Paying off your house

[EQGuy]

Against the advice of most financial wizards I paid off my house as soon as I could. Their advice was to never pay off your house so you could get an income tax deduction on the interest paid. I never understood the logic to that. According to them it makes sense to pay a portion of your income to a money lender rather than pay taxes to the government. My plan was to have the house paid for before I retired. I did pay it off a few years prior to retirement. I am debt free and I pay off the balance on my credit bills each month. I also do not have to worry about missing a house payment or one getting lost in the mail. My house is mine and that means a lot to me. A year after I bought my house the market exploded and a fellow I worked with told me I should take out the equity in my house and enjoy it now. The last sighting of him he was holding up a sign on a freeway onramp saying will work for food.

I live a mile from Yahoo headquarters and about a mile from LinkedIn HQ and Apple computers just occupied 2 buildings nearby. Now we are getting hit up by Realtors telling us we should sell our home because the market is hot right now. I have excellent duck hunting just a 5 mile drive from my house in the bay not too far from Yahoo and I have excellent medical care 5 miles away. It is a 25 mile drive to an excellent sporting clays range and I can shoot metallic silhouette matches at ranges 12 and 40 miles from here. Sure I live in the belly of the beast but my ancestor came to California before it was a state. This is my home and I am not leaving. Besides as my wife tells me our cats are buried here and she is not leaving.

 

[dave b]

I think paying off your house is very smart. I paid off my first house when I was in my mid 20s and haven't had a mortgage since. Your money goes a lot farther with no debt.

 

[ChattanoogaPhil]

There is no set right or wrong.

If you have extra funds to put toward other investments that might be better than putting it towards reducing a home mortgage... if you are a wise investor. If you would use the funds to buy a bunch of depreciating toys and junk then reducing the mortgage might be a wiser choice.

If someone was choosing between reducing a 3% mortgage or a 6% return on investment elsewhere... is paying off the mortgage necessarily the wise choice?

 

[LostintheOzone]

Yes sir, it's a numbers game. We still have a mortgage but it's a small one and 3%. I have enough money to pay it off but don't really see a financial reason to do that considering the tax deduction and the fact that I'm getting about 6-7% (reinvested of course) on money else where.

It's the old axiom that businesses use. Always use someone else's money to make money.

Lots of people are beginning to realize that owning a house isn't such a great investment considering how often people move and fluctuating markets. I know several people who lost a house because they purchased at exactly the wrong time. They would have been much better off renting for those 4 or 5 years.

 

[Vulcan Bob]

I may not be the sharpest pencil in the box but I feel the first thing you have to secure is the roof over your head. I paid cash for my house (after saving for quite awhile) and was told it was stupid, use the lenders money at a low interest I was told, did the same thing with my vehicles as well. Well, I rather like owning my own things without any payments and as long as I pay the "rent", read property and school tax's, I will have a roof over my head.

 

[EQGuy]

Yes I understand you can make money by investing the money from a home equity loan. There is also risk doing so. In case of a financial crash one can also loose money. My house is paid for and in my and my wife's name only. As long as I pay my property taxes I will not loose it. I am making enough money in my retirement to live comfortably. I thought at one time I would sell the place as soon as I retired and buy property in the country somewhere. But then the reality of old age and health issues reared its ugly head and I have decided it is better to continue living where I am currently.

 

[EQGuy]

In the original post I mentioned the fellow I worked with. He and his wife owned a duplex and got rent on the other unit. They took out a home equity loan and bought a time share in Tahoe, bought a new car and went to Hawaii and enjoyed their equity. They later divorced, sold the duplex, and the IRS asked for their share of the equity which they had already spent. His wages were attached by the IRS and he quit coming to work and was fired and ended up homeless living under a bridge. He also lost a lot of money gambling. It was really a sad story. I just am able to sleep well at nights knowing we hold the deed to our home in our names.

 

[Krell1]

People have different priorities. Wise advice about paying off a low interest mortgage versus a higher paying investment. I still have a mortgage but it is a very low monthly payment with very low interest. I could have paid it off years back but chose to use my available money for other things. I also accept that I'll always have a car payment. Since I don't drive nearly as much as I did when I worked, I now lease my cars. I still have a regular payment but I can get much more car and always have a warranty. My point is that people do things for a variety of reasons. Those are the 2 "debts" I have. I have no credit card debt and have all the bills everyone else has like gas, electric, trash pickup, etc etc etc.

 

[hoosierone]

A lot of it for me was the security of not having to deal with a mortgage in case of job loss, etc. Most of the time I paid considerably more than the required payment. I have no regrets.

 

[DGM]

Last month paid off the house.This month paid off the building that houses my small business,including a small warehouse that I rent out.I grasp the concept of using the money for other investments.This feels good !

 

[Comrad]

We're paid off too and love the security. All we need is taxes and utilities to live here and it's half of what it would cost to rent a similar place here in NJ. Never ever touch home equity unless you want to pay a mortgage till you die. Remember all the interest is paid up front and when you are 20 years deep in a 25 year mortgage it's almost all principal, not a time you want to refinance and start paying all that interest again. The income tax saving is nothing compared to what you will pay in interest.

 

[gregintenn]

Congratulations on paying off your home. I enjoy being debt free. My paycheck is mine when it comes.

Ask the next guy who tells you it is foolish to not have a mortgage his net worth. Yours will likely be greater.

If you decide you don't like being debt free, you can always remortgage your house. If you are able to do simple math, a mortgage is simply a bad idea.

 

[LoboGunLeather]

I built my last house 17 years ago. Cost me 65% of what it appraised for. Took a 15 year fixed rate mortgage and paid it off in 7 years. What was being spent on house payments went into a money market account, used to pay property taxes, homeowners insurance, and any major maintenance expenses. The excess went into retirement accounts every year.

Recently purchased a smaller home for retirement (patio home community with no exterior maintenance, lawn care, etc). Paid cash for that. Sold the old house for more than double what I spent to build it, and put that money into retirement investments.

One reason why many financial advisors recommend not paying off a mortgage is because they want to help you manage the money you would use to pay it off, then there would be no vig for them.

Being debt free gives a whole new flavor to life.

Assuming a $100K mortgage at 3.5% the mortgage interest write-off is $3500 per year. Assuming a 20% tax bracket that saves $700 per year in income taxes. Net cost is $2800, or 2.8% of that $100K. You might be able to get better than 2.8% earnings on that money, but not in CD's or money market accounts, only in something with some risk attached (stocks, bonds, etc).

In my opinion the only times it makes more sense to use borrowed money is (A) when you don't have the cash and need a mortgage to make a home happen, or (B) when you are talking about investment property, with leverage being the name of the game.

Unless you own your home you never have any control over your housing expenses, and you never truly own that home as long as someone is holding a mortgage on it.

My $0.02 worth.

 

[finesse_r]

I personally hate paying any kind of interest if I can avoid it. I feel the same way about insurance.

Having said that the least onerous form of interest is a low long term interest rate on a primary residence. Often the payment is less than rent, and the interest is deductible, so this type of loan is tolerable. Still if you have all your other debt paid off I would recommend paying off your home loan. There is nothing quite like owning your own home outright.

I understand someone with a 3 percent loan who needs their cash for more profitable investments might want to keep that home loan. Still the closer you get to retirement age, the more important it is to get that home paid off, and to get totally out of debt. Even younger folks can have investment go really bad and lose everything so I recommend that anyone that can pay off that primary residence. It is the most important form insurance you can have and it is free.

 

[H Richard]

The "freedom" you feel when you have NO Debts is worth it.

 

[4barrel]

I paid mine off in 02 & they sent me a refund check of 19 cents. I framed it & is still hung above the fireplace.

 

[CAJUNLAWYER]

It's called leverage. It's great until it goes south. Then you are totally SCREWED. Across the tracks they all drive BMW's Volvo's and Mercedes'. How? Why low lease payments of course. That big boat???? paying on time. House-maxed out cause the market is so flat. Credit cards?? Maxed. But a paycheck away from total collapse. That's not how I want to live. My stuff is OLD but it's paid for.
Remember this my friends, we own NOTHING in this world. We may have temporary use of some things, but we don't own any of it. When we die it just becomes someone else's problem.

 

[dougb1946]

Paying it off early frees up money for other things, like assessments, taxes, roof, insurance . It's a lot like getting a raise. And you don't get notices from Wells Fargo about people trying to hack your account any more.

House is paid for, car and truck are paid for, checking balance keeps increasing. May have to buy a boat.

 

[finesse_r]

Paying it off early frees up money for other things, like assessments, taxes, roof, insurance . It's a lot like getting a raise. And you don't get notices from Wells Fargo about people trying to hack your account any more.

House is paid for, car and truck are paid for, checking balance keeps increasing. May have to buy a boat.

No doubt a boat will reverse that increasing checking balance, and help you to reconnect you with your Wells Fargo friends.

 

[Arik]

It comes down to how you manage your money and what you do with it. Some people will spend the majority of their money on expensive cars and homes but have little to no savings. Others dont. Take my cousin for instance. She hasn't worked a day for probably the last decade and she doesn't have to despite being a CPA. Her husband owns two businesses and invests money. All 3 of their cars a Porsches. They just had their $5 million custom house built and they spend more time on vacation than on work ....BUT....he makes sure there is enough savings to cover everything if need be. Their spending is actually small compared to his income.