Pay off mortgage vs pay for renovation

[Anonymous]

Anonymous wrote:

Anonymous wrote:Pay off mortgage. No question. You want a remodel, you don't need it.

Are you crazy? Or financially illiterate? OP has a less than 2.8% mortgage. She can get a 5% risk free return right now through HYSA, Treasuries, or money market funds. Why in the world would she choose the lower return from paying off the mortgage?

You have to pay taxes on that 5%, so it’s like 3.5% after taxes. Unless she itemizes her deductions, she’s really only earning 0.7% above the rate of her mortgage.

Not everyone feels the need to squeeze out every last 1/10th of a percent in return, especially when there are other benefits to paying off your mortgage (such as dramatically reducing your monthly fixed obligations).

Glad I could help you understand this.

[Anonymous]

Anonymous wrote:Do you have kids? fund the college accounts

+THIS plus retirement savings. I could never spend that much on a reno.

[Anonymous]

Anonymous wrote:I would not pay off your mortgage. Put some in the market and some towards a renovation. A $500K renovation is pretty extensive. I would not spend it all there.

Why Not? We purchased a 25yo 2nd home. Purchased for the location/views. Fully renovating it, including all systems/roof/etc. Spending way more than that. It's worth it because we are cash flowing it, and will be happier to use the house once it's nicer. Should we need to sell (don't plan to anytime soon), we would easily get it back.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Pay off mortgage. No question. You want a remodel, you don't need it.

Are you crazy? Or financially illiterate? OP has a less than 2.8% mortgage. She can get a 5% risk free return right now through HYSA, Treasuries, or money market funds. Why in the world would she choose the lower return from paying off the mortgage?

You have to pay taxes on that 5%, so it’s like 3.5% after taxes. Unless she itemizes her deductions, she’s really only earning 0.7% above the rate of her mortgage.

Not everyone feels the need to squeeze out every last 1/10th of a percent in return, especially when there are other benefits to paying off your mortgage (such as dramatically reducing your monthly fixed obligations).

Glad I could help you understand this.

Go back and read the original PP. She said "Pay off the mortgage. No question." Your analysis doesn't change the conclusion that her advice was wrong. At best, you've made the argument that there are intangible benefits to paying off a mortgage, but those will come at an actual financial cost. Also, you sound like a snide middle aged know it all. Glad I could help you understand this.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Pay off mortgage. No question. You want a remodel, you don't need it.

Are you crazy? Or financially illiterate? OP has a less than 2.8% mortgage. She can get a 5% risk free return right now through HYSA, Treasuries, or money market funds. Why in the world would she choose the lower return from paying off the mortgage?

You have to pay taxes on that 5%, so it’s like 3.5% after taxes. Unless she itemizes her deductions, she’s really only earning 0.7% above the rate of her mortgage.

Not everyone feels the need to squeeze out every last 1/10th of a percent in return, especially when there are other benefits to paying off your mortgage (such as dramatically reducing your monthly fixed obligations).

Glad I could help you understand this.

Go back and read the original PP. She said "Pay off the mortgage. No question." Your analysis doesn't change the conclusion that her advice was wrong. At best, you've made the argument that there are intangible benefits to paying off a mortgage, but those will come at an actual financial cost. Also, you sound like a snide middle aged know it all. Glad I could help you understand this.

Toward the end of our mortgage we got very little back with taxes and with the new changes of the preset $25k deduction we got nothing back. It was freeing. Now if we want to renovate we will pay all or at least half in cash and pay that off quickly. We are closer to retirement and kid is still in hs so not going heavily into debt is important to us.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Pay off mortgage. No question. You want a remodel, you don't need it.

Are you crazy? Or financially illiterate? OP has a less than 2.8% mortgage. She can get a 5% risk free return right now through HYSA, Treasuries, or money market funds. Why in the world would she choose the lower return from paying off the mortgage?

You have to pay taxes on that 5%, so it’s like 3.5% after taxes. Unless she itemizes her deductions, she’s really only earning 0.7% above the rate of her mortgage.

Not everyone feels the need to squeeze out every last 1/10th of a percent in return, especially when there are other benefits to paying off your mortgage (such as dramatically reducing your monthly fixed obligations).

Glad I could help you understand this.

Go back and read the original PP. She said "Pay off the mortgage. No question." Your analysis doesn't change the conclusion that her advice was wrong. At best, you've made the argument that there are intangible benefits to paying off a mortgage, but those will come at an actual financial cost. Also, you sound like a snide middle aged know it all. Glad I could help you understand this.

Toward the end of our mortgage we got very little back with taxes and with the new changes of the preset $25k deduction we got nothing back. It was freeing. Now if we want to renovate we will pay all or at least half in cash and pay that off quickly. We are closer to retirement and kid is still in hs so not going heavily into debt is important to us.

NP but OP has 20 years left on their mortgage. "Pay off the mortgage, no question [and then take out a HELOC for a renovation]" is unequivocally bad advice. Even people who tout the mental freedom of no mortgage and a lower monthly obligation should realize this is terrible advice, because OP will still end up with a monthly payment at a higher rate!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Pay off mortgage. No question. You want a remodel, you don't need it.

Are you crazy? Or financially illiterate? OP has a less than 2.8% mortgage. She can get a 5% risk free return right now through HYSA, Treasuries, or money market funds. Why in the world would she choose the lower return from paying off the mortgage?

You have to pay taxes on that 5%, so it’s like 3.5% after taxes. Unless she itemizes her deductions, she’s really only earning 0.7% above the rate of her mortgage.

Not everyone feels the need to squeeze out every last 1/10th of a percent in return, especially when there are other benefits to paying off your mortgage (such as dramatically reducing your monthly fixed obligations).

Glad I could help you understand this.

Go back and read the original PP. She said "Pay off the mortgage. No question." Your analysis doesn't change the conclusion that her advice was wrong. At best, you've made the argument that there are intangible benefits to paying off a mortgage, but those will come at an actual financial cost. Also, you sound like a snide middle aged know it all. Glad I could help you understand this.

Toward the end of our mortgage we got very little back with taxes and with the new changes of the preset $25k deduction we got nothing back. It was freeing. Now if we want to renovate we will pay all or at least half in cash and pay that off quickly. We are closer to retirement and kid is still in hs so not going heavily into debt is important to us.

NP but OP has 20 years left on their mortgage. "Pay off the mortgage, no question [and then take out a HELOC for a renovation]" is unequivocally bad advice. Even people who tout the mental freedom of no mortgage and a lower monthly obligation should realize this is terrible advice, because OP will still end up with a monthly payment at a higher rate!

With 20 years left, all the more reason not to do a big renovation.

[Anonymous]

In a similar situation, I am electing to put my available sum in certificates of deposit, using the proceeds to upgrade slowly. But there's not a bad scenario here. Even the most costly choice of paying off a low interest mortgage gives you a huge boost to your monthly discretionary income. That's a nice way to live also, not stupid.
Pick the one that makes you the happiest to think about.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Payjng off a sub 3% mortgage early is close to the stupidest thing you can do. It is only topped in stupidity by throwing 350k at renovations.

The renovations aren’t stupid if this is your forever home and won’t move until retirement.

Are you rebuilding the entire house? Knocking it down and starting over?

It sounds like you’re already gotten an estimate from a contractor. Tread carefully.

$500k on a renovation sounds just as crazy as paying off an inflation only mortgage.

Can you run us the numbers they used for that estimate and what needs to be done. Obviously you will need to get the renovation because you are not paying a 2% loan to go back and borrow at 8% from somewhere else. But you are getting taken advantage of by the reno estimate and you need to be asking for contractor referrals instead going with this estimate.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Pay off mortgage. No question. You want a remodel, you don't need it.

Are you crazy? Or financially illiterate? OP has a less than 2.8% mortgage. She can get a 5% risk free return right now through HYSA, Treasuries, or money market funds. Why in the world would she choose the lower return from paying off the mortgage?

You have to pay taxes on that 5%, so it’s like 3.5% after taxes. Unless she itemizes her deductions, she’s really only earning 0.7% above the rate of her mortgage.

Not everyone feels the need to squeeze out every last 1/10th of a percent in return, especially when there are other benefits to paying off your mortgage (such as dramatically reducing your monthly fixed obligations).

Glad I could help you understand this.

Reducing fixed obligations losing the power and leverage of a cash stack and losing the interest deduction

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Pay off mortgage. No question. You want a remodel, you don't need it.

Are you crazy? Or financially illiterate? OP has a less than 2.8% mortgage. She can get a 5% risk free return right now through HYSA, Treasuries, or money market funds. Why in the world would she choose the lower return from paying off the mortgage?

You have to pay taxes on that 5%, so it’s like 3.5% after taxes. Unless she itemizes her deductions, she’s really only earning 0.7% above the rate of her mortgage.

Not everyone feels the need to squeeze out every last 1/10th of a percent in return, especially when there are other benefits to paying off your mortgage (such as dramatically reducing your monthly fixed obligations).

Glad I could help you understand this.

Do the kitchen Reno first first to see if you actually want to Reno everything. I initially thought I want to do the bathrooms kitchen and basement all at once. However, after I renovated the kitchen I decided that I want a break. I have the cash to Reno everything else, but I’m holding off indefinitely because it’s just too annoying to renovate. I don’t think it will improve my life much and I might do it later but I have no plans to continue at the moment.

[Anonymous]

This is a stupid question. Obviously do not pay down the low rate mortgage

[Anonymous]

Do not pay off the mortgage. I’d invest the money in a high rate savings/money market and think over what to do with it. It’s a VERY expensive time to renovate so I would not rush into that right now.

[Anonymous]

Anonymous wrote:How is this even a question? You are talking about paying off a loan at 2.8 percent to take on a HELOC at, what, 6 percent? Isn’t the answer obvious to anyone not innumerate?

HELOC's are twice that much. The fed funds rate is over 5%.

To pile on - regardless of whether you do a renovation do NOT pay off that mortgage. Savings earn more than your mortgage interest rate. Until that inverts there is no reason to pay it off early.

[Anonymous]

Anonymous wrote:Do not pay off the mortgage. I’d invest the money in a high rate savings/money market and think over what to do with it. It’s a VERY expensive time to renovate so I would not rush into that right now.

It's only going to get more expensive unfortunately. When demand goes back up after the next round of interest rate cuts it is going to be worse.