Pay off house or invest the $ ?

@saddletramp you mention 3.5% on $140,000 for 15 years. Running the quick numbers, you would pay a little over $40,000 in interest in that time period.

If you invest $140,000 in the market today and got an average annual return of 8% you would make about $304,000 after 15 years. At a 5% return you would make about $150,000.

Looking at the 15 year return of one of my more conservative funds, it's at 6%.

Obviously how you invest it is the key.
 
For those that recommend not paying off the house, including financial advisors, I like to ask: can you do it now today without taking a "hit" (like pulling $ out of 401k to give a "yes" answer does not count; selling your plane does not count). I'm telling ya, paying it off is like a turbo boost. <This is not a direct question to be answered by others here, but rather for you to ask yourself and consider when listening to advice from others.>

The math everyone is doing is correct. But it does not consider the ability to do fun, stupid, higher risk stuff with your money now that the roof is yours.

We paid ours off 10 years ago. We then invested in other real estate AFTER, because we had the cash flow from my job just piling up. Ended up buying a bigger house, keeping the old one (renting it out), and then ultimately bought a 2 other properties (farm ground and rental house). I never would have done that if my salary (which is always at risk of going away) had to go towards a primary residence mortgage. I bought a plane this summer, no loan.

It's peace of mind. Ain't no spreadsheet can quantify it. Everyone else's mileage may vary (personality, location, age, spouse especially).
 
Last edited:
weilke said:
3% on 140k is what he would effectively pay to sleep better at night knowing that he is debt free. That alone is worth something and if I was 61 I would do it in a heartbeat. Just pay the county and the insurance Co twice a year and be done with it.
Click to expand...

3% on $140k is $4200/yr plus compounding. It is up to the OP to determine if he gets more benefit from $4200 in expected return on his money or by being debt free. That's an apples/oranges comparison where there is no definitive answer that fits everyone.
 
First off, there is more to consider that just what you've provided. If paying off the house makes you feel better, then do it. Don't trust anyone else to manage your money for you. That being said, historically, the stock market has done better than 3.5% even in the worst 9 year period (you said you weren't retiring for another 9 years). But, no one, not even the Wall Street talking heads, can predict the market. Don't let even Ken Fisher ******** you on that score!

Read this book, to start with (then read a bunch more):
41IjgH6VdjL.jpg
 
FastEddieB said:
Please explain.

I understand that sans mortgage, one still has to pay property tax and insurance annually out of pocket. Is that what you meant? Even with our mortgage, we choose to pay those ourselves rather than have it escrowed and paid by the mortgage holder.
Click to expand...

Eddie,

You are learning through the experiences of others.

I have owned two houses in my lifetime. One was profitable and the other cost me two years of work for nothing thanks too the recession of the eighties. Two years of my earnings down the drain dut to circumstances beyond my control.

I have lived debt free ever since and prefer to rent rather than buy and lose my shirt again. A plus is that I don't have to mow the lawn or shovel snow. As was said in some musical I don't remember the name of "Let someone else do the bloomin' work".
 
Radar Contact said:
@saddletramp you mention 3.5% on $140,000 for 15 years. Running the quick numbers, you would pay a little over $40,000 in interest in that time period.

If you invest $140,000 in the market today and got an average annual return of 8% you would make about $304,000 after 15 years. At a 5% return you would make about $150,000.

Looking at the 15 year return of one of my more conservative funds, it's at 6%.

Obviously how you invest it is the key.
Click to expand...

Anything that pays 8% is subject to a temporary 25% market correction that effectively freezes the money for a couple of years. At age 35, thats not a problem as you can just sit it out (I didn't lose a penny in the 'great recession'). If you are 61, the options to ride out a downturn are more limited.
 
Larry in TN said:
Imagine being in a different situation today. If your house was paid off, and you had $140,000 less in the bank, would you take out a $140,000 mortgage on it to invest?
Click to expand...

I would be loathe to give the bank an advantage over me. They are, after all, in business to make a profit. Credit unions appear to be a better deal.
 
weilke said:
Anything that pays 8% is subject to a temporary 25% market correction that effectively freezes the money for a couple of years. At age 35, thats not a problem as you can just sit it out (I didn't lose a penny in the 'great recession'). If you are 61, the options to ride out a downturn are more limited.
Click to expand...

Want stability? I believe Warren Buffet has the answer. He may not be perfect but his track record is hard to refute.
 
What @Larry in TN said. I wonder how many people recommending invest vs payoff have a paid off their home.

Second, why do a lump sum investment now, at the height of the market? Intently attended an American College of Financial Planners Conference where the talked about the state of the workforce. This is the first time that a majority of advisors in the industry have not experienced a market recession. Has your advisor experienced a recession? What would his advice to you be if a recession occurred today? How would that impact your ability to pay your mortgage?

Gotta think 2nd/3rd order effects here, not hypothetical returns.

No mortgage = no foreclosure. If you get to the point where you can’t pay the taxes, you can sell the house for cash before the tax lien is ever filed, take the cash and buy outright another home in a place with a much lower tax burden.
 
Last edited:
First reaction answer would be Pay Off the House. But don't pay off the house if it totally depletes your cash. If possible, always keep a healthy cash reserve. Your age, no matter how young you act or feel, is a major reason to act more conservatively. At 30, if your situation comes apart, there's time to rebuild. You're not 30. Pay off as soon as possible though. Also consider downsizing your home to ease the burden. At 61, there's generally no reason to maintain a large home. The money your lender demands every month is then freed up for you to invest in other income producing vehicles. Keep in mind that history tends to repeat itself. As our economy begins to blossom, interest rates will begin to rise. If you own your home, you will be free to take on some of those more risky activities, or back up, should your economy take a dump.
 
My financial advisor says pay off the house. Do not go into retirement in debt. You might not actually have 9 more years to work you may get sick.

OTOH Ric Edelman says don't pay off your mortgage so I'm conflicted myself. I've concluded that "it depends". Here's Ric's argument but the tax deduction isn't applicable anymore and I don't think his reasons work if the market collapses and you end up upside down, if you ever must sell you'd have to take a loan to unload it.

If you don't have another pot of cash to use in an emergency, better to keep that cash than to give it back to the mortgage company.

Also a radio clip with a guy who regretted paying it off.

https://www.edelmanfinancial.com/ed...11-great-reasons-to-carry-a-big-long-mortgage
https://www.edelmanfinancial.com/radio/november-4-2017/i-regret-paying-off-my-mortgage-now-what
 
Continuing my thought we bought a house back in 2003 with a 15 year mortgage and ended up regretting it because the monthly payment was so high we seemed always strapped for cash to either invest or pay for airplane stuff. So in 2016 we got the conventional 30 year. (When we moved.) The drastically lower payment is a relief and we are investing more now, but we were able to make a huge down payment so don't really owe that much. When we sell and move again we won't be upside down and we will have a good chunk of equity. In the meantime we are investing more monthly that we wouldn't be if we'd gotten a 15 year again. We are early 60s and yes the idea of getting a 30 year mortgage (oh my god I will still be paying the mortgage when I'm 90!!) is very frightening but it's just an emotional reaction. You will always have to pay something for housing. As everyone has stated even when you own outright there are taxes and insurance so in reality you never actually own any property outright anyway so the fear of carrying a very low interest rate 30 year mortgage is kind of illogical.

I see Ric's point about that. On the other hand I'm not completely convinced because it seems the conventional wisdom has always been pay it off as soon as you can. But remember years ago interest rates were much much higher so conventional wisdom may need an adjustment.
 
A lot of advice here, some better than others. Ultimately, though, it depends on your personal situation, cash reserves, etc. It also depends on what the markets (and inflation) are going to do and how disciplined you are.

I get that paying off the mortgage makes you feel good and puts you in a lower (or zero) debt situation. But the wisdom of doing so depends on how old you are, your cash position, your income, and whether you will sell the house in the next few years. Inflation/deflation impacts it too: a house is generally an appreciable asset, so paying it off more slowly if you intend to move makes sense. (Unlike a depreciable asset, like a car, where you'll be upside down). If you expect to retire or take an income hit, it might make more sense to pay it off. Good income in a inflation market? Pay it off with future dollars. Deflation market? Pay it off now. How safe will the investment be, and what kind of commission does the advisor/broker get on your investments? He/she may be motivated to get you to buy/churn stocks.

SGOTI can't answer well for your situation. The new tax law will affect real estate in many areas due to the caps on mortgage deductibility and the cap on state/local tax deductions.

You've got several options, including the "pay it now", "invest and pay monthly mortgage from current income", "invest and pay monthly mortgage from the proceeds of the investment", "pay monthly mortgage plus additional principal each month to pay it faster", and permutations of each.

No one right answer here - you need a good independent financial advisor (not one that gets commission or kickback on investment sales) that understands your individual situation. Estate planning may well factor in, too.
 
What's the old saying? Owe a little and its your problem.... Owe a lot and it's the bank's problem?
 
deonb said:
This only works if you actually DO the investment...
Click to expand...
..and your house triples in value, and you get a 7% per year return on your investments. You have no idea what the future holds for either, whereas if you pay off your mortgage, you know you won't have those payments.
 
Last edited:
GLMS_NC said:
Pay off the house.
Click to expand...

^^^^this guys reply is UNDERLINED, it's gotta be the correct answer! (jk)


I know a few people have hinted at it but I think you have to consider the worst possible outcomes instead of just "my house WILL be paid for and the market WILL gain x%...". if you part with a fat wad of cash and the market tanks, or you get sick or injured and can't work, or your wife does, or you obtain a very expensive coke habit, etc.....can you comfortably ride it out. also, take absolutely zero financial advise from eman, I'm just thinking out loud.
 
saddletramp said:
We are in the lucky position to have enough extra cash in our savings account to pay off our house. Our investment guy thinks we should put the money in our retirement account & continue to make our house payments.
What would you do?
Click to expand...

Hi.
If you are at the beginning of your mortgage cycle, paying more interest than your principal, have more that 10-15 years to pay, pay the mortgage.
As to your "Investment guy" get it in writing and make sure he / she has sufficient liquid assets to cover his / her mouth. They are so full of goop they stink a mile away.
 
As a thought experiment utilizing a reducto ad absurdum...

What if a company came to you and offered you a deal: We'll write you a $100k mortgage..

The downside is it will be at double the prevailing interest rate.

The upside is your payment is $1 a year for 100,000 years.

Would you turn it down because so little of the payment goes to principal, or would you grab it in a heartbeat?

And if you had a $100,000 windfall, would you pay it off?

Silly, I know, but it may illuminate something - just not sure what!
 
Not sure what direction I would go. You have several options, you and your wife need to feel good about what you decide. Personally I would not want to deplete my cash reserves to pay off the mortgage.
 
Using the “but you still have to pay taxes on the paid off house” argument is nearly as silly as saying “don’t earn any money because then you’ll have to pay income taxes” or “live in a tent out in the woods to avoid paying utilities” or “there’s no such thing as Bigfoot.” It’s all silly, and they’re all just, like, opinions, man... (apologies to Mr. Lebowski for trying to quote him and not sounding nearly as cool. So, uh, sorry, Dude.) :)
 
TCABM said:
What @Larry in TN said. I wonder how many people recommending invest vs payoff have a paid off their home.
Click to expand...
Thanks. Good question. I'm guessing it would be relatively few of them.

Full disclosure... Paid off my first house in five years, lived in it for nine. Paid off my current house in seven, have been in it for sixteen. Those two mortgages are the only debt that I've ever had. Went through three layoffs between 2009 and 2015. Having no debt, and lots of savings, significantly reduced the stress of what turned out to be a total of 38 months of unemployment/underemployment. Many of my former coworkers had it much harder due to their debt.
 
AKBill said:
Personally I would not want to deplete my cash reserves to pay off the mortgage.
Click to expand...
I don't think the OP said anything about depleting his cash?

If the $140,000 is all he has in cash then I'd say keep three to six months of living expenses in cash for an emergency fund then pay the rest on the mortgage. Same with other debt. The mortgage would be the last debt to pay off.
 
I faced the same decision a few years back. Simplifying the numbers, we had a $100k mortgage, whose variable rate had shrunk to the point where our monthly P+I was $600. I looked at Vanguard Health Care, VHGAX; 10% per annum was not unreasonable. From the numbers, we had a free and easy $3000 per year, just letting Vanguard pay the monthly.
But numbers aren't everything. The wife, normally quite thrifty and bargain-conscious, just did not want the mortgage. Appeals to logic, greed, vanity, etc., didn't work. So, we paid off the mortgage.
Do what the wife wants.
 
Take the sure thing and pay off the house. If you're in a hot real estate market, after paying off the house, save that mortgage payment for a couple years and then invest in a rental, or buy something and flip it. At least then you have some control over the risk.

Our plane is paid for, and in ten months, our last vehicle will be paid and we'll be debt free. Then we're going to buy our first house in the DFW area. (We just moved here from CA.) We plan on triple-paying the mortgage to pay it off in ten years instead of 30. At that point, we will be debt free and able to retire comfortably. (I'll be 67 by then.)

It's great having money, but nothing beats being debt free.
 
While the numbers may make sense to invest today...

If the stock market and/or economy crashes you could loose your whole savings and investments and still be stuck with a mortgage payment on the house.

If the real estate market crashes your paper net worth goes down but you still have a roof to live under that you own free and clear with a lower monthly cost of living with no mortgage.

House....then take what you are currently paying for the mortgage and invest that money till you need it later.
 
Pay off the house. I'm able to retire in my 50's in comfort with no debt, partly because of paying off my house early in life. Parents were big believers in not carrying debt and it's worked out great for us. Pay off the house and invest the money that would have gone toward a mortgage. That would be a wise decision and you'll be much happier in the end.
 
weilke said:
Paying it off feels better and is a sure bet on the return.

Investing it makes financial sense as long as the market keeps bubbling. Oh, and it makes your investment guy money.
Click to expand...
How cynical! ;)
 
Larry in TN said:
Thanks. Good question. I'm guessing it would be relatively few of them.

Full disclosure... Paid off my first house in five years, lived in it for nine. Paid off my current house in seven, have been in it for sixteen. Those two mortgages are the only debt that I've ever had. Went through three layoffs between 2009 and 2015. Having no debt, and lots of savings, significantly reduced the stress of what turned out to be a total of 38 months of unemployment/underemployment. Many of my former coworkers had it much harder due to their debt.
Click to expand...

Couldn't agree more.
Very few of us enjoy the prospect of secure employment, income and a pension for our lifetime. Those days are long gone. If we work for someone else our job depends on the success of that business. If we work for ourselves an accident or illness can have a dramatic effect on income.

Planning for uncertainty is important.

Debt is a claim on future income for current consumption. Savings is a claim on current income for future consumption. One isn't "better" or "worse" than the other. It's a matter of having the right balance for yourself & your family at each stage in your life.

And as eman pointed out, it's good to have a sizeable contingency fund the spouse doesn't know about for the coke and whiskey. Don't ever get the crazy idea of using that to pay down the mortgage.
 
Last edited:
wsuffa said:
A lot of advice here, some better than others. Ultimately, though, it depends on your personal situation, cash reserves, etc. It also depends on what the markets (and inflation) are going to do and how disciplined you are.

I get that paying off the mortgage makes you feel good and puts you in a lower (or zero) debt situation. But the wisdom of doing so depends on how old you are, your cash position, your income, and whether you will sell the house in the next few years. Inflation/deflation impacts it too: a house is generally an appreciable asset, so paying it off more slowly if you intend to move makes sense. (Unlike a depreciable asset, like a car, where you'll be upside down). If you expect to retire or take an income hit, it might make more sense to pay it off. Good income in a inflation market? Pay it off with future dollars. Deflation market? Pay it off now. How safe will the investment be, and what kind of commission does the advisor/broker get on your investments? He/she may be motivated to get you to buy/churn stocks.

SGOTI can't answer well for your situation. The new tax law will affect real estate in many areas due to the caps on mortgage deductibility and the cap on state/local tax deductions.

You've got several options, including the "pay it now", "invest and pay monthly mortgage from current income", "invest and pay monthly mortgage from the proceeds of the investment", "pay monthly mortgage plus additional principal each month to pay it faster", and permutations of each.

No one right answer here - you need a good independent financial advisor (not one that gets commission or kickback on investment sales) that understands your individual situation. Estate planning may well factor in, too.
Click to expand...
Bill has nailed it.

Personally. I like liquidity. If you use all of your cash to pay off the house, all of your dough is pretty much locked up. If you do decide to do that, immediately open a HELOC as big as they'll give you so you can get money out in an emergency. Do it while you have an income.

I owe about 50K on the main residence @ 3.25 variable (It'll likely go up a bit in May, but the amount is so small it won't have much impact on the payment). I could pay it off tomorrow, but then I'll have 50K less laying around if I need it, and I've put more eggs in one basket.

I couldn't rent a studio apartment around here for what the monthly payment is (which is 2/3 taxes and insurance). So for a couple hundred or so a month, I lose the (minor) tax advantage on the loan plus I've un-diversified if I were to take the balance out of the bank and pay it off.
 
Your investment guy is right mathematically.... but it's obviously assuming the market continues to do well. Usually if you have a good investment vehicle even when the market has a downturn you still make money if you're able to wait it out a year or two but it's never a sure thing.

The question for me would be if something catastrophic happened and you lost all the investment money how screwed would you be?

The nice thing about having the house paid off is you don't have to worry about it, and you always have the equity to take out a new loan if need be. The nice thing about investing it is you have a pile of money quickly available if you need it.
 
You must log in or register to reply here.
Back
Top