payoff or invest?

[smokediver]

should someone payoff their house with a balance of 200,000 or invest the money ? just wondering ....

[BUIZILLA]

cash is king for the next 2-3 years.... so I say invest in non-destructible instruments

[Lenny]

I'd buy 3 properties in Las Vegas or Arizona or Fla or whatever if you can hang onto them for 10 years. I imagine that will appreciate in the long term 10 times over what the difference is is paying down a 3-4% mortgage... just M O.

[Ghost]

cash is king for the next 2-3 years.... so I say invest in non-destructible instruments

I find this statement impossible to argue with. (That's rare for me.)

[handfulz28]

What Poodle says and more:
If paying off the house meant $0 in cash reserves, then perhaps not.
If the prospect for future earnings is lower or none at all, then perhaps not.
If you're about to come out of pocket for medical/health expenses, then perhaps not.
If you've had the loan for more than 1/3 the length of the original mortgage, you've already paid most of the interest. You aren't "saving" anything by paying it off.

When it comes to personal finance, it's difficult to remove the emotion from the numbers. Also, the only numbers you can really count on are the ones for right now, today.

One of the reasons that a house is supposed to be a good investment is because it almost pays for itself: it might cost 6% on the mortgage (pre-tax), but it should appreciate 3-4% over time. Since you're "supposed" to be paying interest on less than the entire value, the net borrowing cost becomes minimal.

[Air 22]

Your great-Uncle Jack, inventor of the left-handed monkey wrench, left you $250,000. You can either invest it or pay off your mortgage. Which is better?
If you have a low mortgage rate and a long investment horizon, then it's better to invest it. And, no, property isn't where you should put Jack's jack.

Let's start with the basic question: Should you pay off the mortgage early? Your best assumption is that the return on paying off your mortgage is the same as your mortgage rate. If you are paying 5.91% on your mortgage, the current national average, then you're saving 5.91% interest on your principal over the term of the loan. This basic rule comes with many caveats.

•Taxes. If you pay off your mortgage, you'll lose the mortgage deduction on your federal income taxes. That lowers your overall return from repaying the mortgage. (Taxes also lower the return from most other investments.)

More important, the mortgage interest deduction, either by itself or with other deductions, is typically more than the standard deduction on your federal income taxes. Of all the people who itemized in 2003, 82% claimed mortgage interest as a deduction. Unless you're a real saint, it's probably your mortgage that allows you to itemize deductions and pay less in taxes.

•Leverage. If you pay off your mortgage, you'll also lose the advantage of using someone else's money to invest. Let's say that your mortgage is paid off, and your home gains 5% in price this year, to $210,000 from $200,000. You've gained $10,000.

But let's say you had $20,000 in equity in your home and a $180,000 mortgage. If you were to sell your home for $210,000, you'd repay the $180,000 loan, keep the $20,000 in equity and pocket $10,000 — without tying up $200,000 of your own money.

Saving by paying
How much interest you'll save if you pay off a $250,000, 30-year fixed-rate mortgage early
Mortgage rate
Years left on mortgage 5% 6% 7%
25 $173,044 $217,028 $263,648
20 $118,737 $150,516 $184,651
15 $71,860 $92,176 $114,339
10 $34,516 $44,856 $56,341
5 $9,407 $12,402 $15,798
Source: USA TODAY research



•Liquidity. If you suddenly need money, you may not be able to sell your house quickly. You'll also have to pay a broker's commission to do so. True, you can tap a home equity line of credit — but then you're back where you started before you paid off your mortgage.

But to really make the decision, you have to compare your return with another investment. Over long periods of time, you could probably beat 5.91% by investing in stocks. The stock market has averaged a 10.4% gain since 1926, according to Ibbotson Associates, a Chicago research firm.

And there's the rub. Investing in this kidney stone of a market would make most people balk. When people talk about paying off their mortgage, they're often considering investing the money they save in real estate. Stocks have gone nowhere since 1999, but home prices are going wild in many parts of the country. "I talk to one or two people a week who ask about buying another house and just flipping it," says Malcolm Makin, a financial planner in Westerly, R.I.

That's not the time to load up on real estate. Although the word "bubble" is batted around too frequently — true bubbles are rare — you can make a strong argument that housing gains will ease:

•Rising rates. Every quarter-point increase in mortgage rates eliminates potential buyers from the market.

•Cooling prices. Home prices, like stock prices, don't normally double in a year or two. Typically, home prices rise 1 or 2 percentage points above inflation, currently running at 3.1%.

•Soaring expectations. In 1999, people would talk about how much they made from their tech stocks. These days, the topic is usually how much they have made from their houses. That's not a good sign. People who buy now are "doing the same thing they did with tech stocks," says Tim McIntosh, a financial planner in St. Petersburg, Fla. Should home prices actually fall, the magic of leverage will work in reverse. If you buy a $200,000 house with $20,000, you'll be in trouble if your home price falls 10% to $180,000.

And just as some people don't have the temperament to be investors, some don't have the psychological makeup to be landlords. There's nothing quite like tenants who view paying rent as optional, or discovering a renter's spouse planted in the zinnias.

When should you pay off your mortgage? If you're close to retirement, the mortgage is near its end, and your alternatives are low-yielding bonds or bank CDs. For a retiree on a fixed income, losing a major expense means a big boost in lifestyle. :pimp:

[Lenny]

Dwight, I am talking about $40,000 dollar properties that were over 300-400 1 1/2 years ago.

Why he did it I don't know, but a buddy of mine here just bought a 45' "motoryacht" :rolleyes: that had owed over $700K US for $300K yesterday out of San Diego. The boat has 70 hours...

...but, I would NEVER look at a boat as an investment unless it was an old Chris Crft or Garwood...

The land deals out there right now are unbelievable, and in your Country you can deduct mortgage interest and net Capital gains if you re-invest the money within 1 year. We do not have the same rules, neither of those two actually. We would be in heaven if we did. ( Capital gains are all taxed outside of principle residence, re-investment means nothing. ) :yes: The way we get around it is through a "Holding Company" in Canada holding US assets that subsidizes a "slumlord" holding that needs Capital Expenditure to create wealth in Real Property...and that money comes from the Holding Company :D It is a tax safe, LEGAL, way but nowheres near as good as your Countries "un-complicated, upfront, open" house tax/Capital gains policy...

If I could deduct my Interest payments and Capital gains from investment properties if re-invested,... well, Dwight,... I would be the guy in the Cig Roughrider that was payed for, not the guy in the 18' DONZI's going slow... :)

[BUIZILLA]

Dwight, I think your pasted article is a few years old....

[Air 22]

Dwight, I think your pasted article is a few years old....

Jim...it was the idea behind the story..:boggled:

[smokediver]

there are some really good deals on places around here ... of course getting stuck would not be a good thing ,lol !