In article <gqqqda$6dv$1[at]news.motzarella.org> ,
Gene E. Utterback, EA, RFC, ABA <gene[at]alliancetax.com> wrote:
- quote -

payoff vs. making accelerated payments, vs. what I actually am doing,
I'd certainly agree that one size does NOT fit all.

Basic scenario---I bought a house after I retired in Aug. 2001. You
can see what happened to the stock markets the following winter before
I bought. I took an 80% first mortgage and used margin to close a
no-points 5.75% 30 year mortgage. A tight and well-controlled budget
assured that I had positive cash flow.

Took about a year to cover all secondary debt and a couple more to
build a cash cushion for liquidity. Those two items came first.
At the same time, I moved assets in my investment portfolios to
securities that payed enough to cover mortgage interest. Once I'd
reached those targets, I started paying extra to reduce mortgage debt.
How much is a month-to-month decision based on maintaining an
adequate, but not excessive, cash pool.

As things stand, I've paid off about a quarter of the mortgage
principal, am close to the point where standard deduction equals
itemized, but would reduce monthly cash surpluses by liquidating
assets to pay off the mortgage. In the meantime, I'm not sitting on a
mountain of non-productive (at CD rates) cash. That would reduce my
after-tax income by more than mortgage servicing costs.

I may be fortunate that where I bought, fair market value of the
property is close to double what I paid. Nonetheless, that money
leveraged by the mortgage principal is producing more income than it
costs to carry it, and until and unless that changes, I'll stick with
paying the minimum plus any free cash that I don't want to invest.

Hank


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Gene E. Utterback, EA, RFC, ABA wrote:

As an aside - I've seen at least half a dozen
- quote -

My HELOC was reduced ~30% about 6 months ago. But this is the Phoenix
metro area and we had about the steepest rise and fall in the US fueled
by out of state speculators.

Chip

"Will Trice" <me[at]invalid.com> wrote in message
news:gqk175$1tg$1[at]news.motzarella.org...
- quote -

Thanks Will.

I'd also like to state that in general I seldom recommend that a client
actually make extra mortgage payments. More often I recommend that they
park the money for the extra mortgage payments somewhere safe and allow them
to accumulate until they have enough available to pay off the mortgage with
a single check.

The vast majority of my clients have no emergency fund let alone 3 to 6
months of living expenses. Hence, parking the extra mortgage payments
allows them to accumulate cash to cover these things if needed. IF they
need the money it is far easier to get it this way than to try to get or
increase a LOC on the house. As an aside - I've seen at least half a dozen
clients in the last week who had their LOCs reduced by the banks under the
premise that the LOC was based on equity that no longer exists due to a
decline in housing values.

When they accumulate enough to actually pay off the house they can then
choose to do whatever they want to do - pay it off or not.

I think the most important that anyone who comes here looking for advice to
understand is simply this - ONE SIZE DOES NOT FIT ALL. Every situation is
unique and action must be tailored to fit the specifics of the situation.
Every single one of these situations includes both the quantitive - the
numbers involved - as well as the qualitative - the emotions involved.

The BEST investment, or advice, in the world is no good if the investor
doesn't understand it or is uncomfortable with it.

Gene E. Utterback, EA, RFC, ABA

On 2009-03-27 19:15:23 -0700, Will Trice <me[at]invalid.com> said:

- quote -

Another possibility is to pay off the mortgage and then regularly put
the monthlty payment formerly needed for the mortage into an investment
account. Or do that with half the windfall money, etc.

On 2009-03-27 19:15:23 -0700, Will Trice <me[at]invalid.com> said:

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Another possibility is to pay off the mortgage and then regularly put
the former monthly mortgage payment into an investment account. Or pay
off half the mortgage and do the same.

Douglas Johnson wrote:

- quote -

I think that both of your statements are correct. Gene's literal
statement is correct in that in is always better to pay tax than get a
deduction for an expense, if you're just going to spend the
no-longer-needed interest payment.

But your point is also valid, that it may make sense to not pay off a
mortgage and invest the pay-off amount.

-Will

william dot trice at ngc dot com

"Gene E. Utterback, EA, RFC, ABA" <gene[at]alliancetax.com> wrote:


- quote -

The original question was

"Is it generally "worth" paying off the mortage if you can vs carrying it ?"

I was suggesting that it might be better to not pay it off as opposed
to suggestion that

"It is always - let me repeat ALWAYS - better to pay the tax than get a
deduction."

-- Doug

"Douglas Johnson" <post[at]classtech.com> wrote in message
news:30qks4lkc17rg6h85em3envo7ri2d7bre0[at]4ax.com...
- quote -


- quote -

I'm not sure I follow your numbers, but I'll play along. Where do you get
the $16,667 to buy the AAA Munis? Not with the money you're spending to
make mortgage payments.

Gene E. Utterback, EA, RFC, ABA

Xho Jingleheimerschmidt <xhos...[at]gmail.com> wrote:
- quote -

You are free to think that paying down one's house is as risky as
investing in stocks. But the historical statistics say otherwise. We
disagree.

Given your premise, I do not care to try to parse your other comments.
It sickens me that someone would put stocks ahead of shelter when it
comes to financial planning/investing. (PeterL, I do not need you to
chime in that financial planning is not the same as investing. We
disagree on the necessity of splitting hairs on this one.)

honda.lioness[at]gmail.com wrote:
- quote -

That makes it comparable to making additional payments to principal to
pay down a mortgage early. I can't get that additional money back out
until the after the final payoff without re-financing, and you can't
necessarily refinance easily, or sometimes even at all, in an emergency.

- quote -

It seems to me that the tool one uses for comparison should be exactly
that thing which is the actual alternative. If the decision you are
actually making is "Do I use this pool of X dollars to pay off the
mortgage, or to buy CDs?" then or course CDs are the thing to compare.
If the actual question is "Do I use this pool of X dollars to pay off
the mortgage, or to buy an index fund", then using CD as the tool of
comparison seems rather misguided.

If one does not have an adequate "emergency" fund cushion, then one
should not be asking that second question in the first place. But you
seem to be saying that no one ever has enough of an emergency fund and
thus no one should ever put money anywhere but cash-like accounts.

Xho

Augustine wrote:
- quote -

You are confusing a mortgage with home value.

On Mar 25, 4:06*am, Tortoise <nos...[at]sunshine.com> wrote:
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Since when is a negative return on investment cheap?

honda.lioness[at]gmail.com wrote:

- quote -

It depends on relative interest rates. If they can re-lend the money at higher
rates, they'd love to have you pay it off. -- Doug

"Gene E. Utterback, EA, RFC, ABA" <gene[at]alliancetax.com> wrote:

- quote -

[...]

- quote -

But this ignores the opportunity cost of paying off the mortgage. Currently, 30
year general obligation AAA rated munis are paying 4.91%, call it 5% to make the
arithmetic easy. If my mortgage is 6%, my balance would be $16,667 to get your
$1,000 in deductible interest.

Instead of paying off my mortgage, I buy $16,667 of AAA munis and start earning
$833 per year tax free. I pay $1,000 in mortgage interest, deduct $460 for a
net of $540 paid and $833 received. I win by $297.

All the usual qualifications about standard deductions, AMT, etc. apply. But
certainly the investments are of comparable risk. I also know this is kind of
special case in unusual times, but when you shout ALWAYS, I need to suggest
otherwise.

-- Doug

Gene E. Utterback, EA, RFC, ABA wrote:


- quote -

Gene, when you can borrow at 5%, and it's 3% after tax, but you can get
3% or greater in your Roth, or in your state's Munis, it's not so black
and white.

I think it's alway better that one understand the effective rate they
pay, be it the guy who can't itemize but thinks his mortgage is a
deduction, or the guy who is prepaying his 5% mortgage while CDs are at 8%.

Joe

On 2009-03-25 07:00:42 -0700, honda.lioness[at]gmail.com said:

- quote -

An extreme form of that same mode of thinking is advice to INCREASE
your mortgage (or take out a home equity loan) in order to free up
money to invest in the stock market. I have seen that advice offered in
good times when the market is rising, frequently by sales people
seeking commissions from the sale of mutual funds. I doubt if anyone
would be foolish enough to suggest something like that nowadays when
the both the stock market and housing market are in their present
state. But when good times return those creative suggestions probably
will be back again.

"ps56k" <pschuman_no_spam_me[at]interserv.com> wrote in message
news:NUcyl.2776$im1.1402[at]nlpi061.nbdc.sbc.com...

Snipped because we have to

- quote -

It is always - let me repeat ALWAYS - better to pay the tax than get a
deduction.

Assuming you are in the highest possible Federal tax bracket of 35% and
assuming you are in the highest state tax bracket, which I believe is
Montana at 11%, your total tax bracket hit tops out at 46%. And that's the
marginal rate, the effective rate will be considerably lower.

So if you pay $1,000 in mortgage interest you save $460 BUT you are out
$540.

If you paid no deductible interest you'd pay $460 in taxes BUT you get to
keep the $540.

So having a deduction saves $460 while having no deduction saves you $540 -
you are $80 better off with no deduction.

If all you want is a deduction, I can arrange that - simply send me $50K for
tax advice! You can get a deduction for that - think of the taxes you'll
save !

In your particular situation, your standard deduction would actually be
$11,900. Remember, under the current law you get your standard deduction
PLUS up to $1,000 for real estate taxes..

Gene E. Utterback, EA, RFC, ABA

Tortoise <nos...[at]sunshine.com> wrote:
- quote -

Seems to me that generally lenders do not want borrowers to pay off
mortgages, because the interest yada is so profitable to them. Unless
you are talking about the transaction costs of getting the loan in the
first place.

I do not care for the assumption that an investment in stocks is going
to leave a borrower in better financial shape. Stocks are risky. If an
emergency arises, the principal originally invested may not be there,
for one. Hence I urge a low risk investment vehicle such as a CD as
the tool for use in comparisons of pay off mortgage vs. do not pay off
mortgage.

Some of my aquaintances use a tax technique
called "bunching" to double deductions in alternate
years and use the standard deduction in between years.
That is you make all your state taxes, property taxes
and charitable contributions in Jan and Dec in even-
numbered years. The Dec contribution is for the
subseqent odd-number year. You are credited at
the time you pay.

ps56k wrote:
- quote -

A residential mortgage is virtually the cheapest money there is.

The sooner you pay off a mortgage, the higher the lender's effective rate of
return -- and the higher the borrower's cost.

Unless you expect to earn less from your investments vis-a-vis the loan's
effective rate, sticking with your monthly mortgage payment schedule will over
time leave more in your pocket.

Nevertheless, do yourself a favor: roll up your sleeves, work the numbers, and
see for yourself. With a spreadsheet program, one individual today has more
computational power at his disposal than a bank with dedicated staff decades ago.