 |
07-23-2007, 04:33 PM
|
#1
|
Confused about dryer sheets
Join Date: Jun 2007
Posts: 8
|
Pay off loan or not?
Hello, everyone. This is my first post. I am impressed by the collective wisdom of this group, so here goes:
I own a building lot on a golf course that I'm holding for investment and/or possible retirement home. I anticipate building or selling in 3-5 years.
I have sufficient funds (currently parked in a tax exempt money market fund--I'm in the 35% bracket) to pay off this loan right now ($110,000 @ 5% interest-only; balloon due in 2 years).
This MMF constitutes 10% of my portfolio, and represents the bulk of fixed income portion of it. I will be receiving a non-COLA pension as early as age 55 (I'm 53), so I'm comfortable with such an aggressive equity component. Any new $$ I get in the coming years will be added to the MMF, so I'll be raising the fixed-income percentage as I get closer to retirement, no later than age 59.
Question is: am I better off reducing my carrying charges by paying off the note or continue to pay the interest and have it be offset by the interest on the money market fund? The loan is a second mortgage, so the interest is deductible.
Thanks.
|
|
|
 |
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
07-23-2007, 04:53 PM
|
#2
|
Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
Posts: 4,337
|
Welcome to the forum.
As for your question, I'd like to know if paying off the mortgage will significantly impact your after-tax money. You're almost 6 years from getting free access to any IRA money so you could find yourself short of readily available cash if you paid off the note. If this isn't a concern, I'd lean towards paying off the note. You can get slightly more than 5% in brokered CDs but I don't think it's worth the trouble.
I also suggest you raise your cash/bond portion now to be slightly more conservative.
|
|
|
07-23-2007, 05:52 PM
|
#3
|
Confused about dryer sheets
Join Date: Jun 2007
Posts: 8
|
2B: Paying it off would have only a short-term impact on the after-tax account as I'm living well BYM and saving all bonuses and stock grants.
Also, upon retirement I'd receive a cash severance as well as continue to vest in the RSU plan, which I would use as a bridge to get to 59 1/2.
Thanks for the input.
|
|
|
07-23-2007, 07:10 PM
|
#4
|
Full time employment: Posting here.
Join Date: Mar 2007
Posts: 577
|
If interest earned and paid are a wash and you're not worried about liquidity pay it off.
__________________
I highjacked a rainbow and crashed into a pot of gold - Bon Jovi
|
|
|
07-24-2007, 06:10 AM
|
#5
|
Thinks s/he gets paid by the post
Join Date: Jul 2007
Posts: 2,405
|
If you are in the 35% bracket and are earning less than 3.25% in your tax free MMF, and as Darryl says are not worried about liquidity, I would pay it off if I were you (5% x .65 = 3.25%). If you earn more than 3.25% then it may be better to pay the interest. Have you thought about the implications of AMT? Better do that...
On the flip side, there are also psychological aspects (positive) to being completely debt free, but if this is a second mortgage, you wouldn't really be debt free, only free of debt on this piece of property. We don't have any worries about liquidity, and it sure feels great to be debt free...'nuf said...
|
|
|
07-24-2007, 06:16 PM
|
#6
|
Thinks s/he gets paid by the post
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,401
|
Quote:
I have sufficient funds (currently parked in a tax exempt money market fund--I'm in the 35% bracket) to pay off this loan right now ($110,000 @ 5% interest-only; balloon due in 2 years).
|
5% interest rate is very attractive. If you are parking your money on a money or saving account paying about 5% currently, it will be a wash. However, if you direct your money to the stock market, you will be better off not to pay off the debt since the long-term return should exceed 5%.
|
|
|
07-24-2007, 08:33 PM
|
#7
|
Confused about dryer sheets
Join Date: Jun 2007
Posts: 8
|
I don't plan on directing any more money to the stock market as I'm looking to reduce my equity exposure. So it really is a wash, with a MM tax-equivalent yield of just over 5%. AMT exempt, as well
I'm leaning to paying it off, and reduce my debt.
|
|
|
07-25-2007, 02:14 PM
|
#8
|
Thinks s/he gets paid by the post
Join Date: Jul 2005
Posts: 4,280
|
I'd pay it off just to reduce the hassle since it is a wash. No way it should go to equities for just a 2 year period. However, you might also think about any impact paying it off might have on your credit rating. You never know what they're going to make of that, and it can affect thing like your insurance rates.
|
|
|
 |
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
Search this Thread |
|
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|