Refi?

[Food Scientist]

Originally Posted By: 99Saturn
I don't look to maximize my tax deduction, but I will gladly take the tax deduction off an interest rate somewhere between 3% and 4% on a 30 year and carry that loan while I leave my cash invested.


Let's just hope, which is not a strategy, that you will earn more than 3-4% annually in the next 30 years. If I pay it off early, then not only do I get to keep 100% of my money that I didn't pay in the form of interest (instead of 25%), any early payments that save me interest at that 3-4% interest rate is essentially a reverse savings account. The benefit then is that I am earning a guaranteed return instead of taking risk in the stock market (or other investment vehicles). I am not against risk, as I have money in mutual funds, etc., but getting rid of a house payment is great for pyschological reasons that can't be measured.

 

[99Saturn]

Originally Posted By: SVTCobra
Originally Posted By: 99Saturn
I don't look to maximize my tax deduction, but I will gladly take the tax deduction off an interest rate somewhere between 3% and 4% on a 30 year and carry that loan while I leave my cash invested.


Let's just hope, which is not a strategy, that you will earn more than 3-4% annually in the next 30 years. If I pay it off early, then not only do I get to keep 100% of my money that I didn't pay in the form of interest (instead of 25%), any early payments that save me interest at that 3-4% interest rate is essentially a reverse savings account. The benefit then is that I am earning a guaranteed return instead of taking risk in the stock market (or other investment vehicles). I am not against risk, as I have money in mutual funds, etc., but getting rid of a house payment is great for pyschological reasons that can't be measured.


What was the last 30 year period that being indexed in say, the S&P yielded you less than 4%. Granted past performance is no guarantee of future performance but making it sound like you need to hope for more than 3% to 4% is laughable.

As for the psychological reasons, if it helps you no problem, personally I'd rather not have all that equity tied up.

 

[Kawiguy454]

I recently got refi with 3.125% 30 yr. my payment dropped from 1470 to 1200 and mandatory mortgage insurance stopped because market value has risen and equity is +25%.

My current payback strategy is to make 2 payments a month for 700 each. I think the biweekly payments drops ~5 years from the loan and an extra payment a year is another ~4 years due to the extra principal being paid. I havent calculated any of this its just been a fuzzy rule of thumb as long as I can remember.

AND If I have job troubles its a LOW payment in a nice area/house I wont lose it. ...Live by numbers they do work

 

[SatinSilver]

Just make sure any money above the normal payment goes towards the principal of the loan. Which will help pay the balance of the loan down faster. Otherwise, the extra payment amount can be posted towards the interest on the loan.

 

[Alfred_B]

Originally Posted By: bmwpowere36m3
Renting it always a losing proposition... what usually keeps people from buying is CASH or down payment. However not everyone wants to own a home. While renting is paying for the convenience of being able to move at any time and no maintenance.


Also no long term commitment. If you are going to sell soon then paying the RE agent fees will put you in the negative, on top of the hassle of selling.

 

[hatt]

Originally Posted By: 69GTX
When deciding rent vs. home ownership calculate in taxes, maintenance and upkeep as well. My home needs to go up in value 2-3% per year just to keep up with taxes and maintenance. With renting you don't have that. When home prices are falling, like 2008-2011, you get the double whammy. Just keeping up with the big oak and maple trees around my house has cost me $10,000 in the past 10 years. And I still have 5-7 trees to go...or another $10,000. I like the idea of moving every 5-7 years. If anything get into a more up to date house with maintenance current...such that little $$ will be needed in the next 5-7 yrs. 30-50 year old homes can keep you (and the contractors) busy.
Your landlord has those same expenses and passes them along to you. Also, rent is generally always going to go up. In 25 years your house payment will be the same. Your rent will not be close But hey, if you like moving a lot, there's nothing wrong with that. Just going to be more expensive over the long term.

 

[hatt]

Originally Posted By: 99Saturn
Originally Posted By: SVTCobra
Originally Posted By: 99Saturn
I don't look to maximize my tax deduction, but I will gladly take the tax deduction off an interest rate somewhere between 3% and 4% on a 30 year and carry that loan while I leave my cash invested.


Let's just hope, which is not a strategy, that you will earn more than 3-4% annually in the next 30 years. If I pay it off early, then not only do I get to keep 100% of my money that I didn't pay in the form of interest (instead of 25%), any early payments that save me interest at that 3-4% interest rate is essentially a reverse savings account. The benefit then is that I am earning a guaranteed return instead of taking risk in the stock market (or other investment vehicles). I am not against risk, as I have money in mutual funds, etc., but getting rid of a house payment is great for pyschological reasons that can't be measured.


What was the last 30 year period that being indexed in say, the S&P yielded you less than 4%. Granted past performance is no guarantee of future performance but making it sound like you need to hope for more than 3% to 4% is laughable.

As for the psychological reasons, if it helps you no problem, personally I'd rather not have all that equity tied up.
That equity tied up in a paid off home is protected. When something bad happens I've never heard anyone say: "man, I sure wish my home wasn't paid for."

 

[cptbarkey]

Originally Posted By: SVTCobra
Originally Posted By: cptbarkey
Originally Posted By: SVTCobra
Originally Posted By: cptbarkey

From a tax deduction perspective you are losing out with a 15 year or less note, if you have a boatload of money then just paying it off is always a better deal.


Why would you want to maximize your tax deduction?


Why wouldnt you? Go ahead and be a patriot if you please.




If being a Patriot is to maximize what I pay to the bank in order to save 25% what I paid to the bank in the form of less taxes, then I am no patriot. I rather have the money in my pocket by getting a 15 year mortage, paying it off as fast as possible, and gladly pay my income tax and not make any more bank payments.

Isn't being a patriot partly about paying taxes? If so then I am being more of a Patriot by not having any payments and losing the mortgage interest deduction, therefore paying more in tax than if I did have it.


Your theory is sound except in practice you are now dumping tons of money into the mortgage that you would have otherwise set aside for a rainy day. Now your mortgage balance is 50% of what it was, and your tax deductions are paltry compared to what they could have been, and little timmy suffers from broken arms because you had zero savings. If you are that concerned about "saving" money, then a 30 year note was a bad idea in the first place, hence the only real sound method of paying a mortgage is paying the whole thing off in one lump sum.

 

[Food Scientist]

First I saved $10k in a savings account while I made minimum payments for that rainy day fund.

Second, I still need a place to live and I bought the house I was renting. To me the $750 in rent a month is money down the drain because other than a place to live for one month, I have nothing to show for it. Same goes for the interest that I pay on a loan, where as the principal is equity which equals ownership. So I am still saving money by buying something that I can eventually own even if it requires a mortgage because even after 30 years of renting I still having nothing to show for it.

Third I am still not quite sure why you are so concerned about deductions. What you get back is only a percentage (the same percent tax bracket you are in) of what you spent. So like I said earlier, if you are in the 25% tax bracket, then you only avoid paying the IRS 25 cents for every dollar you paid the bank in the form of interest.

Let's say my interest that I paid the bank is 10k and I'm in the 25% tax bracket. I get $2500 back from the IRS but I spent $7500 in interest after my tax deduction. Let's say you have been paying early and your interest is only $5k. $1250 would be your refund from the IRS and only $3750 was spent on interest. The other $5k you spent on principal is all yours. The total then is $5k in additional equity plus the $1250 from the IRS for a total of $6250. The first example you would net $2500 because you didn't get any additional equity above the minimum you would have earned anyway. At the end of the year would you rather have $2500 or $6250?

Just a personal example I already paid my house off and setup an amortization table that I updated every month. With the extra payments I saved about $25k in interest compared to if I just made the minimum payments on a 15 year note. Since I missed the deductions you would reduce that amount by 25%, I'm still ahead by $18750.

 

[99Saturn]

Originally Posted By: hatt
Originally Posted By: 99Saturn
Originally Posted By: SVTCobra
Originally Posted By: 99Saturn
I don't look to maximize my tax deduction, but I will gladly take the tax deduction off an interest rate somewhere between 3% and 4% on a 30 year and carry that loan while I leave my cash invested.


Let's just hope, which is not a strategy, that you will earn more than 3-4% annually in the next 30 years. If I pay it off early, then not only do I get to keep 100% of my money that I didn't pay in the form of interest (instead of 25%), any early payments that save me interest at that 3-4% interest rate is essentially a reverse savings account. The benefit then is that I am earning a guaranteed return instead of taking risk in the stock market (or other investment vehicles). I am not against risk, as I have money in mutual funds, etc., but getting rid of a house payment is great for pyschological reasons that can't be measured.


What was the last 30 year period that being indexed in say, the S&P yielded you less than 4%. Granted past performance is no guarantee of future performance but making it sound like you need to hope for more than 3% to 4% is laughable.

As for the psychological reasons, if it helps you no problem, personally I'd rather not have all that equity tied up.
That equity tied up in a paid off home is protected. When something bad happens I've never heard anyone say: "man, I sure wish my home wasn't paid for."


Is it? I guess you're solely referring to protected from a debtor rather than protected from market fluctuations.

When homes in this area lost 50% - 65% of their value I don't recall anyone around here saying, "man, I'm glad my home is paid for." And they certainly haven't recovered like other investments have.

 

[supton]

Originally Posted By: 99Saturn
Is it? I guess you're solely referring to protected from a debtor rather than protected from market fluctuations.

When homes in this area lost 50% - 65% of their value I don't recall anyone around here saying, "man, I'm glad my home is paid for." And they certainly haven't recovered like other investments have.


If your house is paid off, it's a lot harder for the bank to take it back for not making the payments. Economy goes belly up, lose a job: big deal if the car dealership takes back your car 'cuz you stopped making payments. One can always find a beater off CL. Roof over one's head, now that has some value.

I understand the concept of letting a mortgage go to full term so that one can invest in the market where they make a larger return. For some people that risk is acceptable. Others, that seems a bit more of a gamble. I'm not sure that white collar jobs are more protected today than blue collar jobs--it seems computers and automation are continually changing the landscape when it comes to employment. With an economy that isn't rocketing towards stability, and job security a bit unknown, there does seem to be some appeal to getting the house paid off so that one doesn't have to stay in a high income job until retirement--that is preferable but is as much of a gamble as the stock market it seems.

 

[Food Scientist]

Originally Posted By: supton
Originally Posted By: 99Saturn
Is it? I guess you're solely referring to protected from a debtor rather than protected from market fluctuations.

When homes in this area lost 50% - 65% of their value I don't recall anyone around here saying, "man, I'm glad my home is paid for." And they certainly haven't recovered like other investments have.


If your house is paid off, it's a lot harder for the bank to take it back for not making the payments. Economy goes belly up, lose a job: big deal if the car dealership takes back your car 'cuz you stopped making payments. One can always find a beater off CL. Roof over one's head, now that has some value.

I understand the concept of letting a mortgage go to full term so that one can invest in the market where they make a larger return. For some people that risk is acceptable. Others, that seems a bit more of a gamble. I'm not sure that white collar jobs are more protected today than blue collar jobs--it seems computers and automation are continually changing the landscape when it comes to employment. With an economy that isn't rocketing towards stability, and job security a bit unknown, there does seem to be some appeal to getting the house paid off so that one doesn't have to stay in a high income job until retirement--that is preferable but is as much of a gamble as the stock market it seems.


And that's the psychological part I was referencing earlier. If I pay it off early while I have a good paying job instead of sinking everything into future investments, then I don't ever have to worry about making payments if and when I lose that high paying job and can't find another one. No bank/lender has ever foreclosed on a paid for house so if/when I lose that high paying job, but I live in a paid for home, I can always work at a grocery store bagging groceries for beer money until I find that next good job and not have to worry about making that next mortgage payment.

So what's more important, a paid for home or having money in a retirement vehicle that will penalized when you withdraw it early to make your mortgage payments because you lost your job?

 

[hatt]

Originally Posted By: 99Saturn


Is it? I guess you're solely referring to protected from a debtor rather than protected from market fluctuations.

When homes in this area lost 50% - 65% of their value I don't recall anyone around here saying, "man, I'm glad my home is paid for." And they certainly haven't recovered like other investments have.
No investment has a value until you sell it. If you already own a home and aren't planning on moving housing market fluctuations are of no concern to you. Your house doesn't get smaller because the market says it's worth less. If prices do happen to tank, instead of worrying about the "value" of your home, you should be picking up cheap properties. Let a renter pay for your new investment.

Quote:
I don't recall anyone around here saying, "man, I'm glad my home is paid for."
You don't know anyone with a paid off home. You have unlimited options with a paid off home. Including pulling out equity and having a mortgage again if you need or want to. You can sell it and take the loss. You can rent it. On and on. When the economy tanks and you lose your job and can no longer afford your payments and can't sell because you are underwater, that's where problems develop.

 

[69GTX]

Originally Posted By: hatt
Originally Posted By: 69GTX
When deciding rent vs. home ownership calculate in taxes, maintenance and upkeep as well. My home needs to go up in value 2-3% per year just to keep up with taxes and maintenance. With renting you don't have that. When home prices are falling, like 2008-2011, you get the double whammy. Just keeping up with the big oak and maple trees around my house has cost me $10,000 in the past 10 years. And I still have 5-7 trees to go...or another $10,000. I like the idea of moving every 5-7 years. If anything get into a more up to date house with maintenance current...such that little $$ will be needed in the next 5-7 yrs. 30-50 year old homes can keep you (and the contractors) busy.
Your landlord has those same expenses and passes them along to you. Also, rent is generally always going to go up. In 25 years your house payment will be the same. Your rent will not be close But hey, if you like moving a lot, there's nothing wrong with that. Just going to be more expensive over the long term.


I contemplated moving in 2005-2007 as I knew home prices were peaking. But, was just too tied up at work to get it done. Had I done that I'd be FAR ahead today even having rented for 10 years. The net gain pocketed on my home would have been $60K more. And I could have found a similar home to rent in this area for no more than an extra $200/month. And the extra $25K I've put into longer term maintenance items the past 10 years, would have been in my pocket as well. If landlords put in every possible expense they have into the rental price, they'd probably never find a renter. With an abundance of homes for sale in my area and plenty of foreclosures that have been sitting around for years, I don't think it's too hard to get a good rental price. No doubt there are plenty of hot areas too where rents are absurd, and home prices are worse. That's not the case for much of the lower populated areas of New England.

 

[hatt]

Originally Posted By: 69GTX
Originally Posted By: hatt
Originally Posted By: 69GTX
When deciding rent vs. home ownership calculate in taxes, maintenance and upkeep as well. My home needs to go up in value 2-3% per year just to keep up with taxes and maintenance. With renting you don't have that. When home prices are falling, like 2008-2011, you get the double whammy. Just keeping up with the big oak and maple trees around my house has cost me $10,000 in the past 10 years. And I still have 5-7 trees to go...or another $10,000. I like the idea of moving every 5-7 years. If anything get into a more up to date house with maintenance current...such that little $$ will be needed in the next 5-7 yrs. 30-50 year old homes can keep you (and the contractors) busy.
Your landlord has those same expenses and passes them along to you. Also, rent is generally always going to go up. In 25 years your house payment will be the same. Your rent will not be close But hey, if you like moving a lot, there's nothing wrong with that. Just going to be more expensive over the long term.


I contemplated moving in 2005-2007 as I knew home prices were peaking. But, was just too tied up at work to get it done. Had I done that I'd be FAR ahead today even having rented for 10 years. The net gain pocketed on my home would have been $60K more. And I could have found a similar home to rent in this area for no more than an extra $200/month. And the extra $25K I've put into longer term maintenance items the past 10 years, would have been in my pocket as well. If landlords put in every possible expense they have into the rental price, they'd probably never find a renter. With an abundance of homes for sale in my area and plenty of foreclosures that have been sitting around for years, I don't think it's too hard to get a good rental price. No doubt there are plenty of hot areas too where rents are absurd, and home prices are worse. That's not the case for much of the lower populated areas of New England.
Your rent would have been $200 more a month and the entire rent payment is gone forever. $1500 rent for 10 years is $180,000. Gone forever. At least some of your mortgage payment goes back to you. The $200/month also adds up to almost $25K over 10 years. Over the long term renting doesn't add up. Sure if you time the market perfectly you can make money. But that's not without risk. The next market correction probably will not look like the last market correction. There is no risk in buying a home, paying it off, and living there 50 years.

 

[99Saturn]

Originally Posted By: hatt
Originally Posted By: 99Saturn


Is it? I guess you're solely referring to protected from a debtor rather than protected from market fluctuations.

When homes in this area lost 50% - 65% of their value I don't recall anyone around here saying, "man, I'm glad my home is paid for." And they certainly haven't recovered like other investments have.
No investment has a value until you sell it. If you already own a home and aren't planning on moving housing market fluctuations are of no concern to you. Your house doesn't get smaller because the market says it's worth less. If prices do happen to tank, instead of worrying about the "value" of your home, you should be picking up cheap properties. Let a renter pay for your new investment.

A home, like any investment, has a value every day. That value isn't guaranteed until a sale is final, but it is a value. If all of one's cash flow has went towards paying off one's home, that individual just might not have the diversification to pick up cheap properties like you describe above, because: they aren't diversified, their equity just disappeared, their getting back into that exact situation that they were presumably tring to avoid by paying off their mortgage.

Originally Posted By: hatt
Quote:
I don't recall anyone around here saying, "man, I'm glad my home is paid for."
You don't know anyone with a paid off home. You have unlimited options with a paid off home. Including pulling out equity and having a mortgage again if you need or want to. You can sell it and take the loss. You can rent it. On and on. When the economy tanks and you lose your job and can no longer afford your payments and can't sell because you are underwater, that's where problems develop.


I know plenty, as well as plenty that were in the process of paying off their home when it lost significant portions of it's value = any equity they had established in their home, the latter of which were left with no ability to draw equity, the former of which were stuck with an asset that that needed to take a bath on if they sold, and they suddenly realized that they hadn't saved as aggressively as they had hoped since they poured much of their savings into a home who's value was just cut in half.

Don't get me wrong I see the value in a paid off home, and eventually you have to pay the loan, I just recognize that there is an opportunity cost to the piece of mind some folks have with a mortgage paid off. For me that cost is too high given today's rates when I look at the spread that I can collect investing my cash rather than paying off a 30 year locked in at today's rates.

 

[hatt]

Have you pulled out the equity in your home to invest? If not, why not?

 

[Food Scientist]

Originally Posted By: hatt
Have you pulled out the equity in your home to invest? If not, why not?


+1. If you ever listen to Dave Ramsey I hear people call in saying I have $100k mortgage and and $100k in savings. I want to pay off my home but I can make more money if I put it in the stock market and get my mortgage interest tax deduction. Every time Dave asks if you have a paid for $100k home would you put a mortgage on it and invest it in the stock market? Universal answer is no so he always asks What's the difference?

We let these ideological on paper math equations with no inclusion of risk to determine that investing is better, yet when faced with a decision to risk the place we call home on the line to invest in the stock market we fold every time.

 

[99Saturn]

Originally Posted By: hatt
Have you pulled out the equity in your home to invest? If not, why not?


When we applied to refi I applied to do just that. Had the appraisal come back as needed I would have.

 

[Mr Nice]

Why not do both... pay off your house and invest ?