Does it make sense to pay off the house?

estreyaFebruary 18, 2008

Hello, all! I realize there may be a number of answers to this question, but generally speaking: Does it make sense to cash out one's stock portfolio to pay off a home mortgage?

I just think it would be so liberating to know my home is fully paid for. And with the market as it is, it seems i'm just watching day by day as the value of investments gets lower ... and lower ... and lower ... :)

Any thoughts?

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Jonesy

In my opinion it does, but most won't agree with that. You can lose your money in the stock market or someone can sue you and get your cash. If your house is paid for, no one can take it away from you except the IRS....if you pay your taxes, no threat there. If I should run out of money in my "Golden Years" I can always downsize my home if I have to and have cash or get a reverse mortgage. I live in a patio home and am surrounded by seniors, mostly widows and they are very insecure because of the house payments and taxes on their home constantly rising.

    Bookmark   February 18, 2008 at 8:27PM
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kkny

Jonesy,

Where do you live? What type of community?

    Bookmark   February 18, 2008 at 9:20PM
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duluthinbloomz4

I suppose the basic considerations would be how big is the mortgage balance and how many more years yet to pay? And then, with the portfolio gone, how many years will it take to rebuild a cushion you're comfortable with? I seem to recall your user name from the Landscape Design Forum - isn't your home brand new?

I probably shouldn't be weighing in on this at all since I inherited the family home with the mortgage long since satisfied. I can truthfully say it is liberating (having had previous homes and mortgages) to be responsible only for taxes, maintenance, and the routine costs of home ownership. But on the other hand, and if my situation were different, despite the ups and downs, a well diversified portfolio is something I would be loath to raid unless my back was against the wall. However, if you're heavily invested in stocks only and they're all losing; getting out of the market would stem the bleeding in your case.

    Bookmark   February 18, 2008 at 11:37PM
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estreya

Oh, duluthinbloomz4, what a nice feeling to be in the home you grew up in! Solidarity with the past, and all that ...

Thanks, everyone, for your feedback. Yes, this home is just three years old, and still feels "new" because we're so frugal and do things so slowly.

As i expected, i guess there really is no hard and fast answer, as everyone's circumstances and comfort levels are so varied.

Thanks again, all!

    Bookmark   February 19, 2008 at 4:41PM
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haus_proud

One comparison you can make to help you decide whether it is worth paying off your mortgage is this: How much interest are you paying the bank for your mortgage versus how much can you earn in some investment? Over the long term (10-20 years) a portfolio invested 50% in stocks & 50% in bonds should produce a gain of about 7-8% a year. But of course you have to put up with the worry of market fluctuations, and the long-term averages differ from what you experience in the near term. So, if your mortgage interest rate is 6-7%, paying it off makes sense because you are giving yourself that 6-7% every time you prepay principle, which you can do a little at a time by just writing a separate check and telling the bank to apply it to unpaid principle. This assumes that your house value is stable and not adversely affected by the subprime mess, except indirectly as all real estate values have declined in the past year or two.

I hope this prespective is helpful to you. It's the one I used to justify prepaying our mortgage a few years ago, & I've never regretted it.

    Bookmark   February 20, 2008 at 9:08PM
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Jonesy

I live in the mid west in a patio home development. We had paid off our other home in 15 years instead of the 30 the loan was for. We paid cash for the new home and replaced most of that when we sold our other home. I look at my new home as security in more ways than one, no mortgage to worry about, it would keep me in a nice assisted living home if necessary or I can down size it if I get low on money.

    Bookmark   February 21, 2008 at 10:54AM
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kkny

Jonesy

I am in a somewhat similiar situation only divorced. My X and I had always had 15 year mortgages, and when we divorced I bought a smaller home in a nice community (near NYC) for cash. No mortgage. But on days like today (ahhh-- snow) I keep thinking after my daughter goes to college (September 09), I would like to move to somewhere smaller but with all exterior maintenance provided.

    Bookmark   February 22, 2008 at 8:49AM
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Jonesy

I think moving was one of the best decisions I have made. When my husband was diagnosed with Alzheimer's, I knew he couldn't keep mowing and maintaining the house. My knees were going because of 25 years in a bi-level home, so I started looking for a new home. My house backs up to an old farmer's hedge row with lots of birds, rabbits and squirrels. I'm very happy here.

    Bookmark   February 26, 2008 at 10:29PM
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