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Would you pay off your mortgage?

post #1 of 70
Thread Starter 
I received a good-sized life insurance policy last year when my ex-husband passed away. It's a little more than 3x my current mortgage. About a third of it went to my son's 529 fund, an emergency savings fund and a kitchen/bath remodel fund. Another third has been invested for retirement. I don't have any debt other than the mortgage, so didn't have to put anything toward that.

The other third I planned to use to pay off my mortgage, but I'm finding it hard to write the check. After a financially challenging couple of years when my ex was out of work and didn't contribute any child support, and given the current economic climate, there is much relief at having so much cash at hand.

I don't have any trouble paying the mortgage on my current income. My investments are currently running neck and neck with the interest rate on the mortgage (around 5 percent) - though of course they have the potential to go much higher, or lower. The "mortgage fund" is currently with ING Direct, earning about 1%.

Would you pay off your mortgage in this situation? Invest? Or do something else with the cash? I don't think I'll ever have such a large sum of money at my disposal again so am reluctant to part with it, although it would be wonderful to be completely debt-free.

it's not a bad financial problem to have, but I seem paralyzed by indecision at the moment.
post #2 of 70
I would totally pay off the mortgage; since you have the means to pay your mortgage each month, you could invest that money towards paying off other debt or building up savings. This is a once in a lifetime type opportunity... grasp it!
post #3 of 70
I totally agree!

I would pay it off and then the monthly payment you have been paying out start saving it up for other things! It would be so amazing to be so debt free!


Good luck with your decision momma!
post #4 of 70
Since you're easily able to meet the mortgage, I would put the money into retirement or other savings. What if housing prices tank and you're not able to sell the house if you want some day, or have to take a big loss? That would be money wasted.

Or, I'd use it to buy rental property so that you will have another source of income.
post #5 of 70
I'd pay off half of it.
post #6 of 70
Pay it off! The old "wisdom" of invest all your money now is over. You cannot guarantee the market will go up and it will most certainly go down again. Also you house is not an "investment" it is a place to live and won't it be nice to know that no matter what you and you son have a place to live?
post #7 of 70
Do you plan on moving? Is this the house you want to live in for a loooong time? If this is a house you're going to keep and you have no plans to move, I would pay it off. Use the money you're currently using to pay your mortgage to save for something else.

What a nice position to be in!
post #8 of 70
Thread Starter 
Good input, thanks! Some of you asked if we are planning to stay here forever, or suggested buying a rental property. Those actually bring up a 3rd option I've been considering: use the money to buy a new place, and rent out this one. It's a small (900 sq ft) condo and I would love more space with a playroom for my son and an office for me (I work at home).

But - although rent here (Cambridge MA) would usually cover the mortgage easily, this isn't a typical rental market. A unit down the street from me has been empty for months, which is highly unusual. I'm not sure I have the fortitude (and I definitely don't have the experience) to be a landlord in a down market.

This option would also require me to take on a bigger mortgage, which I'm reluctant to do. But it does maintain investment in this place, which has increased quite a bit in value since I bought it 10 years ago.

Would love additional thoughts - thanks!
post #9 of 70
If you sold right now would you make money?

Im thinking if you did sell, made money, then put down the amount that you planned on paying off your current mortgage/using the money you made on current house for fees and towards a down payment would you still have a bigger monthly mortgage payment? or would it balance out in a sense. I prob worded that quite wrong...

If it was me and I could
a) make money selling my current house/REALLY wanted to sell my current house
b) had enough money to make a sizeable downpayment so that my mortgage would be no more then it is currently
Then I would sell if it would truly make me happy to be in a new house

BUT if I would lose money/didnt want to move I would pay off my mortgage. Gosh that would just be so amazing...in our case it would be an extra almost 900 a month! I just couldnt imagine that! And our mortgage is on the low side for where we are.

I personally would pay off my mortgage.
post #10 of 70
Mortgage for all the reasons PP's have said. A rental will be an ongoing hassle and possibly lose money. The mtg is a guaranteed 5% return. What a great problem to have!
post #11 of 70
I would pay off the mortgage. Then take your mortgage "payment" each month to build up your liquid savings. It seems that you have spent the rest of it well too!
post #12 of 70
Quote:
Originally Posted by StephandOwen View Post
Do you plan on moving? Is this the house you want to live in for a loooong time? If this is a house you're going to keep and you have no plans to move, I would pay it off. Use the money you're currently using to pay your mortgage to save for something else.

What a nice position to be in!
Quote:
Originally Posted by caiesmommy View Post
If you sold right now would you make money?

Im thinking if you did sell, made money, then put down the amount that you planned on paying off your current mortgage/using the money you made on current house for fees and towards a down payment would you still have a bigger monthly mortgage payment? or would it balance out in a sense. I prob worded that quite wrong...

If it was me and I could
a) make money selling my current house/REALLY wanted to sell my current house
b) had enough money to make a sizeable downpayment so that my mortgage would be no more then it is currently
Then I would sell if it would truly make me happy to be in a new house

One of these options.
post #13 of 70
There are other options if you are not quite ready to pay it off completely. You could pay off a percentage of it, possibly even re-financing (maybe to 15 years?)the rest to get a lower interest rate so that some conservative investments could actually be earning more (coupled with the income tax deduction you would receive from the mortgage payment). If that was the case, you might decide to pay extra principal every month or every year to reduce the term of your loan as well. I realize that paying off the mortgage is popular with dave ramsey-ites, but there are other rational financial advisors that make a good claim for diversified investments instead. Try to run the numbers as carefully as you can with different scenarios. There really is no huge rush to make a desision right away. If it is not the house you want to spend the rest of your life in (maybe since you work from home there is another, lower cost of living, area that might work better).
post #14 of 70
It sounds like you've invested most of it - about 2/3? So yes, I would (and have) paid off a mortgage in that situation. It was wonderful. Take the money you'd normally spend on mortgage payments and invest it. It will add up and you can take your time and decide if you'd like to buy something bigger with that money.
post #15 of 70
I would pay it off, then invest the payment. Because it's just your income supporting yourself, the security of not having that monthly obligation if you lost your job would make me feel good.

You could also pay down part of your mortgage to shorten the term and still keep a good cash reserve.
post #16 of 70
Thread Starter 
Quote:
Originally Posted by caiesmommy View Post
If you sold right now would you make money?

Im thinking if you did sell, made money, then put down the amount that you planned on paying off your current mortgage/using the money you made on current house for fees and towards a down payment would you still have a bigger monthly mortgage payment? or would it balance out in a sense. I prob worded that quite wrong...
Nope, you are right, that's another option. I have a lot of equity in the condo even in the current market since I bought it 10 years ago, so another possibility is to sell, take the proceeds plus some of what I'd have used to pay down the mortgage, and put a large down payment on a new place so that the mortgage would be pretty much what I pay now. I would do this if I could find the perfect property - one that I thought I'd want to live (and work) in for the rest of my life.

Financially it would make total sense to look in another town since mine is one of the most expensive housing markets in the country. But I love this city and have a great community here, which is important as a single mom. Public schools are good, it's safe and beautiful, and the cultural and entertainment options are endless. My current home suits me and my 3-year old very well - but I have to admit that 10 or even 5 years from now, we might both feel a bit crowded in the space!
post #17 of 70
Thread Starter 
Quote:
Originally Posted by Delicateflower View Post
I would pay it off, then invest the payment. Because it's just your income supporting yourself, the security of not having that monthly obligation if you lost your job would make me feel good.

You could also pay down part of your mortgage to shorten the term and still keep a good cash reserve.
Yes, as a sole supporter, I love the idea of keeping my monthly expenses as low as possible. Health insurance makes me the most nervous; I'm pretty sure I could freelance if I lost my job, but the price of equivalent health insurance is daunting.
post #18 of 70
I wouldn't. I'm assuming you have a fixed-rate mortgage. If we end up with the kind of inflation that I expect we will end up with over the next 15 years, a low-interest mortgage is going to be like having money in your pocket. When you have (low fixed-rate) debt and the interest rates go up, you're going to be getting much more bang for your buck than you would if you had paid off your mortgage. If your job is stable, your investments are stable, your home life is stable, I wouldn't change a thing. We could have paid off our mortgage 10 years ago. I've been one of the lone dissenting voices here in F&F about mortgages. I think a person should carry one if it's not a burden. (Ours is about 7% of our annual income, so obviously we're not mortgaged up to our eyeballs, so take my advice from that perspective, as well.) It's probably going to be some of the cheapest money you'll ever borrow.

If it were to look like we're about to head into a sharp deflationary cycle, I'd take the money and pay it off. But only in that case.

BTW - reputable financial advisors (such as Suze Orman, Clark Howard, John Bogle) have all said that unless you plan to live in a house for the rest of your life (or until retirement), you shouldn't pay off the mortgage with a lump sum.
post #19 of 70
I would pay off the mortgage too. How wonderful it would be not to have to pay that each month!

If you are reluctant to do that, perhaps you could pay 2 or 3 times the amount due each month. You don't have to actually refinance it. (assuming you have a low rate that you want to keep, and no pre-payment penalty). You just pay the monthly amount AS IF you had a 15-year instead of a 30-year.

Grab a mtge amortization spreadsheet and plug in some different numbers. You will be shocked at the amount of money you will not be wasting in the long run!

Paying interest is crazy if you don't have to. You could be paying yourself that interest if you invested it. Better you than the bank!!

Also - the amount of "tax savings" is not anywhere near the amount of amount actually paid in interest each year. Tax savings is NOT a good reason to keep a mtge.

In this market - I would definitely keep the current house. ESPECIALLY in Cambridge where real estate is expensive! You could be sitting on a goldmine!

Can you do a massive declutter to make it seem bigger? Perhaps you could spend a couple thousand on organizing cabinets etc. and make it seem better, larger, and make your daily life more efficient. Perhaps even springing for a professional organizer person would be worth it.

If the apt down the street has not rented, I would not try to rent yours out. I also would not take on a bigger mtge in this economy.

Good luck mama!
post #20 of 70
Quote:
Originally Posted by HappyMommy2 View Post
Paying interest is crazy if you don't have to. You could be paying yourself that interest if you invested it. Better you than the bank!!
She already is paying herself that interest by having the money invested. The difference is right now it's ALL invested and if she paid off her mortgage it would take her a decade or two to reinvest the money that's already there. Low fixed-rate mortgages are cheap money... that's why even rich people carry them. They can make more money carrying a mortgage than they can save by not having one. Unless you've overinvested in your home (which many people have and is why we had this housing crisis in the first place), carrying a mortgage is part of building wealth. At least that is what I have learned from the gurus. I'm no financial expert, but I read them a lot. I'm just restating what I've read.
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