Pay off the mortgage?

[Anonymous]

Do you want to look at this purely from an economics standpoint? If so, you need to figure out what your average rate of return would be if you invested it (perhaps looks at the avg for the S&P over a long period of time) and factor in the tax advantage of the mortgage deduction. Compare that against your interest rate/amt of interest you are paying.

Most people are more emotional about money, though, and feel a lot of security in having a fully paid house.

[Anonymous]

Anonymous wrote:
Most people are more emotional about money, though, and feel a lot of security in having a fully paid house.

I agree. I'd rather have a fully paid house than to have tax deductions that will only mean I have to keep on paying our mortgage.

[Anonymous]

PP, please read the linked Post column. That's not all you're losing.

[Anonymous]

I'm always surprised how many people get this wrong. The math is simple: if your rate is low and you can do better in the markets, then you shouldn't pay off. It's just that simple.

[Anonymous]

But the market isn't guaranteed right?

[Anonymous]

Nothing is guaranteed!

[Anonymous]

A paid off house is a guaranteed roof over your head and most people's biggest monthly expense GONE. That's sweet freedom, son.

[Anonymous]

There is something to say about financial freedeom, and when your home is paid off, you add years to your life. I don't care about interest rates on investments vs. home interest deduction - our home is paid off and when my DH was laid off in '08, we were able to continue our lifestyle.

[Anonymous]

Just pay it off. People always say everywhere to invest your money instead in something with a higher return, but does everyone do that? Not likely. Go with the bird in the hand -- pay off the mortgage.

[Anonymous]

Anonymous wrote:I am extremely risk averse and I plan on paying off after I have emergency fund saved.

Tax deduction means nothing to me. Like 10:12 said, no sense to pay the bank $1 to save $0.30 from Uncle Sam.

I know people say it's better to invest but this is money that I cannot afford to lose. Not one cent. Thus paying off the mortgage seems like the best option.

You're kidding yourself if you don't think that's an investment. Amazing to me that some folks still don't get this after the last decade or so.

[Anonymous]

Anonymous wrote:I'm always surprised how many people get this wrong. The math is simple: if your rate is low and you can do better in the markets, then you shouldn't pay off. It's just that simple.

People are not rational. And the most incompetent are most likely to fail to recognize the extremity of their inadequacy.

[Anonymous]

One flaw in the reasoning for not paying it off is that when you invest the money that you would otherwise have used to pay off the mortgage, that that investment will be an excellent one. Anyone who has ever invested knows that a great return is not guaranteed. But, if the mortgage is paid off, that is an expense that you will never have again, and you can live there while looking for other investments.

[Anonymous]

There's never been a (legal) foreclosure on a paid-for house. That peace of mine is worth quite a lot. And the tax-deduction thing is nonsense: for every $1,000 you pay in interest, you get back around $300. Why would you want to pay $1,000 to get back $300? You might as well pay off the house and donate the $1,000 to charity to get your $300 tax deduction!

[Anonymous]

Anonymous wrote:One flaw in the reasoning for not paying it off is that when you invest the money that you would otherwise have used to pay off the mortgage, that that investment will be an excellent one. Anyone who has ever invested knows that a great return is not guaranteed. But, if the mortgage is paid off, that is an expense that you will never have again, and you can live there while looking for other investments.

The inverse is however also true, if you have paid off the mortgage then you don't have as much to invest, and if you need cash you are reliant on the appreciation of your home, which is no less risky than markets, although considerably more illiquid. The right answer simply one that compares the expected anticipated returns against the interest rate of your loan.

I also add that given current rates that investment need not even by "excellent". Assuming you have a 2.5% 15 year, and you can average a paltry 4% you'll enjoy a 1.5% spread right out of the gate.

[Anonymous]

The inverse is however also true, if you have paid off the mortgage then you don't have as much to invest

What about the mortgage payment? If you pay off the mortgage you can take that amount each month and invest it.