Benny Kass, D.C. Atty - No real benefit to paying off mortgage

dave_donhoffApril 24, 2008

Benny Kass, D.C. Atty - No real benefit to paying off mortgage

http://www.inman.com/buyers-sellers/columnists/bennykass/no-real-benefit-paying-mortgage

[X-posted to the BaSH forum)

Just another educational voice from another advisor with nothing to sell but the defense of a client's best interests.

Read it (if you want) for educational perspective... ignore it if it bothers you (or don't ignore it and have it shake preconceptions.)

Dave Donhoff

Leverage Planner

Here is a link that might be useful: Benny Kass, D.C. Atty - No real benefit to paying off mortgage

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western_pa_luann

thanks

    Bookmark   April 28, 2008 at 10:14AM
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neesie

he says, other than the satisfaction of owning your home free and clear I see no other benefit..

funny, the other benefit I see is not having that huge monthly bill on your back! Speaking for the average Joe, the mortgage payment is your largest expense each month. To have that gone and only pay property taxes and insurance every six months would be a huge benefit. JMHO.

    Bookmark   May 4, 2008 at 7:41PM
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cmarlin20

neesie, that is true, but if one invested that money, the investment income can pay the mortgage with money left over.
One can look for that monthly income check, that is a great benefit.

    Bookmark   May 4, 2008 at 11:40PM
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jkom51

Hmm: Very simplified, no compounding since I'm not good enough in math to do it. Any help is welcomed, LOL!

$1100/mo times 12 months = $13,200 annually

$13,200 x 18 yrs = $237,600 (we paid off the loan in 2007)

$238K as a lump sum would be essentially flat on ROI for the year 2008. Assuming a 4% drawdown - which is dangerous when you haven't made anything yet for the year and it's already May - that's $9,520 annually or $793/mo.

In good years, yes you'd earn enough to pay the mortgage. But not in bad ones. And I think there are very few people here who haven't had at least some bad years.

    Bookmark   May 5, 2008 at 12:28PM
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neesie

cmarlin20:

"neesie, that is true, but if one invested that money, the investment income can pay the mortgage with money left over.
One can look for that monthly income check, that is a great benefit."

PROMISE???

    Bookmark   May 5, 2008 at 6:31PM
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cmarlin20

PROMISE???

LOL, well it works for me.

I'm also not a math expert, actually I'm quite bad at some of it. But I can see the simple results of many years of investing, I know too many people that have no mortgage yippeee,
but they also have no income growth yikes!!!
I know and am comfortable with investment real estate, I know everyone thinks RE has fallen off the face of the earth. But that really makes me sad to see so many people missing great opportunities by being afraid of RE. Actually it helps me buy cheaper property, but that aside, I haven't found the stock market to be as safe and profitable from a tax perspective. People always need a place to rent (or buy). Either way it profits me.
I seriously considered paying off my mortgage over ten years ago, but it didn't make economic sense for me, since then I've doubled my mortgage, but my net worth has quadrupled.

    Bookmark   May 5, 2008 at 8:59PM
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jkom51

Everybody's situation is different, and people work best with what they are comfortable with. My DH and I tried investment RE and hated every minute of it. We unloaded that rental property and have no regrets about it.

I enjoy investing and have quintupled our retirement portfolio in exactly 20 years. Having paid off our mortgage allowed me to retire early (helpful since my 80-yr-old MIL moved in with us), without any retrenching from what is an extremely comfortable lifestyle in one of the most expensive areas of the country. When my DH retires in two years we will actually net more from his pension than he currently brings home, so we may not need to take any distributions from the retirement portfolio at all.

If we had a mortgage, we would have interest deductions, yes; but realistically, only the deduction amounts itemized over the standard deduction ($11+K per couple) are the "extra gravy". The interest deduction we took in 2007 lowered our taxes somewhat, but not enough that it is worth being an end unto itself.

As my former boss was fond of saying, "You shouldn't let the tax tail wag the dog."

I'd love to say we're diligent savers and live modestly, but it just isn't true, LOL. Frankly, for the first time in 20 yrs I'm investigating earthquake insurance, since it's a fact of life where we live. It's going to cost us 4x my current homeowners insurance premium. Believe me, if we still had the mortgage there's no way I would be able to face adding another non-deductible $450/mo to the bills still remaining, such as property taxes, utilities, health insurance, etc.

I think it's fine that there are many people who are comfortable with mortgage debt. There are numerous ways to build net worth, and as long as it works for you, I would be the last to knock it.

    Bookmark   May 6, 2008 at 12:37AM
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