I wouldn't do it.

Instead, I'd calculate 6 or 12 months of living expenses and set that aside as a rainy day fund. The rest of the savings would be fair game for making a jumbo payment on the mortgage principal. Do that once a year.

20 or 25 years ago, I didn't keep a rainy day fund "properly" funded and made too large of a jumbo payment on a loan. The unexpected happened and I didn't have enough in the rainy day fund so had to take out a line of credit. I vowed never to do that to myself again.

At 5 3/8 it’s a wash. What’s the 0 risk option with the money ? My mortgage is 2.5. Money market funds are 5.23 and I just bought a CD today for 5.35. why should I prepay a 2.5 mortgage when I can get almost 3 points better risk free. The inverse is true as well. Back when deposit /treasury rates were basically 0 paying as much extra in your mortgage is a decent move.

I would pay if off, without hesitation.

We did it, always made double payments until 2 years ago when we only owed 75k. Then we paid it off completely . It’s a feeling of such freedom.

Now all the money we make goes to college for the kid or savings. I write a check for the taxes in the first of the year and it hurts (6k) but the house is ours.

We paid ours off about 10 years ago and it did make a major dent in our savings. On the up side you start to notice a lot of money accumulating in your checking account really fast. On the downside you do notice property taxes much more. We paid attention to property taxes but they are much more visible when that's the only thing you pay. (There is insurance but ours is minimal compared to the taxes) Overall we're very happy knowing that we own the house. It's hard to put a price tag on that feeling.

On October 10th of 2020, my FIL went out for a boat ride. There was an accident, a huge search, long story short, he was never found.

When you go missing, there is no body for a death certificate. BUT, everyone, from Gov to banks, freezes all accounts. My MIL lost her husband, and ALL SS, Fed Retirement, etc, stopped. She had ZERO income at 70 years old.

If the house had not been paid off, she would have lost it as well. Took a lot, and long time to get all squared away.

Now, I know, that is not a common situation. But it is one I lived.

I determined then and there to pay off our house so my wife would be protected as much as she could.

Yes, the interest was only 3.25%, but it was on a big chunk of money.

I paid it off last March.

The feeling of relief is incredible. The 2200 a month I had been paying is now $450 a month for taxes and insurance.

The freedom is wonderful.

Arguments could be made to handle money differently, but after paying off my mortgage early, there is absolutely zero regret.

Great question and awesome responses.
My usual answer would be pay it off early,
As guns don't kill people, interest does.

Would long term taxations enter into any aspect of this equation?

The thought of my money allowing some suit to sit around in a cushy office while enjoying an opulent lifestyle
Chaps my hide severely .

Considering your spouse is a great perspective.
Do you have a revoka le trust and pant loads of insurance?

Lived through this situation going back about 10 years ago. My interest rate was sub 3% though. We also always lived well within our means and had disposable income.
I chose to pay the minimum payment required by the mortgage. My thinking was that we would continue to aggressively fund retirement. I kept my mortgage deduction and maximized our liquidity.
We always intended to downsize upon retirement so I also viewed the house as an investment that I was keeping at a lower interest rate than I could earn on my liquid cash.
In my case it worked out well for us. We sold when I retired and paid cash for the retirement home.
So I like having it both ways I guess. Fine to keep the mortgage while working so I could pile up retirement cash. But, prefer to have no mortgage in retirement when our income is more limited and I'm no longer aggressively saving. (potentially having to liquidate savings like you normally do in retirement).

You still have a lot of years left and your interest rate sucks (at least compared to some of the 2.x% (or lower) stuff from a couple years back. As long as you can afford it and still be able to deal with some surprise expense, pay it off or pay a big chunk of it off would be my vote. Especially if you have the discipline to pay yourself back.

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Originally posted by sigcrazy7:

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Originally posted by SIG4EVA:
I take Dave Ramsey's advice on this one. I say pay it off. I'm doing the same with $95000 left and a 2.5% interest rate. Its all about RISK. Would you take a loan on your mortgage to put into the stock market for that sweet return that's over the interest rate? My guess, probably not.

Not normally, but I was paying extra on one of my rentals with a 3.25% rate. Then the bank offered six-month CDs at 5.50%, so I stopped paying on the house, took some savings and opened up a few CDs to get that extra 2.25%, and am using what I was paying extra to replenish the savings. At the end of the six months, if the CD rate is lower than 3.25%, I can then apply all the extra gains to the mortgage. Otherwise, I will renew the CDs. The payoff will be faster this way.

As a general rule, during periods of high inflation, it's better to be a debtor. I don't know if paying it off is such a great idea.

That's a totally different situation than your primary residence.

I'm not qualified to advise you on this. What I would recommend is that when you are evaluating alternatives, make sure you are doing a true "apples to apples" comparison.

When you are comparing various rates of return make sure that you are comparing the same type of rate. In theory, a rate of return consists of several components. At the very base is the risk free rate of return. This is the portion you would earn if you had an investment with zero risk. Since such an investment doesn't exist the current six-month U.S. Treasury bond rate is typically used to approximate this.

When you pay off your mortgage early, you are guaranteed to earn that return because you will not be paying interest that you would have paid. So comparing that to what you might earn out in the market can give you a misleading answer if you don't take into account your entire portfolio of investments.

I think several people mentioned the tax deduction from mortgage interest. Keep in mind that the IRS standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year. The standard deduction is indexed for inflation so it will continue to increase each year while the amount of interest you pay will decrease as you pay down the principal.

I know that for the past several years we've taken the standard deduction even though we may have been a few hundred over in itemized deductions. The reason was that any state income tax deduction becomes income in the next year and it just wasn't worth the paperwork hassle to track it.

One other thing I would like to mention as it surprised me when I first learned about it. When it comes to fixed debt, most people are familiar with car loans and home mortgages. There is an important distinction between two when it comes to repayment. With a simple interest auto loan, you can pay any time during the month as many times as you want and they will recompute the interest owed based on when and how much was paid. With a home mortgage, you can only make one payment a month and that is on the due date. If you pay early, whomever it collecting the payment will just hold it until the due date (and get the benefit of the money).

If you are going to be making additional principal payments, make sure the mortgage servicer knows that the additional amount is for principal and they apply it accordingly.

^^^^^^^ Some great points.

What? You’re not buying a boat?

For me, it would depend on my retirement fund status. If that was on par with my retirement date and plans, then definitely pay off the house.

We retired a year and a half ago, my only regret was I wish I had maxed out our Roths for many years.
Just to help with our tax bracket.

There is nothing like the feeling of being debt free. I would and did pay it off as soon as I could. Funny thing, I get the same feeling every year when I pay the tax bill.

Paying off our mortgage allowed us to be able retire . It's not just about interest rates and return on investment , etc. It's also about cash flow . That awesome feeling of not having a mortgage is hard to describe . No regrets .

I paid mine off. Simply because based on my pay and deductions it didn’t exceed the standard to take advantage of it. I was private financed so it didn’t show up on a credit report and interest rate was super low. It was a satisfying day when I handed the close friend the payoff amount a few weeks before he passed. He helped me out, to which I will always be appreciative. Knowing I fulfilled my agreed obligation prior to his passing was worth it. I know my situation is unique

The 2 things that stood out the most to me in your post was that you plan to sell this home eventually and that you have roughly $400k in equity right now. Based on these 2 factors I would NOT use hard cash to pay the house off now.

Why? You have cash available in the home now to withdraw via a HELOC if you need it. You will be converting funds you have already paid taxes on and putting them back into something you will be taxed on AGAIN. (The capital gain taxes will be higher when you sell it with a zero balance).

You obviously have extra funds available monthly after paying the mortgage, so invest those now in a ROTH account that won't charge more taxes when you withdraw. Pay the mortgage bi-weekly not monthly and they will apply it at the time of payment. Add $100-$150 to each bi-weekly payment and you will pay the house off at your retirement age just by doing these 2 things.

If I knew where I wanted to retire and what type of property I wanted I would buy that property right now, rent it to someone else and let them pay on it for the 10yrs and then gut it and redo it to my liking when I retired. This allows you to lock in today's home pricing for the retirement home.

This way you keep the equity, the tax write-offs now that you need based on higher income now than retirement. You have a ROTH for post tax funds you can access, the mortgage is paid at retirement and you already have the home you want and someone else will have paid at least 25% of the balance too.

This topic comes up every now and then and it's always the same . People with a mortgage tell other people why they should have one too .

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When you send in that lump sum just be sure they apply that to the principal and not prepaid interest.

Even worse, more likely, their default application of an excess payment is into escrow, a no-interest loan to the lender.

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A call to the mortgage company to ask how to make sure of that would be a good idea.

I wouldn't be so sure. An actual physical letter to the mortgage company giving your intentions and instructions has a lot better chance of not being intentionally ignored.

I've always heard about this capital gains tax, but I was also told its only if your house is $1million+.

Which is it?

This is what Google told me:

https://www.investopedia.com/a...italgainhomesale.asp

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If you are single, you will pay no capital gains tax on the first $250,000 of profit (excess over cost basis). Married couples enjoy a $500,000 exemption.
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However, there are some restrictions. Learn the details below, including the records you should keep while you own a home to help offset any taxes that could be due.