<p>POIH, PROFILE doesn’t care what you have in debt – that’s why the question isn’t asked.</p>
<p>I am in a similar situation and am considering paying off my mortgage. I am risk adverse and do not invest in the stock market. I am paying 4.75% mortgage interest and getting 2% on my CD’s without adjusting for taxes, so I feel that I am losing money. I have a HELOC in case of emergency. A banker recently told me that when I reach a point in my mortgage where I am paying primarily principal it makes sense to pay it off. However, even with some interest deduction I am losing. I would like to free up income to pay son’s tuition and cover daily expenses so will probably pay it off. While I need to save for retirement, I don’t see how paying a higher rate of mortgage interest than I can get on investments is saving.</p>
<p>The only reason I can see not to pay off a mortgage is if you feel you would need to borrow money in the near future. For instance, I would not pay off my mortgage if I needed to borrow money for my son’s college expenses.</p>
<p>POIH … we are paying off our mortgage ahead of time but with a slighty different strategy. We also are very consevative financially so each month we have some extra cash … and we decide how to “invest” this extra cash. One of the big drivers was what to we believe the relative rate of return for various investment vehicles will be over the next year or so. Our mortgage is at roughly 5% and when the market was booming and average 10+% then, even after tax, investing any extra cash flow in the market made sense (there was another decision about open, retirrement, or 529 acconts though). However when the market is not doing well and the 5% mortgage rate is greater than our expected return (your 2% CDs for example) then we paid down the mortgage a bit with the extra cash flow. All this analysis occured after we had our emergency funds tucked away so the situation sounds very similar to yours … we just approached it in a more incremental way. BTW - what was very similar is we did the same analysis around one time inflows like bonuses or gifts from parents which were often applied to the mortgage. For me if we could pay off our mortgage near the time when our oldest started college that would be terrific from a cash flow standpoint … the old mortgage payment would make a pretty big dent in the college bill we will be paying without changing our cash flow or budget.</p>
<p>PDIH, I want to restate what the poster said about getting advice from websites, though I am sure you are taking all of these posts just as suggestions to investigate. Most financial advice is very general, and can be a disaster to you personally if you are in a category where there is something that precludes you from the majority. For example, yes, it does make good sense to pay off a mortgage that is costing you more than what you can earn on your savings. However, once you pay off that mortgage, you no longer have that money and you lose flexibility and leverage. There is no guarantee you can get your hands on that kind of money if you should need or want it. Yes, you can get a HELOC, but as many home owners have discovered these days, they can be shut down in an instant with no warning. If your house loses value, your credit line can be reduced. Since the house is all yours, you take ALL of the risks. Many a family was saved from total financial disaster and bankruptcy during this current economic crisis because they were able to walk away from their house. It also forced the banks and the government to renegotiate mortgage terms. Once the house is all yours, all of those problems are yours.</p>
<p>Credit is so tight and things are so uncertain these days, that I know a lot of people who are borrowing every cent out of their HELOCs at the current very low interest rates and just banking it, paying the interest differential for that flexibility. There is a feeling that interest rates are going to go up in the next year, some say waaaaaay up which means you won’t be able to get those numbers you currently have for your mortgage.</p>
<p>On the other hand, if you want to be debt free and keep things simple, paying off your mortgage makes a lot of sense. Do check what it will do in terms of taxes, college financial aid and other financial positions before you do this.</p>
<p>We paid off our mortgage right before the oldest started college. Took out a HELOC a few years before with a variable rate, paid off the first mortgage, and aggressively paid off the HELOC as if we were paying for an out of state public out of current income. Remodeled the bathrooms the summer before S started college (five years ago, I couldn’t stand the 70" colors anymore). That is the only balance left. Currently paying interest only on the small balance, but plan to pay loan off in the year or two after younger S graduates. We have no other debt.</p>
<p>This allowed us to pay for college (except the year that they were both in together) out of current income - no loans - no outlay from savings. Has worked well so far. Have a two year emergency fund in cash and retirements are well funded. Since we are very conservative have lost little money over the past year.</p>
<p>Key was buying a house in 1985. When oldest S quit school in the fall of his senior year, the only good thing is that we didn’t take out any loans to pay for his education. Hoping to get the history major through with no loans for any of us. Two more years.</p>
<p>When H lost his job late last year, was thankful that there was no debt. Now that he is working again, we are hoping to be able to aggressively save more when they are through.
I recommend paying off debt if possible for piece of mind and cash flow. H wants me to pay off the HELOC. Cash is making 2% and the loan is at 3.25%. It is a small amount and I like having the money in the bank. We’ll see. You never know what is going to happen.</p>
<p>samiamy:
Since DW teacher’s salary is less than 1/4th of my salary so we have never considered her being working. All our budgets have been made using my income alone. So that is a net saving for us even though it is not too big.
I think we seems to be in same boat. Paying off mortgage may lessen our AMT liability too.
Our situation differs in only one way. DW working or not doesn’t make any difference to our financials or FA from MIT but loss of my salary will make a huge difference both on our financials as well as FA from MIT.</p>
<p>cptofthehouse
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<p>In the end it is our decision so DW and I will make it based on what is good for us. We know it is impossible to replicate some one else experience as there will always be something different in your case. </p>
<p>Still I value the peer group advice/information as much as professional financial advisors. But at the end of the day I rely on my capabilities to parse and analyze information and make a decision.</p>
<p>I think experience of different people can presents some points which might not have come to our own mind because we have not gone thru it. Professional financial advisor some time doesn’t make sense as they will always make a case for investment which I won’t argue as I’m not averse to investing money but there are inherent risks attach to it.</p>