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Should I pay off my mortgage or hang on to the cash?

d0min0 931 185 January 31, 2016 at 05:02 AM
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I have about 350k in liquid assets and have a 200k mortgage under my name. Each month I'm giving away about 1k in interest to the bank. Should I pay off the mortgage early or use it as a down payment towards another house or even just hang on to the cash? I'm in the San Francisco Bay Area and seeing as how prices of houses are through the roof in SF, Daly City and SSF, I'm worried that the real estate market is gonna take a shit soon. Watching the news is telling me that now is not a good time to buy. If I shouldn't pay off the mortgage, where should I invest my money?

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#2
I'd say so long as you don';t have a better investment option (higher rate elsewhere), keep a certain amount for "emergency fund" then pay down the mortgage with the rest. that's provided you don't have any other big "moves" planned.
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#3
Quote from Dr. J View Post :
I'd say so long as you don';t have a better investment option (higher rate elsewhere), keep a certain amount for "emergency fund" then pay down the mortgage with the rest. that's provided you don't have any other big "moves" planned.
+1

I don't like having debt, so if your 350k is in something not earmarked for retirement I would pay off the mortgage and then get a healthy emergency fund set aside then start saving for another piece of property.
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#4
I always look at it this way: whatever If you could snap your fingers and not have to hassle with the paperwork and such, would you take a $200,000 loan against your property to make whatever alternative investment you are considering? If so, then do it. If not, then don't.
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#5
if you have other debt pay that off first. interest from the mtg is tax deductible, so that should be last to be paid unless it is an absurd interest rate. the interest rate you are paying is higher than you are earning than yes, do it. you can easily apply for a heloc on the house to have access to cash if you need it (the interest is also tax deductible).
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#6
The myth of higher interest rates is just that, a myth. Pay it off. There is really no price tag you can put on being debt-free.
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E finita la cuccagna

Liberals want you to think like them, Conservatives just want you to think!
#7
It appears that you will still have a hefty emergency fund. Pay it off...stop throwing the interest away.
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#8
Quote from d0min0 View Post :
I have about 350k in liquid assets and have a 200k mortgage under my name. Each month I'm giving away about 1k in interest to the bank. Should I pay off the mortgage early or use it as a down payment towards another house or even just hang on to the cash? I'm in the San Francisco Bay Area and seeing as how prices of houses are through the roof in SF, Daly City and SSF, I'm worried that the real estate market is gonna take a shit soon. Watching the news is telling me that now is not a good time to buy. If I shouldn't pay off the mortgage, where should I invest my money?
Cash is king.

You probably won't find interest rates this good again. 1k in interest on $200k? 12k per year interest or about 6%? 6% seems like a crap rate. 3.75% or 4%. which would be about $8k/year vs. $12k.

If you decide to buy something else, and have cash you have a much stronger negotiating position.

Once you pay it off, I think you'd have to go through same BS paperwork to get another loan.

I would hang on to the cash and earmark it for real estate.

I think you can get 1% in a checking account. so if you're rate is 3.75% you are actually paying 2.75% and have your cash free. Or 2 year CD is 1.5% or 2.25%.

Whatever you do I'd be happy that you have enough cash to be able to have paying it off as an option. Either pay it off or not seem pretty decent.

Another thing - with credit score. If your mortgage continues to report think it might help your credit score?
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Last edited by tennis4789 February 1, 2016 at 07:06 AM

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#9
Quote from Vindadu13 View Post :
if you have other debt pay that off first. interest from the mtg is tax deductible, so that should be last to be paid unless it is an absurd interest rate. the interest rate you are paying is higher than you are earning than yes, do it. you can easily apply for a heloc on the house to have access to cash if you need it (the interest is also tax deductible).
Bingo. One's "effective interest rate" can be a point or so lower after factoring in the tax break. So if you have a 3.75% interest rate on your mortgage, it's probably closer to 2.5% in reality (assuming it applies to your tax situation.) Then as had been mentioned, you can easily get 1% on that cash in an FDIC insured acct, so the delta could be as little as 1.5%. At the end of the day, you have to ask yourself if the liquidity or access to that cash is worth the ~1.5% you're paying on it.

For anyone wanting to run the numbers on it, this calc is pretty handy.
http://www.bankrate.com/calculato...lator.aspx
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Last edited by godfather927 February 1, 2016 at 08:46 AM
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#10
If your current mortgage rate is not around 4 or less refinance. I would not pay off the mortgage, those funds are then locked up and you can't cash out until you sell and the effective return isn't that great. Unless there was property I was itching to buy I'd throw it into an index fund portfolio and let it make money. I don't want a part time job as a landlord and I agree with you that the real estate market is overheated.
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#11
The issue with the mentality around "the house might devalue" is.... you'd still be liable for the mortgage regardless of the house value:

" I'm worried that the real estate market is gonna take a shit soon."

So in 6 months the market craps, you are now "under water", let's say. You still owe the same $$ to the bank, that's not going to change. You're not going to walk away from it either.... you have tons of $$ in the bank to do the payoff. So regardless of the market it shouldn't affect your decision.

As others have said, the decision is basically:

- Emergency fund comes first. Looks like you have that covered even if you pay the house in full
- Can you earn better on the $$ elsewhere?
= Determine what your current effective mortgage rate is (take into account taxes although I doubt it's "that much")
= There will likely be a spread between your best available rate on cash in the bank (consider stable, near-zero-risk stuff, not the stock market) and your effective rate. This is basically insurance you pay to have that liquidity. Is it still worth it?
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#12
Quote from dealgate View Post :
The myth of higher interest rates is just that, a myth. Pay it off. There is really no price tag you can put on being debt-free.
There actually is a price tag you can put on it. Everyone else in the world calls it an effective interest rate. Math > myth
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#13
Quote from redass View Post :
There actually is a price tag you can put on it. Everyone else in the world calls it an effective interest rate. Math > myth
Math>Myth = urban legend?
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#14
Quote from FHRITP View Post :
It appears that you will still have a hefty emergency fund. Pay it off...stop throwing the interest away.

Ditto...interest rates are at 1% in the bank and are taxable. The stock market has always been a fools bet. Bonds are not the place to be in a rising interest rate environment. Save the interest and pay it off imo. Just make sure you leave a healthy reserve for emergencies\living expenses.

As to investing in other properties, that just depends on the type of property and the potential return. Barring something really good, get rid of the debt. My 2 cents.
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#15
Quote from YanksIn2009 View Post :
Ditto...interest rates are at 1% in the bank and are taxable. The stock market has always been a fools bet. Bonds are not the place to be in a rising interest rate environment. Save the interest and pay it off imo. Just make sure you leave a healthy reserve for emergencies\living expenses.

As to investing in other properties, that just depends on the type of property and the potential return. Barring something really good, get rid of the debt. My 2 cents.
Painting with quite the broad brush don't you think? If you're referring to taking leaps of faith in individual securities, then sure, I can see your point of view. But I don't think you'll find many people who'd agree that investing in passively managed index ETFs is foolish over a period of 10 years or longer.
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Last edited by godfather927 February 2, 2016 at 06:31 AM
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