Reply to If you were to inherit $2 million, would you pay off the remaining $150k of your very low interest mortgage?

Forum Index » Money and Finances

Reply to "If you were to inherit $2 million, would you pay off the remaining $150k of your very low interest mortgage?"

Subject:

Emoticons





More smilies

Text Color: Font: Close Marks

[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous]No, I would not pay off my low interest mortgage.

Our “very low” mortgage is at 2.25%. It doesn’t make any sense to pay that off when I can get 3% in a regular savings account.[/quote]
+1   We have the money in cash to pay off our mortgage right now, but why?  The rate is 2.75%, and our money is sitting in a MMA earning closer to 4%.[/quote]

There are these things called taxes.  Assuming you're at least in the 32% bracket (24% federal and 8% MD) and are among the 90%+ of Americans who don't itemize deductions, you'd actually be earning a higher return by paying off your mortgage than keeping it in a MM at 4%.

Also, you've got it in cash for now, but paying off your mortgage is also a protection against making a bad move in the stock market (e.g., you pile into NVDA because of the hype and it drops 70% during the next correction).  Why play games with the roof over your head for *at most* a few basis points in return??[b][/quote]

I agree with you but reality is majority of people in this area Don’t have a 2.75 mortgage rate.[/quote]

Can you pls explain it with the taxes savings ? I thought that having interest deduction actually reduces your taxable income. [/quote]

mortgage interest deduction reduces your taxable income, but only if you itemize which most people can't (because what they'd itemize is less than the standard deduction and it wouldn't make sense). And the deduction isn't a great deal--if you pay $10,000 in mortgage interest and are in a 24% tax bracket, your taxes would go down by $2400...but you still paid $10,000 in interest, so it would have been better to avoid paying the interest if you could.

Of course, if you paid $10,000 in mortgage interest and made more than that by investing the money you otherwise would have put towards your mortgage, it might be worthwhile. To determine if you're actually making more, though, you have to factor in what PP was saying--that interest income is taxed. So if you make $10,000 in interest income and you're in that same 24% tax bracket, you really only made $7600. [/quote]

I’m trying to understand how you calculate the interest earned if mortgage is not prepaid. If let’s say I have $600k mortgage, I would be earning interest in the total amount of $600k invested in CDs. Whereby with mortgage payments I’ll be paying to the bank an interest and principal. Even if the % is higher than my returns on CDs I could still make more money by not prepaying, simply because of the leverage - whole $600k is earning interest. The bank gets this principal over 30 years.

So in order for me to prepay, the whole interest earned on $600k in CDs (after tax) should be less than interest paid to the bank that year (adjusted by tax savings from interest deduction).

Am I not getting it ? [/quote]

Options

	Disable HTML in this message
	Disable BB Code in this message
	Disable smilies in this message

Review message

Search Recent Topics Hottest Topics