Should one pay off one'e home mortgage ?

If one has the money should one pay off one's home mortgage ?

Under what circumstances should one:
-pay off the mortgage
-NOT pay off the mortgage

What are the tax negatives and positives ?

My sister is in this situation. I think they are in the 20 to 28% tax
bracket. Have reasonable income. Ages around 47 and 50.

Is there an article, website that has written a good article on this
topic ?

I am sure a lot of people would like an answer to it.

Thanks
Ava

In article .com, wrote:
Should one pay off one'e home mortgage ?

a) Not if you can invest the money at a higher rate of return than you're
paying on your mortgage.

b) Not if you have other debt at higher interest rates, such as credit cards
or auto loans. Pay those off first.

If one has the money should one pay off one's home mortgage ?

a) Not if you can invest the money at a higher rate of return than you're
paying on your mortgage.

b) Not if you have other debt at higher interest rates, such as credit cards
or auto loans. Pay those off first.

Under what circumstances should one:
-pay off the mortgage

If the effective interest rate (after taxes) is higher than the effective
interest rate (after taxes) that you could earn from investing the money
instead, then you're obviously better off to pay the mortgage off.

-NOT pay off the mortgage

a) if you could earn a higher rate on an investment somewhere else
b) if you have other debt at higher interest rates than the mortgage, that
should be paid off first.


What are the tax negatives and positives ?

Mortgage interest you pay is tax-deductible. Investment interest you earn is
taxable. The tax rate affects the interest rates similarly, and in the same
direction: the effective cost of a 6% mortgage is actually less, say around
4.5%, depending on your tax bracket, because you can deduct the interest from
your taxable income. In the same way, the effective value of an investment
returning 6% is actually less, say around 4.5%, depending on your tax bracket,
because you must pay tax on that interest income.

There is no "tax positive" from paying mortgage interest. You're obviously
better off incurring a deductible expense than to incur a non-deductible
expense -- but it's not nearly so obvious to many people (including some tax
advisors) that you are clearly even better off to avoid incurring the expense
in the first place.

Bottom line: if you have enough cash on hand to pay off your mortgage, but you
can earn a higher rate of return than you're paying on the mortgage by
investing that cash in stocks, bonds, pork belly futures, or whatever, you're
better off investing.


--
Regards,
Doug Miller (alphageek at milmac dot com)

Nobody ever left footprints in the sands of time by sitting on his butt.
And who wants to leave buttprints in the sands of time?

(Doug Miller) writes:

Bottom line: if you have enough cash on hand to pay off your
mortgage, but you can earn a higher rate of return than you're
paying on the mortgage by investing that cash in stocks, bonds, pork
belly futures, or whatever, you're better off investing.

Well, not quite. Paying off one's mortgage is a risk-free investment,
while stocks, bonds, and pork belly futures are not. A better
comparison would be against the return on other risk-free investments
like CDs, savings bonds, and the like. You should also consider your
overall asset allocation strategy; in addition to evaluating how much
risk you're willing to take in terms of return, paying off one's
mortgage also ties up one's money in a very illiquid way (you have to
take out a new mortgage or sell your house to tap into your home
equity).

Another possible factor: if you pay off your mortgage, what are you
going to do with the money you no longer have to spend on your house
payment each month? For a lot of people, a monthly house payment is
an enforced savings plan. If you don't have the discipline to
reinvest that money every month on your own, you might be better off
sticking with the mortgage.

-Sandra

In article , Sandra Loosemore wrote:
(Doug Miller) writes:

Bottom line: if you have enough cash on hand to pay off your
mortgage, but you can earn a higher rate of return than you're
paying on the mortgage by investing that cash in stocks, bonds, pork
belly futures, or whatever, you're better off investing.

Well, not quite. Paying off one's mortgage is a risk-free investment,

No, it's not.

You're assuming that the value of the home is guaranteed to rise, or at least
not to fall - and that's a false assumption, as anyone who has ever lived in
an area that lost a major employer can tell you.

while stocks, bonds, and pork belly futures are not. A better
comparison would be against the return on other risk-free investments
like CDs, savings bonds, and the like.

Incorrect, as noted above.

You should also consider your
overall asset allocation strategy; in addition to evaluating how much
risk you're willing to take in terms of return, paying off one's
mortgage also ties up one's money in a very illiquid way (you have to
take out a new mortgage or sell your house to tap into your home
equity).

That is in itself obviously another form of risk.

Another possible factor: if you pay off your mortgage, what are you
going to do with the money you no longer have to spend on your house
payment each month? For a lot of people, a monthly house payment is
an enforced savings plan. If you don't have the discipline to
reinvest that money every month on your own, you might be better off
sticking with the mortgage.

That, however, is an issue of personal discipline, not one of financial
management.

--
Regards,
Doug Miller (alphageek at milmac dot com)

Nobody ever left footprints in the sands of time by sitting on his butt.
And who wants to leave buttprints in the sands of time?

(Doug Miller) writes:

In article , Sandra Loosemore wrote:

Well, not quite. Paying off one's mortgage is a risk-free investment,

No, it's not.

You're assuming that the value of the home is guaranteed to rise, or at least
not to fall - and that's a false assumption, as anyone who has ever lived in
an area that lost a major employer can tell you.

But the value of one's home has nothing to do with whether one has a
mortgage on it or not. :-)

-Sandra the cynic

In article , Sandra Loosemore wrote:
(Doug Miller) writes:

In article , Sandra Loosemore
wrote:

Well, not quite. Paying off one's mortgage is a risk-free investment,

No, it's not.

You're assuming that the value of the home is guaranteed to rise, or at least
not to fall - and that's a false assumption, as anyone who has ever lived in
an area that lost a major employer can tell you.

But the value of one's home has nothing to do with whether one has a
mortgage on it or not. :-)

True enough, but the risk picture isn't the same.


--
Regards,
Doug Miller (alphageek at milmac dot com)

Nobody ever left footprints in the sands of time by sitting on his butt.
And who wants to leave buttprints in the sands of time?

"Doug Miller" wrote...

Another possible factor: if you pay off your mortgage, what are you
going to do with the money you no longer have to spend on your house
payment each month?

That, however, is an issue of personal discipline, not one of financial
management.

If you believe that personal discipline is not a significant part of
financial management, I wouldn't take ANY financial advice from you!

On Sun, 03 Apr 2005 14:56:16 -0700, someone wrote:


It depends on the interest rate on the home

Not really, because one can change loans (refinance) to get a
different rate.

It depends much more on their stage in life, personalities, financial
goals, etc.

Some people want to make as much money as possible and believe in
leveraging their home to the max to get money to invest. One might
also buy stocks on margin, constantly do equity takeout refis to get
more cash, etc. Of course, most Americans then won't actually invest
(they spend instead), but in theory one might.

Others prefer frugality, safety, and a feeling of security. To own
free and clear - to have no mortgage payment if jobs are lost, the DOW
takes a dive etc. brings a priceless feeling of comfort.

We are business owners and sometimes land developers - we have enough
risk in our business lives. In our home life we are looking forward
to being paid off in a few years, and might indeed "pay it off" if we
happened upon a chunck of money. Our businesses are highly leveraged.
Our home has never been. We do not know from month to month how much
we will make, so the idea of lowering our personal "nut" so that we
are not compelled to make a bunch inorder to cover a house payment, is
very attractive to us.

We would pay it off.



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On 03 Apr 2005 20:02:00 -0400, someone wrote:

Another possible factor: if you pay off your mortgage, what are you
going to do with the money you no longer have to spend on your house
payment each month? For a lot of people, a monthly house payment is
an enforced savings plan. If you don't have the discipline to
reinvest that money every month on your own, you might be better off
sticking with the mortgage.

Actually, I think that cuts the other way even more. If people don't
have discipline, they are more likely to spend the supposed investment
money on frivolous things. If they use a chunk of found money to pay
off their mortgage, they have enforced their savings into something
that is indeed harder to blow. Otherwise the found money will be gone
in short order, and they will still owe the house payment.


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On Mon, 04 Apr 2005 11:44:01 GMT, someone wrote:

Well, not quite. Paying off one's mortgage is a risk-free investment,

No, it's not.

Doug - it IS in the sense that the OBLIGATION to pay is a "sure
thing". This has nothing to do with whether or not the value of the
house rises. Even if it declined, you would still be under legal
obligation to make the mortgage payments. Thus I too would equate
relieving myself of a fixed obligation, as comparable to the safer
fixed investments like a highly rated bond or bill (the market value
of which can also fluctuate but the fixed payments from which also
approach a "sure thing" also).

Your approach may be the correct investment theory, but one's own home
is not merely an investment instrument. There are other
considerations. For example, I expect that your investment theory
would be to buy things that you expect to go up - and dump them as
soon as you have info to the contrary. But do you really expect
people to be so quick to dump their house - gee, the neighborhood's
gonna go down 5% this year and banana futures are going way up - sell
the house and buy bananas? (It is too bad that so many people have
only their home as an asset, so they must treat it as an investment.)

Pay off the house. Then payroll deduct an amount comparable to the
mortgage into their investment account, and go speculate with that.
Then whatever happens to it, they won't lose their home.

-v.


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In article , "John Weiss" wrote:
"Doug Miller" wrote...

Another possible factor: if you pay off your mortgage, what are you
going to do with the money you no longer have to spend on your house
payment each month?

That, however, is an issue of personal discipline, not one of financial
management.

If you believe that personal discipline is not a significant part of
financial management, I wouldn't take ANY financial advice from you!

LOL ... perhaps I should have stated it differently. That's an issue of
personal discipline, not a question of which alternative is more prudent
financially. That better?

--
Regards,
Doug Miller (alphageek at milmac dot com)

Nobody ever left footprints in the sands of time by sitting on his butt.
And who wants to leave buttprints in the sands of time?

See if this will help u make financial decisions

http://www.suzeorman.com/

On 3 Apr 2005 12:01:10 -0700, wrote:

Should one pay off one'e home mortgage ?

If one has the money should one pay off one's home mortgage ?

Under what circumstances should one:
-pay off the mortgage
-NOT pay off the mortgage

What are the tax negatives and positives ?

My sister is in this situation. I think they are in the 20 to 28% tax
bracket. Have reasonable income. Ages around 47 and 50.

Is there an article, website that has written a good article on this
topic ?

I am sure a lot of people would like an answer to it.

Thanks
Ava


After reading all the replies, look at it this way. Whether you can
and will do better is questionable. Paying off the house will
definitely be smart. This isn't to say that one can't do better but
that it's better than not doing anything.

On a side note, I got the impression that some equated the value of
the house to whether one should pay the note. Well, if you don't pay
the note (regardless of house value), there is a good chance the IRS
will consider the remaining note as taxable income.

On 4 Apr 2005 17:42:33 -0700, someone wrote:

http://www.suzeorman.com/

No! No! No financial gurus!


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