Financial Advise Question... pay off house or invest?

My big fear right now. I get options through work but other than that I'm leery of dumping money into an artificial market.

 

No sense in a refi if its going to be paid off in 3yrs and he plans to be out of the house in 3yrs.

 

Shouldn't he also consider what he is planning on doing with the $ made on investments? If he's planning on putting that money away to use towards the down payment on the place he'll be buying when he moves in 3 years, aside from losing the mortgage tax deduction, won't he also have to pay capital gains when he cashes in the investment?

 

Just to be clear, my point was that Tesla is very volatile and has been all over the place. Being up 10% just means he got lucky.

I would pay off the debt.

 

There's your answer.

The only reason to pay off your house quicker, is because the cash you have will appreciate at a lower rate than the interest paid on the mortgage loan.

In other words.. if the loan on the house is 5%.. and your cash can make bigger gains then invest the cash. If not, pay off the loan.

 

Can you refi the house to get it down and pay off sooner? I refinanced this year down to 3.5% but rates may have changed? Closed in 2 weeks... That would accelerate your payoff and waste even less in interest.

Edit: sorry, repeating what everyone said while I was typing. dang I'm slow at typing.

 

But, with only 3 yrs left, and he's going to be leaving in 3 yrs, wouldn't all of the costs associated with a refi negate $ saved?

 

Why not? I refinanced to save over a percent which dropped my payment $300+/month with no money out of my pocket. So for free, I lowered my payment. Where's the downside?

 

Pay off the house...it's a sure thing...no risk to saving all that interest, whereas investing entails risk. not only risk, but you have to get an average of 6% just to break even....even then, the bank still owns your house.....Ditch the mortgage and feel good.

 

True, you roll the costs onto the principal but I calculated the payback period at less than a year in my situation so...

 

Yes and yes. I'd tell him to not pay it off fully. Get it down to a level that when he sells to buy another house, it's a quick and painless. Or in the worst case, he buys a new place and the old place doesn't sell right away, he's not one step away from ruin.

I'd also suggest that as you are paying down the mortgage that you are also socking away cash. If your mortgage is $1000 and you can pay $2000 without much sweat, pay $1500 ~ $1800 and sock away the $500 ~ $200. 6 month or 1 year CD (the return is shit) but it's semi liquid and are safe.

Do you have any other higher interest lines of credit out there? Credit cards, car loans or loans to loansharks where you end up with broken limbs if you're late?

 

Wow lots of very poor advice here. Please stick with the concept of post #3 across all of your debt and a financial planner to review your personal situation.

 

You said you want out in three years, are you going to sell the house then, rent it out? It sounds like you still have many years left on your mortgage(just got to the 80/20 stage) but you're able to pay it off now, you must have a chunk saved. I would wait till you sell the house(3 years) to get rid of it. Invest what you have now. Use your equity in your home for down payment on new home, or add some of your cash to lower payment. A home mortgage over the long haul has a huge amount of interest. Go for a shorter term if you can afford it.

 

It would also help to know what you're doing that you have so much more cash. I'm assuming that you've recently gotten a better job or something because if most people could afford to pay off a $150k house in three years, they'd have probably bought $750k house.

Is your new income stable? Do you expect to continue making it for the next 10, 20, 30 years? Are you in a position (credit score) to refinance short term at a much lower rate? Is the next house you buy going to be similar in price or will it be that $750k monster? Are you married, single, have kids, plan on moving far away or staying local? Would you possibly rent out your current house when you move to a nicer one?

There are a thousand factors that go into this but in the end it comes down to personal preference. IMHO, it's best to pay it off and have the freedom of not being chained to a bank. You'll still have property taxes but you'll always have an asset instead of a liability.

 

Only you can answer in your current financial state, but I'll answer as if it were me.

If the bottom drops out of the market and I lose my job... I'm going to be glad I paid off my mortgage

There's obviously financially savvier ways to look at the dilemma, but I sure would sleep well at night with no mortgage!

 

Sell it and roll into bigger house. I have another townhouse I currently rent and will let that ride, but as for investments I don't plan on doing another rental... I don't like the potential headaches.

 

:up: It's more comforting to know you've always got a place to sleep than it it to know that you've got an electronic account somewhere that says you have $150k in investments.

 

I hear you there. Having rentals can easily turn into a full time job.

 

The older I get the more I'm against owing / borrowing money. The best shit is the stuff that's paid for. It's a good feeling not having a payment hanging over your head.

 

Good info. Thanks. The long and short of it is I have a decent amount of disposable income (it's all relative, right??) now due to not wasting it being single or on things I don't need. Getting married in May so after the ring is paid off and the honeymoon is behind us we'll be able to save a bit more. Only debt is the houses.