Put the $ with a broker
Have him buy CDs
Get a mortgage from the broker at nominal spread over CDs under 3.58
Continue to get tax deduction on mortgage interest paid
Sleep soundly
Put the $ with a broker
Have him buy CDs
Get a mortgage from the broker at nominal spread over CDs under 3.58
Continue to get tax deduction on mortgage interest paid
Sleep soundly
I am no expert, but really like the Dave Ramsey (and Flagpole) philosophy of being debt free. On a very related note, if you take out a loan of roughly $200,000 and have 4% interest over 30 years, you will pay an additional $130,000+ fees over that loan. Paying interest is a sham.
Especially right now when the market has already had a big run. Yeah, you can't time the market, but come on. Old school stale tech stocks that have been dead money for YEARS are now up 50%. Yeah right, no thanks.
Flagpole mentioned it, but People forget that once it is paid off, you suddenly have a boatload of disposal income to invest as you please.
For this poster especially, it makes sense to pay it off.
My "advice" for the poster, however, is he made a very BAD decision buying into a community with a HOA. I specifically crossed ANY house off the list when home shopping if there were a HOA.
Maybe sell the house, downsize, and buy into some place without the HOA and with less property fees. Unless you really like your house.
Wonder what flagpole thinks of your HOA fees...
I also think you need to shop your home insurance. Based on the payment you mentioned, the insurance seems really high. Raise your deductible or something.
never used a coupon wrote:
My "advice" for the poster, however, is he made a very BAD decision buying into a community with a HOA. I specifically crossed ANY house off the list when home shopping if there were a HOA.
Maybe sell the house, downsize, and buy into some place without the HOA and with less property fees. Unless you really like your house.
Wonder what flagpole thinks of your HOA fees...
This is the only post that I take offense to. HOA is a BAD decision? I'm not saying I love having an HOA but I live where I want to live and thus have no choice. I live in a prime location, my house backs up to the Trinity river and bike and running trails. I travel several months a year, the HOA mows my front and back yard, pulls weeds, trims the hedges. When I come home my yard is perfect...that alone is worth 125 a month. I appreciate people not overhauling their engine in the driveway or cars parked in the street indefinitely.
If you want to have a nice house and no HOA you have to move out of the county otherwise you're moving into a cookie cutter ticky tack neighborhood and before you know it your neighbor has enclosed his garage to let his cousins move in...no thanks.
Plus it's your opinion, not your advice. How can you give me advice on a decision I made 7 years ago?
Yes, it's opinion. The quotations around advice.
I don't like HOA fees in general. It was a generic comment about HOA fees without ANY specific HOA being mentioned.
It sounds like your fees are reasonable, however.
I also live in a different county where it is very easy to get a nice house without HOA fees.
So no offense meant, and sorry for suggesting to move. After your explanation, it makes sense and isn't so bad.
Thanks,
irony killed the cat wrote:
I am the OP and I really appreciate the replies. I have gone back and forth so many times that I don't know what to do and based on the debate here, not everyone agrees.
It's not like I don't have other investments and 401Ks and SEPS and the only reason I have this cash "lying around" is because I just sold my share of a small business. I had a great opportunity to invest 350-400K in a small commercial real estate group a friend of mine is involved in. The group decided they didn't want any investors outside of the group so here I am.
Property taxes on my home in the D/FW area are just under 11,000, HOA dues 1500 and homeowners insurance is 2000. Its depressing to think it would still be 1200 a month to live in the house I own outright.
Maybe move? Surely you can find a decent house in the Dallas/Forth Worth area that has less taxes and lower OR NO HOA fee.
He only has a boatload of cash in the future. Due to present value it worth less than the cash he invests today! (according to corporate finance)
never used a coupon wrote:
My "advice" for the poster, however, is he made a very BAD decision buying into a community with a HOA. I specifically crossed ANY house off the list when home shopping if there were a HOA.
Maybe sell the house, downsize, and buy into some place without the HOA and with less property fees. Unless you really like your house.
Wonder what flagpole thinks of your HOA fees...
Yeah. I posted my other comment about him selling his house and moving to perhaps NO HOA fees before I read your post. I'm not 100% against HOA fees. My inlaws have them, but they are in their 70s and don't want to cut grass or remove snow. Their fees are pretty reasonable too. But, for people who are still young enough to take care of their property, unless they are SUPER busy (on the road all the time) or make a truck load of money, living in a place with HOA fees isn't a great idea. USUALLY HOA fees in a neighborhood will weed out the riff raff, but sometimes you can have neighbors who feel entitled and can be a pain in the butt in that way.
All of this is also predicated on the fact he has such a cheap mortgage. Most of the debt free philosophy is based on paying down HIGH interest debt like student loans or credit cards. But with such low interest debt he should INVEST.
But on debt that is priced 140 basis points wider than a US treasury bond he is getting a ridiculous rate. Assuming the tenor is 10 years he is getting a GREAT deal.
Companies are taking advantage of this cheap interest rate environment to make acquisitions. They are essentially raising money in the debt capital markets to deploy in investments.
99.9% of corporate finance professors, investment bankers, hedge fund analyst, personal wealth advisers and CFOs would tell you to invest with such a cheap interest rate.
Paid off my mortgage years ago wrote:
I truly like having cash available to do things I want to do instead of being tied financially to my house.
If you truly like having cash available why did you give it to your mortgage company all at once instead of over time and, well, having the rest of the cash available?
At least agree that if it were zero interest there would be no reason to pay off a mortgage early.
Otherwise it just becomes an argument of net interest expense after tax deductions vs. potential use of cash now.
asdfsd wrote:
I am no expert, but really like the Dave Ramsey (and Flagpole) philosophy of being debt free. On a very related note, if you take out a loan of roughly $200,000 and have 4% interest over 30 years, you will pay an additional $130,000+ fees over that loan. Paying interest is a sham.
Don't you think if you had $200,000 you could use it to make more than $130,000+ in 30 years?
Keep in mind that a lump sum of money invested will earn significantly more over time compared to the same amount of money invested over time in monthly installments.
Investing a lump sum of money in a fund with a good rate of return is better than having the cash. It's pure math.
I will concede that if he really takes that difference of $28,000/yr and invests it all he probably won't be poor in retirement.
xcskier66 wrote:
Keep in mind that a lump sum of money invested will earn significantly more over time compared to the same amount of money invested over time in monthly installments.
Investing a lump sum of money in a fund with a good rate of return is better than having the cash. It's pure math.
I will concede that if he really takes that difference of $28,000/yr and invests it all he probably won't be poor in retirement.
YES, I KNOW, but again, he feels "pressure" to have that mortgage, so paying off the mortgage is a good solution to that. We're really only talking 8 years difference anyway.
Freedoms open up when you don't have a mortgage. I could work at Chipotle and support my family if I absolutely had to if I paid off the mortgage first...wouldn't be easy, and we'd have to cut back in a lot of areas, but I could do it. Worst thing would be that I'd have to gets some tats and piercings.
Tin Whistle wrote:
Put the $ with a broker
Have him buy CDs
Get a mortgage from the broker at nominal spread over CDs under 3.58
Continue to get tax deduction on mortgage interest paid
Sleep soundly
Pay taxes on the nominal spread CD income.
Lose money.
It is really hard nowadays to get an after tax rate of return in excess of 3.58%.
Muni bonds are probably the best bet. But CDs and high yield corporates aren't going to do the trick.
Flagpole wrote:
xcskier66 wrote:Keep in mind that a lump sum of money invested will earn significantly more over time compared to the same amount of money invested over time in monthly installments.
Investing a lump sum of money in a fund with a good rate of return is better than having the cash. It's pure math.
I will concede that if he really takes that difference of $28,000/yr and invests it all he probably won't be poor in retirement.
YES, I KNOW, but again, he feels "pressure" to have that mortgage, so paying off the mortgage is a good solution to that. We're really only talking 8 years difference anyway.
Freedoms open up when you don't have a mortgage. I could work at Chipotle and support my family if I absolutely had to if I paid off the mortgage first...wouldn't be easy, and we'd have to cut back in a lot of areas, but I could do it. Worst thing would be that I'd have to gets some tats and piercings.
Those freedoms don't change if you don't pay off the mortgage. What if you didn't spend $130,000, but still worked at Chipotle? I'm not seeing the upside here.
Phanatic wrote:
Flagpole wrote:YES, I KNOW, but again, he feels "pressure" to have that mortgage, so paying off the mortgage is a good solution to that. We're really only talking 8 years difference anyway.
Freedoms open up when you don't have a mortgage. I could work at Chipotle and support my family if I absolutely had to if I paid off the mortgage first...wouldn't be easy, and we'd have to cut back in a lot of areas, but I could do it. Worst thing would be that I'd have to gets some tats and piercings.
Those freedoms don't change if you don't pay off the mortgage. What if you didn't spend $130,000, but still worked at Chipotle? I'm not seeing the upside here.
His mortgage was $1400 a month, or $16,800 a year; at $10 an hour at Chipotle, you'll make just over $20,000 a year. If he had $130,000 sitting in an account, he could work at Chipotle (unless promoted to manager) for about 7 years before that's gone, and then he could no longer afford to live in that house and support his family.
People all the time say that if you have low or no interest loans that it's akin to "free money". Well, no it isn't. If you have a couple of cars at zero percent interest that you have to pay $800 a month on, then you are losing freedom. A dude making $20,000 a year can not afford to pay $9600 a year in car payment...but it's at zero percent right?
Financial freedom includes not owning money to anyone.
Thanks for the thread!
I was struggling to check my monthly mortgage, you made it simple!
Flagpole wrote:
Financial freedom includes not owning money to anyone.
^This is a great philosophy.
This is an old thread, but I enjoyed reading it. The OP is paying 3.58% on a mortgage while sitting on $200k in cash paying zero interest. It's unlikely that the OP will benefit from a tax deduction since he would first have to have >$12k in itemized to benefit from the mortgage deduction. (Its 24k for a couple, more or less, I don't check the standard deduction each year.)
Yes, the OP could most likely make a lot more in the stock market, but he worries about his mortgage. Worry can be a good stress or a bad stress, but assuming in this case that it's a bad stress for the OP, then my suggestion would be...
Pay off the mortgage. Use the $1,400 mortgage payment and the $1,000 extra you pay as follows:
Start an IRA for yourself and, if qualifying, your spouse. (That's $12k/year... $14k if you're over 50.)
Start a Schwab or TDAmeritrade account. Make a monthly ACh automatic transfer of the extra $1,400 or so per month you're currently making towards paying off your mortgage early.
These funds in these accounts should be invested each month into the following ETFs.
ARKK, ARKF, ARKQ, ARKW, QQQ, MFMS, TMFC, and ARKG. I'd suggest at least 8 ETFs. (This is not a diversified portfolio, but assuming the time horizon to retirement is greater than 10 years, the OP should be fine.)
Here's the future assumed growth of $2,400/mo compounded annually in a tax deferred account.
0% annual return: $576,000
7% annual return: $1.2 million
10% annual return: $1.8 million
If you go out to 30 years at 10%, it's $5.5 million.
My point is that you can have your cake and eat it too by getting debt free AND investing that mortgage payment into the stock market via ETFs.
If I missed anything, I'm sure it'll get pointed out!
Pay it off.
I retired a few years ago with a pension and immediately started another job. The pension is a little less half of my current salary. Additionally, I received about an additional $175K over the following two years (in bi-weekly payments) to settle my vacation balance. (About 2,000 hours.) I took every penny of that vacation payout and most of my pension and paid off the balance of a $500,000 mortgage in 21 months.
In addition to the awesome feeling of owning a home outright, I have more cash flow than I ever could have imagined. I save money, invest and enjoy the finer things in life WITHOUT WORRY. If my job ends today, I have peace of mind knowing ill be just fine.