Even if there is some small advantage to keeping the debt (to invest at higher rates, for favorable financial aid considerations, for credit scores, and whatnot), it may still be better to forsake those to extinguish the debt. The debt comes with some risk, albeit slight, and you'll probably have more flexibility in life if things go badly and/or you want to do something unconventional.
I did the same thing. I paid off my house in 7.5 years. It was a piece of mind thing that my wife really wanted if I were going to start my own business. If I had to do it over again I probably wouldn't but it wasn't a bad thing per se. Like others have already mentioned, I lost out on the mortgage interest deduction. Even itemized I could never get more than the standard deduction. It’s a repeat of what a lot of people say but: 1. Make sure you pay off credit card bills first. Pretty much make sure all other debt is paid off first since they are likely higher interest than your mortgage. 2. Make sure you have at least 6 months of expenses saved up. If you put all your savings into your house you can’t take it out when you need it unless you have a HELO setup and then you’re paying interest on your own money. 3. Make sure you have 401k matching done at the very least. Max out your IRAs too if you have spare money. And do 529 for your kid too. 4. The market is up and down right now but in general it’ll be up. If you don’t need the money right away and are willing to wait out any drops, then the market has averaged 10.5% the past 40 years or so. 5. If all that is taken care of, then pay off the house. It’s nice peace of mind to know that if anything goes wrong, you can always work at McDonald’s and make enough to pay for your property tax. And if you pay that… in Texas no one can ever take your house away.
That's what financial advisors tell you because they want you to put your money in their funds. The idea is the interest is tax deductible and you can make more in the market than the money you save in interest. That being said, in this market, you will have a hard time making more than 4 percent on your money, so I would go ahead a pay it off.
1. Have no debt at all. 2. After making double payments each month, we still have some money leftover each month after income and expenses. Plus, we have another account setup for savings, so I guess we're ok. 3. Because of my job changes, I haven't had a chance to contribute to 401K. And I know that's bad, but I will be starting up soon... 4. If you're talking about the stock market, I haven't played in it for a few years now. When I did (end of 2008 to early 2009), I made a little $, but lost a lot....so I don't want to go back down that route again. 5. I just want that peace of mind of paying off this house. Just to have that weight lifted off of you means a great deal in the long run. The house payment that I get back each month can pay for taxes in 3-4 months. The rest of the year, I can profit my house payments and either put it into an interest-bearing account, Roth IRA, or into my daughter's 529. Hell, with my current full-time job with on-call, I'm trying to find a flexible part-time job so I add more to my house payment and pay it off faster! :grin:
So you really sound like you are in the position I was about 8-9 years ago. If peace of mind means that much to you then do it. You technically lose out financially but how can you quantify peace of mind? So do it. Plus, I had a side benefit of doing it afterall. With my house paid off for I had all this extra money. Not knowing where to invest it I just kept it cash or CD or money market with not much interest. So I lost out a little there too. But when the housing market dropped I was able to jump on a short sale that gave me $300k in equity. I was able to move quickly on that house because my offer didn’t come with any contingencies of having to sell my house first. And I also had a lot of money liquid to put down a big down payment. So it worked out in the end.
yeah, the payback for $3K is 3.5 years. If you plan on paying off in 5, you probably won't get any payback.
Yeah, it's definitely not worth it. I was also going to ask for no points, which would make closing costs even worse.
However, part of those closing costs (points paid) would be tax deductible. So if $2k was deductible he would also be saving around $600 in taxes. Payback would happen in a little less than 3 years then.
Free and clear is the best feeling ever, EXCEPT none of us really own our properties, we are renting them from the government. I pay 500 per month in property taxes and if I don't pay, the government will take my property. This stinks and is likely from a technical standpoint, unconstitutional.
If you plan on paying it off in under 5 years, you could refi to a 5 year arm and get a lower rate than 3.25. However, it still looks like the spread from your current rate to the new rate would not offset the refi fees in the time frame.
