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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 8:39 am 
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Joined: Jan Wed 08, 2014 7:52 am
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Location: Arlington, Washington
I'm with those, recommending paying it off.

8 years into a 15 year mortgage, we took a sizable chunk of savings and paid off the outstanding loan, so that my wife could retire. At the time, it felt like a giant step.

It freed up a couple thousand dollars cash flow and allowed us both to retire.

In these trying times, I find it comforting, knowing that the roof over my head, belongs to me.

Stan Carter


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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 8:42 am 
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Alan Voorhees wrote:
If you pay it off, the rate of return on your money is the amount of interest you are paying on the mortgage. If you have a mortgage at 2.5%, then paying it off yields you 2.5% without having to do anything else. If you have an investment opportunity that yields you more than your current rate, you'll make more by keeping the mortgage.

The trouble with that path is that the opportunity could go sour (speaking from experience, as I had posted above). His free and clear house would not.

Rates 10 years ago, when he apparently financed the house, were at around 4.7%.

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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 8:50 am 
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+1 Barry. Getting A counselor is good advice.

IMHO:
To the tune of an opera :

Pay----It----OFF!

Your going to owe more if you don't.

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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 12:04 pm 
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Alan Voorhees wrote:
If you pay it off, the rate of return on your money is the amount of interest you are paying on the mortgage. If you have a mortgage at 2.5%, then paying it off yields you 2.5% without having to do anything else. If you have an investment opportunity that yields you more than your current rate, you'll make more by keeping the mortgage.


As Richard said .... you can't predict what will happen to the market, but you don't have to predict anything for your home if there's no debt.

Also, despite the math that says "if your mortgage rate is low and investments return high, keep the mortgage", that doesn't give you any flexibility.

Pay it off and if you're happy with an obligation on your palace, take out a line of credit .... that gives you almost the same as what you had before (mortgage), but now it's "you" in the driver's seat, not the lender when it comes time to take more or pay it out.

Flexibility .....


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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 1:14 pm 
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Some people say " keep mortgage for tax write off" So you are going to pay for example $10 K in interest to save $3k in taxes. Send me your $10K and I will gladly send you $3k.

You end up saving tons in interest and you pay yourself and you own your home outright. if you were to loose your job, you have your house and don't have to worry about the boogey man coming and taking it.

a few years back after paying off my house I did loose my job, but I had banked enough cash to survive a year or more even if I did not find a job in that time.

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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 1:20 pm 
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Location: Sunbury, Ohio 43074
Quote:
Some people say " keep mortgage for tax write off" So you are going to pay for example $10 K in interest to save $3k in taxes. Send me your $10K and I will gladly send you $3k.

A wise old businessman, many years ago, told me "Never spend $1 to save $.30. That was when I was asking for advice on how to finance my first business venture.

It applies here as well, and +1 to the above post. It's just a math problem... work the numbers. :)

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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 1:37 pm 
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Location: Boston, MA
If I read the OP's post literally, the bank is saying if they don't set up a bank account, they do not have to make the mortgage payments. Problem solved :D

There are two things to consider. From a pure financial spreadsheet perspective, it may make sense to keep the mortgage alive if the interest rate is very low. That does free up the lump sum money to invest elsewhere where you can generate a better return.

IMO, there are a couple of flaws with that strategy. First, you do need to be disciplined enough to actually invest that money. If you use the money to buy a boat instead, you haven't saved any money. Not every person is so disciplined. And it doesn't have to be quite so dramatic of an example either. Let's say you have $100,000 to pay off the mortgage or invest. You decide to invest. However, you're not sure how to invest it, so it stays in the bank for a few years earning 0%. Or, hoping to beat the 2.5% interest rate on your mortgage, you invest in the stock market right at the top of a bubble, and your $100,000 turns into $50,000. Are you in position to handle that? Will you be in position to handle that 5 years from now?

Paying it off gives you peace of mind. It's now your house; as long as you pay the taxes, it cannot be taken away from you by a 3rd party. Only you can put a price on that peace of mind. It may give you the flexibility to do things that you would not otherwise consider if you had a mortgage. Also, the money used to pay off the house does not disappear. You can always apply for a line of credit so that you could get access to the money if you ever had to during an emergency. It's best to apply for the credit line before the emergency when you have the luxury of time and your financial situation is stable.

One complication is if you have kids and plan to send them to college (which hopefully you are for their sake). The equity in your home is not considered when it comes to federal financial aid; but states and private universities are free to use their own formulas and will ask you to report your home equity. Personally, I wouldn't base my decision solely on how it impacts college financial aid, but it is a consideration to at least be aware of.

I don't believe there is a right or wrong answer here. Some people are really far more comfortable with the pure financial rate-or-return approach. Only you can make that decision based on what's important to you and your family. I paid my house off and don't regret it for a single minute, but that's me.

One last thing: if you do pay it off, check that your home insurance is at the level where you want it. You should do that anyway, but once you pay off the house, you now become responsible for 100% of the loss if something bad happens. Ignore the internet trolls that say home insurance is a bad investment; they obviously never heard of house fires.


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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 2:10 pm 
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Location: Elmira, NY
What I did, and results:
I found a house , in 1998, that was within my means. ($80,000), I put $2500 down. Immediately I started paying an extra $100 or more each month to bring the balance down. Eventually I paid down the mortgage until I had enough equity to eliminate the PMI (mortgage insurance). Then I put the extra money. I was paying for PMI with the extra money paid on the mortgage. You would be shocked how much paying extra made on paying down the mortgage. I paid off my mortgage in less than 10 years. Yes, I lived/live quite frugal. Once the mortgage was paid off I continued to save the amount of money I used To pay on the mortgage. I’ve always used a credit card for every bill, but I paid off the balance due every month not carrying a balance. I’ve never paid interest but developed a good credit score. I ended up saving a great amount of cash. After I had accumulated a few months cushion, early on, I began putting money in an IRA and Roth accounts. I found a good (good being key),financial planner. My financial plan was conservative, and I emphasized I wasn’t looking to make large gains, in fact, not any if as long as there were no risk, just don’t loose any. Like everyone I’ve bought a care when needed (20 years) and paid cash. I replaced my roof, had hospital expenses, etc. My investments increased at a slow steady rate. I now have retired quite comfortably and still live well within my means. I am very satisfied.
My point is I didn’t pay interest ,or extra bank charges, and lived within my means.
My advise: pay off your house and any other debt as fast as you can!
Some people will say borrowing money and making payments will build a good credit score. They buy things now things they don’t need, but want, and pay later. They end up paying loads of compounded interest and live on the edge beholding to a bank. I say, who needs credit if you have money to buy now, and never need to borrow.


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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 3:06 pm 
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Pay off the loans and gain the freedom to quit your job before they slam the door in your face, it happens. 8)

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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 3:30 pm 
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lexrageorge wrote:
If you use the money to buy a boat instead, you haven't saved any money.


If you're not going to spend it, what good is it? Money for the sake of having money? We've all heard stories about how, in other countries, your life savings can't buy a loaf of bread.

Things are set up here so that in the last two years of your life, the medical profession will siphon off 90% of everything you've ever earned. Why give it to the doctors? They already have mansions with built-in swimming pools. (Except in Venezuela where doctors eat out of dumpsters. Their life saving vanished.)


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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 7:12 pm 
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Location: Elmira, NY
A little off topic but I had to comment : think about it, in order to write something off you need to loose money.

Also a financial planner is golden. Yes he makes money...do you work for nothing?, why should he. Sometimes I gain 20% on my investments; my broker makes 14% and I get 6%, then pay taxes on it...but still I am ahead.

An individual. Can get lucky managing his own, but in no way can he match the buying power and savey of a “good” broker.
The “secret” is to invest conservatively for the long hall. The more money you invest the more you will make. The biggest mistake is getting greedy., then it’s risky.
My philosophy has been: earn money with my own hard work doing what I do best. Hire an expert to handle my investments and make conservative low risk investments. Make a little and don’t get greedy. If you have enough money to maintain the same life style as when you were working, that should be enough. If you have enough why risk it all for more


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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 7:17 pm 
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Lots of good thoughts here guys. I guess the fact that I was dirt poor for years with no savings always sticks in the back of my head: There is never enough savings when it comes to how much I think I need. And here in the Bay Area paying off a house is not a small deal. It will bi a lotta' dough to pay off. OTOH the interest alone would probably make that amount double. Or interest rate is around 2.7% because 10 years ago interest rates really fell.

It would be nice not to have to worry about paying for it anymore even though property taxes will always be owed.


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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 7:38 pm 
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When I was in graduate school, it was recommended for one of my classes that we subscribe to Fortune Magazine. I remember reading an article in Fortune where it was stated that the minimum you needed to save for retirement was $2.5M. I didn't renew my subscription as I figured I wasn't in Fortune's target market! Today, I see articles posted whether $1M is enough for retirement. What happened to the old minimum of $2.5M?


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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 8:51 pm 
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Location: Lakewood,CO 80215
I agree with Jim Rozen re: the original contract. Without that info, seems fishy they want to change method of payment. Never heard this one before, and I have seen many contracts. Also agree time for professional and regulator advice.


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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 8:57 pm 
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A bit off topic, but consistent with the varied off topic subjects :mrgreen: ......Any investment advisor worth the name on the business card will tell you to adopt a "get rich slowly" strategy. If you are in the stock market, and you watch it bounce up, down, crash, recover ... you'll go nuts. Over time, the long term trend there is up, and *should* remain that way. But if you chase the peaks and valleys, your odds are better playing BlackJack. People always tend to zig when they should zag in the markets.... if it drops suddenly, the impulse is to panic sell. What you SHOULD be doing is buying select stocks that are beaten down for no fundamental reason.

Is that far enough off topic?
Back on : If you've got a 2% interest mortgage, we probably shouldn't be having this discussion. That is virtually free money. Take your cash and buy an investment property while the rates are so low. ;-)

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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 9:19 pm 
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Location: Rochester NY USA
Can you get 2.7% return on an investment with zero risk? I have a CD with 2.7% interest from a few years ago, when it matures I may get 0.5%. Bond prices are high due to higher rates on existing holdings - they have to come down in value. Stocks? absolutely as long as you can choose when to sell - so you need cash and stable investments enough to weather unemployment and a market drop.

I paid off my home early, then invested the savings in my 401K and IRA. Lowered my taxes while working, now pay zero income tax until the minimum withdrawals kick in.

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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 9:21 pm 
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jbees wrote:
I agree with Jim Rozen re: the original contract. Without that info, seems fishy they want to change method of payment. Never heard this one before, and I have seen many contracts. Also agree time for professional and regulator advice.
Also agree. The only requirement is for you to make payments per the original loan contract, nothing else. This one doesn't sound right...proceed carefully.


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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 10:49 pm 
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If you pay it off, you could still make the equivalent of the "monthly payment" each month into saving or a retirement account. You will be surprised how quickly it will build up in time. :D

-Steve

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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 11:11 pm 
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Distilling some of the excellent replies;

1. Pay off the homestead.

2. As long as you have wages coming in, use the amount for P & I to invest. Monthly in stocks or bonds, or save to invest in another Real Estate property.

3. You'll want to make a separate savings account to put the monthly amount they had been escrowing for taxes and insurance. The tax man cometh November 1st, due no later than Dec 10, and February 1st due no later than April 10. Having the chunk needed in that savings account makes it easy to do the payments. Likewise for Homeowners Insurance.

So in the above scenario, you have a paid off villa, a fund to cover T & I, and investments for either growth, income, or both.

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 Post subject: Re: What would you do?
PostPosted: Sep Fri 25, 2020 11:32 pm 
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bobwilson1977 wrote:
Lots of good thoughts here guys. I guess the fact that I was dirt poor for years with no savings always sticks in the back of my head: There is never enough savings when it comes to how much I think I need. And here in the Bay Area paying off a house is not a small deal. It will bi a lotta' dough to pay off. OTOH the interest alone would probably make that amount double. Or interest rate is around 2.7% because 10 years ago interest rates really fell.

It would be nice not to have to worry about paying for it anymore even though property taxes will always be owed.


I would think that if you have the money for paying it off, that the return on that money would pretty easily exceed 2.7%, even municipal bonds would have easily beaten that over the past few years. But, again, people have different levels of comfort with debt and investing, and I would not (and am not) expecting the current tremendous run to continue for much longer.

Brett


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