Pay off mortgage ASAP? (Part 2)?
by Mortgage Rates on Saturday, October 30th, 2010 | 5 Comments
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10% at .75% after taxes is 7.5% which really isn’t that much more than 5.375%.
Your choice.
You will sleep better with a paid for house. Think of it this way, would you take out a HELOC against your house to invest in the market? If the answer is no then pay off house then, you can invest and play the market.
As with any other financial issue, we have no idea what your overall financial condition is, so it would be foolish of us to give you advice, much less of you for taking any of strangers on the web who would do so without knowing all the facts.
For an alleged “experienced stock investor”, you should know better. BTW, if you are as you say, and you have only a 10% annual gain over the last 5 years, then you are not doing so well; any “experienced” investor would have taken the appropriate steps to make nearly 30% in the current market! Of course, it goes without saying that neither experience nor alleged gains are an indication of financial condition or savvy.
Regardless, you need to seek the counsel of a financial advisor, who will ask about your entire financial history before giving you any advice.
If you think you can keep up the 10% gain more or less, there could be an arguement for not paying off your mortgage even though you aren’t saving much if anything in taxes from it – you don’t say what OTHER itemized deductions you have. And you do know that you can only deduct the interest portion of your payment, not the entire payment like you show in your question?
Remember though that the stock market gains will be taxable when you sell – that has to be figured in. That’s 15-25% depending on whether it’s long or short term gains. And don’t get too excited about that 10% gain per year – the DOW has done almost that well, although not quite – it’s up 37% from 5 years ago, even with the recent drops.
It’s usually not a good idea to make financial decisions based on taxes. Do what lets you sleep best at night.
What do you plan to do with the money if you pay off the house? If you can invest the money for a higher interest rate then you pay on the house then you are usually better off investing the money. If you pay off the house you most likely wont itemize anymore and may lose other deductions allowed only when itemizing.