worth it to prepay balance of mortgage?

If you have the rainy day fund taken care and the mortgage has a higher after tax cost then the investments of equal risk you would be making, you should definitely pay it off.

Also consider the freed up cash flow that will be there for you to buy some extra things for yourself or be used to save even more. After a few years of being debt free you will really see the effect on your savings.

Riversider answered your question very well. I would only add that the older I get, the less interested I am in having debt of any kind and the more interested I am in having as much savings as possible. Depending on your individual circumstances, the thought of having no further mortgage debt can be quite appealing.

scream at the top of your lungs, "i'm debt free!!!!!!!!!!!"

Lobster really coined it well. The older one gets the more one values cash, coupon and dividend payments. Valuing a stream of earnings or capital gains is nice, but doesn't have the same feel. And reducing and eliminating debt ranks very high.

I made that decision earlier this year. Paid off the remaining balance of the mortgage on my midtown coop. For me, it was about risk reduction. I have a very large emergency fund, and the opportunity to lower my monthly outlay seemed like aother excellent hedge against continued economic uncertainty. In order to capture to benefits of paying it off, I have an automatic transfer of the same amount into savings. I will say that I missed some significant appreciation potential on that money between May 2010 and now, but for me, it was still worth it.

I would suggest you sign up to www.danielamerman.com and get his actuary books. (he's an investment banker).
My take: get rid of an ARM, but NEVER pay off a 30 year fixed. if anyhting refinance.
We are heading to serious double digit inflation. Think 70's but much worse. Who made out in those times? Debitors/commodity holders. who got killed? Bond holders and stock holders.
From 1970 to 1980 a stock holder would have lost 75% of ots buying power.Bond holder dead.
The assumption of all the above is a dollar is a dollar: not true in a fiat system. it looses value overtime and on a post inflation, post taxes basis the debtor will come way way ahead of equity holders.
What i would do? keep the debt or increase it: it is not risky because you have the cash to pay it off ifneeded. And hedge the position with holding commodities, particularly gold ans silver.
I tripled my net worth doing just that in 2 and 1/2 years and now enjoy semi retirement, managing assets.
Being debt free is a sure way to the poor house in an inflationary environment

nicercatch, you have conviction, i'll give you that--but my HO is that there is just we are just as likely to be stuck in a long japan-style mire, as we will soon enter a period of double digit inflation

right now mr b's pushing on a string with no luck reflating to date

Nobody ever went broke being debt free.

wb: the US cannot afford a japan style mire. you have to be rich (like US in the 30's) to afford deflation. a bankrupt country loses its currency value (inflation).morgage debtors benefit.
Not what i want but clearly (see gold price)what's already here.
re: not broke, but poor.the poorest people on earth are debt free (no credit)

nicercatch, I am a believer of inflation being more of an issue vs. deflation in the US, especially in the long term. However, I think you grossly underestimate the wealth in the US. Additionally, I'm sure you know the meaning of the word "bankrupt", but I think you don't understand what leads to it and just as important, what can prevent it. That is pretty ironic considering your love of "credit", another concept I suspect you don't truly understand. You are a perfect candidate for future bankruptcy IMO.

I know, I know, very strong / condescending words, but if you're so sure of yourself, then I must not know what I'm talking about, so no biggie.

I love it.First u have to understand the psychological impossibility of being condescending to a french (dual)citizen. Like looking down on Shaquille.
If u understand bankrupcy so well u must work for the govt. (and invest in bonds).
But it's tuesday and I have hot gold futures on the fire.

My opinion is that if you have the extra money earning a paltry interest in a bank CD (and of course have adequate emergency funds) then pay of the mortgage.

BUT..you should NOT owe money on credit cards or have other non tax deductible debt.

There are 3 sure things:
1) rule of 72: if you take 72 and divide the interest into it, this is how long the amount owed will double. Eg: if you are paying 6% interest on any debt then 12 years later if completely unpaid, you will owe double. If you are paying 12% interest then 6 years later if unpaid, you will owe double the amount of debt.

2) the mortgage debt will not go away unless you pay it off (unless you declare bankrupcy but do you really want to be irresponsible)

3) You could choose not to pay off the mortgage and invest that money but then there will be risk of loss (and you would still have to pay off the mortgage)

Risk is for the young. If you are young (not in age but spirit) and don't mind the risk or if you have a "sure thing" investment then don't pay off the mortgage.

BUT...As you get older, one tends to want to worry less and enjoy more. Not having to worry about making mortgage payments every month can free up time to enjoy life more. For many people, being debt free equals peace of mind. How much is that worth to you?

nicercatch

not sure what the relevance of what the us can "afford" is??
or that japan had any choice re its mire

not sure we have any control over whether or not we can reflate

so far we are pushing on a string and exhausting our energy to push

and when you start with your goldbuggery, what seemed like conviction seems more like talkin position

obviously im not successful in making my points.
Wb: 100 trillions in unfunded liabilities. gdp 12T. bankrupt.gold is in a massive bull. that's what I invest in.nothing "religious" here.I hate risk.
Swim: I understand the "peace of mind" thing. But it's not a financial position.
My family is a clear example of what I think will happen.
1970: my grandfather, rich, debt free, retired, bond holder: currency decline to 1980.wiped out. wiped out! (in purchasing power he was now middle class: he didn't live long, despite the "peace of mind".
my father, just starting in life, built a Mc mansion to house the family (us): big mortgage, 10 years of inflation. big mortgage becomes so small it's joke.

So in a nutshell: bankrupt country, currency crisis/inflation.strategy: short the financial (the currency thru fixed debts) and long the real (gold/oil/RE). ouf

nicercatch: I see your point about how your grandfather was rich and debt free. I am sure that unless he inherited the money, he probably worked hard, and made financial investments (which incurs risk which equals worries) to get rich and debt free. However, you did state that that he didn't live long. Then I made my point. At least, hopefully he did enjoy some peace of mind but probably at the expense of leaving less money to his heirs. However, I do agree that inflation (over time) will "eat up" your money/assets unless you invest. However, one needs to diversify and weigh how much risk can one handle. Maybe if your grandfather did not pay off mortgage/debt but instead had invested poorly through no fault of his own (eg: Bernie Madoff, or bad luck) then if he did not pay off his mortgage and debt, he would have been "not" middle class but "poor" and ???homeless...unless he defaults on his mortgage/debts (not very responsible of course)

I can see that you are knowledgeable in finance and so let me ask you? If you had extra money...where would you put it today? Are you saying gold and silver?? Or buy a big mansion with a large mortgage that over time due to inflation..the mortgage amount will be small compared to what it would cost for the same house in the future?

The need to outperform inflation is to some extent inverse to the amount of assets one has. If you have little and wish to fund retirment to some extent you need to be long risk. If you have more than enough to begin with, then captial preservation becomes the bigger issue and even if you lose a little to inflation you still have enough to retire on.

"I have a very large emergency fund, and the opportunity to lower my monthly outlay seemed like aother excellent hedge against continued economic uncertainty. "

I think thats backward. You would have *much* more flexibility if instead of paying it off you put that money away safely. You can still then pay the balance off if you want (giving you all of that), but you didn't just give back a ton of cash.

Having a mortgage if inflation goes up could be cool, and if its not, pay it off.

But having *less* cash on hand doesn't give you more options. Your payment might be higher but thats because you avoiding making a HUGE payment.

"My opinion is that if you have the extra money earning a paltry interest in a bank CD (and of course have adequate emergency funds) then pay of the mortgage. "

Of course, comparing the rate on a mortgage with a bank CD is insane. A leveraged asset that can see 20% drops un-leveraged needs to pay much higher than the risk-free rate.

With all this talk about inflation, is the supposition that wages increase in this environment or does the debt holder get squeezed? I don't see strong wage growth anytime soon except for the union guys.

I'm with you, it probably doesn't happen. Just saying that "hedge" is well covered in the situation.

My feeling is the hedge is freeing up cash and then investing it at the highest safe rate and if you think rates are headed up, you keep duration and terms short.

getting more interesting finally.
RS: the whole point is that you do NOT preserve capital in a high inflation environment> just the nominal and yields. You loose capital (in term of purchasing power). My GF died because his ego could not bear being poor (stupid but that's another issue).And he did all the right things: no debt, all bonds.
Last story: true. This year in May i bought a loft in Chelsea.I could pay cash, but that didn't make any sense. instead I got a fixed rate at the lowest possible rate (negative real rates). I put the corresponding capital (minus 20%down) in Au(50%) and Ag(50%). my roi as of today around 60%. Had i paid cash (no mortgage/paid mortgage) I would have had none of it today. I could pay off the note now and walk away with 33%of the original capital (not that I would ever do that).
Anyway bye now: enjoy life.spend your money before it's all over.

What kind of inflation are we talking about and over what time period? Sorry but this is not making sense to me.

Ag is up 200% over the past 4 moths. anyone here think its going higher?

Flmaoz. Like the French digging a trench while the Germans Go straight to Paris to drink champagne with your girlfriend. Flmaoz. Yeah prepare your finances based on your grandfather's 'inflation'!!!'

somewhereelse: You are correct that "cash in hand" gives one flexibility. You can choose to pay off mortgage now or to pay off mortgage later. However, in my mind..if you pay off later...the question is what are you doing with the "extra" money?

1) if you have it in a CD yielding 1% but have a mortgage interest rate of 4.75% then you are losing 3.75% (You need to "make" investments yield more than what you are paying in mortgage interest rate.)

2) if you can find an investment yield more than 4.75% than great..but...how much risk is involved. Usually the higher the rate of return then the higher the risk.

Two scenarios:

1) leave money in a very, very safe CD to get 1% and continue to pay mortgage of a higher percent
2) invest money in "something" that yields higher than your mortgage interest rate...betting that you will not lose money but make more than if you had used it to pay off your mortgage. (Remember that mortgage interest rate can for "now" be tax deductible but who knows about later)

However, the big question is....if your investment loses money then are you prepared to work and maybe worry for a few more years to pay off the mortgage (Of course you can be irresponsible and default on your mortgage...and look at how that has affected our economy)

I guess Riversider's comment is very applicable in regards to how much assests do you have?

In summary:

How much risk aversion do you have? ?...how close are you to retirement?? (or rather..how close are you to when you "just" don't want to work anymore? Are you "young not in age but in spirit" ....and willing to continue working if your investments did poorly and you still have to work to pay monthly mortgage payments??

Are you still working, and do you have a safe job with low chance of losing income stream in case your "extra" invested money was lost....(if you lost your job...would you worry and have problems with the mortgage?)

This determines whether or not you should pay off your mortgage. Life is about risk but in my opinion, no one should do irresponsible investing that would cause defaults, bankrupcy and forclosures.

Maybe you can prepay some of the mortgage and invest the rest or other half of the extra money in other investments like stocks, gold, silver or whatever you think will yield more than your mortgage interest rate.

somewhereelse: You are correct that "cash in hand" gives one flexibility. You can choose to pay off mortgage now or to pay off mortgage later. However, in my mind..if you pay off later...the question is what are you doing with the "extra" money?

1) if you have it in a CD yielding 1% but have a mortgage interest rate of 4.75% then you are losing 3.75% (You need to "make" investments yield more than what you are paying in mortgage interest rate.)

2) if you can find an investment yield more than 4.75% than great..but...how much risk is involved. Usually the higher the rate of return then the higher the risk.

Two scenarios:

1) leave money in a very, very safe CD to get 1% and continue to pay mortgage of a higher percent
2) invest money in "something" that yields higher than your mortgage interest rate...betting that you will not lose money but make more than if you had used it to pay off your mortgage. (Remember that mortgage interest rate can for "now" be tax deductible but who knows about later)

However, the big question is....if your investment loses money then are you prepared to work and maybe worry for a few more years to pay off the mortgage (Of course you can be irresponsible and default on your mortgage...and look at how that has affected our economy)

I guess Riversider's comment is very applicable in regards to how much assests do you have?

In summary:

How much risk aversion do you have? ?...how close are you to retirement?? (or rather..how close are you to when you "just" don't want to work anymore? Are you "young not in age but in spirit" ....and willing to continue working if your investments did poorly and you still have to work to pay monthly mortgage payments??

Are you still working, and do you have a safe job with low chance of losing income stream in case your "extra" invested money was lost....(if you lost your job...would you worry and have problems with the mortgage?)

This determines whether or not you should pay off your mortgage. Life is about risk but in my opinion, no one should do irresponsible investing that would cause defaults, bankrupcy and forclosures.

Maybe you can prepay some of the mortgage and invest the rest or other half of the extra money in other investments like stocks, gold, silver or whatever you think will yield more than your mortgage interest rate.

somewhereelse: You are correct that "cash in hand" gives one flexibility. You can choose to pay off mortgage now or to pay off mortgage later. However, in my mind..if you pay off later...the question is what are you doing with the "extra" money?

1) if you have it in a CD yielding 1% but have a mortgage interest rate of 4.75% then you are losing 3.75% (You need to "make" investments yield more than what you are paying in mortgage interest rate.)

2) if you can find an investment yield more than 4.75% than great..but...how much risk is involved. Usually the higher the rate of return then the higher the risk.

Two scenarios:

1) leave money in a very, very safe CD to get 1% and continue to pay mortgage of a higher percent
2) invest money in "something" that yields higher than your mortgage interest rate...betting that you will not lose money but make more than if you had used it to pay off your mortgage. (Remember that mortgage interest rate can for "now" be tax deductible but who knows about later)

However, the big question is....if your investment loses money then are you prepared to work and maybe worry for a few more years to pay off the mortgage (Of course you can be irresponsible and default on your mortgage...and look at how that has affected our economy)

I guess Riversider's comment is very applicable in regards to how much assests do you have?

In summary:

How much risk aversion do you have? ?...how close are you to retirement?? (or rather..how close are you to when you "just" don't want to work anymore? Are you "young not in age but in spirit" ....and willing to continue working if your investments did poorly and you still have to work to pay monthly mortgage payments??

Are you still working, and do you have a safe job with low chance of losing income stream in case your "extra" invested money was lost....(if you lost your job...would you worry and have problems with the mortgage?)

This determines whether or not you should pay off your mortgage. Life is about risk but in my opinion, no one should do irresponsible investing that would cause defaults, bankrupcy and forclosures.

Maybe you can prepay some of the mortgage and invest the rest or other half of the extra money in other investments like stocks, gold, silver or whatever you think will yield more than your mortgage interest rate.

somewhereelse: You are correct that "cash in hand" gives one flexibility. You can choose to pay off mortgage now or to pay off mortgage later. However, in my mind..if you pay off later...the question is what are you doing with the "extra" money?

1) if you have it in a CD yielding 1% but have a mortgage interest rate of 4.75% then you are losing 3.75% (You need to "make" investments yield more than what you are paying in mortgage interest rate.)

2) if you can find an investment yield more than 4.75% than great..but...how much risk is involved. Usually the higher the rate of return then the higher the risk.

Two scenarios:

1) leave money in a very, very safe CD to get 1% and continue to pay mortgage of a higher percent
2) invest money in "something" that yields higher than your mortgage interest rate...betting that you will not lose money but make more than if you had used it to pay off your mortgage. (Remember that mortgage interest rate can for "now" be tax deductible but who knows about later)

However, the big question is....if your investment loses money then are you prepared to work and maybe worry for a few more years to pay off the mortgage (Of course you can be irresponsible and default on your mortgage...and look at how that has affected our economy)

I guess Riversider's comment is very applicable in regards to how much assests do you have?

In summary:

How much risk aversion do you have? ?...how close are you to retirement?? (or rather..how close are you to when you "just" don't want to work anymore? Are you "young not in age but in spirit" ....and willing to continue working if your investments did poorly and you still have to work to pay monthly mortgage payments??

Are you still working, and do you have a safe job with low chance of losing income stream in case your "extra" invested money was lost....(if you lost your job...would you worry and have problems with the mortgage?)

This determines whether or not you should pay off your mortgage. Life is about risk but in my opinion, no one should do irresponsible investing that would cause defaults, bankrupcy and forclosures.

Maybe you can prepay some of the mortgage and invest the rest or other half of the extra money in other investments like stocks, gold, silver or whatever you think will yield more than your mortgage interest rate.

somewhereelse: You are correct that "cash in hand" gives one flexibility. You can choose to pay off mortgage now or to pay off mortgage later. However, in my mind..if you pay off later...the question is what are you doing with the "extra" money?

1) if you have it in a CD yielding 1% but have a mortgage interest rate of 4.75% then you are losing 3.75% (You need to "make" investments yield more than what you are paying in mortgage interest rate.)

2) if you can find an investment yield more than 4.75% than great..but...how much risk is involved. Usually the higher the rate of return then the higher the risk.

Two scenarios:

1) leave money in a very, very safe CD to get 1% and continue to pay mortgage of a higher percent
2) invest money in "something" that yields higher than your mortgage interest rate...betting that you will not lose money but make more than if you had used it to pay off your mortgage. (Remember that mortgage interest rate can for "now" be tax deductible but who knows about later)

However, the big question is....if your investment loses money then are you prepared to work and maybe worry for a few more years to pay off the mortgage (Of course you can be irresponsible and default on your mortgage...and look at how that has affected our economy)

I guess Riversider's comment is very applicable in regards to how much assests do you have?

In summary:

How much risk aversion do you have? ?...how close are you to retirement?? (or rather..how close are you to when you "just" don't want to work anymore? Are you "young not in age but in spirit" ....and willing to continue working if your investments did poorly and you still have to work to pay monthly mortgage payments??

Are you still working, and do you have a safe job with low chance of losing income stream in case your "extra" invested money was lost....(if you lost your job...would you worry and have problems with the mortgage?)

This determines whether or not you should pay off your mortgage. Life is about risk but in my opinion, no one should do irresponsible investing that would cause defaults, bankrupcy and forclosures.

Maybe you can prepay some of the mortgage and invest the rest or other half of the extra money in other investments like stocks, gold, silver or whatever you think will yield more than your mortgage interest rate.

somewhereelse: You are correct that "cash in hand" gives one flexibility. You can choose to pay off mortgage now or to pay off mortgage later. However, in my mind..if you pay off later...the question is what are you doing with the "extra" money?

1) if you have it in a CD yielding 1% but have a mortgage interest rate of 4.75% then you are losing 3.75% (You need to "make" investments yield more than what you are paying in mortgage interest rate.)

2) if you can find an investment yield more than 4.75% than great..but...how much risk is involved. Usually the higher the rate of return then the higher the risk.

Two scenarios:

1) leave money in a very, very safe CD to get 1% and continue to pay mortgage of a higher percent
2) invest money in "something" that yields higher than your mortgage interest rate...betting that you will not lose money but make more than if you had used it to pay off your mortgage. (Remember that mortgage interest rate can for "now" be tax deductible but who knows about later)

However, the big question is....if your investment loses money then are you prepared to work and maybe worry for a few more years to pay off the mortgage (Of course you can be irresponsible and default on your mortgage...and look at how that has affected our economy)

I guess Riversider's comment is very applicable in regards to how much assests do you have?

In summary:

How much risk aversion do you have? ?...how close are you to retirement?? (or rather..how close are you to when you "just" don't want to work anymore? Are you "young not in age but in spirit" ....and willing to continue working if your investments did poorly and you still have to work to pay monthly mortgage payments??

Are you still working, and do you have a safe job with low chance of losing income stream in case your "extra" invested money was lost....(if you lost your job...would you worry and have problems with the mortgage?)

This determines whether or not you should pay off your mortgage. Life is about risk but in my opinion, no one should do irresponsible investing that would cause defaults, bankrupcy and forclosures.

Maybe you can prepay some of the mortgage and invest the rest or other half of the extra money in other investments like stocks, gold, silver or whatever you think will yield more than your mortgage interest rate.

OOps I apologize to everyone. My computer went crazy.

> somewhereelse: You are correct that "cash in hand" gives one flexibility. You can choose to pay off
> mortgage now or to pay off mortgage later. However, in my mind..if you pay off later...the question
> is what are you doing with the "extra" money?

> 1) if you have it in a CD yielding 1% but have a mortgage interest rate of 4.75% then you are losing
> 3.75% (You need to "make" investments yield more than what you are paying in mortgage interest rate.)

Very, very bad comparison.

As I said, a CD is a poor, poor comparison for having that money tied up in a leveraged asset that just saw a 20% drop. The stock market has a lower beta than that, by far.

> 2) if you can find an investment yield more than 4.75% than great..but...how much risk is involved.
> Usually the higher the rate of return then the higher the risk.

Yes.... and how much risk is one taking with a 5x leveraged apartment?

Absolutely, there is additional risk. But you've already taken the big risk with the mortgage!

I like the idea of keeping the 30 year mortgage at the low rate. It's cheap money.

Alot of good points made in this discussion. I think that if someone is not a very sophisticated investor and prefers not to hire a financial advisor to make higher risk investments on his/her behalf, it can be very tempting to decide to either pay off your mortgage or buy an apartment for cash since today's traditional safe investments pay almost zero interest. If you have an adequate cash reserve and this reserve will be supplemented by future earnings, I can not really see much downside to choosing not to take on mortgage debt if that is an option for someone.

It is a financial anomaly, this 3% after tax money. Grab and hold much of it as possible. Corporations are, why not you?

Some good things come your way..... Just don't blow it on a burkin bags!

What to do with extra money...??pay off mortgage with extra money....

1)Peace of mind plus freedom from "having" to get up to go to work everyday to pay mortgage VS
2) ....unless it is a "sure thing".... taking on some risk with investing to make more money VS
3) doing just "nothing" and end up letting inflation "eat up" the value of this "extra" money

I hope the discussion helped the individual who asked the question.

I appreciate all the opinions.. finding an investment that returns more than the interest i'm paying on the mortgage seems difficult without taking on a lot of speculative risk in commodities/stocks.

I would pay off the mortgage if I'm fairly confident that I will not be selling within the next 7 years AND have no intention of investing the cash in anything else that is risky.

I would not pay it off if I might have to sell within the next 7 years OR I might invest the cash in something risky that can return better than 8% a year.

NYCnewbie,
I think you've learned that if you ask 10 people a question, you'll get 15 opinions.
Best of luck on this one.

and, at least five of those opinions come from you.

The real estate is highly risky and you are quite likely to lose money on it as the bubble deflates.

However, assuming you've decided to hold the real estate, the risk of the mortgage in a declining market is a different matter -- it depends on the risk that you won't pay back (how safe is your job), the risk that the bank will be able to collect from you personally if you try to walk away, the risk of future real estate declines, the risk that interest rates will go up so that you will be able to get much income from cash on hand, the risk that future inflation will eat up your payment or deflation will make it more painful, etc.

IF you know that your ability to pay depends largely on the future of the RE market and that you will want to and be able to walk if the market returns to trend, then the mortgage is a form of insurance, in which the bank shares some of the RE risk with you. IF this is true, you should be willing to hold the mortgage at far higher interest rates than for a safe CD. It is worth a lot of money to have a floor on the amount you can lose in a large investment. Just be sure that the mortgage really is a floor in your circumstances -- NY is a quasi-recourse state, unlike CA.

IF you know that you are going to (have to & be able to) repay the mortgage no matter what, then the mortgage has no insurance value and is quite safe. IF this is true, it is entirely appropriate to view prepaying your mortgage as comparable to buying a CD at the same rate with the same term. Prepay or put your money in the CD, whichever has a higher after-tax interest rate. But remember to adjust for taxes: for many people, a 5% deductible mortgage is less interest than a 3% CD. And for term: a short-term CD is not a worse investment just because it has a much lower interest rate than your 30 year mortgage.

IF something in between, then you need to think more carefully: what is it worth to have the bank as a semi-effective hedge vs. what is it worth to know that you would have an easier time holding on to your real estate even if the real estate market and your income collapse at the same time. (And do you even want to be tempted to not cut your losses if that happens).

(In a rising RE market, mortgages need to be analyzed differently, so if are planning your life based on a mystical certainty that RE prices are going up, you face a different set of choices).

your biggest risk is the ongoing liability and leverage provided by your mortgage

and your leveraged investment is in a product that has performed uniquely poorly of recent

to compared cash held in a cd with leveraged real estate is ridiculous

I particularly like financeguy's angle of holding on to the "put" option embedded in the mortgage, declaring bankruptyc and telling the bank you are giving them the underwater property and not paying it off.

Of course that's not the proper way of looking at it because if you are long cash, that same bank can go after you in a deficiency judgment.

Riversider - except that it IS cash. I am not implying a fraud, but you can take that cash and do many things with it that are protected from a bankrutpcy. Such strategies are commonplace and include: prepaying insurance, pre-paying leases, buying a home in states such as FL or TX (with all the risks that implies), etc. etc.

I also don't think one should look at it as a put, but it could be even though what you have is cash. All of the above would be legal though perhaps unpalatable to some.

I really enjoyed everyone's comment. I learned quite a bit from everyone. I wish I did buy gold and silver back then....I certainly would have more money. Maybe I will buy some...Nicercatch: Do you think that it is too late to buy gold and silver with today's extremely high prices??

I am not saying that I am right...it is just if I had the chose, I would make the decision to pay off mortgage with the extra money because if I take a loan from a friend, a family member, or bank, I would feel obligated to pay back the money.

I do realize that inflation would "eat up" the value of my money if I did not invest so I do. I budget my expenses and always set aside "extra" money to invest. I have had some very good investments, and some not so good investments. However, I have been lucky to have investments that when put together exceed inflation. However, I never invest with money that is "not" mine nor do I invest with money that should I do poorly be at someone else's expense.

However, it is interesting that someone implied not paying off the mortgage and then walking away from a property if real estate prices went down. I realize that this is perfectly legal....so I now realize that others do not share my opinion.

It's important to consider who is short or long what options on a mortgage.
The person borrowing is long the call risk and long the put option. The first is a benefit if mortgage rates decline, the second if home prices decline. The lender of course is short both of these options. He protects himself on the former by either hedging that risk, having prepayment penalties attached or providing a loan that is not easily refinance-able. He protects himself against the latter by asking for a significant down-payment(which protects against home prices declining) or lending to a borrower with significant other assets which opens up the idea of a plenary action or a deficiency judgment.

From the opinions posted it seems that many talk about taking out a mortgage instead of paying cash as a form of protection from real estate declining. Setting aside the legitimate desire to maintain some liquidity or rainy day reserves, this logic is clear "code" for strategic default. The lender is providing funds for a loan with virtually no upside with the best case being non-default. With this in mind it's no wonder most of our countries mortgage credit risk is borne by Fannie,Freddie, FHA, HUD(AKA THE TAX-PAYER)

Riversider: I realize now that you are absolutely right.

We (you, me, and other taxpayers) "are" the lenders who are bearing the mortgage credit risk on defaults/foreclosure/bankrupcies. I use to resent the banks for "not" lending to people who just want to buy their own home. Working hard to buy your own home is a very admirable dream that should be achievable to everyone in our great country.

From your above comment....I now understand and no longer resent banks for being so stringent with their loan policies.

i just got a 30 yr fixed at 4.85% un june 2010......im thinking of paying it off next year....currently the my liquid funds are just making 1% but in time they might get back to much higher yields and thats whats giving me pause...ie now im losing 3.85% but in 10 yr i could be gaining more than the 4.85%

I personally think that mortgage interest is "not" great debt but "decent" or reasonable debt....since no debt is good.

However, my opinion is that having "decent" debt that is tax deductable to mortgage a home for oneself to live in .....in my opinion is a very reasonable dream/goal for every hardworking American.

I also have the opinion that the government should foster home ownership not only to enable Americans to fulfill their dreams of homeownership but also to encourge pride and responsiblity that comes naturally with ownership of their home/neighborhood/country.

I have no problems with people borrowing money to own their home with the intent to pay back. I also do not have problems with people defaulting on loans when thru no fault of their own lost their job, got sick/disabled or had personal disasters. We need to help those who are less fortunate.

I do have problems when people borrow money from banks with the intent to:
1) walk away and let the banks "eat up" the bad debt if their property lost money
2) use money that "could have been" used to pay off their mortgage note to "hit it big" with some other investment.

Like Riversider said...we the taxpayers are Fannie, Freddie, FHA, HUD. We are the one's to "foot" the bill when people default on their mortgages.

Moreover, if we all did this, what would happen to our home/neighborhood/country??? But...this is only my opinion/thoughts. I don't expect anyone to agree with me.

I mean, It's OK to use money to try to "hit it big" with some other investments...but what happens if you don't?? Is the intent to then just forget about the mortgage? To just walk away from the loan obligation?

I too put aside money to invest. One has to save and invest money that is saved. Otherwise, inflation will make your savings worthless.

However, I would not invest at the possible expense of defaulting on loans borrowed from others.

Fannie, Freddie, FHA, HUD was an attempt to make home ownership a possiblity for everyone. Not paying back these loans took this goal/dream of home ownership away from many....(the "many" includes those in the future....our children)

However, walking away from a property that lost value is legal so there is certainly nothing wrong with doing this.

Keeping a 30 year fixed rate mortgage at a very reasonable interest rate is fine if you want to continue paying a mortgage into the future and you think that in a few years interest rates will rise to the point that you can make a much higher interest rate on "safe" investments. However, if you have a substantial reserve fund and a secure expectation that your job or other income source is safe, then prepaying a mortgage might be the right option for you. It is interesting to read everyone's comments on this issue and see the diversity of points of view.

I found this calculator helpful.

http://www.mtgprofessor.com/calculators/Calculator3a.html

I'm all about cash preservation.

I agree with one of the posters above about paying off an ARM but hanging onto a 30- or 15-year fixed. You want MORE cash on hand during uncertain economic times rather than less.

Agree w/ NYCMatt. We compromised and instead of paying our mortgage off, we paid it down to $250k, so we have less $ sitting around earning 1%, but left ourselves an ample cash cushion in case of job loss, hyper inflation, or other curve ball.

If you have your emergency cash and liquidity needs satisfied, I'd pay off the mortgage for three reasons.
1) Reduced monthly expenses
2) Guaranteed return
3) The guaranteed rates on savings more than offset the benefit of any refinance

And keep in mind that if you don't itemize, the tax deductability of a mortgage is not there.
And "a paid off home mortgage is the new BMW"

#3 could have been written better. The rates on savings are so low that you benefit more by paying off the mortgage.

And therein is why we don't have inflation: the massive sucking sound of everyone paying down their debt.

"The rates on savings are so low that you benefit more by paying off the mortgage."

Until you lose your employment and find you really could have used that pile of cash that you handed back to the bank two months ago.

Hint: The bank won't give it back, even if you reeaaaaallly really need it.