Paying off Mortgage Early

[JanetRose]

I may be able to pay off my mortgage in about 10 years vs 30 years. Is this a good idea or should I invest that extra money elsewhere? I contribute 5% to my 401k with my job matching up to 5% (the max they will contribute).

My mortgage rate is 5.87 and I am 48 years old. I just refinanced so I have about 28 years to pay off the house without the extra payments.

Thanks.

 

[ducklite]

It depends on your interest rate and age.

If you are looking at retirement in the next ten years or you've got a higher interest rate, then I'd pay it off.

If you rate is in the 6% or so range, I'd put the money into the 401K with the employer match.

Anne

 

[puffkin]

Everything I have read says to invest the extra money rather than paying off the mortgage. Plus, then you won't lose the tax benefits. I would sit down with a reputable financial planner and discuss your retirement goals and they will be better able to advise you. It sounds like you be better off to open up some investment accounts rather than put more in your 401K.

 

[Hercules10]

Your job only matches 5%???? Bunch of skin-flints.

If you've got a good nest egg built up in retirement savings already then definately pay it off ASAP. But your 10 year plan sounds pretty in-line.

 

[Laurajean1014]

With your age and interest rate, etc. I would pay off the mortgage.

Everyone talks about the tax bene, but it's really not. You get 30% of the 100% of the interest. So, you are spending 70%. So why do it?

If you stick to your plan, you will be 58 and fully paid off. Then, I would take the extra money that you have monthly and sock it into your 401k or a short term annuity. You want to keep your principal, so be conservative with your allocations.

Paying off a bill is always smarter than keeping it. Mortgage or not.

 

[golfgal]

What rate of return are you getting on your investments. If that is less then what your interest rate is on your mortgage, then pay off the mortgage (which with rates these days, it probably is). If you are getting a high rate of return on your investments, put the money there.

If it were me though, I would pay of the mortgage either way. It is still debt any way you look at it. When you pay that off you can put your mortgage payment AND the extra into your retirement funds.

As far as the tax 'benefits' they don't help you nearly as much as what you pay each year in interest, meaning you pay WAY more in interest on your mortgage then you save on your taxes.

 

[mickeyfan2]

Since you are 48 and your loan will be paid off in 28 years, I would try to pay it off early. I am a believer that one needs to be mortgage free to retire. If you keep your loan the entire time then you would be 76 when it is paid off. I believe you need to put more toward your 401K too.

 

[LoveBWVVBR]

Paying off a bill is always smarter than keeping it. Mortgage or not.

We've been mortgage free since we were in our 20's. We are THAT serious about being debt free. I really hate it when I hear financial "experts" tell people to invest the money instead. First of all, most people will probably "invest" in cars, big screen TV's and fancy dinners out instead Second, there is no guaranteed rate of return on "investments". There IS a guaranteed rate of return on paying off debt, and there is the invaluable peace of mind that you actually own your own home (as opposed to the bank owning it). Pay it off

 

[mickeysgal]

Everyone talks about the tax bene, but it's really not. You get 30% of the 100% of the interest. So, you are spending 70%. So why do it?

Paying off a bill is always smarter than keeping it. Mortgage or not.

 

[ducklite]

You are paying 5.87% interest and then are getting a tax deuction against a part of that.

Your employer is giving you the equivelent of 5% interest, plus whatever you make on top in actual interest.

As I see it, it's a wash.

If I were you I'd probably set myself up to pay the mortgage off in 15 years (about the time you will retire) and put the difference towards your retirement.

Now this is assuming you've already got a decent retirement nest egg. If not, then you need to put every penny towards retirement, and keep paying on the house as scheduled, because in all honesty, if you are only beginning to save for retirement now, you won't be able to afford to stay in the house when you do, whether it's paid off or not.

Anne

 

[4nana]

I agree with other posters in checking with a financial planner. Many financial advisors will suggest you invest the xtra monies. However, if you try one of the caculators on the web you'll be most surprised how much money you'd save by doubling your payments and it's a sure thing where some investment may not be.

Another idea is to see if your mortgage co. will allow bi-monthly payments. Many would be surprise the thousands of dollars they could save by making 2 xtra paymemts a yr.

I'd also think about a larger % investment in 401K. DH's co before retirement allowed 17% and they matched a large portion. Now that he's approching 70yo. he must withdraw and it will be a welcomed bonus!!

Good luck in whatever you decide.

 

[PolyHereWeCome]

OP - We are in a similar situation and also in our 40s, and have chosen NOT to pay off our mortgage early. We have about 12 years left on a 15-year mortgage and our rate is 4.75%. There are no guarantees of future stock and bond market performance, but given our relatively low mortgage rate + factoring in the tax break for mortgage interest, we believe it is better to keep the mortgage and invest the money. Your mort. rate is a little higher than ours and your tax levels may differ from ours, so you'll need to run the #s.

You didn't mention if you have any other debt (cc, car, personal credit line, etc.), but would definitely pay those first -- we don't have those.

If you like the feeling of being mortgage free or are concerned that you aren't a great saver, then definitely pay off the mortgage. Can't put a $ value on these, just a personal decision. For us, it just makes more $ sense to not pay off the mortgage.

 

[Christine]

You are paying 5.87% interest and then are getting a tax deuction against a part of that.

Your employer is giving you the equivelent of 5% interest, plus whatever you make on top in actual interest.

As I see it, it's a wash.



Anne

No, I don't think her employer is giving her 5% interest. They are matching her contributions up to 5%. (My employer does 6%). The interest she earns on her 401K is based on which investments she chooses. I've done really well this year with a BlackRock Global Resources fund. I've earned 26% during one period, 11% last period. So, in this scenario, you'd be better off putting a LOT more money into your 401K.

 

[brerrabbit]

Max out your 401k. Whenever possible this is the best deal. Why? Because you are still getting the benefit of the money you put into your 401K being tax free. If you max it out at say $15,000 a year then you pay no taxes on that money. Secondly you still get to take your interest deduction eacxh year. The value of your house is still there but remember you create no cash when building equity in a house. Sure you create value but you never see that value until you sell the house. If you put say 10% into your 401k and the company matches up to 5% then that is an immediate 50% return. No way your house does that. Even contributing at 5% when they match at 5% thats a 100% return. Is that more than the 5.87% yiu pay on your mortgage, you bet it is. My advice is always max out your 401k whenever possible, anyway you look at it its a better deal financially.