| would you pay off your mortgage if you had the cash?? |
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hellobob
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| would you pay off your mortgage if you had the cash?? |
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I'm new to the board, but here goes,The Background is... after several career changes, my wife and I are both earning just over 50k each.so 100k combined and about as stable as can be.,both of us have pensions which will pay 50% on retirement. we're both mid 40's and have just over 300k invested diversified in the market. We have a 130k mortgage on a house that has a bit of land attatched, reciently I have been offered enough $ for part of the land, so that after the dust settles and capital gainstaxes are paid, I would still have 130k left over to pay off the mortgage. What would you do??? I'm thinking we are already into the market enough and paying off a sure thing would not be a bad thing.
anybody out there with more experience have any difering opinions??
thanks
bob 
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Sun Jul 31, 2005 5:28 pm |
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bong12187
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| Re: would you pay off your mortgage if you had the cash?? |
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Hmmm... I've always thought no mortgage is better than having a mortgage. The exception to this rule is rental property in which case, you are buying using OPM and since mortgage pmt will be paid by your tenant and hopefully you are getting passive income that goes in your pocket, you would want to have mortgage on your rental property. I wonder what would you use your 130k if you don't pay off your mortgage? Put them in the market? For me, I would use the 130k to buy several properties. Then remortgage the house to get a lower monthly pmt. Then have the rental pay for your home monthly mortgage. With this move, you've just created passive income, phantom income, freed up your earned income (since pmt of your home mortgage will be coming from your rental), and lower taxes through deductible. Just my .02.
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Mon Aug 01, 2005 12:09 am |
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Day Trader
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| Re: would you pay off your mortgage if you had the cash?? |
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quote:
Originally posted by bong12187
For me, I would use the 130k to buy several properties. .
What can you buy for only 130k? In Vancouver, BC Canada and for that kind of money, you couldn't even buy a basement. 130k is nothing. You can't buy properties with that kind of money. Maybe you can buy a car, that's it. And of course, I am talking about Vancouver, BC Canada. Small towns in Canada and the US are much cheaper, maybe you can buy something down there? But who wants to live in a small conservative town? I don't.
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Mon Aug 01, 2005 12:17 am |
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IdahoSpud
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Hi Bob,
I'm no financial planner, although perhaps you should talk to one. My gut feeling about paying off your mortgage is no.
You might want to plug your numbers into a mortgage amortization spreadsheet and see what your savings would be given your current interest rate. I'm uninformed about the tax structure in Canada - do you get to deduct interest from your net income? If so, then deduct tax savings from the money you would save by paying off the loan.
You might consider how well that windfall, invested elsewhere, might have actually created more wealth. On the other hand... debt is never a good thing, and the less of it that you have, the better. So maybe paying the home off and accumulating a lot of savings would be best.
You can see I'm conflicted as well... See what the spreadsheet says with your actual numbers, OK?
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Mon Aug 01, 2005 12:28 pm |
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MattL
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Yes, you should run the numbers. Compare paying it off to investing in an investment with similar risk (apples to apples).
Debt Elimination
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Mon Aug 01, 2005 3:22 pm |
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bong12187
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Good idea. I would definitely run the numbers like what others said. Day trader said that you can't buy anything with 130k but I think he missed what I am trying to convey. With 130k you can use that as down payment to buy rental property which could give you some passive income and other things that i said earlier. With your situation, it seemed that you are getting a good deal because you will still have your own house to live in.
Others will think that owning their own house is an investment. I hate to bust their bubble but unless that property is putting money in their pocket month after month then it is not an investment. Having a large equity is just a mind concept. It is not real because until you sell that very expensive house, again, no money is coming in to your pocket. Then after it is sold, then what? Would you buy another big house or better yet, a bigger house?
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Mon Aug 01, 2005 4:30 pm |
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tss4
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quote:
Originally posted by bong12187
Others will think that owning their own house is an investment. I hate to bust their bubble but unless that property is putting money in their pocket month after month then it is not an investment. Having a large equity is just a mind concept. It is not real because until you sell that very expensive house, again, no money is coming in to your pocket. Then after it is sold, then what? Would you buy another big house or better yet, a bigger house?
I don't see how owning a property is any less of an investment than stock. Until you sell that stock its value is no more or less real than your houses. Many stocks offer no dividends and thus put no money into your pocket untill you sell. The concept of equity is really no different than looking at how much your stock is worth before you sell it. Maybe, I'm missing your point.
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Mon Aug 01, 2005 5:08 pm |
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bong12187
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I don't see how owning a propoerty is any less of an investment than stock. Until you sell that stock its value is no more or less real than your houses. Many stocks offer no dividends and thus put no money into your pocket untill you sell. The concept of equity is really no different than looking at how much your stock is worth before you sell it. Maybe, I'm missing your point.[/quote]
You hit it right to the point. We are in the same sheet of music but I guess I did not convey it clearly. I feel exactly the same as you that a house will not put money in your pocket (until you actually sell it, in which case you can either lose or gain). I was merely asking a question on what would be the point of selling one's house if the intent is to buy a similar house or a bigger house.
Now, owning a rental house is so much different for it is done right, it will continue to put money into your pocket and this is what we call passive income. It is different from owning a house because no money (hopefully) should be coming out of your pocket because the tenant will be doing that for you. Now, this is what I call an investment since one will be receiving profit month after month. 
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Mon Aug 01, 2005 5:41 pm |
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tss4
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Yeap, guess, I was missing your point.  I see what you mean and I would have to agree.
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Mon Aug 01, 2005 5:56 pm |
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hellobob
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| me again |
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I've always been a bit scared of the idea of owning rental property, I'm in Nevada now, but when I was in California It seems everyone I knew who was into owning rentals had several nightmare stories to share.
also were having a real boom in prices right now, if I were to get into rentals now I'm afraid I'd be buying high. the local prices have swung up 100% in the last 3 years or so.
bob
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Tue Aug 02, 2005 1:42 am |
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IdahoSpud
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Now is probably the only time in the history of the world when investing in Nevada (Las Vegas, anyway) real estate would be a bad idea 
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Tue Aug 02, 2005 2:39 am |
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bong12187
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quote:
Originally posted by TX_boy
IF you have the cash and can make more money with it than what your interest rate is, why pay it off? In my eyes it then becomes money that isn't doing anything.
I totally agree. I like the way you think.
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Wed Aug 03, 2005 5:42 pm |
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JPMorgan
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In my opinion, having debt and building wealth are NOT compatible. People have leveraged debt to increase the size of projects they are involved in, but I only recommend that for corporations and not for individuals. Good Credit, No Debt, Money in the Bank, and solid investments that generate income is a fine scenario to be in.
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Sun Aug 07, 2005 4:25 pm |
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bong12187
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quote:
Originally posted by JPMorgan
In my opinion, having debt and building wealth are NOT compatible. People have leveraged debt to increase the size of projects they are involved in, but I only recommend that for corporations and not for individuals. Good Credit, No Debt, Money in the Bank, and solid investments that generate income is a fine scenario to be in.
Having GOOD debt and building wealth are matched in heaven. Let me give you a scenario. Two individuals have the same credit, no debt, and they both have 50k in the bank. One individual mortgage a fixer upper house and rents it out receiving $500 per month (after everything is paid). If everything stays constant, the one that bought a house will be up $6k in one year and 60k within 10 years. Notwitstanding the phantom income that he received such as depreciation, tax deductible for repairs, interest pmt, insurance pmt, etc. This would lower down his earned income taxes at the end of the year. Now lets say that he buys more property every 2 years (buying 4 more properties within 10 years). If everything stays contant, the person who bought 5 properties within 10 years will have a $2500 per month more passive income, $28k more per year, and $180k more within 10 years.
Now, lets talk about corporation. Common people like us can create a corporation. People think that you have to be a big company to have one. I created an S corporation to purchase a property. My wife, my mother in law, and I are the officers and share holders. What I learned is that we were able to pass on expenses (bad debt/bad expenses) and turned them into good debt/good expenses because we were now able to deduct them, allowing us to keep more of our earned income that otherwise would have been coming from our pocket. B
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Sun Aug 07, 2005 4:53 pm |
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Ellis
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| Re: would you pay off your mortgage if you had the cash?? |
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quote:
Originally posted by hellobob
I'm new to the board, but here goes,The Background is... after several career changes, my wife and I are both earning just over 50k each.so 100k combined and about as stable as can be.,both of us have pensions which will pay 50% on retirement. we're both mid 40's and have just over 300k invested diversified in the market. We have a 130k mortgage on a house that has a bit of land attatched, reciently I have been offered enough $ for part of the land, so that after the dust settles and capital gainstaxes are paid, I would still have 130k left over to pay off the mortgage. What would you do??? I'm thinking we are already into the market enough and paying off a sure thing would not be a bad thing.
anybody out there with more experience have any difering opinions??
thanks
bob
Hello bob,
First thing you need to do is list all your debt and thier interest rates and if it is variable.
Now you should have a good idea of what debt needs to be paid off first if you do choose to pay debt instead of investing.
If all your interest on your current debt is low and a investment would make more money. Then you might want to not pay off the debt and instead choose to invest it into a property, stockmarket, bonds, cd's etc.
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Sun Aug 28, 2005 7:49 am |
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