NRR - Paying off House

Why do you want to buy a $400k home?

I suppose I'll bite.

Because we want more/bigger bedrooms than what we have and more living space overall. We want to live in a neighborhood where we aren't the only ones to consistently take care of their yard and general appearance of their property - including but not limited to: lawn mowed / weeds pulled, cars not parked on street / in driveway (somehow we're the only ones that use our garage for *gasp* parking our cars), leaves raked, driveway swept, etc. It would be nice to not have the neighborhood rednecks revving and driving their cars down our street regardless of the time (this pertains to dirt bikes as well). We want a home that can comfortably house two adults and two children and be something that we'll be happy with for as long as we may live there (potentially 30-40+ years).

Where we live, those parameters run you about half a million dollars.

I think you'll get two schools of thought on this: Don't pay it off and invest that money wisely and earn a better return than the current housing market or pay it off because the savings in interest payments are significant. Personally I am choosing the second option with a tenant living in a condo I own paying the going market rate in rent which is double my minimum payment on the mortgage. Can you rent out the house? It's a nice passive stream of income once the debt is gone. Of course renting a house != renting a condo.

Pretty simple calculations. What are you paying in interest on the mortgage? What are you getting in interest on the savings?

Imagine a scenario where you're paying 5% on the mortgage, and getting less than 1% on the savings. Paying off the mortgage is a far better return on investment.

Why don't you just sell the house now and buy the home you want?

You have the means to do this.

The rates are good now.

If the goal is to live in a nice house then go do that.

Charles Honorarium wrote:

Pretty simple calculations. What are you paying in interest on the mortgage? What are you getting in interest on the savings?

Imagine a scenario where you're paying 5% on the mortgage, and getting less than 1% on the savings. Paying off the mortgage is a far better return on investment.

but flagpole makes 15% off his investments. he'd say to invest... brother ;)

If you have a 401k at work then you have the opportunity to put $33,000/year in tax-advantaged retirement accounts. If your wife also works and has a 401k, then you can put $50,000 in tax-advantaged retirement accounts (assuming your AGI is less than $150k). You should do that before paying any extra on your mortgage.

1) No way do you refinance. Will cost you money to do that, and that's only good if you then plan to take several years to pay off the loan.

2) Just wait 2 years and pay the house off, OR just sell your house now, take the proceeds and your savings and buy a new one. You could have about $165,000 to put down on a new house if you really wanted to. Get a $400,000 house and you'll be paying on a $235,000 mortgage. With the rates super low, you'll likely be paying less per month than you are now. Then, throw $30,000 extra at it each year and get it gone in about 7 years (this is in addition to the mortgage you will be paying anyway).

If you'd rather wait until the current one is paid for, then go ahead. I like your plan of minimizing outgo and paying the house off quickly. The only idea I don't like is you refinancing...just doesn't make sense.

Ha! I've never said that brother. I've made just under 11% annually on average since I started investing in 1989.

bangalangadanga wrote:

Charles Honorarium wrote:

Pretty simple calculations. What are you paying in interest on the mortgage? What are you getting in interest on the savings?

Imagine a scenario where you're paying 5% on the mortgage, and getting less than 1% on the savings. Paying off the mortgage is a far better return on investment.

but flagpole makes 15% off his investments. he'd say to invest... brother ;)

Don't pay off the house. No guaranty that money will be there when you sell. A couple of your neighbors could go into foreclosure and your property value could drop like a stone. Keep your money somewhere where you will at least have a good shot at coming out ahead. Your house will not appreciate.

Best move would be to buy now, and fast. If you can afford a 15 year, you can get 3-3.25 right now as long as you do not go jumbo. And with a rate that low, you would be a fool to pay it off in less than 15. Rates bottomed out the past week and are starting to go back up as investors are getting back into equities. Rates will just be really low and not crazy historic low anymore.

More importantly, life is short. Why waste your days living in a crappy neighborhood when you can get out and enjoy life much more in a nicer area? What is the point of working if you don't get to enjoy your hard earned money?

So Flagpole and Precious Roy seem to agree with me that buying now may be the best way to go IF a better house is what you want.We all have varied perspectives on these things so that looks like a decent consensus.I like this line:

Precious Roy wrote:

More importantly, life is short. Why waste your days living in a crappy neighborhood when you can get out and enjoy life much more in a nicer area? What is the point of working if you don't get to enjoy your hard earned money?

That's what money is for. To spend.

Your best bet is to pay the place off and stay there.

Live on the cheap for awhile. No need to jump right into another house.

Look, I'm 40 years old and my house is paid for. My wife and I make $145k combined a year. We have no debt. We bank everything. I'll be retired in 10 years.

Sure, I have neighbors I don't like. But the thing is, I'm not willing to work until I'm 70 because of it. You have to realize that even in nice neighborhoods, you can end up with crummy neighbors.

It isn't entirely a simple math calculation -- you have to think of diversification and risk.

So, say you are paying 5% interest and your savings get 1%. On math alone, yeah, you are better off paying it off.

But, the house is an non-diversified investment, that can either go up or down in value. By paying it off, you are tying more of your net worth to a single investment. That may make sense, but is no doubt riskier than investing your net worth in something more diversified. And, you also lose a bit of a tax write off on the interest as you pay it down.

Why pay off a house you don't want to live in? Why own something you don't want? Sell and get into where you want to be, and then think about if paying your mortgage down make sense given factors like your net worth, comfort level with the future value of the house, etc.

What is the property tax difference on a $400+ home in a new location vs your current home?

It's attitudes like yours that created our financial crisis.

Homes are not investments. Thinking about them as such is the wrong perspective entirely.

Charles Nonhomogenous wrote:

It's attitudes like yours that created our financial crisis.

Homes are not investments. Thinking about them as such is the wrong perspective entirely.

You are wrong.

Winner, winner. Chicken dinner.

You also need to take into account the mortgage interest deduction if you take it.

By the way, if the OP is still around, is your handle a reference to the late Saul Goodman, former timpanist of the NY Phil?