Quote:
Originally Posted by PeteSB75
The problem with paying off the mortgage is that it generally costs you less to pay the normal schedule than it does to pay it off. Even if your interest rate is 7-8%, once you take the tax deduction off the top, you are looking at 4-6% for that money, so it is very cheap, basically the cheapest debt you, as an individual, will ever have. If you refinanced within the last year or so, make that 4-5% and 2-3%. So, if you throw that money you would use to pay down the house into a mutual or index fund(I'd suggest an S&P 500 index or Russell 5000 Index unless you have multiple millions to invest) and assume the historical average return for the market - about 7% a year, you are making anywhere from 1-5% return on your money over what you would be saving in payments.
Obviously, this is your money and you should do what makes you comfortable. If you feel better about the opportunity cost and owning the house free and clear, do that. But make sure you understand what it is you are choosing and what the alternatives are.
|
Sure, my mortgage is only 4.5%, but the bigger issue is that my principal balance is down low enough that I may not even have enough interest paid to be more than my standard deduction, thus there's nothing to gain in that regard. On the other hand, if I were paying $10k/year in interest like when I started, I certainly agree with the concept of the tax advantage of the higher deduction.
All told, there will be ~ $515k. Certainly far from wealthy, but enough to get a good start and work my way there. It'll just be a huge piece of mind to put my head on my pillow knowing I'll never have to worry about being homeless compared to what so many other people have gone through.