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What's your opinion on mortgages? Specifically paying them off early?
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14-04-2015, 04:57 PM (This post was last modified: 14-04-2015 05:00 PM by Adrianime.)
What's your opinion on mortgages? Specifically paying them off early?
I'm just curious of the opinions of you folks. I love to hear what those who have more experience than myself have to say about these matters. Especially if they can describe regrets or offer would-haves.

My question is: What is your opinion on paying mortgages off early (with no prepayment penalty)?

The general advice I hear is: "Since current interest rates are so low, you can more or less guarantee that you will get a better return by investing. Therefor paying off your mortgage isn't as wise as putting that extra money to work for you. Also, taxes!"

My personal feelings, in brief: Being in debt means that you are living off of borrowed money. While the market may be historically reliable, it is still a gamble. I'd rather not extensively gamble with borrowed money, especially not while I am paying interest on it. That, and the peace of mind of knowing that extended unemployment wouldn't greatly change my Quality of Life are my main reasons for wanting to pay off my mortgage early.

Please share your thoughts or feelings. Or just vote! Big Grin

I prefer fantasy, but I have to live in reality.
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14-04-2015, 05:18 PM
RE: What's your opinion on mortgages? Specifically paying them off early?
Pay the fucker off.

The people who came up with the idea investing instead make money off of people's investments, and like you said, the debt is guaranteed, while the returns are uncertain.

Background: Bachelors Degree in Finance, 3 years XP in banking and financial services, and CPA with 15 years XP in public accounting and tax prep.

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14-04-2015, 05:24 PM
RE: What's your opinion on mortgages? Specifically paying them off early?
Pay it off for sure.
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14-04-2015, 08:51 PM
RE: What's your opinion on mortgages? Specifically paying them off early?
Whether paying the mortgage off makes sense depends on the individual.

Mortgage interest in the US is tax deductible. In my case, my effective interest rate is less than 2%. It is possible to lose money on an investment, however, so for some people, that 2% guaranteed return from paying off the debt is more appropriate than the risk that they might lose money on their investment.
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14-04-2015, 08:59 PM
RE: What's your opinion on mortgages? Specifically paying them off early?
(14-04-2015 08:51 PM)BryanS Wrote:  Whether paying the mortgage off makes sense depends on the individual.

Mortgage interest in the US is tax deductible. In my case, my effective interest rate is less than 2%. It is possible to lose money on an investment, however, so for some people, that 2% guaranteed return from paying off the debt is more appropriate than the risk that they might lose money on their investment.

Doesn't having a mortgage with on-time payments also raise your credit scores ?
So it depends on what rate of interest you're paying.

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14-04-2015, 09:21 PM
RE: What's your opinion on mortgages? Specifically paying them off early?
Get a fifteen year loan instead of a thirty and pay it off even sooner if possible.

If you run an amortization table and come face to face with how much that house is really costing you it'll floor you.

You cannot expect to make a higher return on investments than what you are paying on the balance for 15 years much less 30. Not even the best investors have 15-30 year winning runs.

Good luck.

“I am quite sure now that often, very often, in matters concerning religion and politics a man’s reasoning powers are not above the monkey’s.”~Mark Twain
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14-04-2015, 09:24 PM
RE: What's your opinion on mortgages? Specifically paying them off early?
(14-04-2015 04:57 PM)Adrianime Wrote:  My question is: What is your opinion on paying mortgages off early (with no prepayment penalty)?
It depends on your personality, ability to accept delayed gratification, adversity to risk as well as your current and future environment.

If you already live from pay cheque to pay cheque and make use of hire purchase and credit cards without paying off credit card in full each time, then I'd say that mortgage is cheaper than HP and Credit Card.
If you like to keep up with the Jones's e.g. you need a flash new car, latest in smartphone and computer etc and rush out to buy these things because you have cash available then paying off the mortgage may give you better discipline and will reap many financial rewards later down the line.

Regarding Debt. Don't think of debt as necessarily a bad thing. It's best considered as a multiplier. For example if you buy a house for $300K without debt and it goes up 20% you have gained $60K which is a 20% gain on initial investment.
However, if you purchased a $1 mill house, putting in $300K of your own money + $700K morgage and it goes up 20% the house is now worth $200K more, this is a gain of 66% on initial investment of $300K.
So I think, if you aren't struggling cash flow wise and if investment opportunities look favourable and can be liquidised in a timely fashion if the market changes then it may make sense to utilise debt to your advantage.
But of course there is a degree of risk. The multiplier effect of mortgages can multiply your loses too.
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14-04-2015, 09:48 PM
RE: What's your opinion on mortgages? Specifically paying them off early?
It depends on what Dave Ramsey says.

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The very idea of God is a product of the human imagination."
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14-04-2015, 10:13 PM
RE: What's your opinion on mortgages? Specifically paying them off early?
(14-04-2015 09:21 PM)Full Circle Wrote:  Get a fifteen year loan instead of a thirty and pay it off even sooner if possible.

If you run an amortization table and come face to face with how much that house is really costing you it'll floor you.

You cannot expect to make a higher return on investments than what you are paying on the balance for 15 years much less 30. Not even the best investors have 15-30 year winning runs.

Good luck.
While buying my house, I based everything off of the output from different scenarios in the amortization schedule calculator. How different amount of extra payments can knock over a hundred thousand of interest payment off the total price of the loan. I prefer a 30 year loan and making additional payments. Because then you can still treat it like a 15 year loan (or like a 7 year loan in my case), but if you ever are unable to make the extra payment for some reason, or if you come onto hard times you can always fall back to the much lower 30 year payment.

I prefer fantasy, but I have to live in reality.
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14-04-2015, 10:53 PM
RE: What's your opinion on mortgages? Specifically paying them off early?
(14-04-2015 08:51 PM)BryanS Wrote:  Whether paying the mortgage off makes sense depends on the individual.

Mortgage interest in the US is tax deductible. In my case, my effective interest rate is less than 2%. It is possible to lose money on an investment, however, so for some people, that 2% guaranteed return from paying off the debt is more appropriate than the risk that they might lose money on their investment.

Wait, mortgage rates in the US are 2%!? fucking hell that's low. They're almost 7% here.

Might as well invest in that case. Hell, slap it in a high interest savings account if you're so worried about risk.
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