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Should I pay off my mortgage early?
Old 07-23-2009, 05:55 AM   #1
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Should I pay off my mortgage early?

I realize this topic has been discussed before, but I wanted to get some thoughts on my situation. Currently I have 1.8 million saved, of which $800,000 of it is in non retirement accounts. I'm 45 and figure I'd like to work at least 10 more years. My house is worth maybe $900,000 and my mortgage balance is about $580,000. Currently my monthly payment is 4650 (when you include P,I and escrow for taxes).

SO should I just pay the mortgage off and be done with it? or should I keep it and take advantage of the tax deduction. BTW I'm in a high income bracket.

Thanks for any thoughts.
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Old 07-23-2009, 06:32 AM   #2
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In order to give even 1/2 way intelligent advice we need to know a few more pieces of data?

What is the interest rate of the mortgage?
What would be the tax consequences of paying of the mortgage?
Are there any penalties capital gains, early withdrawal penalties for selling assets to pay of the mortgage?
What is the stability of your current job situation?

That being said with risk free investments Money Markets, CD paying minimal interest, inflation at or near zero percent, and the market having seen a decent bounce from the March lows, IMO if there ever was a good time to pay off a mortgage this might be it.

Or to put it another way I have PenFed HEL at 4.99% and 15 year fixed at 4.875% both of which I consider very low and I am thinking of paying them off.
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Old 07-23-2009, 06:52 AM   #3
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What is the interest rate, and what would you sell to be able to have the cash to pay it off? ...and what is the return on what you would have to sell? ...and how important is it to your peace of mind to be without a mortgage?

For us, paying off the mortgage was a comfort that could not be rivaled by alternative investments. So we did it. But it isn't that way for everyone. Just sayin'...

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Old 07-23-2009, 12:55 PM   #4
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Quote:
Originally Posted by clifp View Post
In order to give even 1/2 way intelligent advice we need to know a few more pieces of data?

What is the interest rate of the mortgage?
What would be the tax consequences of paying of the mortgage?
Are there any penalties capital gains, early withdrawal penalties for selling assets to pay of the mortgage?
What is the stability of your current job situation?

That being said with risk free investments Money Markets, CD paying minimal interest, inflation at or near zero percent, and the market having seen a decent bounce from the March lows, IMO if there ever was a good time to pay off a mortgage this might be it.

Or to put it another way I have PenFed HEL at 4.99% and 15 year fixed at 4.875% both of which I consider very low and I am thinking of paying them off.
Thanks for the reply

Interest rate is 5.75%

Yes there would be tax consequences if I sold appreciated assets in my investment portfolio to pay off the mortgage- capital gains I'd have to pay but no withdrawal penalties.

My job stability is excellent- I'm a self employed dentist.

With this additional info, Any other thoughts??
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Old 07-23-2009, 01:03 PM   #5
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IMHO and without any evidence to support my HO, it probably ends up a financial wash either way (like taking SS early or waiting--those actuaries know it will be the same in the end), so the fact that you're entertaining the idea to do so and have run the numbers says to me you should do it.

You have 10 more years to feather the depleted nest egg if you do it.
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Old 07-23-2009, 01:20 PM   #6
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Are you subjected to AMT due to your income?

Someone please correct me if I am wrong, but doesn't the mortgage interest deduction get reduced when a taxpayer is subjected to AMT?

If you are subjected to AMT and my belief is true, I would encourage you to pay off the mortgage.


If you are not subjected to AMT and/or my belief is not true, I think it becomes more of what do you think is best decision.
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Old 07-23-2009, 01:41 PM   #7
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I think it depends what you plan to do with the extra $4000+/month. Will you save it or will you "waste" it on an expensive car or 5-figure vacations? Personaly, I don't want debt if I can avoid it so i'd pay it off early if I had enough cash left over for emergencies like you seem to.
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Old 07-23-2009, 04:20 PM   #8
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yes I am subject to AMT, and no I don't plan on blowing or wasting the money but rather socking it away.

I've always been a big fan of Ric Edelmen and the things he has to say, and I know he is a strong believer in NOT paying your mortgage off, but rather investing that money-- and according to his calculations you'd come out ahead.
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Old 07-23-2009, 05:02 PM   #9
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Without goinng into calculations and just off the top of my head, I'd say keep your mortgage for the tax benefit. You're only 45, I don't see the rush to pay it off. I don't have a mortgage and I really sleep good at night but then again I'm 73. Have been mortgage free for 10 years. Nice not to have a mortgage when retired.
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Old 07-23-2009, 05:27 PM   #10
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You may want to keep in mind that Ric Edelman is a financial planner who is compensated by investing people's money, not by telling them to pay off their mortgage.

I have decided to keep my mortgage and invest the money. There is extra risk, but I hope for extra returns. On the other hand, I have never talked to someone who has regretted paying off their mortgage.
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Old 07-23-2009, 06:42 PM   #11
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I agree that the most important thing to evaluate is your psychology and that of any other family members who have input... would you be able to treat the extra $4000/mo cash flow as a required saving expense, or would there be temptation to spend some of it some of the time on things you wouldn't otherwise do. It's not a moral question of are you tough enough, good enough, or wise enough, but rather a practical question of what will end up happening.
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Old 07-24-2009, 10:57 PM   #12
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We paid off our house in July 2007 (at age 31). Was it a smart decision based on dollars and sense? Maybe... maybe not. We wouldn't have been able to itemize anymore, so maybe that helped sway my decision. The big thing was wanting out from under that monthly obligation. Now I'm paying myself that monthly mortgage payment.

Also, that piece of mind of being completely debt free made an unbearable former job easy to leave. I knew that I could find something that paid way less, if absolutley necessary, and still get by and save some of my sanity.

That's how my math worked, anyway. Being debt free kicks ass...
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Old 07-25-2009, 08:23 AM   #13
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It's a cash flow problem for your personal finances. A couple of ideas.
1. If you pay down the mortgage over the next ten years, it may pay off if you relocate at that time.
2. If you pay it all off now, will see more cash each month, but higher taxes no doubt. However, can you (should you) invest this additional capital into your business each year, to make your self-employment business secure and well-positioned?
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Old 07-25-2009, 09:17 AM   #14
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I looked at this many times over the years, and in my situation, the numbers always favored keeping the mortgage and investing what would have paid it off. But I think the actual decision is more than just the numbers, and I did eventually do the payoff on one house. With lower fixed costs (no mortgage payment) I feel like I have more freedom and will need less income from my portfolio. With lower expenses, my required income will be lower (lower tax bracket) and my ability to move tax advantaged money into Roth with less tax improved. I also like the feeling of not owing the debt. There are personal considerations to weigh as well as just the numbers.

FYI: Now I am trying to do so again on my current house, despite the numbers again showing that investment and holding a mortgage still lead to more money.
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Old 07-27-2009, 12:10 PM   #15
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Quote:
Originally Posted by bow-tie View Post
We paid off our house in July 2007 (at age 31). Was it a smart decision based on dollars and sense? Maybe... maybe not. We wouldn't have been able to itemize anymore, so maybe that helped sway my decision. The big thing was wanting out from under that monthly obligation. Now I'm paying myself that monthly mortgage payment.

Also, that piece of mind of being completely debt free made an unbearable former job easy to leave. I knew that I could find something that paid way less, if absolutley necessary, and still get by and save some of my sanity.

That's how my math worked, anyway. Being debt free kicks ass...
Nice job...31! wow

We paid off our house in March 2009(at age 36).
Mabey it was a wash in the end...?? We had a 4.75% for 15 yrs, and earing NOTHING on our savings.
This money was sitting in a MM, not invested in the market, so we just decided to get rid of the mortage and gain a little more piece of mind.

Good luck!
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Old 07-28-2009, 08:20 PM   #16
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I er ah shall have my mortgage paid off at age 92 sept 2035. 5.78% 30 yr fixed.

After my paid off fish camp over Lake Ponchartrain(1979-2005) got storm surged away in Katrina, I purchased a 20% down regular house on a hill(a high hill) north of Kansas City above the wide Missouri.

Both decisions were non monetary. I could/can after the fact theorize how much I'm gonna make on stocks between now and 2035.

But after 15 years of ER this kind of thing is amusing. Has made for long threads on this forum in the past though.

heh heh heh - we're talking 6% or less of my net worth - not pocket change but not earth shaking either.
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