A recent article in the Los Angeles Times addressed the interesting topic of whether you should pay off the mortgage on your home early.
In today's roller coaster ride on the stock and housing markets people are worried about their monthly expenses. There is no security in holding the debt of a mortgage on a Los Angeles home when there are few if any options to make easy money to cover that mortgage. In high times you knew you were covered by the growth in home equity and the booming stock market.
It would seem tempting to pay off that loan on your Los Angeles home, hoping that by the time you get to retirement you will be free and clear. Or you just don't like making those monthly payments. Before you decide, here are some reasons to consider before paying off that mortgage:
Financial considerations
- Do you have credit card debt, maybe a car loan? Those should be addressed first, especially the high interest ones.
- If you pay off the mortgage do you still have 6 months living expenses in cash?
- Do you have money put aside in case of emergencies?
- Money pulled out of a non-Roth IRA will be taxed at ordinary income rates so, unless you are retired or in a low income bracket, this would be counter-productive.
How long do you intend to stay in your Los Angeles home?
If you think you may move in the next few years, certainly don't pay off the mortgage. Market conditions being what they are, you don't want to be stuck with a home that is paid off and on which you may not be able to get all your money out.
Is it worth the interest deduction any more?
At the beginning of the mortgage your tax deduction is going to be higher. As you start to pay off the principal the savings are less. And, if you are nearing retirement, or retired and close to the end of your mortgage payments, then the tax deduction should not stop you from paying off your Los Angeles mortgage, especially since your tax bracket is most likely going to significantly reduced.
Calculate your return on investment
Based on your tax rate and the present low mortgage interest rates, what is your return if you pay that loan off? Is it 3%, 4%, more? Where can you get a higher rate of return if you invest that money? Do the math! Your accountant should be able to help you decide. But bottom line, it is about your comfort level. Some people don't want to be burdened with monthly payments of any kind, and if you have the money burning a hole in your pocket.....
Buying or Selling Los Angeles Real Estate
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Jane, you have handed your consumers some very good information here. Our strategy has changed in paying off our mortgage(we paid off our previous homes very quickly)since we have a very low and fixed interest rate. We will deduct the interest and wait for the higher inflation that may be around the corner.
This is a great list that you've compiled here Jane. It should be required reading for anyone who is thinking of paying off their home in the L.A. area and elsewhere too.
Jane...I agree with Craig. Well presented and all valid points to consider before taking the "plunge". Suggesting for all to read. ;-)
Hi Jane.... I, too, suggested. These are all great points to consider - no matter what City you're living in. Wonderful post, thank you.
Hi Jane....I agree that this is a post for everyone to read.....I too suggested it....I've always been the type to pay off the mortgage as soon as possible....I have two homes and still working on paying off one.
Jane,
With all is said and done, the idea of a paid off mortgage brings peace, which transcends the rest... g
Good points for home owners to consider. Paying off a mortgage shouldn't be an emotional decision; your points are valid and need to be considered before one takes such a step.
Jane - One of my clients paid off their home a few years ago but did not like the bigger tax bite--now they're shopping for another property...;)
Bruce, excellent strategy.
Craig, they are certainly points to consider before jumping in to pay off that mortgage.
David, thank you kindly.
Peggy, thank you too
Barbara, a very wise thing to do. And thank you.
Gordon, yes. Nothing like taking a debt load off your back.
Lottie, I totally agree.
Norma, there's a perfect example of this strategy not being for everyone.
HI Jane - excellent considerations when considering paying off your home. Definitely pay off those high interest credit cards first!
Really a great post. This sort of information shows that you are involved in your client's complete financial life. Makes for credibility and authority. Suggested.
Sharon, yes, most definitely.
Leslie, thank you very much. I appreciate it.
THis is a great list for Los Angeles home owners as well as other areas!!! Love it!!!
Excellent post and definitely Feature worthy Jane................ food for thought here. I have to put my friend Ilene to work (I don't lean on the Suggest button, she does)...........well done!
Ridding oneself of the pesky little monthly mortgage payments is just one very small factor in the consideration process. This is a good list of thoughts to ponder.
Jane, lots of great food for thought! While I like seeing my mortgage balance getting smaller, I sure do miss that larger tax deduction that I use to have.
Deborah, thank you.
Roger, who is Ilene?
Charita, and carefully too :)
Ann, yep. 6 of one......
Jane, you have put together a great list for LA home owners, and have suggested as well...great post!
Rebecca, thank you very much indeed.
Hi Jane, very good points to consider, as several other have said. If I had money burning a hole in my pocket, today, I would probably invest it real estate, rather than pay off my mortgage...just my thoughts.
Mary, sounds like a good plan to me.
Good morning Jane,
Great advice when it comes to paying off your mortgage..food for thought for sure..so much to consider especially what is appropriate for the age bracket you are in and the troubled economy wrecking havoc with home values.
Investment people call me (I don't know WHY they think a real estate broker has money to invest) and I always tell them...let me pay off some things, then I can save for the rainy days....
I don't think I have to worry about paying the house off anytime soon.
That said, this is great information for people to consider.
Thanks Jane!
Dorie, very true. It will be a different decision, depending on your situation.
Thom, well you just look like a successful agent :)