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My mother, who was extremely finacial savy, never paid off her mortgages. She would take the mortgage down to about 10K, then borrow against it and use that money to buy whatever she needed..a new car, a vacation etc. At 1st it was because those loans had a better intesest rate then when they removed the tax deduction for personal loans, that money was tax deductable.
She never touched her investments. She moved out of the primary home and bought a townhouse, renting the "bigger" house. All expenses on the rental then became tax deductable, she may or may not have bought enough paint to paint both houses! When she sold the big house, she then moved out the TH because it was too small and bought another one. But rented out the 1st town house.
She continued to use the helocs or whatever to get new cars etc. She also would take that money and buy CDs that paid more than the interest on the loan. She knew to the penny how much money her money was earning. Always. Once it capped out she moved it somewhere else. She shopped every new bank for CDs (this was when CDs actually paid something).
Anyway when she passed both properties still had nonminal mortgages, but were less than the rent she was bringing in from one rental. She had a spreadsheet showing all repairs and updates so she wouldn't be stuck with huge capital gains, if she had sold.
I'm following her advise! Use other peoples money to make money.
There's no upside to retaining a mortgage for most people, these days. If you're paying 3% or 4% on your mortgage and only receiving 0.10% or less on your savings you're way better off just paying off the mortgage.
Since the 2017 tax reform the Form 1040 Standard Deduction is so high that unless you have a large, brand new mortgage, most people don't have to deduct the interest separately anymore.
It is not written in stone that one can only get 0.10% or less return on the money kept by getting a mortgage
I would be very concerned about investing the proceeds from that land. It seems you are very overextended and need that money to continue to make your mortgage payments. If so I would not put any substantial amount in the stock market or other investments that could drop.
As I have explained previously, keeping a mortgage and investing instead of paying it off can allow for large returns over time. That is not a short term strategy especially if you need returns on a regular basis to pay the mortgage.
We can afford to wait a long time. We have about $200k in cash that we were going to use to start building on the land. But my income dropped down from having about $10k extra per month after expenses to being down about $5k every month.
So we don't need to earn a return to pay a mortgage, if we sold the land, we'd be down about $2k per month after all expenses. It would take us a long time to go through our savings at that rate, plus the fact my wife will be going back to work and we expect her income would be in the $60-65k range, so that would pay for the shortfall, but we wouldn't be raking in money like we used to.
We've stretched our income in the past in real estate deals and we've always made out very well, that's why I'm hesitant to just pay off our primary mortgage at 3% when we could possibly use that money and earn another $50-100k or so in another land deal or stocks.
Not the point of the thread. The Thread is about whether it every worth paying off a mortgage versus investing the excess cash. The answer stands. Unless your mortgage interest is greater than 10%. It never makes sense, financially, to pay off a mortgage.
Actually, that's what everyone has interpreted it as. I read the OP as having cash in the bank, which I take to mean a savings/CD account, as opposed to having it invested.
Having $75K in a savings account and owing $60K on a mortgage is different than having $75K invested. Very different.
Actually, that's what everyone has interpreted it as. I read the OP as having cash in the bank, which I take to mean a savings/CD account, as opposed to having it invested.
Having $75K in a savings account and owing $60K on a mortgage is different than having $75K invested. Very different.
If the only money I had to my name was $75k in a savings account. The last recommendation would be to pay off the mortgage. Being house rich and cash poor is not an ideal financial situation.
The assumption is that one has 'excess' cash above and beyond, the monies in a savings account which are used as one's contingency fund.
BTW, $75k in a savings account? Unless there were expenses in excess of $10k/mth, why would anyone let the bank be the one making all that profit off that money by leaving it in a savings account and the account holder, little to none?
A paid off mortgage doesn’t provide more security, if you think about it, it provides less.
Less liquidity. Try getting a HELOC when you are retired. Not impossible, just a hassle proving income.
Google external obsolescence. What happens if your value decreases because of things near your home you don’t have control over? Don’t think it happens, it happens everyday. A friend just got a half-way house in the neighborhood.
Screwed up titles? People lose their homes over paperwork mistakes.
Need LTC for one and not the other? Guess you have to sell the house because your spouse needs care. Talk about adding insult to injury.
Do the math, almost any reasonably conservative investment will outpace the interest on an updated loan today.
Remember that saying about all your eggs in one basket.
I personally like having the money a click away vs buried in my walls.
I am always amazed at the number of people who have no clue when it comes to investing. What makes this even worse is that pensions have been vanishing and a majority of workers have 401k funds to consider and invest. Those who have a modicum of knowledge in managing their money and investments are very like to accrue substantial wealth over the decades of work, saving and investing. Those who do not best look for a job with a pension because living on social security typically is going to result in an underfunded and highly restrictive retirement.
Investing money that could have been spent on paying off a mortgage is no different than investing one's other savings. Sure there are risks, especially over the short term, but long term the results will likely be a doubling of one's investments every 10 years or so.
Ha, glad some of us could amaze you. I am/was one of those people.
For those of you whose life went just like you planned it, it must be difficult to imagine that it does not for everyone. Yes, sometimes it involves bad choices made out of ignorance, and sometimes it's just flat-out lack of basic knowledge. My situation was both. I had DEBT all my life, not money to invest. I never even--quick, clutch those pearls!--had the always-touted "emergency savings account". Of course I had no clue! Where would I have gotten one? People without money don't go to financial seminars or talk to advisors to learn about how the stock market works.
Now in my later years, living on a a more-than-sufficient pension, I no longer have debt except for a mortgage, and I am able to save.
Fortunately, in a previous incarnation of this conversation on this forum, I received some good basic advice on getting started, and I've begun educating myself. I have a base savings account, and when I receive my one-eighth of my late mother's estate (basically proceeds from the sale of her house) I will invest it.
Thanks to those who took the time to point me in some good directions. This post is for the others out there who, like me, may also be clueless.
Thanks to those who took the time to point me in some good directions. This post is for the others out there who, like me, may also be clueless.
Count me as part of the clueless brigade.
We're so dumb we hung onto our restricted stock units instead of selling them like everybody else in DH's work group. They bought expensive toys. I could have had the iPhone SE, iPhone 7, iPhone 8, iPhone X, iPhone 11, and iPhone 12 by now instead of my stupid iPhone 6S Plus. Man! I could just kick myself.
We bought another house even though we both had one already. We had no idea what we were doing. 23 years later we repeated the same mistake. Again we fell for "bigger" and "prettier". God, we're shallow and disgusting. As homage to Gaia, I pinky-swear our next home will be an Earthship. I've already started hoarding worn-out tires and cardboard.
So that's the sad story of how we came to this pass. Don't do what we did. Everyone else is so much smarter.
There's no upside to retaining a mortgage for most people, these days. If you're paying 3% or 4% on your mortgage and only receiving 0.10% or less on your savings you're way better off just paying off the mortgage.
Since the 2017 tax reform the Form 1040 Standard Deduction is so high that unless you have a large, brand new mortgage, most people don't have to deduct the interest separately anymore.
Having a mortgage for the tax deduction was probably NEVER a good reason. It was just an extra benefit. The value of a mortgage is the increase in buying power and the time value of money. I'm happy to pay 3% on a mortgage even if I'm only getting .1% in a bank account for a few years when inflation will erode the dollars I am paying back and possibly at some point I can get 6-9% in a bank account.
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