Paying off the house
Hi, lots of my friends living in Bay Area for 20+ years said ‘Don’t pay off your house’. For me , calculations are simple. If I don’t pay off, I have to pay mortgage. Lets say I pay 1k towards principal and 1k towards interest. Out of this, I get 33% tax benefit on interest part. Which amounts to me being losing 600$ per month . If I pay off, I will save this 600$ per month which will become a huge amount of I consider I still have 20 years to close my loan. Am I missing anything ? Does pay off save money or there are some other things that would be better? How about doing 15 or 5 year refinance?
Your mortgage is probably about 4%. After your tax deduction that’s about 2.5% to 3%. Even if you put your money in an index fund you’ll probably get 8% without even trying. After taxes that’s over 6%.
Yeah, yeah and in Bitcoin you'll get 1000x. Bullshit. The risk free returns are 1.5% at the moment and the 30 year treasury yield is 3%. This is closer to what paying off the mortgage is risk wise
Rofl, 7% a year is ultra safe. See 200 years of stock market returns for help.
People turn this into a math equation without factoring in behavior. A paid off house gives you piece of mind and freedom to pursue whatever opportunities you want. Unless you'd take a loan out against your house to invest in the stock market, paying off your house as soon as possible is perfectly reasonable.
I agree. Money in the bank can be stolen from you or you might be tempted to do silly things with it while being debt free means that you don’t have to worry of making those monthly payments.
Money in the bank be stolen from you? Huh? No it really can’t. But your house can burn down. And lose value. Insurance will mitigate the first one.
Interest part used to be 100% tax deductible until 2017. Not sure what you mean by 33%? From 2018 the cap is 500K
I think OP is saying he or she is in a 33% bracket. Which isn’t possible since there is no 33% bracket. But there used to be, so it’s reasonable to think that.
I prefer having a paid off house. The extra bit I could theoretically make in interest by investing my house equity is not worth the awesome freeing feeling of tons of extra cash flow. If someone gifted you a paid for house, would you go take a 15-30 year loan on it to invest? Maybe some people. I can tell you there’s nothing like not owing anything to anyone. You stop making life and career decisions because of money. It frees you up to optimize for more important things.
Yeah I'm in the same situation (except for the part about being able to afford a house :( ) I'd prefer to pay it off sooner rather than later and have the piece of mind and zero debt. Probably not the most fiscally responsible thing because of opportunity cost and mortgage tax deduction, but oh well.
If u are aiming Los Altos , it might be difficult. But you can easily buy one in Fremont / San Jose . C’mon you work for Netflix and they pay a lot☺️
Heh only just started here, need some time to build up savings :) also true, Fremont might be doable, although the commute will suck
I go out of my way to maintain an optimal mortgage balance. Paying it off early is literally throwing money away. I know many people still do it as simple math doesn't always win against fear.
Don’t pay off. Dumbest thing you would do. Average bay mortgage is 4K now and rents are close if not 4K. In 10 years the rents might be 5 to 6k you are surpassing ur mortgage payments. The money you have has grown on other assets. So please don’t pay dumbest thing you could do and pay money as taxes
This argument doesn’t seem to follow a coherent thread. Paying off a mortgage is not the same as selling the house. Why else is rent brought up. But surely as a bank employee, you know this.
I m not talking about selling. I m talking that the mortgage will be a negligible amount when compared to the rent on the property.
I do a happy medium (Seattle): pay my mortgage monthly but include about 50% extra a month towards principal only
It might be a primary residence now but might change later. Not every one retires in Bay Area
You’re missing the ability to logically lay out what should be a simple math equation. Please edit and simplify your post to get sane responses.