Pay off house early? Medically retired last 4 years

[ezbtr]

No other bills, other than regular household stuff, low mile truck and car paid off, mortgage $1300 a mo for a 4 bed 2 bath, 7 yr old house, 27 yrs left on a 30 yr loan 4.25%, I put down a good chunk, I'm 55, I could obviously save that $1300 monthly , is the tax write off worth it? Just curious, Thanks guys

 

[dwco5051]

Way too many variables. What is the money you are going to pay it off with making you now? What tax bracket now and will that change over the years? Will the tax laws change in the future? Keep in mind that on a normal amortized mortgage the amount of interest goes down every year lessening the deduction for taxes but increasing the equity in the property. Will your income change over the next 27 years in relation to inflation? How long are you planning on keeping the house? Is it an area that the value of the home will appreciate more or less than projected inflation? Will using money to pay it off decrease the cushion against a possible emergency sometime in the future?

Taking that all into making a simple model when trying to solve the equation would only hold true when all the assumptions turn out to be correct. Graphing it out and finding the saddle point that tells you if you are making the right choice only works if all the predictions are right

 

[alldodge]

Agree the variables is the unknown. We paid our hose off as soon as we could but did not touch IRA/401 stuff, just used cash on hand. Great feeling having everything paid off

 

[dingbat]

As noted above, too many variables.

We’ve bought or built 4 homes since we got married 30+ years ago. All homes purchased during down turns in the economy with the primary goal of appreciation then moving on when the opportunity presents itself.

Eight years ago we where 3 payments away from paying off the family home. With appreciation stalled on the property and no desire to retire there, an opportunity to purchase a much larger, more desirable property came up, we went for it.

Now 5-6 years away from retirement, we have no intent of paying it off. Appreciation on the property is out pacing the 4% mortgage rate. Our financial investments are performing much better than that.

 

[ezbtr]

I know I left some details out, I'll update this when I can, BUT:
We're 55 and 49, I'm medically retired, not sure if I can go back to work, will stay in this area of central TX, other investments doing well, not touching 401K, pay off is from invested cash, this house already appreciated 15K in 2 years, will continue, area booming, I havent had to file federal taxes in 5 years, with my medical retirement package, will be very comfy w/out a house pymt. More to follow , Thx guys !

 

[Sprig]

PAY IT OFF! No reason not to. Whether you pay it off or not your house will still appreciate. I see no tax advantage to continuing the mortgage. I’m assuming that the current $24000 individual deduction (filing joint return) is more than your personal deductions including mortgage interest. So the mortgage interest does not help you tax wise.
Pay it off and then take the equivalent monthly mortgage payment and put it into an investment portfolio. Not having a mortgage payment is a great feeling, will make you feel more secure. If for any reason you ever need a chunk of money you can always take out a home equity loan.
If you pay it off your home will continue to appreciate, your investment portfolio will appreciate and you will have more money to spend on what ever you want and you’ll feel great.

 

[dingbat]

this house already appreciated 15K in 2 years, will continue, area booming, I havent had to file federal taxes in 5 years, with my medical retirement package, will be very comfy w/out a house pymt.

My wife argued same points about paying off our mortgage until I showed her the 10 year ramifications of using 7.25% money to payoff 4% money.....a 3.2% net loss over 10 years is a lot of money.

You will see no profitably until you sale the house. One is hand is better than two in the bush

Something to keep in mind. You will no longer paying principal and interest, but you still have property taxes and insurance liabilities, etc. to cover. Once she realized only half the mortgage payment would go away it wasn’t so enticing.

 

[bassman284]

I'm kind of like dingbat - I COULD afford to pay off my mortgage in cash, but I CAN'T afford to do it because it would cost me way, way more in lost returns and income taxes than just continuing to make the monthly mortgage payments.

 

[Sprig]

When I said pay it off I assumed you had ready funds/cash. Not sure exactly what you mean by invested cash. If you have the money to pay it off in a bank or money market, then pay it off. If you have to sell stocks, bonds, mutual funds etc. from your portfolio then maybe not. It would depend on the worth of your portfolio and the payoff amount of your mortgage and the funds you’d have to liquidate. . If 10% or so of your portfolio would pay off your house then do so. If more then a little more analysis is needed. Again I’m assuming there currently is no tax advantage for you from the mortgage. For there to be a tax advantage you need more than $24000 for you and your spouse in itemized deductions. Depending on where exactly the money would come from and how much I would give serious consideration to paying off the mortgage.

 

[bruceb58]

I make way more money on investments than I do on the interest on my home. Couple that with the new tax laws that make it almost impossible to itemize, its a no brainer to keep the mortgage.

 

[bruceb58]

is the tax write off worth it?

Did you itemize or take the standard deduction for 2018 taxes?

 

[dingbat]

Did you itemize or take the standard deduction for 2018 taxes?

He said upfront that he is medically retired and hasn’t filed fed taxes in 5 years.

Not sure how that works.....

 

[Sprig]

If you can’t itemize Then the attractiveness of mortgage interest diminishes or completely disappears. With the current $24000 standard deduction for two people filing jointly way fewer people have sufficient deductions to itemize. In the OP’s case he definitely isn’t itemizing, so I see no benefits to paying mortgage interest.Again as previously stated if the funds come from a bank account or something like a money market account, pay off the mortgage and then invest the monthly savings. If he has to liquidate investments like stocks or mutual funds then the calculation and decision is a little more complex.

 

[ezbtr]

If you can’t itemize Then the attractiveness of mortgage interest diminishes or completely disappears. With the current $24000 standard deduction for two people filing jointly way fewer people have sufficient deductions to itemize. In the OP’s case he definitely isn’t itemizing, so I see no benefits to paying mortgage interest.Again as previously stated if the funds come from a bank account or something like a money market account, pay off the mortgage and then invest the monthly savings. If he has to liquidate investments like stocks or mutual funds then the calculation and decision is a little more complex.

Filing single, gf lives with me, 401K is separate/never touched , so I'd pay for home insurance, taxes and regular electric/water etc bills

 

[bruceb58]

He said upfront that he is medically retired and hasn’t filed fed taxes in 5 years.

Not sure how that works.....

He asks in his first post if the tax write off is worth it so you have to be filing in order to take a tax write off.

You have to file taxes if you make around $11K.

Then he says he files single.

 

[Sprig]

Here’s the deal. We have insufficient information. We get Little bits of info., probably will never get sufficient info. Asking strangers with little or no expertise on the internet for financial advice is probably the worst place to seek financial advice. The OP needs to consult a CPA or professional financial adviser for guidance.

 

[bruceb58]

If you can’t itemize Then the attractiveness of mortgage interest diminishes or completely disappears.

I will disagree. I have a loan on one of my houses that is 4%. I can't itemize. That's still WAY less than what I make on investments. Why would I pay off 4% money with money making 8%?

 

[ezbtr]

Did you itemize or take the standard deduction for 2018 taxes?

std, but do have a son in college

 

[dingbat]

std, but do have a son in college

Just finished putting two kids thru school. Only tuition is taken into consideration. When all is said and done you end up with roughly a $2,500 a year deduction

 

[cptbill]

Having no debt is always better, more importantly if or when everything crashes again having no debt will make it easier to come out the other side in better shape