One of the things I never hear discussed in the classic “invest-the-money-as-your-debt-interest-rate-is-so-low” argument is this: the challenge of cash flow. I see so many people for whom all they focus on is whether more money can be made by investing rather than paying down debt, as if there’s no possibility of losing money. They don’t seem to factor in the possibility of losing your cash flow stream. But when you lose your job, like I did recently, and have to take a job out of state from where you live, you learn very quickly the value of not having debt even if it might have been possible to have earned more money through other investments. I think people should factor into their decision not just the interest that they are saving (the investment return per se) but also something to account for the pressure on their cash flow that they alleviate by getting rid of the debt. I work in a very stressful job that always feels like it could be pulled out from under me at any time. If I had no mortgage, I could maintain my current lifestyle with a salary that was easily 1/2 maybe even 1/3 of what it presently is.

So my point is that if all people factor in is whether they could make more investing than paying off debt, they are only looking at part of the picture.

Obviously, others here get that but it is amazing how many people don’t!

This does make more sense for the younger investors since they will have more of their mortgage going to interest which can be deductible making more sense to hold onto the mortgage. This will be true until Obama and the congress start going after this tax deductible money to pay for his health care program.

I’m not quite sure I agree with this statement. The market historically will have better returns than a 6.25% mortgage. However, if your are close to retirement, chances are (if your smart) the bulk of investing is not going into the market. The risk is simply too high. However, even if your interest is low, its guaranteed savings rate is much better than the rate at which a more conservative investment plan would be paying out. So while the key for younger investors may be the market because of historical returns, the same would not be true for older folks who cannot afford large market downturns.

$75 * 26 = $1,950 extra balance paid off per year, which took the life of the mortgage down by 4 years, from 15.5 years to 11.5. Not bad.

Has anybody tried balance transfer (0% for 12months, 18months etc..) towards home mortgage?

Surprise!!!! Try that. Go to chase or 53 banks and do the balance transfer. Ask for the check and fill out the amount you are qualified for and send it to your mortgage company.

You still owe the money you did the BT and make the monthly payment. Also pay $99 for the BT fees. Don’t forget to pay off any balance you borrow by end of the term otherwise you pay more interest than you have ever imagined.

Benefits are,
borrowing money for 0%
instant interest savings on the BT amount

I am doing BT very frequently and have saved almost 19,000 towards my interest.

Do you math, be very careful, make your payements on time and be consistent with BT.

Thanks.

i did neither I just kept my home free and clear and today half those folks that tipped their nose at my inferior investment skills a have either had their homes forclosed, lost their investments and or are starting back at square one.

Because my mortgage is paid off, I’ve been able to travel, start my own business, dictate the hours I will or won’t work, I hear the Psycological boost being mentioned and weighed as if equal to investment opportunities, but it is more than a boost, it’s freedom. So to me the question should be, to I want to keep myself dependent on the system for another 20 years in hopes that these investments will mature to something huge later or do I want to be free? I know some folks love their jobs and keep doing them after they win the lottery, good for them I know of few people that really enjoy their work that much. If you do then perhaps investments are the way to go for you, if you would rather decide for yourself what time you are going to work or when you are taking a vacation, then..

[quote]Tax Savings
—————————————
Standard Deduction (Married filling jointly): $10,700
Interest for $150K home @ 6% 1st Year: $8949.87

So tax savings for having a mortgage = $0[/quote]

You are forgetting Real Estate Taxes.
You are forgetting Sales or Income Tax.
You are forgetting gifts to charity.
You are forgetting work related expense that exceeds 2.5% AGI.

If you are unable to itemize with a mortgage you may be doing your taxes wrong.

[quote]Return on Investment
—————————————
Using 8% as standard return
8% * 70% (subtract the 30% for taxes) = 5.6% return

And if you like to trade stocks, subtract 30% for taxes, another 15% for capital gains: 8% * 55% = 4.4% return

So using our previous example, 6% > 5.6% > 4.4%. Paying off home makes more sense.[/quote]

So this married couple that can’t itemize makes over $208,850? If we have a 6.25% mortgage in that same 30% bracket (which doesn’t exist as it jumps from 28 to 33 but that is beside the point) then you have to beat 4.375%.

Suddenly it must be clear to you that even paying 30% taxes it is a better return. You make a good pointing out capital gains as that actually means no tax until 2010 when it can go up to 15%. Presuming the worse you are still getting 6.8%.

~~~~~~~

People keep looking at the current market and are wagging fingers and tongues without considering that a lot of people have won at this time. I did drop some but not much due to a well balanced portfolio and this is a great time to pick up bargains. With the market going to rally in the next several years you are going to make far more investing now then you will in paying off your mortgage.

I don’t have a mortgage though so I have no dog in the fight. I just hate to see so much misinformation put out.

Over the past 30 years, the risk takers paid the minimum on their mortgage and invested heavily in the stock market. Now they are about to retire, have lost 30-40% (if not more) of their retirement, and STILL have a mortgage payment causing them to postpone retirement. On the other hand, the non-risk takers over the past 30 years paid towards their mortgage and put less money towards the stock market. They now are about to retire, with more money as a nest egg since they put less into the stock market, AND their home is free and clear and will be able to retire comfortably without worries of a mortgage pmt.

So who was smarter? The risk takers might have had a higher return on investment than the non-risk takers, but they are still working and/or cutting a check every month to the lender. The non risk takers might still be working, not because they have to but because they want to, or are enjoying the feeling of not having to wake up to an alarm clock, commuting, and all of the other stresses of working.

I’m going to pay off my mortgage. I think that a worry-free retirement sounds like a better option.

I think it helps knock off from your LAST payment. Is that correct?

I’m about to buy the house with my fiancee from my co-owner and I, and the other day I put an extra $100 towards the principal.

I have to tell you, it was exciting to see the balance drop by that extra hundred. That one hundred dollars alone will save several hundred of interest over the life of the mortgage, and I plan to make this a regular payment.

I live in Canada and I’m 31, turning 32 this year. My credit rating was determined to be 808 last week, and the mortgage is my only debt and I want to get rid of it.

you dont own your house!I dont care if youve paid on for 29 years, dont make the mortgage they will take it. dont pay the taxes, its gone.

here is an idea . teach kids to save money early , rent small cheap accomodatiions, and save the difference for 10-15 years , and when age 30-35 they can pay for the house in cash, AND for the next 40 years live mortgage free and have tons of money for consumption and true capital investment. not the fiat money, 30-1 bank leverage “investment” , but the real 1-1 risk vs reward investment. why would that be so bad.

Can I Get an AMEN!

I’ve read the same material about better returns in the stock market long-term. I believe in Stocks for the Long Run by Jeremy Siegel, he shows that over any 20 year period that stocks will beat any other asset class. It certainly seems hard to believe when you look at the last 7 or 8 years, but I guess we should all look forward to nice investment gains for the next 12 years (in order for the 20 year period to beat anything).

If you pay off your 5% mortgage earlier, you are gaining a guaranteed return.

What if you had decided to not do so and make a “better investment” in late 2007? Right now, you would be at a negative 30% return on your ‘better investment’, AND would still owe a lot on your house.

If you got laid off, where would you rather be? It is just a lot safer to invest in your house, regardless of the math.

I’d try to convince my girlfriend to put more money than our regular morgate payment (even if it’s only 20 or 30$a month) but she didn’t want to started this because she said the results would not be enough significative.

I’m going to let her read this article, I guess she would understand many things. Maybe my explanations was not enough clear

While it may make more mathematical sense to invest the money, it is definitely not for everyone. If you will feel SO uneasy about the stock market despite the fact that it just got less risky (cheaper stocks are less risky than overpriced ones!!!), you probably shouldn’t have as much in the stock market as you do.

J.D. is right in saying that nobody ever regrets paying off a mortgage. While I view the stock market as the superior place to park my money and that’s where I have most of my money, I am still tempted all the time to prepay my mortgage anyway. The psychological edge to having a paid off mortgage is definitely tempting.

Mike is correct. The $5,000 will still be taxable as income if earned that year (unlike RRSP contributions). Then all interest earned while in the tax free savings account will be non-taxable and will remain that way (even when you withdraw it, again, unlike RRSPs).

General comment:

So much for the stock market beating 6.25%…

“I am thinking of taking advantage of a new savings account in the New Year that will let you accumulate up to $5000.00 tax free, when I have accumulated close to that amount turn around and put it on my mortgage.”

I think you have that wrong, you can CONTRIBUTE up to $5,000/year. Whatever you earn/accumulate in interest in that account will not be taxed when you withdraw the funds.

I knew I could pay off the loan ahead of time without a penalty.

The only debt I had was the home, I had no other outstanding debts other than usual maintenance and upkeep plus living expenses. I decided to pay with each monthly payment additional cash towards the principal. I managed to pay the mortgage of in less than 13 years. There was no preplan as to how long it would take. It was just seat of the pants approach. Low an behold in less than 13 years I was finally the owner of my home.

It is not for me to tell others what to do but for me I have peace of mind and a good portion of my retirment income goes to my savings account and stock market investments.

My mortgage calculates the interest daily. So say instead of paying the $1000 (Principle and Interest) on the 1st, you pay $500 on the 1st AND on the 15th. Because the principle will have gone down slightly from the payment on the 1st of the month, during those 2 weeks there’s slightly less interest being charged because the principle has gone down slightly.

For Barry #154:
If you prepay the 2nd month’s principle in the first month, then when it comes time to pay the 2nd month the amount applied to the principle will have gone up slightly because the reasons explained above. You still will have to make a payment in the 2nd month, just the amount charged for interest will be a bit lower for reasons explained to Saint above.

It’s a Prepayment, or accelerated payment plan, something like that. Just ask if they apply the extra payments immediately to the loan (you want this, and you want this for free having no extra charges or fees for this ’service’) or if they hold it over to the next month (you don’t want this)