Mortgages/home ownership

cheloneMay 11, 2006

Is it important to you to pay off your mortgage? Why or why not?

How do you feel about your home and its worth/value in the greater context of your "wealth"?

I always wanted a home that I owned. I wanted freedom to garden and build a "homestead". It was important to me to pay the house off. I wanted to know it was MINE, free and clear. It made me feel more comfortable. Funnily, though, I don't tend to lump my home into the "assets" side of the balance sheet (even though I know that's where it belongs)... to me it's more than an asset... it's MINE and it's "off limits"... does that make any sense or am I being "stupid"?

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chelone, I don't think you're being stupid at all. A home is a lot more than a building. It'a an emotional home as much as it is basic shelter. I know some people don't feel that way and think nothing of moving every couple of years. Me, I like to put down roots. :)

    Bookmark   May 11, 2006 at 5:57PM
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No, I agree with the philosophy. We do not consider our home part of our assets, just an expense. You don't want to have to sell the house because you need money, although I know many friends who only have their home as an asset.

I have an MS in Gerontolgy and there's nothing worse than going into old age with debt that can't be managed. A free and clear home is one of the biggest "peace of mind" factors for many of us.

Our goal is to be paid off in less than a decade on a 15 year loan. We looked at paying cash and decided that wasn't the best route for us. Too many unknowns for us, in regards to my job situation. We decided to focus on continuing to build reserves.


    Bookmark   May 11, 2006 at 8:57PM
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I also don't consider my homes value into my financial assets... However, like most homeowners, it IS a significant % of assets...I live in an overpriced/hyperinflated real estate market, and my home would likely sell for 600k less in many other areas of country..If you can max your 401k, save for your children college expenses, AND still put away some additional cash,without carrying any debt outside of mortagage and perhaps a car lease/loan, you'll be fine at retirement..

23 RED

    Bookmark   May 11, 2006 at 9:51PM
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I calculate my net worth both ways, w/o house and w/ house. Of course I have to estimate the current value of the home. I do not count my equity as "savings" when determining if I'm saving enough to have what I want in retirement.

At the moment, having the house paid for is not important. First of all, it's impossible. Second of all, I have a ridiculously low interest rate by any historical standards, and so my "spare" money works much better for me put elsewhere. My ARM starts to adjust in 2009, but there are limits to how much it can adjust in any year. When it starts to go up, I may readjust what I do with non-retirement savings and put more towards the house. Just depends on my overall situation at that time. Third of all, I think my non-retirement savings are more flexible somewhere other than paid toward my house. I'm relatively young (in my 30s) and like knowing I have easily accessible savings which could go towards grad school, travel, kids, remodeling, starting a business/hobby, whatever. True, I could always pay more towards the house and hold a bigger line of credit in case I want to do something with the money. Somehow, it "feels" easier to access when it hasn't been already spent to pay for the place I live in. Not exactly rational, I know, but considering my mortgage interest rate plus the tax advantage, the only reason to pay off the house would be for also be for feel-good reasons, so I guess they sort of cancel each other.

    Bookmark   May 12, 2006 at 8:59AM
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Would love to pay-off the mortgage early, but we can not afford to.

Would love to put more money aside for retirement, but we can not afford to.

The difference for many people in considering whether a house is an asset or not ... is their income.

If you have enough income to pay your mortgage and put a good amount of money away for retirement then it's easy to feel that your home is not a retirement asset.

On the other hand, if your income is low and you only earn enough to pay your mortgage and the necessary monthly bills then your home is a retirement asset. This is what life is like for many hard-working people who live on a budget. They spend their income on necessities (health insurance, food, utilites). They live frugal and still have little money left to put aside for retirement. And retirement is a real concern.

Just something to consider ...

    Bookmark   May 12, 2006 at 12:12PM
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Not at all...

A mortgage is good debt. It is such a low interest that we make a greater return in our other investments than we would by paying of a debt that is less than 6% interest. That same money we would put toward paying off our mortgage usually earns us about 12% in mutual funds.

    Bookmark   May 12, 2006 at 1:05PM
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Oh, and it is tax deductable

    Bookmark   May 13, 2006 at 4:03AM
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Mortgage payments are not tax deductible in Canada :(

    Bookmark   May 13, 2006 at 12:56PM
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They aren't in the USA, either. Only the INTEREST you pay on the mortgage is!

    Bookmark   May 13, 2006 at 1:25PM
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Not really. I wouldn't feel all that proud about owning THIS house. If I was in my dream/final home, I'd be more happy about paying it off. Right now, we'll be lucky to get what we paid for it 7 years ago when we sell. Certainly not a winning investment, given that the value of the home hasn't kept up with inflation. And now there are rumours about the housing market bubble bursting... Good thing our wealth isn't based on our home.

    Bookmark   May 13, 2006 at 8:35PM
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When we sell this house (at the end of the year), we won't be putting the equity into the new house, but investing in our retirement. So yes, this house is a major asset.

We are building a new house for $320k, however the construction loan appraisal came in at $450k. Hopefully, in the short term, if we had to cash out (loss of job or medical issue), we could based on the current housing market in our area (Central TX).

So, to answer OP, for the short term I don't feel it's important to pay off the mortgage but we will be making extra payments to principal. However, in twenty years we'll probably be scrambling to get it paid off (I'm 37 & DH is 40).

I believe a home is an asset. Property value in the long term goes up just like any other investment. It also goes down, just like any other investment.

    Bookmark   May 14, 2006 at 12:56PM
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Great question. Years ago I counted *everything* - cars, furniture, anything I could come up with to make all that morgage debt look less scarey! LOL. Eventually, stopped considering those as "assets" (like I'd really get anything for my used couch or my 10 year old Toyota!). And then a couple years ago, stopped "counting" house equity. I live in a cheap Midwest market, I know I can't cash out to go anywhere cheaper. So I now just consider hard cash, stock funds, bonds, etc.

We own about 80% of our home, and still we are prepaying on our 4.75% fixed 10 year mortgage. Could be done in 3 years at this rate. Tax advantage to the mortgage gets minimal toward the end when most of the payment is principal. OTOH, that is a mighty good rate. I really struggle with whether to pay it off ASAP or not.

Like peaceandsunshune said, investments earning 12% make it a no brainer to string out the mortgage. The market wobbling like in the last week....maybe not so smart. I'm rethinking everything... Those 5% and up CDs are starting to look pretty good.

    Bookmark   May 18, 2006 at 6:16PM
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The fellow who wrote "Rich Dad, Poor Dad," thinks it an error to consider one's house an asset. In the business world, an asset is something that is bringing money to you, something your home does not do.

I think that's a good idea to keep in mind, even if you are emotionally attached to you home. Especially if you are emotionally attached to your home. I've even read of people purposely delaying home ownership, to build up their IRA instead. It makes sense to at least consider that, especially if one works in a job market that is constantly changing, and the possibility of relocating to stay employed comes into play.

Right now I'm considering whether we ought to stay where we are. We had planned to live in this house "forever." Within two years of moving in, both DH and I lost our jobs. We now make 1/3 of what we did when we moved in. The good news is that we don't have a mortgage. The bad news is that the house needs some serious updating. When we moved in, renovating a house seemed like an affordable hobby. (We weren't intending to flip it or anything) After paying the bills last night, I just feel overwhelmed.

    Bookmark   May 19, 2006 at 7:46AM
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"The fellow who wrote "Rich Dad, Poor Dad," thinks it an error to consider one's house an asset. In the business world, an asset is something that is bringing money to you, something your home does not do."

Guess he does not invest for anything beyond tomorrow.
Of course the house is an asset. In many places it is increasing in value at a rate that more than makes up for the interest costs.
When you balance the fact that you need somewhere to live, the tax breaks on mortgage interest (since some here seem confused about the idea of 'deducting the mortgage' when everyone knows full well it is the interest only), and the long term growth in property values it is an appreciating asset.
If you can invest long term for more than the mortgage rate AFTER TAXES invest the money. You can always pay the mortgage off early with the gains.

    Bookmark   May 21, 2006 at 5:41PM
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After dealing with mortgage for years, we were finally able to buy our current house for cash this year. It feels wonderful, it gave us a sense of "freedom", a peace of mind.
We were house poor for so many years, never again. My husband and I promised each other that if there is something we like and we can't afford to pay for it cash, we're not buying it.

    Bookmark   May 26, 2006 at 12:47PM
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I would love to be mortgage free but at least our mortgage is only 30% of net and we are faithfully putting 10% into retirement.

Chelone, I feel exactly the way you do. It's not just an asset. All my children were born in this house. I have worked hard on it inside and out. I don't know if it's just a woman thing, because my husband would sell in a heartbeat since we owe substantially less than its worth. He has said more than once, "it's just a house!" I say, "No, it's my home and my security."

    Bookmark   May 26, 2006 at 7:21PM
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It is important to me to pay off the mortgage before retirement. That is a considerable sum of money that I will not have to put out each month. Having a bome free of a mortgage is what will allow me to stay in the homme I love for as long as I need to.

    Bookmark   June 13, 2006 at 3:51PM
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I always wanted to pay off all my debt so I could say that I am debt free. I did.
Then I got this bright idea that instead putting my old mortage money into IRA's or my 401k why not buy a step up house that I could work on, remodel and INVEST in so that in 20 years in would be well worth more than my current house could ever be.
We recently purchased a home that was built in 1986 resold in 1989 to the party we purchased it from. Their net from just our purchase price was only $14000.00. (for 17 years)They paid to much in 1989. The home we purchased in 1995 neted $50000 (for 11 years)from the selling price.
My point is that just because you don't get a statement every month telling you what your home made you does not make it a non investment.
Being debt free let me purchase this home, work on it for 4 1/2 months, and take my time selling our other home. My friends could not understand how we were able to do it. I never told them we owned our other home.
We now have from the sale of our old home enough money to pay off our current mortage. Being debt free just gives you more options. The money is the same it is just in something other than an IRA, 401K or bank. I see a home as an investment that I can use and enjoy while it builds value.

    Bookmark   June 24, 2006 at 9:52AM
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I look at my mortgage as just another investment opportunity. My mortgage rate is currently 4.5% before taxes (about 3% after taxes). It makes more sense to me to put the extra money into other financial assets that I expect to return more than 3% after taxes.

My house is still my house and I'll continue living there as long as I like. All the money that would have gone to pay my mortgage will still be there in those alternate investments, so if I ever find paying down my mortgage to be more advantageous, I'll do so.

Even if I paid off my mortgage, I still wouldn't have that sense of perfect peace knowing that no one could take my house away. I pay about $1,000 a month just in property taxes and home owners fees. If I became destitute, I'd have to move anyway.

My house is currently mortgaged with a 5/1 ARM. If, after four more years, the rate goes up more than I'd like, then I'll pay off my mortgage. If that happens and rates go down substantially below what I think I can earn elsewhere, I'll trun right around and put another mortgage on my house and invest the money.

Contrary to the Rich Dad Poor Dad stuff, I do see my house as an income producing asset. It produces an implied return equal to what I would pay to rent it. If it ever got substantially cheaper to rent a home compared with what I thought it would cost to own one (include expected appreciation or depreciation), I'd sell my home and rent one.

This logic either doesn't seem to hold with most Californians or they seem to think that homes will continue to appreciate dramatically in the coming years. My quick appraisal during my last visit showed houses selling for about 2 times what would be justified based on rental rates. I suspect that a lot of Californians are in for a nasty shock as home prices flatten or decline in the next several years.

    Bookmark   July 11, 2006 at 11:06PM
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