Is this a bad time to pay off a mortgage?

[NoUsername]

I was planning on paying off my mortgage in the end of December (to get the full interest deduction this year) but given everything that has happened this past week, I was wondering if there is any reason I should rethink this. Since I know precisely squat about financial markets and the economy, I figured I should ask the experts here to get their opinions. Here's a little background info: The interest rate on my mortgage is 5.625% and I have about 8 years remaining on the loan. I don't have any other debts -- no credit card debt, no car loan, etc.. A couple of years ago, I could get ~ 5.5% on my CDs but the interest rate has been tanking on those so I figure I'd be better off just paying off the mortgage and being done with it. Note: I don't live in a McMansion so the amount left to pay off isn't all the huge. I don't have any other tax deductions so I've crunched the numbers and I wouldn't take a huge hit by not itemizing -- I get about an extra $1000 deduction by itemizing so I could put $1000 in an IRA or 401K and be ahead of the game as far as that goes. (Actually, I'd be way ahead since I wouldn't be paying interest on my mortgage to get that deduction.) I can pay off my mortgage and still have a bunch of money left over -- enough to pay my bills and very bare minimal expenses for roughly 2 years if I were to lose my job tomorrow (which isn't very likely to happen). Please note that I am NOT rich by any stretch of the imagination and don't earn the big bucks. I grew up poor so I'm pretty careful about watching my money. I'm also not a risk-taker so investing the money rather than paying off the mortgage doesn't really appeal to me. I'm certainly willing to learn but I don't like playing with fire, especially when it involves my economic future. So, given that info and the current situation with the economy, is there any reason I should keep my money "liquid" rather than paying off my mortgage?

TIA for any advice on this matter.

[iamjoy]

1. I Wonder The Same Thing

I have little faith in the US government and the FDIC is only funded for about 5% of all deposits. If my husband and I take our savings and pay off our mortgage, then we are debt free (it will also all but deplete our savings). But this way, even if one (or both) of us lose our job and there is a banking collapse, our home is safe.

[valerief]

4. Your home is safe unless the govt decides to take it away for whatever

reason they want.

[NoUsername]

13. Oh ye of little faith...

Ha, not that I blame you! My mortgage, and everything else for that matter is with a credit union. My CD just came due so I pulled it and threw it into my money market account which is insured not through FDIC but rather NCUA (National Credit Union Administration). NCUA is a US Govt. Agency and, like the FDIC, accounts are insured up to $100,000. (I pulled the money so I could stick it in some online savings acct to get a better return until December which I have yet to do -- still shopping around a bit for the best rate). I don't know which is better -- NCUA or FDIC -- but I think credit unions tend to be a bit less risk-prone. For example, mine said they never even remotely considered offering interest-only mortgages, for reasons that are probably abundantly clear to everyone here.

But I hear ya. If paying off your mortgage would deplete your savings, it's a tough call. Hopefully the others here can give you some advice. In my case, even with having some extra savings in the event of tough times ahead, I was a bit uncertain if it was the best route for me to go so I understand the decision you're facing. Best of luck to you, whatever you decide.

[MercutioATC]

2. NO! Pay it off!

In this climate, you want as much unencumbered property as you can get. If you can do that with your HOUSE, you're ahead of a lot of people.

[MadMaddie]

3. I was thinking the same thing

If anyone can own their property outright then do it. That way you won't be impacted by whatever is going on with Mortgage companies and the financing industry.

[MercutioATC]

6. Just look at the 1930's. The people who did well were the people who didn't owe money.

I wouldn't cash in an IRA and take the penalties or anything, but if it's just a matter of depleting savings, I'd at least pay off most of my house and keep a small bit for possible emergencies.

[NoUsername]

8. That's kind of what I was thinking too.

The way I see it, owning my house free and clear would be a good thing and is probably the best way for me to go, given my circumstances. And it would certainly put me ahead of a LOT of people, especially those struggling to pay their bills with ARMS that have come due. Like I said in the OP, I don't own a McMansion by any means (it's a townhouse) but having it paid off would definitely put ahead of the game. I'm VERY lucky in that respect but then again, I watch my money like a hawk and didn't go in over my head when I bought my place years ago. I've also re-financed a couple of times over the years to get lower interest rates and each time I did, I paid in a little extra to chop a year or two off the loan. Most people would have pulled out some equity and tacked on a few more years to the loan but then again, I'm not most people. The lenders of course were almost begging me to take out some equity but they can't sell what I'm not buying. ;) I'm certainly not rich but I'm also not stupid. I think paying off the house is the best way to go, even with the current economic uncertainties. Thanks for the advice.

[GoesTo11]

5. Probably a good idea

Since you're not getting that much on the deduction, there are two points.

1) You earn a risk free 5.625% on the $ you spend paying it off. That's very good for risk free.
2) There's a possibility of high inflation in the future, due to the huge US debt. In that case, mortgage payers are winners. So a fixed rate mortgage is sort of like a lottery ticket.

Since you've got 8 years left, 1 outweighs 2.

[NoUsername]

11. That's what I was having a tough time weighing out.

Paying it off now vs. the high inflation we are no doubt headed for where the mortgage payers will come out ahead. You've summed it up very succinctly.

[JackintheGreen]

7. Always, always pay debt to zero!

If you were planning on doing it, and have the money socked away, do it! The asset is then yours without qualification to do with as you please. God forbid something should happen and you can't pay it off next year, or even keep up with the mortgage.

[mitchtv]

9. It's never a bad time to pay off a mortgage

What a relief to not have that payment. Much easier to build up savings

[CrispyQ]

10. We paid ours off about 8 years ago, instead of upgrading to a newer, bigger house.

It was the best thing we ever did. What we used to pay in monthly mortgage now goes into our bank account & next year we'll buy another house with a decent down payment & use this one as rental property. When my husband was laid off a few years back, he was able to take some time off before looking for work & he could be choosy about the job he accepted. Life without a mortgage payment is more wonderful than you can imagine.

We paid ours off the last week in December, too! ;)

[NoUsername]

15. That's exactly what I plan to do.

Take the monthly mortgage payment and stick it in the bank, that is. My mortgage payment is pretty small but hey, every little bit helps. It will add to my savings and help pad me out a bit when the tough times hit. I'm looking forward to life without a mortgage payment. I just wish there were more people that could say the same but sadly, I think it's going to get a LOT worse before it gets any better for waaaayyyy too many people out there.

Last week in December...great minds think alike! ;)

[Venceremos]

12. It's always a good time to pay off a mortgage

or any other debt.

[ramapo]

17. Yes...my words exactly

If you have the money, pay it off. Having no debt is wonderful. Remember, a mortgage takes money out of your pocket every month and puts it in somebody else's pocket. No mortgage equals more money to save (ok you can spend some of it)

[NoUsername]

18. Thanks.

For giving me permission to spend some, that is. ;) Actually, I'll be sticking my "mortgage payment" in savings every month but might allow myself to splurge once in awhile if there's something I really really want.

[NoUsername]

14. Wow! Thanks for the responses!

You guys (and gals) have confirmed what I have been thinking and I definitely appreciate the advice. Having grown up poor, I have to admit it's been kind of nice to have a "security blanket" in the bank as protection against unforeseen circumstances. However, there is probably no better "security blanket" than having the house paid off so I'm going to go ahead with what I suspected was the right plan all along and pay off my mortgage at the end of December.

Thanks again for all the feedback! You guys (and gals) are great!

[OllieLotte]

16. Usually, I would advise against it.

In your case, I think it makes sense. You have proven to be a good saver and have worked toward paying off the mortgage. You aren't comfortable with the stock market, so I'd say pay it down rather than getting paid a few % for your money.

[NoUsername]

19. I hear what you're saying.

The interest rate on my mortgage is relatively low so I could probably come out ahead investing my money somewhere. However, since I don't know anything about investing, I think the best thing I can do is pay the mortgage off now and be done with it. After that, I might consider testing the water by investing a few bucks from my savings somewhere but before I do that, I'd really like to read up on it and do a lot of studying so I'll have a better handle on what I'm doing. I don't even know what type of retirement fund to stick my money into so I'll probably check into that first. I already have a (mandatory) retirement account through my job but they don't do any matching. (Nice. Great benefit there.) They do offer a few other optional retirement accounts but I'd have to chose from their list of about 5 or so "approved" companies. Since I don't exactly trust that my employer had best interests in mind when they came up with that list, I figure I'd rather just look into something on my own. Plus that way I wouldn't be limited to just a handful of companies.

[OllieLotte]

20. When you are ready to invest in the stock market for the first time.

Instead of looking at individual companies I would suggest a good index fund. It spreads the risk among a group of companies. Vanguard Index 500 has low fees and represents the 500 largest US companies. If you are wanting some foreign funds, Vanguard offers them as well. Index funds are not actively managed they have a benchmark that they emulate, which takes a lot of the emotion out of it for the manager and reduces costs.

[NoUsername]

21. Thanks for the info.

Since I'm not much of a risk-taker, it sounds like an index fund would be a good way for me to get my feet wet. I've seen Vanguard suggested in a few different posts so it looks like that's a good company to go with. Of course, there are never any guarantees which is why I haven't been willing to invest my mortgage payoff money anywhere as it would definitely suck to lose that. Ouch! However, once my mortgage is paid off, I can be a bit more lax with some of my savings and starting out with an index fund looks like a good way for me to go.