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Pay off your mortgage. When you get pushed out of the workforce because of age (and you will), having no rent and no mortgage puts the situation in a different
by pjdemers 9y ago
Pay off your mortgage. When you get pushed out of the workforce because of age (and you will), having no rent and no mortgage puts the situation in a different perspective. It becomes more of a beginning than an end.
- adstr123 9y agoSimple as that!
- mushbino 9y agoPaid it off just now. Thanks for the advice!
- pcwalton 9y agoThis is terrible advice even for the tiny fraction of people who can actually follow it.
- thetrumanshow 9y agoCan you elaborate on your reasoning?
- pcwalton 9y agoTax advantages, and the fact that you shouldn't put your entire net worth into a single illiquid asset.
- telchar 9y agoWhat tax advantages? I'm going to get exactly zero benefit this year for all the mortgage interest I've paid; I'm probably going to take the newly increased standard deduction whereas last year I saved thousands by itemizing.
- pcwalton 9y agoIn my comment above, "tax advantages" is short for "tax advantages that may or may not apply depending on your individual financial situation, but should be carefully considered before making a huge financial decision like paying off a mortgage".
- rgbrenner 9y ago1. Housing doesn't grow as fast as other asset classes. 2. You're concentrating all of your assets into a single object. Instead of paying off your mortgage, you could put that money into other asset classes that grow faster, and you can distribute it to reduce your risk. If you were laid off, you would have more money than if you had paid off your mortgage. Then if you wanted to get rid of your mortgage, you could and you would still have more money than if you had paid it off earlier. (Although even in that case, it's still generally better to leave the money invested, and just draw it down to pay the monthly payment.) If you're really intent on exposing your savings to the real estate market, invest it in a REIT.. at least they can distribute your risk over a larger area and more buildings. And they'll invest it in markets that are growing faster than the average house.
- yuhong 9y agoThough the S&P 500 is beginning to finally decline now and interest rates are rising (even bitcoin is not rising all that fast now), so this advice may be getting outdated.
- pcwalton 9y agoThere are more asset classes than a primary residence, stocks, and bitcoin. As the parent comment stated, a REIT is typically a less risky investment than a single house, even if you want to invest in real estate.
- chiph 9y agoWhy? Being unemployed is a cash-flow problem. You've got no money coming in, yet you've got this $1400+ bill due each month. Having the deed to your house means you have a (mostly) free place to live, and your cash-flow problem becomes significantly smaller.
- pcwalton 9y agoIf you have the cash to pay off your mortgage, that savings will last longer if you save it and pay down the mortgage under the standard schedule than if you blow it all on the mortgage straight away. Your mortgage is a loan, after all--one that you've already pre-qualified for, which comes with tax advantages as well as a subsidy courtesy of Fannie Mae and Freddie Mac.
- discodave 9y agoThe tax advantages don't matter if you have no income! Also, with main tax advantage I know of (interest deduction) you still pay more money if there is more interest. i.e. if you have 20k of interest a year, the income tax deduction makes it seem like ~70% of that, depending on your tax bracket, or 14k. But if you're only paying 15k of interest per year, then it's 70% of 15k, or ~10k. 10k is less than 14k.
- gowld 9y agoPaying a mortgage is simply moving numbers from one column to another, and usually into a less tax-favorable column with a worse risk-return profile. accumulating wealth is the way to thrive in unemployment.
- fancyfacebook 9y agoPaying off your mortgage is one of the absolute worst investments you can possibly make in an environment where house prices are rising. If they stay still or decline by all means, pay it down faster, but otherwise DO NOT pay off your mortgage early. Invest the extra cash in some cheap index fund instead.
- hollerith 9y agoHow would the current price of your house influence the performance of a mortgage? Is there some threshold on the current house price above which mortgage interest stops being deductible?
- mr_toad 9y agoCheap index funds don’t usually have long term returns that are higher than mortgage interest rates + maintenance. If anything, in current markets more property is a better investment, and you can take advantage or gearing.
- refurb 9y agoNo rent or mortgage, but continued payments for property tax, home insurance and general maintenance.
- kowdermeister 9y agoIf you have any :) I'm happy to rent where I please.
- spopejoy 9y agoYes to this. People should always add up the total interest they're going to pay on a 30-year mortgage, some states require this to be prominently displayed on the loan. The amount is truly staggering. Given that your average money-market is barely reaching 2%, the old saw of "it's better to save and service the mortgage" is complete BS and pro-bank propaganda. Mortgages are simply another wealth-transfer to the banks, including the mortgage-interest deduction: corporate welfare pure and simple. Read Liar's Poker if you want to really understand why that boondoggle is in place. And never forget that easy mortgages, which have ludicrously enriched the banks, are the reason why real estate is so inhumanly overvalued now. The mortgage interest deduction was central to securitizing loans and we're all paying the price now.