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If a person has enough cash to payoff mortgage loan on a home, should he/she do it. Interests earned from CDs or Savings Account from banks is a joke nowaday. What is your thought.
Why not? Are you going to put it in other market to get better returns? Do you need the cash to buy another property as an all cash offer? Are you planning to take out student loans for college?
This topic is frequently brought up in the Personal Finance forum.
Great - I will look there though I'd probably pay it off. Thank you.
You don't pay if off for a couple of reason
1) you want to gamble with it somewhere else.
2) you want the cash so you don't have to take student loans at potentially a higher rate in the future
3) you want to build a cash reserve.
With rates of an ARM and 15 year loan being around 3% and 30 year fixed under 5% many people consider it cheap money, so they put it in the stock market. Many people learned their lesson during the dot com bubble, then again during the mortgage bubble, then again, maybe they didn't learn their lessons.
Even if you do pay it off completely, I would highly suggest getting one of those HELOC that doesn't cost anything to obtain.
Best answer.. I paid cash for my home and then took out a $400k LOC at 3.25%. No house payments and plenty of ready cash if needed..
No house payments is like a $2000.00 a month raise..!!
Pay it off !! There is no better feeling than not having to make a mortgage payment. I know there are those that say "Get the biggest mortgage you can, it's tax deductible" B---S---T !, you still have to earn enough money to make that payment. Without a mortgage, if you loose your job or run into hard times, it's a lot easier to survive not having that payment. Plus the interest you're paying is still a lot higher than what you can earn, so it's a net loss. That tax deduction does not make up the difference. OK , you "Get a big mortgage" people, chime in.
I'm not saying use ALL of your cash to do it, you should always have a cash reserve, but put as much as you can toward your mortgage.
For me, the biggest factor on the "don't pay it off" side is that the Principal and Interest payment stays the same. But with inflation, the money has less buying power in the future. So any money I can pay 20 years in the future will have about 1/2 the value it does today. As long as I put that money to good use in the meantime, and at least beat inflation + mortgage interest, I come out ahead in the long run.
The biggest factor on the "do pay it off" side is peace of mind. You can then use the money you were paying on the mortgage to save for retirement faster, but you will have lost out on some years worth of compound returns in the meantime.
So what it comes down to is whether you would rather maximize the use of your money, or sleep better at night. In my mind, there is no one right answer for everyone.
In addition, the answer can vary depending on circumstances, and only in retrospect will you know if you made the right decision. For example, in my early adulthood, I chose to put all of my money toward paying off debt and NONE of it toward any sort of retirement. Usually, that would be considered the wrong choice. But then the market crashed and people lost up to half the value of their portfolios. At that time, I had just finished paying off the last of my non-mortgage debt and was ready to start investing right at the bottom of the market. I definitely came out ahead with my "debt first, savings later" approach, but only in retrospect.
If a person has enough cash to payoff mortgage loan on a home, should he/she do it. Interests earned from CDs or Savings Account from banks is a joke nowaday. What is your thought.
If the house was my last stop on the Debt Free Express, and I had a sufficient (now there's a relative word) nest-egg after payoff, I would LOVE to be free and clear.
I would think about my neighborhood. If I totally pay off my house, and jokers start foreclosing all around me, or the neighborhood turns, etc., that would haunt me. But then again, I only play video poker in Vegas.
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