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ave1024
I Took The Wrong Road

Member since 12/07

6153 total posts

Name:
That Led To The Wrong Tendencies

Re: pay off mortgage or invest?

Posted by Lucky09

Invest. Two words: compounding interest ... On that large sum of $$ you would miss out on that by paying off your mortgage. I would see if refinancing makes sense as someone noted above.

I wanted to add that most interest in a typical mortgage is front loaded. So you pay more in interest at the beginning of the loan than the end. I’m not sure how long you have been paying but it might make sense to calculate how much you would pay in interest on your mortgage for the next x years vs how much you would expect the $$ to grow in a typical index or otherwise safe fund over the same period.

Good luck and I’m jealous of people with decisions like these to make! Chat Icon




I agree with the above. Look at recent numbers as an example.

The Dow has gone up 13% in the last six months. 400k six months ago back then would have appreciated to 449k. That's 49k appreciation. You would have paid 9k in mortgage interest. Big difference.

If you would have paid it down six months ago and took a $2000 mortgage payment (example) and invested it your $2000 monthly contribution would have made approximately $843 in interest using the same appreciation.

YMMV as the Dow can fluctuate. I was in a similar situation last year as I have enough cash to pay down my mortgage but I took the route of investing and glad I did. I am up over 12k in less than a year and I invested a fraction of 400k (closer to 80k). I probably should have invested more as I would have hit 20 or maybe even 30k in gains. Chat Icon

Posted 2/16/21 10:56 PM
 
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JennP
LIF Adult

Member since 10/06

3986 total posts

Name:
Jenn

Re: pay off mortgage or invest?

Posted by LInMI

I would def speak to an advisor. Real Estate on LI has been going up quicker than the market, so you may want to pay off your mortgage. But keep in mind you won't have much to write off during tax season, so you may want a small mortgage and invest the rest.



With the SALT cap it doesn't matter.

People will generally hit the cap with their taxes anyway.

There's no real benefit from mortgage interest anymore.

Posted 2/17/21 12:25 PM
 

nycbuslady
LIF Adult

Member since 9/15

1058 total posts

Name:

Re: pay off mortgage or invest?

Posted by JennP

With the SALT cap it doesn't matter.

People will generally hit the cap with their taxes anyway.

There's no real benefit from mortgage interest anymore.




Mortgage interest isn't included in the $10,000 SALT cap. You can still deduct it. The thing is that now the Standard Deduction went up to about $25,000. So, if you only can deduct $10K for state and local taxes, you have to have more than $15K in interest, charities, etc. to itemize. Most people don't have that much in itemized deductions, so having a house doesn't give you any more deductions than renting (IMO).

What really annoys me about the SALT cap is that it's $10K regardless of filing status. So, a married couple can only deduct $10K of SALT, and then needs to find more than $15K in other deductions to increase their deductions to more than the standard. But, an un-married, co-habitating couple who co-own a house can EACH deduct $10K in SALT, but their standard deduction is HALF of what it is for married people ($12,500). So, they would only have to have an additional $2,500 each in other deductions to make itemizing on their taxes worthwhile. It just seems like there's a marriage penalty.

Posted 2/17/21 11:40 AM
 

NYCGirl80
I love my kiddies!

Member since 5/11

10413 total posts

Name:

Re: pay off mortgage or invest?

There are way too many variables for us to answer this question. For instance, how much savings do you have? If you are living month-to-month, then putting money aside is a smart idea rather than rushing to pay off your mortgage entirely. If you have significant savings, then there are other considerations.

If you are currently paying taxes via escrow, paying off your mortgage means you will have to budget for paying taxes yourself going forward.

Do you have money saved for your children's college? If this lump sum would be more helpful there, that's another consideration.

Either way, you should consider a refinance because you can get a significantly lower interest rate than 4.25%, and perhaps shorten your loan.

Posted 2/17/21 12:34 PM
 

mommy2be716
LIF Adult

Member since 1/16

2921 total posts

Name:

pay off mortgage or invest?

if it's a jumbo with over 20 years, i would pay it off. all the money you'd be saving monthly on your mortgage you can invest slowly. Makes more sense since you won't be paying that interest anymore on the loan.

Posted 2/17/21 2:12 PM
 

JennP
LIF Adult

Member since 10/06

3986 total posts

Name:
Jenn

Re: pay off mortgage or invest?

Posted by nycbuslady

Posted by JennP

With the SALT cap it doesn't matter.

People will generally hit the cap with their taxes anyway.

There's no real benefit from mortgage interest anymore.




Mortgage interest isn't included in the $10,000 SALT cap. You can still deduct it. The thing is that now the Standard Deduction went up to about $25,000. So, if you only can deduct $10K for state and local taxes, you have to have more than $15K in interest, charities, etc. to itemize. Most people don't have that much in itemized deductions, so having a house doesn't give you any more deductions than renting (IMO).

What really annoys me about the SALT cap is that it's $10K regardless of filing status. So, a married couple can only deduct $10K of SALT, and then needs to find more than $15K in other deductions to increase their deductions to more than the standard. But, an un-married, co-habitating couple who co-own a house can EACH deduct $10K in SALT, but their standard deduction is HALF of what it is for married people ($12,500). So, they would only have to have an additional $2,500 each in other deductions to make itemizing on their taxes worthwhile. It just seems like there's a marriage penalty.



Oh, that's great, thanks.

No wonder why my taxes didn't go up as much as I thought they would lol.

Posted 2/17/21 5:29 PM
 
Pages: 1 [2]
 

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