Ram Samudrala wrote:
- quote -

If you borrow to finance consumption (which is what you are doing if
you use extra money for consumption instead of paying off the mortgage)
you will end up having less money to spend on consumption over the
course of your life. This is because the money you spend on interest
payments is no longer available to be used for consumption.

The New York Times recently ran an article which included a graph
comparing lifetime consumption of two people with the same salary:

--The Borrower, who borrowed a chunk of money in his 20s, never paid it
off, and never saved anything; and
--The Saver, who saved 10% of their income his entire life and who
never got in debt.

The Borrower's annual consumption spending had a big spike at the
beginning (from borrowing), but from then on it was a fixed percentage
less than his salary because he was paying interest, and then dropped
to nothing when he retired because he had no savings.

The Saver's annual consumption spending started out around 8% lower
than the Borrowers, but around age 40 his annual consumption spending
passed the Borrowers (due to extra income from savings) and at
retirement he was able to continue consumption spending because he had
income from savings.

The Saver was able to consume substantially more than the Borrower over
his lifetime because income from savings financed consumption that the
Borrower couldn't afford.

If maximizing consumption is your goal, borrowing for consumption is an
inherently unsound strategy because it results in lower lifetime
consumption.

Andy

I agree it makes sense to pay off the loan from a purely financial
perspective. But also consider what can be done with the money in
terms of improving the quality of your home/life. If you can easily
afford the payments, why not embark on a home improvement project or
buy a second vacation home?

Depending on your market (houses in this neighourhood appreciate
10-20% a year, which doesn't seem sustainable, and any improvements
get more than 100% back immediately purely due to location), and if
you're planning on selling, you might even come out ahead compared to
paying down the mortgage. This is based on what I've seen in the last
few years here, and I wish I had more perspective on how housing
prices behave in the long term (like I do with equities). It seems so
location and fashion dependent. I mean will the San Francisco always
be so expensive?

--Ram

Andy <ineverevercheckthismailbox[at]yahoo.com> wrote:

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avacohen100[at]yahoo.com wrote:
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If you have a mortgage of any size you are paying thousands of dollars
each year in interest.

If you have the cash on hand to pay off your mortgage are are just
throwing away the money you spend on mortgage interest.

There are no tax negatives to paying off your mortgage. The mortgage
interest deduction is just a government funded discount on your
mortgage interest expense. You are also allowed to deduct medical
expenses (subject to certain restrictions) from your taxable income;
does that mean its a good idea to spend as much as you can on medical
expenses to get the deduction?

I personally think that the only time it makes sense to not pay off the
mortgage is if your money is in a risk-free investment which has a
guaranteed rate of return that is higher than the interest rate you are
paying on your mortgage (after taking into consideration the interest
rate discount that the mortgage interest deduction gives you). Other
people think it is better to keep your mortgage and put your money in
the stock market, because they think it will do better than 6% in the
long run.

Andy

beliavsky[at]aol.com wrote:
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Agreed.

- quote -

Just to make sure I understand what you are saying. Let's say my
income is 65K and my itemized deductions total 20K. Of the 20K,
mortgage interest represents 9K. The itemized deduction reduces my
taxable income to 45K, right? So, I pay taxes of about 6K (married,
filing jointly). If I don't have the mortgage deduction of 9K, I still
itemize with the remaining 11K because it's more than the standard
deduction (9,700).

So, my tax is on adjusted income of 54K (tax is about 7,400) because
the deduction is less.

So, it's more advantageous to pay the mortgage down even though I'm
still able to itemize. I pay the government 1,400 more in tax in order
to keep the 9K that I was paying in mortgage interest.

There are a lot of variables here, granted. My point is that it's not
safe to assume that just because I am able to itemize deductions, it's
more beneficial financially to continue paying a mortgage. Run the
numbers and see what makes most sense for your specific scenario.

There are also emotional issues for many people when it comes to owing
the bank money. I'd much rather be out of debt in case life hits me
and I lose my job, become disabled, etc.

Rich Carreiro wrote:
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True, and Mr. Parmenter's rule is invalid because it ignores the
possibility (there is no guarantee) of earning after-tax returns on
investments that exceed the after-tax interest payments on the
mortgage. Paying off a mortgage makes more sense when

(1) tax-advantaged opportunities for savings, such as 401(k)'s and
IRAs, have been exhausted
(2) one is not itemizing on the tax return and therefore not
benefitting from the mortgage interest deduction.

"herlihyboy" <ryan.parmenter[at]gmail.com> writes:

- quote -

The amount paid in interest is by definition ALWAYS greater than the
tax savings, since the interest is a deduction, not a credit.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

avacohen100[at]yahoo.com wrote:
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What a great problem to have.

If the amount being paid in interest is greater than the tax savings
(not the deduction, the tax savings only), seems like it would be wise
to pay it off. Sure, you won't have the deduction anymore, but it
doesn't make sense to keep sending the bank X thousand dollars a year
to save 50% of X in taxes.

avacohen100[at]yahoo.com wrote:
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<snip
- quote -

Whether to pay off a home mortgage depends on many circumstances, and a
lot of people *have* asked about it. Searching "pay off home mortgage"
in this newsgroup using Google produced 474 hits, so you could read
some recent discussions.

Should one pay off one'e home mortgage ?

If one has the money should one pay off one's mortgage ?

Under what circumstances should one:
-pay off the mortgage
-NOT pay off the mortgage

What are the tax negatives and positives ?

My sister is in this situation. I think they are in the 20 to 28% tax
bracket. Have reasonable income. Ages around 47 and 50.

Is there an article, website that has written a good article on this
topic ?

I am sure a lot of people would like an answer to it.

Thanks
Ava