Pay off house or invest money?

The Coffee Shop
1

Another thread got me started thinking. Say I have a mortgage that takes up a considerable amount of my paycheck right now. Not to the point of not being able to pay bills, but it is tight.

Say I were able to generate enough money over the next year to pay the mortgage off completely. With the current economic climate - should I pay it off or put the money somewhere safe? To extend the scenario, would it change anything if I knew that I would be generating a significant amount of revenue for several years to come?

2

Another thread got me started thinking. Say I have a mortgage that takes up a considerable amount of my paycheck right now. Not to the point of not being able to pay bills, but it is tight.

Say I were able to generate enough money over the next year to pay the mortgage off completely. With the current economic climate - should I pay it off or put the money somewhere safe? To extend the scenario, would it change anything if I knew that I would be generating a significant amount of revenue for several years to come?

The Federal Reserve is about to bailout the EU banks, the ECB, and several TBTF US banks (Morgan Stanley has massive exposure to French banks) which means they are going to print like there is no tomorrow, which mean the dollar will continue to tank.

Debtors will benefit from the devaluation that is about to occur, so I woudn’t be so quick to pay down your mortgage.

Of course, putting your money into gold would be the wisest thing you could do.

3

I look at it this way.

How much do you think you’re going to make on the investment versus how much are you paying on your house?

If you have a 4% loan then you’d need to make the same thing off your investment to break even. Also consider the tax break from the mortgage interest paid, fees paid to a brokers, capital gains tax if applicable.

Add, subtract and voila!.

~Matt

4

Pay off current mortgage, and then buy another house (so then you have your investment) with super low interest rate.

5

cant really answer this question without knowing how much you owe and your interest rate.

you can figure out yourself fairly easily with an amortization calculator. how much your interest will cost you if you keep paying your monthly payments for the life of the loan? lets just guess that it will cost you $100,000 in pure interest if you keep doing what youre doing. if you invest the capital that you have/can get will you get more than that in your return? if you can get the money to pay off your home interest free then definitely pay off your mortgage.

edit: dammit m beat me to it while i was typing.

6

I vote pay it off. You say you will be making more money in a few years so you could potentially pay it off faster then. I would rather have the mortgage paid off and use the higher income to have more to invest (rather than more to pay off my house with). There’s nothing good about a significant liability… you never know whats going to happen in a year or two, so why not pay it off and forget about paying interest and having a significant amount of debt?

7

Matt and Vegan,

So it is as simple as doing the math? I was thinking (wondering) that with the devaluation of the dollar that there might be other considerations that do not show in the formula.

Interest rate is 5%, owe about 300k with probably 150-175k in equity.

Would like the freedom of not owing anything (which has some immeasurable value) but don’t want to pay it off if I would be able to do more with the money by saving/investing it considering current economical conditions…

8

Investing in your savings or 401k which has seen a lot of appreciation over the last two years and has a lot of downside risk vs. investing in your mortgage at 4-5%??

I think I would invest in the mortgage right now. Pay the sucka off.

In general, you are just re-allocating your equity.

9

Paying off $300k in one year?

You’re one of those rich people obama talks about.

It’s time to get in the game. You have benefitted from life’s lottery.

10

One more thing to think of, even if the investments don’t generate as much income as paying off the mortgage would save you, having a pile of cash on hand is never a bad thing. ie, mathematically paying off the mortgage puts more money in your pocket, but what if an unexpected expense comes up? Could you leverage your house quickly enough to meet the cash need? People always forget about that, but houses are not very liquid. Right now, they’re even less so and getting access to your principle through a HELOC or refi takes much longer than it used to. Being asset rich but cash poor isn’t a great position to be in, just ask Evander Holyfield.

11

if the dollar is devalued then it is devalued no matter what you spend your dollar on. with what you still owe you will be paying a TON in interest! take a look for yourself

http://www.bretwhissel.net/cgi-bin/amortize

think of it this way, if you pay off your mortgage by the end of the year that interest is money that goes into your pocket rather than the banks. even if you cannot pay it all off you should look into paying a bit extra every month or make an extra payment every year. play around with that calculator and look at what paying a little extra can do to the life of your loan. its pretty staggering!

12

yeah but if you pay off your house and get a heloc right away, nothing says you have to touch it. just set the checkbook or debit card aside for an emergency.

13

Either way you need to refi, I was checking out ING Direct rates yesterday, the have a 5 Year ARM for 2.75% based on that you are paying an extra $560 a month in interest that you don’ t need to.

14

LT83. that was more of a hypothetical if a couple of things fall (exactly) into place. My current annual income certainly wouldn’t allow it now. But some changes and opportunities could be coming that may allow me to pay it off in an abbreviated period of time.

I just bought into Amway and am going to retire in two years based off the income they promised me. just kidding.

15

yeah but what happens in 5 years when thatsucker shoots up to 8% and he loses his job so he cant refi? i only ask because both are likely with our shit economy.

16

After reading all of these ideas, a mattress bank is sounding like a good idea.

17

if the dollar is devalued then it is devalued no matter what you spend your dollar on. with what you still owe you will be paying a TON in interest! take a look for yourself

Actually I disagree with this. If the dollar gets completely devalued the folks with the most debt are the ones that come out the winners.

If I owe 500K on my house and we hit serious inflation that will drive the price of my house thru the roof. So instead of owing 500K on my 500K house I now owe 500K on my 1.5M dollar house.

Unless you have an ARM your mortgage rate won’t change so you are paying 4% on a 500K loan. Furthermore in order to keep up with inflation likely your wages are going to go up as well as pretty much everything…depending on how things work out the stock market as well.

You can then pay your 500K loan back with the “Devalued” dollars.

IOW if you’re expecting hyper inflation go out and get the largest possible loan and buy as much property as you possibly can.

~Matt

18

So it is as simple as doing the math? I was thinking (wondering) that with the devaluation of the dollar that there might be other considerations that do not show in the formula.

I think it’s “Simple math”, but not a simple problem.

Paying off your house takes a certain number of “Guesses” and thus a certain amount of risk.

Let’s say that you new that tomorrow that the stock market was going to take a 50% and then take 30 years to come back. Simple, no brainer. Pull your money out, pay off your house. You just saved your self oodles of money.

However lets say you think we will hit massive inflation. Don’t pay off the house, your house value will go up, your wages will likely go up, and you get to pay back the loan with devalued dollars.

Let’s say you think everything’s going to hell in a hand basket, you’ll get fired to tomorrow, won’t be able to get another job…pay off the house.

The problem is we don’t KNOW any of this stuff so we have to guess.

I recently just went thru this and decided to pay off the house. Thinks are very shaky in my business, my wife’s business was predicting lay offs and the market had regained most of what it had lost in 2008. We took out a chunk of money, paid off the house.

Good thing we did because less than a month later the wife got laid off. We don’t have to worry about a house payment, the stock market is down a good chunk from when we took the money out so all and all I’d say a decent call on our part in the short term.

Everyone has to consider their own situations, risks, wants, desires etc and make a choice.

~Matt

19

Just reported you on th obama ratline. Too late rich guy!

20

Paying off $300k in one year?

You’re one of those rich people obama talks about.

It’s time to get in the game. You have benefitted from life’s lottery.

Exactly, he must be a “surf marketer”.

Spread the wealth bitch:

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