially if you have any doubts about your employment. The mortgage can wait.
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Old 02-21-2009, 08:04 PM   #6
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I used to pay down my mortgage with any stray cash I had. It left me with little cash on hand, but great equity and a HELOC to tap it. With all the talk of HELOCs being frozen, and jobs being less secure, I felt I had to tap the HELOC now while I still could and then hold onto the cash. Rates are low, so while it does cost me a little for the extra security, I thought it was worth it for me.
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Old 02-21-2009, 09:02 PM   #7
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I am in a position to pay off the mortgage too. But For the time being, I'd rather hang on to the liquidity given the current economic situation. Besides, give it a few more years and escalating inflation will make it that much cheaper to repay the mortgage.
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Old 02-21-2009, 10:16 PM   #8
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Why not just split the difference? Put an extra chunk of change on your mortgage each month. You'll still have your stash, and it will be satisfying to see your balance go down.

That's what I did.
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Old 02-22-2009, 04:39 AM   #9
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A related question might be... "Given the rising unemployment rate, the recent economic downturn, and the fact that I am not yet FI, should my emergency fund be larger than before?"

I think the answer to that is very definitely YES.

Once you have accumulated a big enough emergency fund (whatever size that might be to suit your purposes), then I would consider paying down the mortgage, but not before.

If you lose your job in the near future, would you have to sell the house and move? If so, having a paid off mortgage might not be very helpful (though you would want it paid down enough that you could come down on the price if necessary).

If you don't end up having to move, then having a paid off mortgage is a great feeling and it is great to have the lowered monthly expenses. The money that went to the mortgage can then be invested each month.
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Old 02-22-2009, 09:39 AM   #10
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Quote:
Originally Posted by F-One View Post
whether to hold cash or pay off mortgage now or in 4 years.

This from Scott Burns:

Quote:
Add up your itemized deductions. If the total is less than $11,400 paying off your mortgage is a slam-dunk investment. You’ll save the mortgage interest. In effect, you’ll earn 6.8 percent.
at "For Some, Paying Off a Mortgage Is a Great 'Investment'"
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Old 02-23-2009, 11:52 AM   #11
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been listenning to the "truth about money" CD's by Ric Edmelmon. They are dirt cheap with excellent information on them. I pop them in on long trips. Anyway he states early on that if you handle your money the way your parents did, i.e. paying off mortage early, you are making a mistake. Cites that during the depression there was a run on the banks. Banks strapped for cash sent out runners on bicycles to call in home loans in full. Many lost their homes. Today that is no longer legal and all that is required is the monthly payment which you are capable of doing and retain some benefits of interest deduction although towards the end of a loan this isn't really significant. As others have echoed cash is King. I don't see any gain to a paid off mortgage for you right now and you lose nothing by keeping the mortage. Perhaps you might even refi at a better rate.
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Old 02-23-2009, 12:29 PM   #12
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I would not pay off the mortgage now. See the Housing Stimulus thread. On 4 March the government will announce details of a program that could let you pocket up to $4500 every year courtesy of your fellow taxpayers. It's free money, and you might be a candidate if you lose your job. No mortgage= no taxpayer money in your pocket. In fact, it might make sense to get a higher mortgage now if you can in order to qualify for more moola if/when you lose your job.

As it happens, the government must want us to keep our mortgages, since that's what they are encouraging. Comply and you will be rewarded. Disregard their desire and you will pay the bill for the more compliant members of society.
I clicked the link to get to the Housing Stimulus thread but it said I was unauthorized for some reason..........

I am getting ready to have no earned income when I close my business, but I still have a mortgage and unearned income (intereste, dividends). Will I be elligable for some kind of stimulus of $4500 per year? I can't seem to find the details anywhere......
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Old 02-23-2009, 12:53 PM   #13
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I clicked the link to get to the Housing Stimulus thread but it said I was unauthorized for some reason..........
Ditto that for me - is this an administrator's/moderator's link?
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Old 02-23-2009, 12:58 PM   #14
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Old 02-23-2009, 01:43 PM   #15
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If the mortgage is gone, you will sleep better at night........
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Old 02-23-2009, 06:58 PM   #16
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Paying off a mortgage today is one of the worst moves you could make. Every day stocks get cheaper, another 20 % down and that liquidity will be so valuable. Mortgages are incredibly cheap credit- hang on to it.

And please send me $10,000 for this invaluable information.

Ha
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Old 02-24-2009, 04:53 AM   #17
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I am getting ready to have no earned income when I close my business, but I still have a mortgage and unearned income (intereste, dividends). Will I be elligable for some kind of stimulus of $4500 per year? I can't seem to find the details anywhere......
The last thing I heard was that the details would come out on March 4th. That's when we'll find out just what the rules are, and if it will be practical for many of us to make ourselves eligible for the money if we aren't right now. I'm sure there will be many obtuse and arbitrary criteria to be met, but it might be worth it.
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