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Truth Seeker |
This and many other have brought some great points for me to think about. The tax deduction isn’t even in the equation anymore. It used to be until the Standard Deduction was raised. I still itemize every year, but end up taking the Standard Deduction. I would exceed the Standard Deduction by just a bit, if they hadn’t also capped how much you can deduct in property taxes. In the end, my goal is to live in a paid off home in retirement. This home will be paid off the year we plan to retire if we were to stay in it and keep making mortgage payments. If we sell the house, paid off or not, then we have the equity to use for another home. We own 5 acres of land, paid off, we have considered building on but a hold got put on that when COVID hit and costs went through the roof. The other option is my mom will be leaving me her home which is up on a “mountain top” in the Texas Hill Country overlooking Lake Travis and is super peaceful. Her home is paid off and equity could be used to bring the 30 year old home to be more updated. A lot to think about. My wife and I will also retire with both of us receiving a pension, plus social security, plus multiple 401Ks. NRA Benefactor Life Member | |||
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Tinker Sailor Soldier Pie |
What? ~Alan Acta Non Verba NRA Life Member (Patron) God, Family, Guns, Country Men will fight and die to protect women... because women protect everything else. ~Andrew Klavan | |||
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| No More Mr. Nice Guy |
Logical so far, but there is the human factor in the equation. Most people would then take that money earned on the CD, and possibly the principal of the CD, too, and spend it. If the person is disciplined then they can use the math to come out a bit ahead. The numbers are in the small thousands for most people. The 3% interest rate difference in your example, of a $200k mortgage is $6k per year. Not nothing for sure, but not life changing either. And if it gets spent on something of no lasting value then it was a loss not a gain. We all tend to spend what we have. That's why math is ultimately not terribly important. | |||
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| Member |
yep. It’s because too many people think finances are all math and miss out on what happens when you get out of debt and start watching that bank balance explode for the first time in most people’s lives. It really is life changing and gets you more exited and involved in your financial future. | |||
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| No More Mr. Nice Guy |
Google is correct. Capital gains will be sales price minus basis cost. Basis is purchase price plus improvements (not maintenance) plus expenses to sell such as realtor fees. If you are single you can subtract $250k from the capital gains, if married subtract $500k. The result is what you pay taxes on. If you make $700k profit and are married, you will pay tax on $200k. This is income which pushes you into higher tax brackets, so it hurts! Social security will get taxed much more, as will any 401k withdrawals if you are retired. The $1M has nothing to do with anything about profits on selling your home. It does come into play if your mortgage is more than $1M. There may be state level tax issues. | |||
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| Member |
There were certainly a lot of good answers on both sides of the issue here. For me, I have always paid my houses off as soon as possible, except for the very first one I bought (total cost for that house was $5000.00 and IIRC, the monthly payment was about $65.00). Two reasons for my opting to pay it off. First, I saw others, peers, friends, acquaintances who had bad auto crashes, died suddenly, got real bad news from the doctor etc., or even divorces and there was no money to cover the mortgage. Some ended up in foreclosure, others sold the home for a lot less than they likely could have gotten if they'd have been able to plan the timing of the sale better. Secondly, I hate owing anyone money and, as some others in this thread have said, there's just no feeling like knowing the house is yours, free and clear. Bob | |||
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| No More Mr. Nice Guy |
No. Capital gains has nothing to do with mortgage balance.
Yes! I am a big proponent of Roth. Some employers offer a Roth 401k too. The "backdoor" Roth conversion is really simple, and any brokerage such as Schwab or Fidelity will walk one through it. Most retirees don't go into a lower tax bracket, so a Roth is a great thing. Maximize Roths!
Just beware the taxes on rentals, especially for ordinary working wage earners who own a rental property. Depreciation may not be fully deductible now, and becomes taxable capital gains when you sell. Your heirs win if they inherit the home. | |||
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| Member |
I am not a financial advisor, I worked hard to be debt free when I retired, In hindsight I believe this is a very good answer.
“Let us dare to read, think, speak and write.” John Adams | |||
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Member |
I'm assuming the home will go up in value even further from what price he bought it at. True the zero balance had nothing to do with it. My point was simply that he is using literal CASH to put back into something that has unknown tax ramifications "It's gon' be some slow singing -n- flower bringing............ if my burglar alarm starts ringing" | |||
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| Member |
I'm assuming the home will go up in value even further from what price he bought it at. True the zero balance had nothing to do with it. My point was simply that he is using literal CASH to put back into something that has unknown tax ramifications "It's gon' be some slow singing -n- flower bringing............ if my burglar alarm starts ringing" | |||
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| Husband, Father, Aggie, all around good guy!  |
My suggestion is to get a amortization table & chart fill in your values, loan amount, term, int rate, etc. For me the goal was to minimize the interest paid over the life of the loan. We paid off our house early, always payed extra monthly, but we also paid it off early. The amount of total accumulated interest that some folks will pay can be staggering when viewed. | |||
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| Partial dichotomy |
I've only read some of the replies in this thread and I'm sure far more educated than mine, but have you considered upping the amount you currently apply to the principle for the time being? Instead of $100/mo, how about doubling that....or $500/mo. You will definitely notice how the ratio of principle vs. interest changes from month to month. SIGforum: For all your needs! Imagine our influence if every gun owner in America was an NRA member! Click the box>>>  | |||
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always with a hat or sunscreen |
Mike, I too relished having my mortgage paid off. Rather than get too anal with what if scenarios involving alternatives to paying off like investments, I simple set my goal to be debt free at retirement. No mortgage, no car payment, no credit card debt, no nada! Best decision I ever made and absolutely zero regrets. FWIW this was sage advice from some older navy guys I worked with... have no debt when you retire! Certifiable member of the gun toting, septuagenarian, bucket list workin', crazed retiree, bald is beautiful club! USN (RET), COTEP #192 | |||
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Member |
I was pouring money into my mortgage. Got close to paid off, then we moved and bought a new house. I started making extra payments on this one too. But now I have stopped. Why? Simply because I am making more money in a high interest savings account than the interest rate on my mortgage. I do agree with the others, the feeling of paid off, or for me getting close, is great. But right now I am just playing the numbers. | |||
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| Member |
I paid off my 30 year mortgage in a little over 10 years. I was delighted and feel it was one of my best decisions. I have never looked back. | |||
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Member |
I’m a little late, no biggie. I agree, at 5 3/8 or so, it’s more a wash. Say it was 3%, most would say no. Another component is the rest of your financial picture, maybe it was posted a while back. If one carries debt, usually is best to have a loan on the home. If extra $$ goes to the mortgage, where would that $$ go if not there? Not you, but if it was mostly to be pilfered away, it would be better off spent to reduce the mortgage. Yes, there is that ‘piece of mind’ component, varies with different people. Then the moving potential, plan to stay, current excess cash, etc.. nothing wrong with ‘splitting the baby’ so to speak, a little extra, but not all you could do. | |||
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Member |
I would just keep saving the money and wouldn’t change much, especially if you know or think you’ll be moving elsewhere in retirement. I don’t even think about paying mine off as I’m ready to move now (can’t), and know later on I will definitely be moving so I’m just managing the equity the way I look at it, and being single I know I’m capped at 250k, and anything over I will be paying capital gains. Since I will simultaneously be owning this money pit while building on some rural land, well my plan at the end will be to move, sell, and hopefully my current home’s profit will cover off the other place, and I’m net zero at that point. If I had the $ to pay my current place off right now I still wouldn’t do it and would remodel instead. What am I doing? I'm talking to an empty telephone | |||
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Member |
My two cents…pay it off now, and keep the payments you would be making back to yourself, and don’t touch it. You will be saving all that interest you would have paid to the bank. We paid ours off in 2018, and felt relief with no mortgage. Still have homeowners deduction for taxes, the slight loss of mortgage discount held for taxes wasn’t enough to stop us. And our interest rate was 4.25 then, fixed. | |||
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| Slayer of Agapanthus |
Sir, please consider this line of reasoning. There may be some variance from your actual finances as I am considering the $129,000 as a new loan rather than the continuing loan on the original amount contracted. The logic, on the whole, should hold. Feel free to use these links in the reply for your own analysis. Using the page at www.mortgagecalculator.net and the information that your provided. $129,000, 5.38%, 16 years, results in $1,003.45/mo, $192,662.23 total, $63,662.23 paid for the interest. $129,000, 5.38%. 12 years, results in $1,217.85/mo, $175,370.12 total, $46,370.12 paid for the interest. Paying extra obviously helps to reduce the total paid. The interest is still excessive, IMO. You should be able to pay a lower interest rate, keep your own money, and save even more in total. Please consider this plan. Take your $129,000 and deposit that with the Public Employees Federal Credit Union in Austin, Texas. Place the funds in a share savings account. Use those funds to loan yourself that same about at the rate of 2.7%, with 0.2% being paid to your as interest. The funds, as a secured loan, will be locked until full paid. So that is a consideration. You do retain ownership of the funds. The PECU will do a secured loan for a term of 180 months, 15 years. You can research this at www.pecutx.org. And of course, you can visit a local branch in person. $129,000, 2.5% net, 15 years, results in $846.07/mo, $152,651.86 total, $23,651.86 paid for the interest. T Those numbers may be a little low as I may have used 2.3% in the calculator. The bourbon is fogging the near-term memory. Clearly, the advantage is to either pay in full, which uses up your $129,000 immediately, ouch. Or to loan yourself the funds through the agency of the PECU. Please use the links for analysis. If you do the secured loan I will meet you at Specs and buy you a bottle of absinthe. Yes, I am that confident in the plan. "It is only with the heart that one can see rightly; what is essential is invisible to the eye". The Little Prince, Antoine de Saint-Exupery, pilot and author, lost on mission, July 1944, Med Theatre. | |||
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| No More Mr. Nice Guy |
One way to look at this is asking "if you owned the home outright today, would you take out a home equity loan of $129,000 at 5.38% and invest that money somewhere else". Your home equity is an asset, just as your savings account and investments are. You can move money from one to the other. We are selling our home, which has a mortgage, and rolling about half of the equity into a fully paid off lesser home. The other half is going into investments. We could easily have taken out a mortgage for the new house and put even more into investments. We're retired, so we would have had more $ to spend on fun had we done that. But at the current mortgage interest rates vs investment returns, the small difference isn't worth playing the game. Home values will go up over time, so cash put into the home will grow. You thus get the double benefit of not paying mortgage interest plus growth of the value of the home. Yes, this logic has imperfections, but the point is your money in the house is silently growing. If the goal is to maximize long term net value, and if one is truly disciplined to not spend investment earnings, then the math says play the game. If the difference is small or if one is a typical person who will pilfer from the investments, or if peace of mind is a priority, then pay off the mortgage. | |||
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