Pay off my mortgage

B

Byb747

Dryer sheet wannabe
Joined
Jan 22, 2018
Messages
17
I have a vacation home that has $95k left on the mortgage at a rate of 4.25%. I have about 20 years left on the mortgage. I have cash on hand to pay it off, while maintaining a comfortable emergency fund. I have already allocated money to my taxable investment account and I max out my 401k. Should I pay it off?

I am thinking that would be a good use of capital as it's earning only 2% in a money market account.

I would appreciate any thoughts or suggestions.
 
Personal choice. No wrong answer. Do what makes you happy.

Me, I would pay that sucka off ASAP and do a happy dance with my wife. Naked.
 
You will find that the forum members are typically split on this. If you run the numbers and assume a return in more aggressive investments (5% to 7%), it favors not paying off.


Of course, it could be always be the worst 20 year period of return too.


In my view, if you are going to stay with funds at 2%, it is a no brainer to pay it off.


I paid off my mortgage in 2000 with 20 years left. It was the best thing I ever did. The freedom I felt was awesome. A roof over my head. DW and I put that mortgage payment directly into investments over those years. And here I am on the cusp of ER.


I'm sure if I would back test the numbers, I "should have" not done this and instead kept the mortgage.


I don't care. The peace of mind has been worth it to us.
 
We have four properties and no mortgages. We love being debt free. As others have stated, many on this forum believe in mortgage debt if you can earn more with the money invested. It’s a personal choice and we chose debt free with no regrets. We have plenty invested in the stock market and plenty in cash and CDs. We don’t need to maximize every penny. I retired five years ago and DW two years ago.
 
$95k is a relatively small amount, so it really doesn't matter much what you do.

Investing in something like VTI for 10+ years is likely to maximize your return. But if you'd rather not do that for whatever reason, then certainly paying off 4.25% debt looks better than getting 2% MM returns. Unless you anticipate needing a bunch of cash sometime soon.
 
joeea said:
Why is it in a money market account?
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+1.... And the next question would be.... IF you paid it off would you fill that MM account back up?


IOW, is that cash SPECIFICALLY for the mortgage? If not (and I do not think it is) then you feel better having that much money sitting around and if you get rid of it you will not feel as good and will fill it back up..


The better way to look at return for paying off mtg is your total return on your portfolio... for me it has been over 8% for a good amount of time...


I am in the do not pay of the mtg if it is low enough... yours is still low enough IMO... not sure when I would change my mind but it would be over 5%...
 
I would pay it off since your money sitting in the MM account is costing you on a net basis. Plus as others stated, being debt free and owning free and clear is a great feeling. But there is no exact right answer, so do as you think is best for your situation. One concern is the liquidity of that money, it's a lot harder to get it out of a house sale than a MM account.
 
There are far better places to put that $90k vs. a MM, and assuming you have other taxable cash for your ER plan, as well as an emergency fund, then paying of the mortgage is totally up to you.

We did, in a similar position, because it just took that emotional burden away, and it felt good.
 
To OP. While paying off the mortgage is likely not the best choice, if it will improve your emotional life, go for it.

We've got 10 years left. Our plan is to DCA several grand each year. We want to stay in a low tax bracket, but pay that sukka off several years early.

Smart $$ decision? Nope.

Smart sleep better decision? Hell yeah!!! :dance:
 
Oh boy.... One of the more divisive topics on this forum.... Let's hope we don't have to turn on hot topic. LOL.

I rationally see both sides... but not if that money is sitting in a 2% money market. If you had it invested in equities you'd have to look at the potential returns, the capital gains taxes, etc... but to state the obvious 2%<4.5%... pay it off.

We paid off our mortgage right before I fired... It was under <$50k and we did it for emotional reasons... No regrets.
 
Byb747 said:
I have a vacation home that has $95k left on the mortgage at a rate of 4.25%. I have about 20 years left on the mortgage. I have cash on hand to pay it off, while maintaining a comfortable emergency fund. I have already allocated money to my taxable investment account and I max out my 401k. Should I pay it off?

I am thinking that would be a good use of capital as it's earning only 2% in a money market account.

I would appreciate any thoughts or suggestions.
Click to expand...

It sounds like the money that you would pay the mortgage off with is just earning 2%, in which case I think it it a good idea.

OTOH, if you rebalance regularly and as a result will shortly end up selling stocks to replenish the MM then not a good idea IMO.
 
rodi said:
I rationally see both sides... but not if that money is sitting in a 2% money market. If you had it invested in equities you'd have to look at the potential returns, the capital gains taxes, etc... but to state the obvious 2%<4.5%... pay it off.
Click to expand...

You seem to assume that having that much money sitting in a money market fund was a good decision. And that the fund is no longer needed.

Wouldn't it be important to know why the money sat there, before making a suggestion?
 
I would ask two questions.

The first is the same as has been asked above: Why is the money in a MM ? The motivation to change investments was even greater in the recent past. MM funds are not paying much now, but they weren't paying anything just a year ago.

The second question is why is a 10 year old mortgage at 4.25% considering where mortgage rates have been over the last 10 years ? ~3.25% 30 year fixed was an available refi rate for a lot of the last 10 years and it has been even lower. I refi'd a "vacation home" 5 years ago for 2.625% with 2% points. Standard advice is to refi when a 1% lower rate is available.

My advice to a question you didn't ask :blush: would be to change the oversight on your finances a bit. It isn't necessary to go overboard on counting your money, but being oblivious will be costly. There is a happy medium. Asking questions here is a good place to start.

If you aren't comfortable making changes with the MM fund money, it is a no brainer to pay off that mortgage now.
 
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Like someone said, do what makes you feel best.
But, consider do you need to fund a 529 account? HSA? Roth?
Why not just allocate these funds to your taxable accounts and not a MMK?
Personally, I carry a 15-yr mortgage on my primary even though I have the money to pay it off. That's my preference.
 
The correct answer is to do something besides leave 90 K in a MM that is not your emergency fund. Either invest it in places to match your AA, or pay off the mortgage. Either one is a better decision then just leaving it there. Also if your decision is to pay off the mortgage then you have some amount of extra cash flow each and every month for the next 20 years. So before paying it off that is a decision you need to make as well. So many decisions, so little time.
 
For me, the emotional side of being debt-free is most important. I had a 0% interest loan for an RX-8 I bought once, and I still paid off the loan early!

Seriously, with the rate you're earning, and paying, it would make sense to pay it off, unless you want to refinance. Will the property value go up?
 
Thank you all.. very sincerely, for the opinions.

- I admit I have too much in cash that's in MM. However I do have most of my net worth tied to the market.

- I also have cash as I am planning to buy a house in the next 12 months so the cash is for the down payment. The property I am planning to pay off is a rental / vacation property. Fortunately this $90k is no longer needed as my cash balance is enough to still have down payment in full.

- Also I am the type where I try not to.invest and sell to withdraw funds. I sell and reallocate, buy more etc. But have not removed cash.

I agree...looks like I will pay it off and celebrate.

-
 
Byb747 said:
I also have cash as I am planning to buy a house in the next 12 months so the cash is for the down payment.
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So this isn't a desire to become debt-free then? And you clearly aren't debt-averse or dependent on any "guaranteed" but low return investment. And clearly the thought of having a mortgage isn't weighing on your mind or keeping you up at night.

So why pay off the mortgage on the rental/vacation property? Why not take the money out of the money market fund and put it where it will make real money for you?

Most folks like to leverage rental property investments.
 
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I sold my old house, and new DH and I bought this one with cash. We'll be getting a home equity LOC to build a garage this year and a barn next year. We expect to have that paid off in a few years. DH will be working for at least 7-8 more years.

My primary reason was cash flow peace of mind. I'm semi-retired, and am not ready to start withdrawing yet. Still contributing, actually. But I wanted to cut expenses and simplify. It's a great feeling, although I get a twinge now when I run those calculators with over $200K less stashed away. . .
 
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.

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.
 
Offgrid Organic Farmer said:
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.
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Just curious on how they will foreclose on mortgages that are current on payments ?

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