[GTOGreg]

I think he was referring to the penalties and the growth opportunity those would bring over time.

[bobbyj1]

Your 5.35 Mortgage rate is before the "tax" affect, If you are in the 25% tax bracket then the money borrowed against your house is at an effective rate of 4.01. Thats pretty cheap money. Even a conservative 401K/IRA asset allocation should easily return 4.01 over time, especially when you consider that at 44 you have lots of time.

[kenneth77]

here in norway we pay approx +1% over the "federal reserve" bank intersert rate. the current intersert rate is 5,25%,so i have to pay about 6% interest rate. we get 28% of the payed mortage interests back when we get the tax papers once a year..

[The Boss]

Originally Posted by Supertacks

I have a reasonable mortgage rate at 5.35. Over the life of the note I will be paying 98K in interest. My early estimates put me at about 45K in penalties and income tax on the early disbursement.

The easy math suggests that over the life of the note, the difference of 98K minus the 45K in penalties and taxs in 08 still provides me a net gain of 53k.

It seems to easy to me. What am I missing?

You are missing the value of the income the retirement account would make in the time you are paying your mortgage - I am guessing that if you calculated that - it would exceed the 53k.

Make one extra payment to principle a year, that will save you thousands.

[PonchoV8]

We have begun to make 3.75 extra payments per year and it will knock it from 28+ yrs to 16+ yrs--saving either 48K or 62K in interest, I can't remember right now. But that's the program I have begun. I expect that I'll actually be moving in a few yrs and I don't know if I'll keep this house.

We could probably be more aggressive, but I have a rental property that I need the money to repair.

[Supertacks]

So I have decided against this route.

In short I own a property at the beach. I bought it as a fixer upper 4 years ago with the idea that it would take 5 years to get it where I want it. So far I am right on schedule.

Although it is close to being done . . . I could not sell it "as is" and pull the sweat equity out of it.


What I decided to do is take out a small loan and hire someone else to finish it over the next three months.

That way if I need to move it quick, I can flip it and be done with it.

I do appreciate all the feedback however!

[PonchoV8]

Probably the route I'll take too. I have properties that still need work. I was doing it all in cash, but I'm leaving money on the table in lost income from rentals. If they were paying, I'd be paying my house payment with that income.
My sister bought a condo overlooking Shipwreck Bay on Kaua'i that pays for itself and they get to stay there for free when in town--so will I.

[David Jones]

We paid our mortgage off 5-6 years ago after 12 years and haven't looked back. We did it by paying as much additional principal per month as we could stand. We have bumped up our investments/savings as a result and that has allowed us to purchase vehicles as needed without signing for more financing. No payments has its benefits. Unless the wheels fall off completely I look to retire at about the same time my youngest child leaves college. I place most of the blame for this squarely on the shoulders of my lack of a mortgage.

And it feels good.

[PonchoV8]

There's one thing I don't understand about that testimony--how do you find the ability to let go of all the cash to buy a new vehicle? I just can't bring my self to do that. Unless I was rich, I don't think I ever could. Maybe I'm wrong, and if I sold a house I might, but I don't think so.

[1967Clone]

I'll never buy a new vehicle as long as I live, one of the worst things you can do with your money. May as well light it on fire.

[David Jones]

Originally Posted by PonchoV8

There's one thing I don't understand about that testimony--how do you find the ability to let go of all the cash to buy a new vehicle? I just can't bring my self to do that. Unless I was rich, I don't think I ever could. Maybe I'm wrong, and if I sold a house I might, but I don't think so.

We buy one new vehicle every 5-7 years. My wife likes new for her transportation and that's OK by me. I do not trade one in, I sell it myself. Our last minivan (00' Odyssey) was 28000 cash going in and I sold it for 12000 cash after about 90K and just over 5 years. I figure that at about 250 or so per month. Finance the 28K and trade it in when done and it doesn't work for me. You lose 2 or 3 thousand (interest) going in and that much or more going out.

I am not rich either.....

[PonchoV8]

I guess it only hurts the first time you do it, and then every subsequent buy is offset by the amount of resale. I guess that makes a little more sense. But still, I just can't let it go.

[dreamingmuscle]

Pay it off and then buy a investment home. Let someone else pay the mortgage for you in the way of rent and you get the interest tax write offs. Use the extra to reinvest. Best of both worlds.

Glen

[Txbobcat]

I paid my house off in 7 years of a 15 year loan. I took every extra dime I had and sent it in with the payment every month. Everybody needs to get an amortization schedule on your loan no matter when it started. It will show your payment your interest taxes and insurance coming out of that payment. In the beginning of a loan you can make an extra payment by looking at next months and seeing how much is going to the principle. I was knocking out 10 months payments in 3 or 4 months. I took income tax refunds(that was in the old days) bonuses and everything else I could get a hold of it worked for me . You can actually print these up for free on the internet if you know the full amount of the loan interest rate taxes etc. You will be amazed how little of that payment went to the principle. I have seen some that the 2nd payment paid.less than $3.00 on the principle. Can you come up with that much to take off one payment?

[Jagtec1]

My advice: DO NOT BORROW FROM YOUR 401K. Bad idea.

[Half-Inch Stud]

Pay-off the Mort with income. Sell some of those RAM Air parts and apply to Principal.
Mortgage Debt-free is a Worthy pursuit.

Seems I got a long way to go (bought/sold 4times), but a plan is a good thing. Plan to retire rather early and take a 50% pay cut while I'm still young. If I do not pay-off the Mort, then I cannot take such a pay-cut...would still be riding the beast huh.
Such Pay-off planning means thinking out of box with "Sell something & pay-down" & additional payments per year.

But you know all this.

[poncho-mike]

I would definitely not cash in a 401-K or IRA to pay off a house.

I'm over 50, and lived through the inflation of the 70s. I can remember CDs and something called repurchase agreements (sold by S&Ls) paying 13+% interest.

I'm not a history buff, but after the Arab Oil Embargo in 1973, the US economy was in the dumps for years. The sudden spike in energy prices was followed by inflation and a stagnant economy. The government tried various things to stop the inflation, including a wage/price freeze. After the freeze ended, inflation jumped even higher.

Right now, we're beginning to see commodity inflation in food, energy, and raw materials. The latest inflation numbers are relatively subdued, partly to how the government measures inflation. The government has a vested interest in reporting low inflation numbers, since programs such as social security increases are tied to the inflation numbers. Real inflation (as measured by the "shadow CPI statistics") is significantly higher. See the following website: http://www.shadowstats.com/

1982 to 2000 was a secular bull market. I believe a secular bear market began in 2001. A secular bull or bear market will last somewhere between 12 - 20 yrs. You can look back through history at the secular bull and bear cycles and draw your own conclusion to where we're going in the next few years.

The fed is essentially printing money when it lowers the interest rates. This is causing the US dollar to drop relative to the Euro and other currencies. I think interest rates on mortages are going to gradually rise, inflation will rise, and the US economy will be lukewarm at best.

All told, your 5.25% loan may look like a bargain within a few short years.

Right now, there are investment stocks that pay 12 - 15% annual dividends on a monthly to quarterly basis. These stocks involve natural gas production, crude oil transport, and mining. If you purchase these stocks, the dividends are currently taxed at 15%. If you're in the 25% federal tax bracket, you come out ahead just due to the difference in tax rates.

Up until about two years ago, I used to send extra money with my house payment. Now I only pay the minimum because I'm earning double the interest rate that I'm paying.

Mike

[PonchoV8]

So, what are some other methods of protecting and/or maintaining assets and positions thru the storm? Most people assume the government inflation numbers are actual. Most people don't know that the government doesn't use two of the most used commondities to calculate inflation--energy and food. They don't help the message, so they aren't used. They also go around the larger purchases like homes and cars since for vehicles, there is a glut of used cars for cheap to nothing available on the market (which helps the figures to cheat on the real inflation numbers).

So, again, what are some other methods of protecting and/or maintaining assets and positions thru the storm?