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Discussion Starter #1
Last week, some of us hijacked a thread and started talking about retirement, paying off a mortgage vs. making minimal payments and keeping the tax deduction.... before a moderator decided we were off topic and removed posts. So following the moderators directions, I'm starting a new thread here.

My point was that if you have the means to pay off your mortgage, you should do so. Other's contend that letting that money sit in an investment account to hopefully get some gains while borrowing at say 3% and making the spread was a no brainer.

My counter argument to that was if you were to lose your job and income, having a paid-for house was less risky than having all that debt, despite having an investment account with equity in it.

Plus, why pay 3% interest while the tax deduction only saves you 15-40% of that 3%. I'd rather pay 0%, have no payments, and all future income can then be saved and invested. Both approaches probably both get to the end goal, yet I think the biggest difference is one requires you to be active and diligent to pay off the mortgage as quickly as practical, the other allows you to be nonchalant about it, and possibly end up buying more along the way, thus in the very end, you will have much less saved, invested, and therefore a smaller total nest egg.

Let the mud slinging begin..

Side note, same argument goes for cars. Big chunks of money go towards cars anyway. I argue it's better to wait and pay cash for a car rather than get a car, then make payments for either leases or loan payments.
 

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I can certainly empathize with the idea that paying off the house and car as expediently as possible buys peace of mind. But it cannot be binary. For example, if your employer offers any match (e.g. half-match up to 8%), that's free money that you should take advantage of!

By the way... Where in the world are you getting a 3% mortgage interest rate?! I have one at 15%, but my credit union wants 3.465% for a 15-year fixed mortgage these days!
 

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You have so many scenarios...For example:

Plus, why pay 3% interest while the tax deduction only saves you 15-40% of that 3%. I'd rather pay 0%, have no payments, and all future income can then be saved and invested.
You say 3% interest and 15%-40% in a tax deduction...So is it really 3%, as in 3.000% APR? Is your tax deduction 15% or is it 40%? From a pure financial standpoint, you don't even to make a decision, plug in the numbers and basic math will determine which is better...

However, that was pure finance, doesn't include the physiological side nor does it take into account how much liquid money you actually have...If you have $1M and want a $100K house, not hard to shallow...What if you ONLY have $100K and wanted a $100K house?

The harder question to sparks far more debate are those who want to pay off as much as their house as possible but do not have enough, for example, you have $50K and want a $100K home, how much do you put down?
 

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The tax deduction resulting from mortgage interest depends on which bracket income you are on and what your filing status is. It goes between 15% to 39.6%. (Reference: https://www.irs.gov/pub/irs-pdf/i1040tt.pdf)
Example: For a single filer making $51,319/yr (median income) that paid $3,600 in mortgage interest, their tax burden is reduced by $900 (25%). $2,800 is the net amount that either goes to the bank or into the person's pocket.

I do not think llninja is advocating buying large-dollar items in cash... he is merely advocating paying it off as expediently as possible. As for the scenario of someone with $50K wanting a $100K home, it ultimately is up to that person how much they are comfortable with. But generally, one would want to put 20% down (to avoid PMI, Private Mortgage Insurance) and have enough cash on hand for at least six months of expenses, should things go south.
 

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When I paid off my mortgage I went to the closest branch to give them the check. The bank officer gave me the hard sell about the tax deduction. i told her i would rather give the money to the government then to the bank. With a smile she told me that they are glad that most people don't feel that way. We did save by paying off the note.
 

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In my opinion, this is something that has a clearly correct answer. Paying off your mortgage sooner is the clearly correct financial decision. The amount you get back as a tax rebate is completely offset by what you lose in interest payments. For example, a $100,000 mortgage at 4% interest will cost you $172,000 after 30 years. Even just a few extra payments early on in the amortization schedule will result in a huge decrease in the interest paid over the life of the loan.

Some people mentioned 401k matching. If your employer matches your 401k, you should invest what they match at a minimum. The interest you gain is likely to outstrip what you lose from the additional mortgage payments you could make. However, I wouldn't recommend saving more than an emergency fund or pay into a separate investment account while you still hold a mortgage or other interest bearing debt. It's possible for you to make more from your investment than you lose in mortgage interest, but it's also possible for you to lose money on your investments.

Personally, I feel like most Americans retire "wrong." We live outside our means while working and invest money in hopes that it will allow us to consider living that life style when not working. That is why so many people only make it a few years into retirement before their savings are exhausted.

In my opinion, the "correct" way to retire is to pay off all debts and reduce day-to-day expenses (trivial things) as much as possible. Create an investment vehicle, and make "payments" to yourself with any excess income. When your investment vehicle becomes self-sufficient, you are ready to retire. Then live off the income your investment vehicle is generating, but try not to draw more than your investment earns.

Connecting back to electric vehicles and green technology, I ran the numbers on the solar panel system I am installing. If I were to put the same amount that I will spend on it into an investment account, the amount that I will take off of my monthly power bill would be the equivalent of earning ~12% annually. Investments like that make retirement a whole lot easier.
 

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Discussion Starter #7
The tax deduction resulting from mortgage interest depends on which bracket income you are on and what your filing status is. It goes between 15% to 39.6%. (Reference: https://www.irs.gov/pub/irs-pdf/i1040tt.pdf)
Example: For a single filer making $51,319/yr (median income) that paid $3,600 in mortgage interest, their tax burden is reduced by $900 (25%). $2,800 is the net amount that either goes to the bank or into the person's pocket.

I do not think llninja is advocating buying large-dollar items in cash... he is merely advocating paying it off as expediently as possible. As for the scenario of someone with $50K wanting a $100K home, it ultimately is up to that person how much they are comfortable with. But generally, one would want to put 20% down (to avoid PMI, Private Mortgage Insurance) and have enough cash on hand for at least six months of expenses, should things go south.
Correct. One of my points is that many people think they should keep a mortgage forever to get the tax deduction. So in the 100k, 3% ,and 25% tax bracket example, you are paying the mortgage company $3600 in order to save $900 in taxes. That is a horrible deal. By paying off the house early, you lose that $900 tax deduction but also pay $0 in interest. So that is effectively a $2800 swing in my favor.

I am on track to pay off the mortgage in the next 4 years working hard to make that happen even sooner.
 

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Discussion Starter #8
In my opinion, this is something that has a clearly correct answer. Paying off your mortgage sooner is the clearly correct financial decision. The amount you get back as a tax rebate is completely offset by what you lose in interest payments. For example, a $100,000 mortgage at 4% interest will cost you $172,000 after 30 years. Even just a few extra payments early on in the amortization schedule will result in a huge decrease in the interest paid over the life of the loan.

Some people mentioned 401k matching. If your employer matches your 401k, you should invest what they match at a minimum. The interest you gain is likely to outstrip what you lose from the additional mortgage payments you could make. However, I wouldn't recommend saving more than an emergency fund or pay into a separate investment account while you still hold a mortgage or other interest bearing debt. It's possible for you to make more from your investment than you lose in mortgage interest, but it's also possible for you to lose money on your investments.

Personally, I feel like most Americans retire "wrong." We live outside our means while working and invest money in hopes that it will allow us to consider living that life style when not working. That is why so many people only make it a few years into retirement before their savings are exhausted.

In my opinion, the "correct" way to retire is to pay off all debts and reduce day-to-day expenses (trivial things) as much as possible. Create an investment vehicle, and make "payments" to yourself with any excess income. When your investment vehicle becomes self-sufficient, you are ready to retire. Then live off the income your investment vehicle is generating, but try not to draw more than your investment earns.

Connecting back to electric vehicles and green technology, I ran the numbers on the solar panel system I am installing. If I were to put the same amount that I will spend on it into an investment account, the amount that I will take off of my monthly power bill would be the equivalent of earning ~12% annually. Investments like that make retirement a whole lot easier.
Exactly. Everybody's biggest money making potential is putting their income to work for them. I've been investing in my 401k for 27 years, and by the time I hit 65, it appears I will clearly overshoot my retirement goals unless something dramatic happens to the US economy, or Congress decided to punish us for being smart with our money.

On the topic of 401ks, the order is: (1) get the 401k match, (2) Roth IRAs, if you qualify, (3) Back Door Roths if you don't qualify, (4) additoinal 401k investments until you hit the limit (5) non-retirement investing.

Unfortunately, the company I work for right now doesn't do a straight percentage match. they match 20% of what I invest maxed at 2% for their contribution. So I have to put in 10% to get 2%. If I put in 15%, I still get 2%. So I'm contributing nothing right now as everything is going towards the house.
 

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Discussion Starter #10
You have so many scenarios...For example:
Is your tax deduction 15% or is it 40%?
It was 40% last year, but should be 28% this year unless we decide to pull funds from my wife's retirement (without penalty) and knock out the house in one fell swoop. It's tempting, but leaves us uneasy as I'm in this strange situation where I have tons in my retirement which I cannot touch for 8 years, my wife has a little in retirement that she can touch now, and we don't have a lot of non-retirement money sitting around since we just knocked off two cars and 6 figures of mortgage with only 5 figures of mortgage remaining to pay,

It's amazing, the best thing that ever happened to me was losing my very high paying job. I got severance, plowed all of it into th4 house, found a new job that paid less, and now have much better control of my money than I would have had I kept the higher paying job. On paper, with the amount of money left each month after expenses, it feels like I got a pay increase. It's all about controlling the outgoing money.
 

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Discussion Starter #11
Back in the real world, don't forget to enjoy your life TODAY.
Already have the dream house in the country, two kids through college with one left (her college expenses are saved), so anything I need for enjoyment can be paused. We have two perfectly good working, but older riding mowers that will be replaced with a brand new on once the house is done.
 

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Already have the dream house in the country, two kids through college with one left (her college expenses are saved), so anything I need for enjoyment can be paused. We have two perfectly good working, but older riding mowers that will be replaced with a brand new on once the house is done.
That's great but most people don't. And I think it's a really bad idea to postpone one's life to pay off debt completely. I simply cannot live that lifestyle of delaying and postponing and holding onto things because I'm worried about spending money.

It's not healthy to be so consumed by money.
 

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20 Years ago the wife and I started our trek towards retirement. It took 6 years to payoff a new house. We did drive new cars but realized that payments were not to our advantage so we paid them off too. We bought our Volts with about 80% down and used the tax credit to finish the payoff. We hit the sweet spot on the solar system and did that with a 1 year payoff. We also did all the things we could to lower our basic expenses and invest all we could manage.

Then about 3 years ago I got hurt on my Harley and had trouble working (main breadwinner) the only things that saved us was our savings which we lived on for 2 years while we fought for Disability AND we had no debt. The solar was a big positive as were the Volts which keep our expenses at a minimum.

I would suggest betting on future income is a gamble that is fraught with danger, Just saying that debt is a millstone that can drag you down to the depths.
 

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On the topic of 401ks, the order is: (1) get the 401k match, (2) Roth IRAs, if you qualify, (3) Back Door Roths if you don't qualify, (4) additoinal 401k investments until you hit the limit (5) non-retirement investing.
I also have an HSA account, which my employer does an $80 a month contribution. I've already exceeded the threshold to start investing, so I have an additional stock portfolio using those funds. If I run into medical issues, the funds are available. If not, I'll continue to accrue compounding interest.

Who knows, if our representatives get their acts together and pass Medicare for All, maybe I just keep it as an additional savings account.

Back in the real world, don't forget to enjoy your life TODAY.
Personally, I find that not having bills and expenses looming over my head makes life much more enjoyable. The sad thing right now is that my vacation time is more of a constraint than my finances.
 

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There's no single answer, as there are so many variables. Each person has to assess their own situation and choose what's best for them. I own, but I don't think everyone needs to own their own home. Homes, in general, are a comparatively poor investment.
 

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Discussion Starter #16
There's no single answer, as there are so many variables. Each person has to assess their own situation and choose what's best for them. I own, but I don't think everyone needs to own their own home. Homes, in general, are a comparatively poor investment.
On the contrary, if you rent for your whole life, your rent will most certainly go up. If you own, the mortgage is fixed until it is paid off, then it stops. But, you are responsible for repairs, maintenance, appliance replacement, etc. but agreed, the housing crisis did prove that there were far too many people who bought houses that were beyond their means because the banking industry allowed it. So, buying a home is great for people who earn enough that the house doesn't consume them.

I made the mistake of buying too much house when building our dream house and an additional 14 acres. To make things worse, we wanted a metal standing seam roof, the builder tripled the estimate from a regular shingle roof, it ended up 10 times the amount. So I ended up spending the equivalent of a midlife crisis Porsche on the roof. The acreage was right next door to my 10 acres where the dream house was supposed to be. I bought the additional acreage to prevent any developer from buying it and subdividing it so I'd have a bunch of neighbors. Luckily I was able to outearn my stupidity. But had I lost my great paying job or not gotten a long string of promotions and pay raises, I could have been headed to bankruptcy.
 

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Discussion Starter #17
That's great but most people don't. And I think it's a really bad idea to postpone one's life to pay off debt completely. I simply cannot live that lifestyle of delaying and postponing and holding onto things because I'm worried about spending money.

It's not healthy to be so consumed by money.
I spent most of my life buying whatever I damn well pleased, but always able to pay off the monthly credit card bills. It was a job scare 5 years ago that kicked me in the butt and caused me to start managing my money like a hawk. Another job scare a year ago and subsequent job loss at the end of last year pushed me into overdrive - I'm paying the house off now, not looking back, as I will no longer be a slave to the lenders.
 

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Discussion Starter #18
I also have an HSA account, which my employer does an $80 a month contribution. I've already exceeded the threshold to start investing, so I have an additional stock portfolio using those funds. If I run into medical issues, the funds are available. If not, I'll continue to accrue compounding interest.

Who knows, if our representatives get their acts together and pass Medicare for All, maybe I just keep it as an additional savings account.



Personally, I find that not having bills and expenses looming over my head makes life much more enjoyable. The sad thing right now is that my vacation time is more of a constraint than my finances.
HSA is technically tied to medical expenses, and isn't really an investment unless you can end up holding onto it until retirement age. Then it is just another tax deferred investment. Unfortunately, when I was employed by a company that had an HSA, we had enough medical bills that we pretty much used up the entire HSA on the deductible and whatever wasn't covered. I would still self fund an emergency fund because it is not limited by the annual contribution limits and can be used to anything, not just medical, dental, eyecare, and pharmaceuticals. I wish my current employer had a High deductible medical plan with an HSA. I hope this option doesn't get squashed by the new administration.
 

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Discussion Starter #19
20 Years ago the wife and I started our trek towards retirement. It took 6 years to payoff a new house. We did drive new cars but realized that payments were not to our advantage so we paid them off too. We bought our Volts with about 80% down and used the tax credit to finish the payoff. We hit the sweet spot on the solar system and did that with a 1 year payoff. We also did all the things we could to lower our basic expenses and invest all we could manage.

Then about 3 years ago I got hurt on my Harley and had trouble working (main breadwinner) the only things that saved us was our savings which we lived on for 2 years while we fought for Disability AND we had no debt. The solar was a big positive as were the Volts which keep our expenses at a minimum.

I would suggest betting on future income is a gamble that is fraught with danger, Just saying that debt is a millstone that can drag you down to the depths.
Congrats on being one of the few doing it right. A few years ago I was looking into solar, but with such low electric rates, the ROI just isn't there. I will do it someday, but when I have money to burn so the focus on being green outweighs caring about ROI. I plan to weld my own solar panel mounts shaped like flowers on stems - and articulate them throughout the year to maximize the solar collection process.
 

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Discussion Starter #20 (Edited)
I can certainly empathize with the idea that paying off the house and car as expediently as possible buys peace of mind. But it cannot be binary. For example, if your employer offers any match (e.g. half-match up to 8%), that's free money that you should take advantage of!

By the way... Where in the world are you getting a 3% mortgage interest rate?! I have one at 15%, but my credit union wants 3.465% for a 15-year fixed mortgage these days!
OK, old information. A few month back 3% was possible, now it's closer to 3.5%. What in the world are you doing with a 15% rate. That's got to be clobbering you.
 
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