Paying off a mortgage early?

[ElainePDX]

We recently refinanced and now have a 10 year, 3.25% loan on our townhouse. This, despite the closing costs, was a good deal, compared to the 30 year, 4.75% mortgage we used to have. Are there some easy ways for the mathematically challenged to figure out whether the home mortgage tax advantages outweigh the savings from accelerating our payments on the mortgage?

My gut tells me that it is better to accelerate payments via monthly principal curtailment payments. But maybe we do better to invest the money we'd use to reduce the principal. My husband remains employed, and it is looking like our income won't go down or won't go down much when he retires. I know some people feel more comfortable going into retirement with their home owned free and clear, but this doesn't worry us.

Does anyone have a handy online calculator to recommend that might help me figure this out? Or has anyone run the numbers for questions like this who can provide guidance? I expect this is a common conundrum and would welcome the advice from Forum folks. Thanks!

 

[Matt]

Every case is a little different, in favor of you keeping the mortgage is your income through retirement.

However, is any of that income subject to an increase by delaying taking it (SSI is one such thing like this)? If so, then you need to consider that too.

The next consideration is can you deduct mortgage interest? Itemized filing is required for one. If so, then it is another check towards holding the mortgage.

Next up- what can you invest in? If you are leaving anything tax advantaged on the table (IRAs or HSAs etc) you have another check mark in favor of keeping the mortgage and using the money to fuel otherwise unobtainable investment accounts.

If all these are positive, then it's an easy call to keep the mortgage- if you locate the money correctly you could allocate it to 0.001% interest and still come out ahead.

 

[incendia]

Also inflation should be considered, my gut tells me that inflation will be in the 4-5% range within the next few years, but you shouldn't make decisions based on my gut.

 

[ElainePDX]

Every case is a little different, in favor of you keeping the mortgage is your income through retirement.

However, is any of that income subject to an increase by delaying taking it (SSI is one such thing like this)? If so, then you need to consider that too.

I think we may very well delay taking SSI. Everything I have read indicates it would be a wise move in our situation.

The next consideration is can you deduct mortgage interest? Itemized filing is required for one. If so, then it is another check towards holding the mortgage.

Yup, we do deduct mortgage interest.

Next up- what can you invest in? If you are leaving anything tax advantaged on the table (IRAs or HSAs etc) you have another check mark in favor of keeping the mortgage and using the money to fuel otherwise unobtainable investment accounts.

We do not have the best strategy to minimize our taxes. We just don't pay much attention to it. Typically we just ask our accountant to figure out our tax obligation both with and without putting money into IRAs. If she determines we could save on the current tax bill, we put money into our Roth IRAs before the deadline (that is, April 15 of the year following the tax year in question). But we don't put money into any IRA at the start of the year, as we could. We also are terribly lax in investing; we tend to decide it is time to sell something but then sit on the cash, unsure of what to do next, or distracted by day to day demands such that reinvesting the money does not get done in a timely way.

If all these are positive, then it's an easy call to keep the mortgage- if you locate the money correctly you could allocate it to 0.001% interest and still come out ahead.

Does this mean that if the money we might use to pay down the mortgage makes only 0.001% we come out ahead?

Thanks for your answers; I look forward to the new thread, and would continue to welcome any advice folks may offer here too.

 

[Matt]

Also inflation should be considered, my gut tells me that inflation will be in the 4-5% range within the next few years, but you shouldn't make decisions based on my gut.

I pulled this out into a separate thread to discuss on its own merits - an interesting concept that I don't want to detract from this question on Mortgages. You can discuss the impact of inflation on savings and debts here

 

[Matt]

I think we may very well delay taking SSI. Everything I have read indicates it would be a wise move in our situation.



Yup, we do deduct mortgage interest.



We do not have the best strategy to minimize our taxes. We just don't pay much attention to it. Typically we just ask our accountant to figure out our tax obligation both with and without putting money into IRAs. If she determines we could save on the current tax bill, we put money into our Roth IRAs before the deadline (that is, April 15 of the year following the tax year in question). But we don't put money into any IRA at the start of the year, as we could. We also are terribly lax in investing; we tend to decide it is time to sell something but then sit on the cash, unsure of what to do next, or distracted by day to day demands such that reinvesting the money does not get done in a timely way.



Does this mean that if the money we might use to pay down the mortgage makes only 0.001% we come out ahead?

Thanks for your answers; I look forward to the new thread, and would continue to welcome any advice folks may offer here too.

Well... you need to optimize your tax strategy a bit... if you ask your accountant what the difference would be in tax obligations and then put into Roth IRAs the answer is irrelevant. Roth IRAs have no impact on tax liability in present year. So if the Accountant says you'll save say $3,000 by doing it, you are not actually saving that $3K right now, because you would only do that if you followed their advice and then went on to put it into a Traditional IRA.

Not saying that a Roth isn't the best thing for you, just that the decision making process here is flawed.

Regarding the 0.0001% part- if you can find a way to reduce present day salary by putting the money into tax advantaged accounts (HSA's end at age 65) then yes, you would make far beyond what you would save in paying down your mortgage just by leaving it in cash. Not that you should leave it in cash - but just for perspective... a HSA gives you a tax deduction and you will be able to use it on Medicare and other costs - meaning that the APR it would be valued at for this year is equal to your tax rate... which is pretty huge compared to your mortgage rate.

You should probably start dripping funds into the market- if you are scared of corrections the buy in installments, every 3-6months put in 10-20% of your sitting cash, this will dollar cost you back in.

 

[ElainePDX]

Well... you need to optimize your tax strategy a bit... if you ask your accountant what the difference would be in tax obligations and then put into Roth IRAs the answer is irrelevant. Roth IRAs have no impact on tax liability in present year. So if the Accountant says you'll save say $3,000 by doing it, you are not actually saving that $3K right now, because you would only do that if you followed their advice and then went on to put it into a Traditional IRA.

Not saying that a Roth isn't the best thing for you, just that the decision making process here is flawed.

Thanks, Matt. As I have said, investments and tax planning are really not my thing. But I just checked and indeed we do put the money in my traditional IRA when the accountant advises us we can save taxes on the return we are about to submit. It is my son's money that goes into a Roth.

We have (again based on the accountant's advice and only in some years based on income) moved money from one IRA to another (Trad > Roth) because according to the numbers she ran, it was better to pay tax on it in that tax year. (I think this happens when my husband's income is lower due to being on sabbatical or not teaching during the summer.)

I should add that we submit all our info to the accountant, along with a note to let us know if we should put money in an IRA by April 15, and if so, how much and which IRA. We then follow her advice, advise her we have made the IRA contribution, and then she updates the return and e-files for us. So we do have someone monitoring us!!

Regarding the 0.0001% part- if you can find a way to reduce present day salary by putting the money into tax advantaged accounts (HSA's end at age 65) then yes, you would make far beyond what you would save in paying down your mortgage just by leaving it in cash. Not that you should leave it in cash - but just for perspective... a HSA gives you a tax deduction and you will be able to use it on Medicare and other costs - meaning that the APR it would be valued at for this year is equal to your tax rate... which is pretty huge compared to your mortgage rate. .

After you set me straight on HSA vs. FSA, I read your blog post on Saverocity.com and we do not qualify for an HSA. We do maximize an FSA. So we are not in a position to go the HSA route instead of paying down the mortgage.

You should probably start dripping funds into the market- if you are scared of corrections the buy in installments, every 3-6months put in 10-20% of your sitting cash, this will dollar cost you back in.

Yes, we absolutely should. With the academic year coming to a close, my husband has promised me that we will get our financial house in better order.

So the question remains: should we be paying down the mortgage or dripping more of the available cash we have into the market? The issues I see are:

>>> Having a mortgage and itemizing interest paid to reduce our taxes is nice;

>>> But accelerating the mortgage payback will save us money over the 10 year term of the mortgage.

And

>>> Saving money over the 10 year term of the mortgage is nice;

>>> But would we better off putting money in the stock market?

How does one begin to figure that out? Is there some handy online calculator where I can input amount owed, length of the loan, proposed amount of principal reduction, annual income and % of return on an investment to see what would be best?

 

[Haley]

A HSA gives you a tax deduction and you will be able to use it on Medicare and other costs - meaning that the APR it would be valued at for this year is equal to your tax rate... which is pretty huge compared to your mortgage rate.

By 'your tax rate' do you mean your income tax bracket or your actual tax rate?
Actual as in what % you really pay.

 

[Matt]

By 'your tax rate' do you mean your income tax bracket or your actual tax rate?
Actual as in what % you really pay.

hmmm let me wrap my head around that one. I am inclined to say tax bracket... but it is a good question, and I am spinning too many plates today to give it a proper answer.

 

[Fortension]

I wouldn't think of it as something that can be done by calculators.
First, are are all your retirement accounts maxed out? That's going to be the first place for free cash flow.
Determine how much of your mortgage tax interest is actually deductible, along with your federal marginal tax rate. Together, that should give you an idea of what your true cost to borrow would be.
Are you investing in non-retirement vehicles that provide a lower after-tax rate of return? If so, then think about paying off your mortgage, or reconsider your investment strategy. Also consider the lack-of-liquidity risk by paying off/down your mortgage. If not, is the risk premium worth it to you?
Remember that the tax deduction shrinks as you get to the end of the mortgage life, since you're paying less interest, so at the end there will be very little benefit.

 

[ElainePDX]

I wouldn't think of it as something that can be done by calculators.
First, are are all your retirement accounts maxed out? That's going to be the first place for free cash flow.
Determine how much of your mortgage tax interest is actually deductible, along with your federal marginal tax rate. Together, that should give you an idea of what your true cost to borrow would be.
Are you investing in non-retirement vehicles that provide a lower after-tax rate of return? If so, then think about paying off your mortgage, or reconsider your investment strategy. Also consider the lack-of-liquidity risk by paying off/down your mortgage. If not, is the risk premium worth it to you?
Remember that the tax deduction shrinks as you get to the end of the mortgage life, since you're paying less interest, so at the end there will be very little benefit.

Great advice; very helpful! I am cut-and-pasting it into my Summer Financial To Do list. Much appreciated. I am not a numbers person but I expect we can figure this out now that I have a road map. Thank you.

 

[freebee]

I have a radically different point of view, regarding mortgage. Two years ago, I was down to 6 years left on my mortgage. I chose to do a cash-out refinance to a 15 year mortgage, and invested the "cash-out" to purchase homes which I am renting out. Since I was buying these rental properties "all cash", I think I got great deals along with low closing costs. However, use caution with this strategy, as real estate prices are no longer what they were a couple of years ago.

 

[nickelfish1]

This thread is so timely for me. Hubby just announced last night that we're paying off our mortgage. I'm not sure we should. Our interest rate is 3.08% at 10 years. (We did a refi 16 months ago from a 30 yr 6.125%) We max his (he's 12 years older and does the "catchup" amount) IRA. He contributes to a 401..not sure of percent. I contribute only 3% to my 401k because I buy a yearly stock offering and have a company funded pension that I'm vested in. (No company match into 401) Although, I've only been there three years...so it's not a ton. We have two kids who will go to college in three years and have zero college savings. I'm not worried about college expenses. I've been more focused on retirement since you can finance college but not retirement. I'm going to have hubs read this thread..it'll give him more insight into figuring out if we should pay off, double up payments or do nothing. We have the cash to pay it off without any impact to our lifestyle. So maybe that means we should figure out a better investment than a savings acct. Too bad I cant get rid of the 1K per month tax bill NYS likes to send. Anyway, lots to consider so thanks for starting this thread!!

 

[Matt]

This thread is so timely for me. Hubby just announced last night that we're paying off our mortgage. I'm not sure we should. Our interest rate is 3.08% at 10 years. (We did a refi 16 months ago from a 30 yr 6.125%) We max his (he's 12 years older and does the "catchup" amount) IRA. He contributes to a 401..not sure of percent. I contribute only 3% to my 401k because I buy a yearly stock offering and have a company funded pension that I'm vested in. (No company match into 401) Although, I've only been there three years...so it's not a ton. We have two kids who will go to college in three years and have zero college savings. I'm not worried about college expenses. I've been more focused on retirement since you can finance college but not retirement. I'm going to have hubs read this thread..it'll give him more insight into figuring out if we should pay off, double up payments or do nothing. We have the cash to pay it off without any impact to our lifestyle. So maybe that means we should figure out a better investment than a savings acct. Too bad I cant get rid of the 1K per month tax bill NYS likes to send. Anyway, lots to consider so thanks for starting this thread!!

It's never a simple decision, even when the math lends itself towards keeping the mortgage many folk prefer to not hold one.

The biggest flaw in arguments against holding a mortgage is that they rely on 'averaged' returns from an investment. If you are using a safe savings account for your money rather than paying off in full then you certainly need to rethink strategy, as you will be getting about .9% from that vs a guaranteed 3.08% (minus tax deductions) however, if you go into the market and can find a blend of investments that can offer 5-8% 'average' per year, and are OK with the average part of that, you would be better off.

Of course, if you go all in on the market and it drops 50% you'd probably wish you had paid that mortgage off!

 

[Stuck in KC]

I was in the same boat as you a few years ago. I had had a pretty good run in the stock market, was really busy with home and kid activities. Paid off the house, put everything I could on autopay to free up more time. I consider it a good decision for me. My bracket is such that I think I am ahead this way. Of course, I am compulsive to check everything and keep close track but psychologically it was a very good decision for me.

 

[Fortension]

I suggest spending more time on the financial aid considerations. Even if the kids can borrow, a poor allocation of savings can make them borrow more than needed. Usually home equity is not considered in the calculations, and IRA/401k are not, so it would be a good idea to put your "savings" there soon.

FYI, my SUNY education was one the great values in my life, but it was around $1300/year back then.

 

[RRD]

IMO, the psychological benefit is the biggest. We paid off our condo two years into the mortgage only because my husband does not like debt of any kind. His logic is that we can never be assured of our investments because we are at the mercy of the feds but we always can be assured that we are not wasting money on interest, however small it might be. This POA is not always profitable though because of the meager amount of money your savings make, in this low interest environment. We max out all our retirement contributions.

 

[nickelfish1]

Thanks for the input.
Fidelity runs our 401k and they were here doing free 45 mint consults on college, retirement, estate and multi-goal for those who signed up. Sounds like I shoulda gone to that!

I suggest spending more time on the financial aid considerations. Even if the kids can borrow, a poor allocation of savings can make them borrow more than needed. Usually home equity is not considered in the calculations, and IRA/401k are not, so it would be a good idea to put your "savings" there soon.

 

[freebee]

This thread is so timely for me. Hubby just announced last night that we're paying off our mortgage. I'm not sure we should. Our interest rate is 3.08% at 10 years. (We did a refi 16 months ago from a 30 yr 6.125%) We max his (he's 12 years older and does the "catchup" amount) IRA. He contributes to a 401..not sure of percent. I contribute only 3% to my 401k because I buy a yearly stock offering and have a company funded pension that I'm vested in. (No company match into 401) Although, I've only been there three years...so it's not a ton. We have two kids who will go to college in three years and have zero college savings. I'm not worried about college expenses. I've been more focused on retirement since you can finance college but not retirement. I'm going to have hubs read this thread..it'll give him more insight into figuring out if we should pay off, double up payments or do nothing. We have the cash to pay it off without any impact to our lifestyle. So maybe that means we should figure out a better investment than a savings acct. Too bad I cant get rid of the 1K per month tax bill NYS likes to send. Anyway, lots to consider so thanks for starting this thread!!

It appears that your husband is less risk tolerant of the two of you. I on the other hand am a bit (did I say "bit") of a gambler, and my wife doesn't get into financial decisions, hence I did what I wrote in my post above.
You need to do what makes BOTH of you comfortable in this mortgage payoff decision.
What would you say if I told you that I borrowed against my 401K and invested it in rental properties. I am not advising this, although it was good decision when I made it, but just emphasising that we are all different, and need to do what we (not the mob) are comfortable with.

 

[TBB]

Confession: I have not read most of the comments above! I just want to add something: In my career, no client has ever complained for paying off the mortgage early! If the plan is on track and there is excess cash flow I suggest to clients to enjoy it and consider paying more towards the mortgage principal which will dramatically reduce the amount of money that will go to the bank eventually. I cringe when I see seniors retired with a mortgage, yikes! I don't want to get into the argument "interest rates are low and I can make more trading stocks/Apple/bitcoins or whatever. Those are not guaranteed, the return on your mortgage payoff is guaranteed and the psychic rewards are, well, priceless. Then again If I was compensated by commissions I may have a super duper financial product to offer you

 

[TBB]

Confession: I have not read most of the comments above! I just want to add something: In my career, no client has ever complained for paying off the mortgage early! If the plan is on track and there is excess cash flow I suggest to clients to enjoy it and consider paying more towards the mortgage principal which will dramatically reduce the amount of money that will go to the bank eventually. I cringe when I see seniors retired with a mortgage, yikes! I don't want to get into the argument "interest rates are low and I can make more trading stocks/Apple/bitcoins or whatever. Those are not guaranteed, the return on your mortgage payoff is guaranteed and the psychic rewards are, well, priceless. Then again If I was compensated by commissions I may have a super duper financial product to offer you

 

[Bob D]

Confession: I have not read most of the comments above! I just want to add something: In my career, no client has ever complained for paying off the mortgage early! If the plan is on track and there is excess cash flow I suggest to clients to enjoy it and consider paying more towards the mortgage principal which will dramatically reduce the amount of money that will go to the bank eventually. I cringe when I see seniors retired with a mortgage, yikes! I don't want to get into the argument "interest rates are low and I can make more trading stocks/Apple/bitcoins or whatever. Those are not guaranteed, the return on your mortgage payoff is guaranteed and the psychic rewards are, well, priceless. Then again If I was compensated by commissions I may have a super duper financial product to offer you

Agree, the psychological effect is huge

 

[Matt]

Just to be contrarian... (who me?) I'd like to add that for some people holding a mortgage can be a good thing from a psychological perspective. There is the notion of the 'full lion doesn't hunt' where if you have too much comfort going on you have no desire to go out there and aggressively earn more. For those at the early point in their adult lives the pressure of holding a mortgage might be a good thing....

I'm saying that from the perspective of someone who has never held a mortgage.

 

[Mountain Trader]

The biggest flaw in arguments against holding a mortgage is that they rely on 'averaged' returns from an investment.

Maybe the biggest flaw in investing, period.

The average American has one breast and one testicle.

 

[nickelfish1]

What would you say if I told you that I borrowed against my 401K and invested it in rental properties.

I would stare blankly at you and then say, "Holy crap!" and then ask... "Ummmm...would any of them be in Cape Cod, Miami, Vegas or the Turks??"

 

[TBB]

>>>>>>>>>There is the notion of the 'full lion doesn't hunt' where if you have too much comfort going on you have no desire to go out there and aggressively earn more. For those at the early point in their adult lives the pressure of holding a mortgage might be a good thing...


Actually, there is certainly some truth to this. In my case, I would probably not be working as hard if I had the mortgage paid off (house only, rental property's mortgage is paid off). Having that big monthly expense sure assures I am not slacking. Anyways, goal is to pay it off by age 50 which means I may start pimping credit cards soon LOL

 

[James from BNA]

Does anyone have a handy online calculator to recommend that might help me figure this out? Or has anyone run the numbers for questions like this who can provide guidance? I expect this is a common conundrum and would welcome the advice from Forum folks. Thanks!

Elaine, I've only owned 1 home, and am not a real estate expert by any means. My undergrad is applied mathematics and my MBA is in Finance so I do enjoy crunching the numbers. The best calculator I've found is from The Mortgage Professor. He is a former Wharton Professor of Finance and his website and 53 calculators have helped me through 2 Refis. http://www.mtgprofessor.com/CalculatorArticles/Mortgage Payoff Calculators.html

For refi's, I especially like this one that will allow you to compare two options. http://www.mtgprofessor.com/calculators/Calculator9ci.html After taking in the data, it will tell you which loan to pick and what the break-even period is to recoup closing costs.

I'm refinancing tomorrow on a 10 year fixed and intend to be mortgage-free at age 41. US Bank has a no-closing cost FRM and the break-even was Day 1. We might move in a couple years and the other loans had a 36+ month BE. We intend to pay off our mortgage early for these reasons:

1. I am in a stressful job and don't want to stay here into my 40's
2. Psychological boost of having the house paid for as the kids enter Middle School
3. In the next 10 years we will be the primary caregivers for 2 sets of aging parents (closest children on both sides) and want to have schedule/financial flexibility

I don't know what the numbers say in your case but good luck as you contemplate your options.

 

[ElainePDX]

Elaine, I've only owned 1 home, and am not a real estate expert by any means. My undergrad is applied mathematics and my MBA is in Finance so I do enjoy crunching the numbers. The best calculator I've found is from The Mortgage Professor. He is a former Wharton Professor of Finance and his website and 53 calculators have helped me through 2 Refis. http://www.mtgprofessor.com/CalculatorArticles/Mortgage Payoff Calculators.html

For refi's, I especially like this one that will allow you to compare two options. http://www.mtgprofessor.com/calculators/Calculator9ci.html After taking in the data, it will tell you which loan to pick and what the break-even period is to recoup closing costs.

I'm refinancing tomorrow on a 10 year fixed and intend to be mortgage-free at age 41. US Bank has a no-closing cost FRM and the break-even was Day 1. We might move in a couple years and the other loans had a 36+ month BE. We intend to pay off our mortgage early for these reasons:

1. I am in a stressful job and don't want to stay here into my 40's
2. Psychological boost of having the house paid for as the kids enter Middle School
3. In the next 10 years we will be the primary caregivers for 2 sets of aging parents (closest children on both sides) and want to have schedule/financial flexibility

I don't know what the numbers say in your case but good luck as you contemplate your options.

@James from BNA - Oh, a reply from the famous VR Jacket Guy! I remember you from the #CharlotteDO but I don't think we met personally. Thanks much. I will follow up and check out the links.

BTW we also looked at that US Bank refi but found our local credit union to be an even better deal. Also gave our usual mortgage broker a crack at it but she couldn't match either.

PS - Will you be clothed in Simons at the #WestCoastDO ? Or perhaps AGCs? I understand men in Macerich look particularly good....!

 

[redbirdsj]

Good stuff in this thread. As others have mentioned, it really does depend on your risk tolerance and the "peace of mind" you get owning your home free and clear. I happen to feel the opposite way of many, but it doesn't mean you should. Everyone places different weights on the psychological benefits of getting the house paid off. I'll give you some reasons I would never pay my mortgage off early, but it doesn't mean you shouldn't.

1. Interest - interest rates are at historic near lows. If you refinanced in 2012, your rate likely is at the very historic low. A rate below 3% means you are making money after inflation if you simply invest in something that keeps up with inflation (ignoring tax consequences). Aways keep in mind that you shouldn't be looking at the overall interest you will pay to the bank (unless you're doing it on a discounted basis) but rather the RATE you're paying. Many simply look at the absolute amount of interest paid over a 30 year note and say wow, that's huge! However, they don't take into account that those payments are all made at various points in the future. And as we all know, future money is worth less than present money. So understand that the rate drives decisions on paying off early v. later, not the absolute numbers.

Try to determine the rate at which you wouldn't pay it off early because the money is so cheap you KNOW you could do better elsewhere. Is it 2%? 1%? 3%? For me, this is probably somewhere around 6-7% for a ten year loan. For some, this is 10-12% (I'm not kidding). Figuring out this number can help frame your decision making process.

2. Peace of mind - Many find peace of mind when their mortgage is paid off and they finally "own" their house. I personally have peace of mind knowing that not all of my money is tied up in an very illiquid asset. Yes, I understand it can be relatively easy to pull that cash out if you need through HELOCs, cash-out refis, etc. but those ultimately depend on lending conditions and market rates, and there are non-negligible transaction costs associated with these methods. Don't sacrifice too much liquidity for "peace of mind" or you will find yourself very stressed if you actually need that money in the future.

3. Tax benefits - The mortgage interest deduction is an excellent tax benefit for those in higher income brackets, but be careful not to overcalculate the benefit here. Many assume that the benefit is simply their marginal tax rate*interest paid, but that often isn't true for folks without a significant amount of OTHER itemized deductions. It's good to understand exactly how this affects your effective rate, and then make decisions based on your risk tolerance.

 

[cocobird]

Just adding a couple of other miscellaneous thoughts.

I saw a recent study on "happiness" that concluded that retirees who had paid off their mortgage were generally happier than people who had not. An interesting finding.

Although I have the assets to pay off my mortgage, for the sake of my credit score and potential credit needs, I have not done so. I have talked to bankers who generally like to see performance on similar credit instruments when making a credit decision. As a result, I selected a 30 year adjustable rate mortgage loan that was interest only and paid it down to $71, resulting in a monthly mortgage payment of 25 cents. Although this seems silly, it adds to my credit score and permits a lender to see that I have a performing installment loan. I have reviewed installment loan applications that were denied despite credit scores in the high 700s or even over 800 because the applicant only had credit lines (home equity line of credit, personal line of credit, credit cards) and no recent performance for an installment loan. While you would think a paid off loan would count for more, the reality is that it does not over the long term.

 

[TBB]

I personally have peace of mind knowing that not all of my money is tied up in an very illiquid asset.

Excellent feedback overall. I like not to think of my principal home as an investment asset because it is not. It is just the place we live in and would like not to have it owned by them bankers

The peace of mind is....priceless!

 

[TBB]

As a result, I selected a 30 year adjustable rate mortgage loan that was interest only and paid it down to $71, resulting in a monthly mortgage payment of 25 cents. Although this seems silly, it adds to my credit score and permits a lender to see that I have a performing installment loan. I have reviewed installment loan applications that were denied despite credit scores in the high 700s or even over 800 because the applicant only had credit lines (home equity line of credit, personal line of credit, credit cards) and no recent performance for an installment loan. While you would think a paid off loan would count for more, the reality is that it does not over the long term.

THANK YOU! I was torturing myself about this exact scenario. There was a period of about a year that we had absolutely no debt and my credit card scores proceeded to suffer a bit (scores dropped, still no denials but much more working the reconsideration lines!). I think I will do it just like you and arrange for a $1 payment (can't believe they let you do a $0.25 payment!) so we can continue to screw the banks out of their miles/points and money too! Thanks for confirming this scenario for me, much appreciated!

 

[RRD]

>>>>>>>>>There is the notion of the 'full lion doesn't hunt' where if you have too much comfort going on you have no desire to go out there and aggressively earn more. For those at the early point in their adult lives the pressure of holding a mortgage might be a good thing...


Actually, there is certainly some truth to this. In my case, I would probably not be working as hard if I had the mortgage paid off (house only, rental property's mortgage is paid off). Having that big monthly expense sure assures I am not slacking. Anyways, goal is to pay it off by age 50 which means I may start pimping credit cards soon LOL

Umm..don't quite agree here. It obviously depends on individual goals and drive. Our goal is to retire by 40/42 and therefore, working as hard as we can to save up as much as we can and this is where the points hobby is so beneficial - it let's one take these exotic vacations at a negligible price and helps by not making life feel like all work and no play.

 

[redbirdsj]

Excellent feedback overall. I like not to think of my principal home as an investment asset because it is not. It is just the place we live in and would like not to have it owned by them bankers

The peace of mind is....priceless!

I agree that a primary residence is usually not held for investment purposes. However, it is still an asset and for most people, a significant percentage of their net worth is their home equity. Using your home equity in the optimal way can have an impact on your overall financial picture.

 

[James from BNA]

@James from BNA -

PS - Will you be clothed in Simons at the #WestCoastDO ? Or perhaps AGCs? I understand men in Macerich look particularly good....!

I will be in PHX and would love to meet you. The VR Jacket stayed in Charlotte, so not sure what the attire will be. I still have a bunch of "hockey pucks" from the Cartera Commerce bonanza a couple years back so I may incorporate those.