Posted on 02/15/2008 10:48:40 PM PST by RKBA Democrat
“They missed another point - what if you loose your job?”
Actually, the forecasting I did gave an advantage to investing on this point. By investing the money in a semi-liquid way, I would be able to make it for much longer with an investment versus paying down my mortgage if I lost my job.
If I put all my extra in the mortgage, I have to go to the bank right away and ask for mercy. The longer I continue to put the money in an investment, the longer I can go without needing any other income to make the payment. In addition, I can use the liquidity to pay other expenses if I decide to do so.
The fact that mortgages are no longer local adds to my uneasiness with depending on them to provide some relief because I’ve been making additional payments.
Peace of Mind bump.
Your tax free investments are only tax free until you take it out. Then you pay... And who knows what future tax rates will be.
Your house equity isn’t taxed for up to at least $600,000 (if I remember correctly and it might be $1.2 million).
And debt is debt... If debt (leverage) really is such a great thing to have so you can “invest” your money elsewhere then it would make sense to borrow even more so you can “invest” it... Strange how that doesn’t really work so well long term unless you’re Donald Trump...
Then there’s PMI insurance if there isn’t enough equity in your home verses the mortgage amount. Those costs can be substantial. Paying your principle down enough to get rid of it is only a plus.
And last but not least you say you have more liquidity with investments vs. having it tied up in your home. Most investments that have significant tax advantages also have big tax penalties if you remove it before retirement age. If your house is paid off it is easy to get a line of credit against your paid off home quickly in an emergency which is no worse than having a mortgage so that’s hardly a significant barrier to access your “money”.
Your way is how I have done it over the years, I nave always appreciated the interest deduction which manages to help keep my adjusted gross income at levels around the 15 percent tax bracket. In fact I’m now giving thought to what I’ll do when I don’t have a mortgage, and what that means to taxes.
It’s pretty straightforward calculating. You KNOW what your mortgage interest rate is - - say 6%. Now can you GUARANTEE an investment every year for 30 years of 6%????
There’s one other issue. And that’s inflation.
Hard assets retain their value much better than cash in times of high inflation. There’s every indication that inflation has been much higher over the last several years than the government is reporting. The falling dollar is one indication of that.
Well if you think a mortgage is such a great benefit, there’s nothing stopping you from getting another one...
I'm guessing you had to be living in Nassau or Suffolk county NY. = )
Close! It was NJ and parts of NY nearby.
The Fed is in full panic. Their efforts have had no effect to reverse what is rampant DEFLATION of the money supply, ie no new debt (money) is being created. The fiat money machine is now running in reverse and will soon reset to zero.
Cash is king. A very foreign concept to a debt ridden society. And did I mention that it is dangerous to be in debt up to your eyeballs when cash is gaining in value after a 25 year period of inflationary expectations ?
“I look at it as the house is now paying me $1K a month in rent avoidance.....”
As an aside, during the last Clinton administration, there were serious major policy discussions on making such ‘rent avoidance’ taxable income. The idea was that they would determine the fair market value of what it would cost you to rent your home. Then, they would deduct your mortgage payments leaving the ‘imputable income of rent avoidance’. This amount would be added to your real income to determine your Adjusted Income for tax purposes. All in the name of making the tax code fairer (and increasing revenue too).
At that point, we robbed our savings and paid off the home - it sure simplified repairs and expedited things.
Once that scenario was all digested, we took a look at paying off our second home in the desert....did that, so when we sold the first one and moved out here to the Coachella Valley, it was like pocketing a big profit and not having to reinvest in another home.
Best decisions we've ever made. We have very low overhead, and a chunk of cash for retirement....which is good, since I've become the primary caregiver in an elderly parent situation, pretty much forced to be "retired".
....hard times are coming folks and you can’t live in a stock certificate....you can never really retire until you own your home.
Take the extra principal and save, invest or spend it. If you buy a rental property and have any negative cash flow, it will usually cover it. RE is a better investment over the long haul because of leverage. Why pay off a 300,000 house when you can buy two more houses and make twice as much over time?
Example, if I can borrow equity for 6% and I'm in a 25% tax bracket, the actual cost of the money is 4.5%. If I can make 6.5% tax free (universal indexed life). I will make money each year. If I can't sleep without paying down the house, I can use the gain to pay it off or not, as I choose.
Tax savings and redirection of current retirement investment counters the loan payment. If the loan is on a rental, future rent increases can help. Positive cash flow also.
And that would be?
Whether I have $1000 in my pocket and $1000 in debt toward a "hard asset" or I own the hard asset outright and have no cash is irrelevent. In fact, the inflation argument works against paying off a mortgage early, since future year dollars are worth less than current year dollars.
I assume you missed the point in my post where I said that doesn't mean it is right for everyone. I was simply trying to say that at times, it makes sense to carry some debt as part of an overall strategy. If not, no one would invest for retirement, college, or anything else until they had their mortgage paid off.
On the other hand, if enough people can be talked into prepaying on their homes, it might help save the banking industry. Especially when they can see inflation on the horizon... pay now with valuable money - or pay later with devalued money carted around in a wheel barrel. Well, it probably won’t get that bad - but you get the idea.
LOSE ...verb indicating misplaced or gone ..I lost my dog.
LOOSE....no restraint....I have a loose fitting dress. .
Not directed at anyone special....just drives me nuts
On the other hand, if enough people can be talked into prepaying on their homes, it might help save the banking industry. Especially when they can see inflation on the horizon... pay now with valuable money - or pay later with devalued money carted around in a wheel barrel. Well, it probably won’t get that bad - but you get the idea. (For disclosure - One of my homes is completely paid off - and the other one so close to being paid off that it’s not an issue - makes it easier to sleep at night.)
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.