I was actually just going through this situation. I was about to sell a number of coins to refinance my house 7 years into a 30 year. I was going to use 10K down to refi but a few people I talked to told me not to worry about it. Did the math and for my situation I think Ill gain more on the coins then I would on my mortgage. Locked in at 3.125% on a 15 year making my payment 455/month saving me $350 a month. If I would have put that 10K down my payment would have only changed $20/month. Id rather have my coins then $20 a month savings over 15 years.
*edit to add* I was 20 when I bought it just before the big crash in the market at 7.779%. I had no credit and no down payment. House was $69K and today similar in the neighborhood are bringing 110-125K.
It's not just the payment on the house. Homes require maintenance, especially older ones. Figure $1K-$2K per year average over a 20 year period (roofs, driveways, walkways, patios, porches, paint/siding, chimneys, interior upgrades - remodeling, concrete/block foundation repairs, tree pruning and removal, skylights, windows, burners, plumbing, wiring, air conditioning/dehumidifiers, wells, etc.). Once you've been through it you finally realize how it eventually adds up. Pay down the mortgage when you can, hopefully by no later than age 50-55. If you need to sell the coins to do that, then so be it. Being low in debt, or zero debt in the coming 5-10 years should do one well.
<< <i>I was actually just going through this situation. I was about to sell a number of coins to refinance my house 7 years into a 30 year. I was going to use 10K down to refi but a few people I talked to told me not to worry about it. Did the math and for my situation I think Ill gain more on the coins then I would on my mortgage. Locked in at 3.125% on a 15 year making my payment 455/month saving me $350 a month. If I would have put that 10K down my payment would have only changed $20/month. Id rather have my coins then $20 a month savings over 15 years.
*edit to add* I was 20 when I bought it just before the big crash in the market at 7.779%. I had no credit and no down payment. House was $69K and today similar in the neighborhood are bringing 110-125K. >>
You may still be better off putting that $10K towards the principal, unless you have some sort of prepayment penalty which could apply.
Funny that nobody has brought up the tax obligation that one might incur from the sale of one's coins. For HRH as mentioned in the OP, it likely wasn't a trivial issue.
<< <i>$455/month?! For a mortgage? F me for living in the northeast. I'm looking at double that, at a minimum for a decent place not in the ghetto. Even the ghetto around here is kinda gentrifying and prices are rising. >>
I think ours is ~$740/month, but that also includes the escrow for real estate taxes and insurance on the house....so the actual principle/interest is<$455/mo.....for a 4 bdrm house w/ a 3 car garage and screened in patio w/ inground pool on a small lake, in an A-rated school district, 10 min from the Atlantic Ocean. But the summers are hot here This is our only debt....first kid is out of college and graduated with nearly $40k in savings since she earned scholarships and was an RA, so she got to keep most of what we had saved for her. Youngest still has a year to go and will hopefully be in similar shape. Will be debt free and possibly retiring by age 56, most likely with the collection still intact. Save early and often, and LIVE WITHIN YOUR MEANS.
<< <i>ldhair, My point was that you can make more money from the money used to pay off your mortgage, than the carrying costs associated with the mortgage. That is why the cash flow is critical. It is just a perspective for well to do people about money management. Would you rather tie your money up in a fixed investment or have the flexibility of investing it elsewhere.
If you have the entire value of the house tied up in the house, then you are effectively investing in real estate. If that is your choice in terms of appreciation, so be it. The idea is that you have the choice with your assets. It does not matter if you are living in the house, it is about asset allocation. >>
I understand cash flow and agree with everything you said. We were typing at the same time. I bought about 20 investment properties by leveraging other property. My point is that some don't need to be paying interest on everything. It's a waste to pay interest on a property that is not paying you to own it. You can always pull from the equity if a deal comes along and you need more cash.
At 3%, 2% after taxes, I can do better with coins and other investments than paying off my mortgage.
The after tax part is key. Many people seem to forget, or aren't aware, of the massive tax sheltering benefits that the mortgage interest and property tax deductions offer. At higher income levels, the net result is a redirection of money you were going to pay in income tax anyway towards the ownership costs of an asset that benefits you directly. For example, for a $750,000 home loan (not at all uncommon in California), the net result is a redirection in almost $40,000 in taxes to the borrower's direct benefit. It's a huge government subsidy of homeownership.
So back to the original question. I am seriously considering the sale of a major portion of my collection for exactly this purpose.
Yes and I did pull the trigger on winter 2007 and sent my grand-daddy type set (at the time, it was ranked current number 4 in PCGS set registry) to ANS to auction it off on April 2008, when I figured out that I could pay off my mortgage. Thought there are a few my favor coins in the set, I still think this is the best decision that I ever made about my coin collection. I want debt-free and I set this goal when I was 30. I gave myself 20 years to try my best. With this hobby, I did it.
Any investment has risks. I did not do complex math when I pulled the trigger. Debt-free made me sleep better every night I still can re-build the set with a lot of fun
Have not read whole thread so sorry if redundant. With the record low interest rates that many people have, paying off ones mortgage makes little sense. If one has a 3.5% fixed rate loan, esp considering the effective rate once tax benefits are considered, why pay it off? The exception would be for cash flow reasons if one were retiring for example.
Not our primary residence, which is paid off, but the house that belonged to my parents. My dad passed away 5 years ago, and I moved my mom to senior living 18 months ago. We let a missionary family on furlough live in the house for a year, rent free, and when they left, I bought out my mom, and decided to redo the house, (I am 58 and retired for 5 years (Thanks, Dot Com), but my wife is still working, and also younger and loves her job) The house is 35 years old, never updated.
My wife loves those home redo shows, etc. so we thought it would be a good experiment. She got to pick floors, colors, etc. and I did most of the work. The biggest cost was $6K in granite, including one piece that was 6 feet by 8 feet for a kitchen island with JennAir Cooktop.
I never got finished. We are in BOOM right now, especially the area exactly where the house is located. Many large businesses moving in right now in Richardson / Plano (Dallas) Texas.
The reason I never finished was the KNOCK on the door. Is this house going to be for sale? Could we make you an offer to take the house AS IS, that you would pick up your tools and walk away?
Well, we closed Friday. The profit was staggering (2 years of income, before taxes for the wife and I combined) for 5 months of piddling around in the house, and the check is probably the largest I will ever hold in my hands.
Another family made an offer on the neighbor's house, now accepted, and they did not have it on the market, but thought about selling in a couple years. It was 100K+ over what they would have sold it for.
Now my wife is wondering about selling our home and moving to a house more appropriate to our lives, no children at home anymore.
This is why we do not rent, and also have the house (s) paid off for freedom in the cash flow world.
Considering the fact that my mortgage is probably 40 times the value of my coin collection, if I could sell my collection to PAY-OFF that mortgage, I'd do it in a heartbeat!! A 4,000% Return?! (Did I figure that right?)
<< <i>Perhaps the question should be, should I take out a mortgage on the house to buy a coin >>
John J. Pittman took out a second mortgage on his house to buy coins in the King Farouk sale!
Pittman was not a wealthy man and he didn't start with a silver spoon in his mouth. He was a chemical engineer in my old hometown of Rochester, New York (he worked for Eastman Kodak).
I believe his collections eventually sold for $30 million or so.
I don't have a mortgage - paid cash for my house, my cars etc. The coins are being sold off to finance college educations though, so we can avoid the usurious interest rates.
Tir nam beann, nan gleann, s'nan gaisgeach ~ Saorstat Albanaich a nis!
Lol, Pittman enjoy that return? Or how long was he passed when his heirs sold?, not that I care, but point is I don't think he personally made any dough but great move for his children or grandchildren...
Interest deduction on home is another one of the scams of the century, who would give away a dollar to get .30 cents back, pretty amazing hornswoggle people love to believe and talk themselves into....
<< <i> Interest deduction on home is another one of the scams of the century, who would give away a dollar to get .30 cents back, pretty amazing hornswoggle people love to believe and talk themselves into.... >>
This. Why would anyone give a mortgage banker a dollar for the privilege of getting 30-40 cents [state & federal tax reduction] back from someone else. That's a nice perk if you can't afford a house without borrowing, but makes no sense to do it otherwise.
<< <i> Interest deduction on home is another one of the scams of the century, who would give away a dollar to get .30 cents back, pretty amazing hornswoggle people love to believe and talk themselves into.... >>
This. Why would anyone give a mortgage banker a dollar for the privilege of getting 30-40 cents [state & federal tax reduction] back from someone else. That's a nice perk if you can't afford a house without borrowing, but makes no sense to do it otherwise. >>
It makes perfect sense to NOT pay off the mortgage if someone's investments of the funds are paying a greater annualized return than the interest rate on the mortgage loan.
Folks who don't understand this aren't as sophisticated as they think they are.
<< <i> Interest deduction on home is another one of the scams of the century, who would give away a dollar to get .30 cents back, pretty amazing hornswoggle people love to believe and talk themselves into.... >>
This. Why would anyone give a mortgage banker a dollar for the privilege of getting 30-40 cents [state & federal tax reduction] back from someone else. That's a nice perk if you can't afford a house without borrowing, but makes no sense to do it otherwise. >>
It makes perfect sense to NOT pay off the mortgage if someone's investments of the funds are paying a greater annualized return than the interest rate on the mortgage loan.
Folks who don't understand this aren't as sophisticated as they think they are. >>
My coin collection was paying less interest than my mortgage, so it worked for me.
If you can invest the money elsewhere, and get a guaranteed return greater than the mortgage interest (net of fees, taxes, etc.), I agree that it makes little sense to pay off the mortgage. (And please show me where I can get these guaranteed returns, too.)
<< <i> At 3%, 2% after taxes, I can do better with coins and other investments than paying off my mortgage.
The after tax part is key. Many people seem to forget, or aren't aware, of the massive tax sheltering benefits that the mortgage interest and property tax deductions offer. At higher income levels, the net result is a redirection of money you were going to pay in income tax anyway towards the ownership costs of an asset that benefits you directly. For example, for a $750,000 home loan (not at all uncommon in California), the net result is a redirection in almost $40,000 in taxes to the borrower's direct benefit. It's a huge government subsidy of homeownership.
So back to the original question. I am seriously considering the sale of a major portion of my collection for exactly this purpose. >>
Could you illustrate with something close to a realistic example? Where do you get $40K from? A $750K loan at 4% would be something less that $30K in interest paid at the end of the first year and would decrease yearly thereafter. What would California property tax be on a $1.1 million home? A $1 in deductions is not a $1 in tax reduction. Generally, the mortgage interest and property taxes are the biggest contributors to itemized deductions so you would be looking at the effect of those 2 items above the $12,400 federal level and whatever the state is.
<< <i> Interest deduction on home is another one of the scams of the century, who would give away a dollar to get .30 cents back, pretty amazing hornswoggle people love to believe and talk themselves into.... >>
This. Why would anyone give a mortgage banker a dollar for the privilege of getting 30-40 cents [state & federal tax reduction] back from someone else. That's a nice perk if you can't afford a house without borrowing, but makes no sense to do it otherwise. >>
It makes perfect sense to NOT pay off the mortgage if someone's investments of the funds are paying a greater annualized return than the interest rate on the mortgage loan.
Folks who don't understand this aren't as sophisticated as they think they are. >>
I understand that as well and I see nothing wrong with that as long as folks are comfortable with it. I just have an issue with the folks who push the tax deduction as a reason to take out a loan.
If you can invest the money elsewhere, and get a guaranteed return greater than the mortgage interest (net of fees, taxes, etc.), I agree that it makes little sense to pay off the mortgage. (And please show me where I can get these guaranteed returns, too.) >>
I've always wondered why the bankers aren't doing this instead of lending out $$ to people for a few % a year.
<< <i>Perhaps the question should be, should I take out a mortgage on the house to buy a coin >>
Now this guy knows his priorities. >>
I think I read once that David Lawrence Coins got started or a major boost that way.
>>
While a home mortgage for your personal residence is an exception, the only valid time to borrow money is to make money - not to live beyond your means. Though we haven't seen how the Quantitative Easing story ends yet, that is what is driving the equities market right now. Big institutions are borrowing money from the government (that doesn't really exist since the Fed is creating it on the books) at near 0% interest and taking that money and investing it equities, thus driving those prices up.
When the Fed ends QE and 0% interest rates dry up, there will be a major downshift in the stock market. So be careful out there.
RYK, as you imply "guaranteed" and "investment" used together is an oxymoron. Level of risk, time horizons, and "the big picture" including hopes, dreams, and fears all play into it.
I think DeepCoin expressed my view best, so will reproduce his post below. I had resisted posting until a couple of know-it-all trolls (only one of them self-admitted ) posted some misinformation.
<< <i>Much depends upon your financial circumstances and risk profile. I would make the argument that for someone with substantial assets, paying off their mortgage is not the best idea.
If you have an investment portfolio that is substantial, and your marginal tax bracket is 28 percent (notice I did not use the higher ones with greater income, but just up the numbers for that), then your loan is subsidized by a reduction on your taxes. Now look at a 200,000 mortgage at current rates.
Principal and Interest at about $950 a month for total of about 11,400 a year. Now deduct the interest paid times 28 percent as your tax saving or 8,000 x .28 = 2,240. Subtract that from 11,400 paid and you are now around 9,160. That is 4.58 percent of $200,000. In the last 6 years the market has been WAY over that number. In fact, my portfolio (conservative diversified) is at a 5.34 gain Y-T-D and that includes a small holding of bonds that have a very small return. If you made 9 percent on your investment, you would have made 18,000 less the 9,160 paid in mortgage costs. I used 9 percent as that is the long term stock average over a very long period of time.
The bottom line is that if you have the cash flow, it is often a better investment strategy to keep your money in a more active investment venue that have it ties up in your home. On the other hand, if you are risk averse, pay off your house. If your cash flow is tight, pay off the house and have more cash available. If you are in the top 10 percent of Americans with regard to wealth, and your money is not all in real estate, it makes sense not to pay off your home.
That said, many sleep better at night with a paid off home. >>
When the mortgage turns around and the interest isn't enough to make itemizing deductions worthwhile, what then? Debt is an obligation and paying interest doesn't reduce the amount of that obligation; only principal payments do that. Everyone has to analyze their own situation, comfort with debt, security for your future with regard to income and go from there.
$735k loan @ 4%, 30y fixed used to buy an $885k house in California incurs about $28,800 in mortgage interest a year, and about $11,000 in property tax a year. Both of these work as federal tax deductions.
Now here's the part some seem to be missing. For someone earning $150k a year, this ~$40,000 deduction, on top of the federal itemization of state income tax ($15,000), and retirement contribution deductions (~$17,000) would drop the effective taxable income down to less than $100,000. It takes tax money one would be paying to the federal government anyway and redirects it locally in the form of property tax, and makes the interest expense out of essentially pre-tax dollars.
Let me clarify a little further. Someone earning $150,000/yr in California who doesn't own a home is already itemizing their federal because the $10+k in state income tax they pay is greater than the federal standard deduction. So the mortgage interest and property tax deductions are directly additive.
$735k loan @ 4%, 30y fixed used to buy an $885k house in California incurs about $28,800 in mortgage interest a year, and about $11,000 in property tax a year. Both of these work as federal tax deductions.
Now here's the part some seem to be missing. For someone earning $150k a year, this ~$40,000 deduction, on top of the federal itemization of state income tax ($15,000), and retirement contribution deductions (~$17,000) would drop the effective taxable income down to less than $100,000. It takes tax money one would be paying to the federal government anyway and redirects it locally in the form of property tax, and makes the interest expense out of essentially pre-tax dollars.
Let me clarify a little further. Someone earning $150,000/yr in California who doesn't own a home is already itemizing their federal because the $10+k in state income tax they pay is greater than the federal standard deduction. So the mortgage interest and property tax deductions are directly additive. >>
The federal standard deduction for a couple is $12,400. So you get at least $27,400 in extra deductions which is a wash since you are paying $28,800 to get that. I thought you were talking about someone who was/is making $500K or more. I wouldn't consider $150K to be higher income in CA. Iowa probably. How can someone making $150K even afford a house that's $885K? That $750K mortgage isn't even a 20% down situation so you are tying up a lot of $$ in escrow which is returning nothing back to you.
I would only put extra $$ to the principal if it was money that I didn't need, because once you do you can't get it back without selling the asset or taking out a HELOC against the equity. One wants to avoid the situation where one is house rich and money poor.
<< <i>If you could sell your coin collection to pay off your house mortgage, would you? >>
I don't have a mortgage, so this doesn't apply to me.
BUT if you want to know what YOU should do, I'd suggest using one of the many online calculators available to run the numbers that apply in your situation.
Along with personal preferences, it's just a question of mathematics with variables.
<< <i>RYK, as you imply "guaranteed" and "investment" used together is an oxymoron. Level of risk, time horizons, and "the big picture" including hopes, dreams, and fears all play into it.
I think DeepCoin expressed my view best, so will reproduce his post below. I had resisted posting until a couple of know-it-all trolls (only one of them self-admitted ) posted some misinformation.
<< <i>Much depends upon your financial circumstances and risk profile. I would make the argument that for someone with substantial assets, paying off their mortgage is not the best idea.
If you have an investment portfolio that is substantial, and your marginal tax bracket is 28 percent (notice I did not use the higher ones with greater income, but just up the numbers for that), then your loan is subsidized by a reduction on your taxes. Now look at a 200,000 mortgage at current rates.
Principal and Interest at about $950 a month for total of about 11,400 a year. Now deduct the interest paid times 28 percent as your tax saving or 8,000 x .28 = 2,240. Subtract that from 11,400 paid and you are now around 9,160. That is 4.58 percent of $200,000. In the last 6 years the market has been WAY over that number. In fact, my portfolio (conservative diversified) is at a 5.34 gain Y-T-D and that includes a small holding of bonds that have a very small return. If you made 9 percent on your investment, you would have made 18,000 less the 9,160 paid in mortgage costs. I used 9 percent as that is the long term stock average over a very long period of time.
The bottom line is that if you have the cash flow, it is often a better investment strategy to keep your money in a more active investment venue that have it ties up in your home. On the other hand, if you are risk averse, pay off your house. If your cash flow is tight, pay off the house and have more cash available. If you are in the top 10 percent of Americans with regard to wealth, and your money is not all in real estate, it makes sense not to pay off your home.
That said, many sleep better at night with a paid off home. >>
>>
We should be thankful that interest rates are cheap. How would you feel if rates were 9% instead of 3%? Would you still rather pay all of that interest? Instead of jailing all of those Wall Streeters and bankers who created that mess in 2008 we should be thanking them for the low interest rate situation we have now. At least those in a position to take advantage of same. Back in 2008, there were many who were under water and in over their heads, the minute they signed the loan papers and walked away from the loan officer's desk. I don't have a mortgage anymore, but I probably wouldn't sell other assets to pay it off unless I needed to. However, if I was to luck into some sort of financial windfall and could buy up, I would pay CASH and not carry a mortgage.
<< <i>We should be thankful that interest rates are cheap.
Yes
How would you feel if rates were 9% instead of 3%?
Differently
Would you still rather pay all of that interest?
No. >>
I guess it would be nice to be able to take advantage of the times, they may go away and not come back. I sold off a lot of coins simply because I had IMO too much $$ into the hobby. It would be even nicer never to have to fret over money too!
I sold a bag of 90% silver for around 10K to finance a new roof on my house about 10 years ago. That's about as close as l've ever come.
This is a great thread. Great comments! I paid off my mortgage about 10 years ago after selling a small rental house. I went back and forth, and kept doing math over and over again, until I was half crazy. I considered investing more in the stock market. I also considered buying another rental or two. In the end, I just paid off my mortgage, as I sleep better that way. That said, with mortgage rates so very low, I can surely understand people investing in other ways. It really comes down to personal choice, I suppose.
Dave
Always looking for original, better date VF20-VF35 Barber quarters and halves, and a quality beer.
<< <i>We should be thankful that interest rates are cheap.
Yes
How would you feel if rates were 9% instead of 3%?
Differently
Would you still rather pay all of that interest?
No. >>
Here is something of a hypothetical situation. Do you think that we as a country would be better off if most folks [say 85%] could simply pay cash for things that they needed? That is the credit market would be a lot less of a factor in finances than it is now. Personally I hate owing money and esp. paying for the past; that is buying something non-essential using credit and taking several months to pay for it.
Bajjer, who is talking as a couple? And BTW, an income of $150k/yr is sufficient to qualify for a loan of $735k.
$885k net 20% down call it $177k is $735. That's what we're talking about here. And in California, the salary may be close to the tech worker median, but many such people have meaningful compensation in the form of equity that could easily be worth hundreds of thousands. So no, a $735k single income mortgage on an income of $150k is not necessarily unreasonable.
<< <i>Bajjer, who is talking as a couple? And BTW, an income of $150k/yr is sufficient to qualify for a loan of $735k.
$885k net 20% down call it $177k is $735. That's what we're talking about here. And in California, the salary may be close to the tech worker median, but many such people have meaningful compensation in the form of equity that could easily be worth hundreds of thousands. So no, a $735k single income mortgage on an income of $150k is not necessarily unreasonable. >>
An $885K home with 20% down means that you would finance $708K not $735K. I just assumed it was a couple since nothing was indicated otherwise/either way. Anyways, everyone knows their own situation better than anyone else I suppose. One of the things about asking questions like the OP did is that generally you will get a number of responses, some of which you may not have considered before.
Sold my collection in 2011 to buy my first house. It doubled in value in just 3 years, and is still rising in value to 2.42x the original purchase price. Not too shabby. No regrets. I can always re-purchase coins, but there is no way I could afford to buy my house at what its valued at now.
<< <i>If you could sell your coin collection to pay off your house mortgage, would you? >>
Why would selling your collection be an "if" situation? Is there some reason that it may not be salable or are you thinking selling it only if you can get back what you put into it?
This thread has been full of interesting comments. "The Answer" is very dependent on one's individual age, circumstance and peace of mind. If I were younger then mobility and flexibility may make me lean towards renting. When younger the idea that I might have a coin collection that could pay off my mortgage (once I got one) would be laughable. Older, wiser, and not likely to move..well the answer shifts yet again.
Rent and mortgage payments going to a place I live is not an investment. My primary home is not an investment. If I don't own it outright, then I am tied to a job or lifestyle I may not want, just to pay the bill. If I own the house, yes there are carrying costs (upkeep, property taxes...just like I have for my car I might add, but I paid cash for that, rather than lease or pay interest, but I digress). However those are not of the same magnitude as the additional costs of a mortgage, or paying escalating rents with little control. Getting rid of a mortgage was a huge step towards living a lifestyle on my own terms.
If I was close to retirement or was trying to get off the hamster wheel, and my coins would enable that, then they would be sold in a heartbeat. I have several coins and bullion bought just for that..a backup to the backup plan so to speak. The idea is they are hedge and can get sold at any time, and if I was approaching retirement (at whatever age) I'd pay it off. Peace of mind, lack of escalating rents, and 'only' the upkeep and taxes to cover. This is a place to live, not my 401K. If losing the mortgage means not having to work feeling like a drudge, then it would be well spent.
My answer for second/recreation homes is No Way, only because I would not take a mortgage for one. My answer rental property is No Way, because then the beauty of leverage is working for you.
Comments
*edit to add*
I was 20 when I bought it just before the big crash in the market at 7.779%. I had no credit and no down payment. House was $69K and today similar in the neighborhood are bringing 110-125K.
<< <i>I was actually just going through this situation. I was about to sell a number of coins to refinance my house 7 years into a 30 year. I was going to use 10K down to refi but a few people I talked to told me not to worry about it. Did the math and for my situation I think Ill gain more on the coins then I would on my mortgage. Locked in at 3.125% on a 15 year making my payment 455/month saving me $350 a month. If I would have put that 10K down my payment would have only changed $20/month. Id rather have my coins then $20 a month savings over 15 years.
*edit to add*
I was 20 when I bought it just before the big crash in the market at 7.779%. I had no credit and no down payment. House was $69K and today similar in the neighborhood are bringing 110-125K. >>
You may still be better off putting that $10K towards the principal, unless you have some sort of prepayment penalty which could apply.
<< <i>Perhaps the question should be, should I take out a mortgage on the house to buy a coin
Now this guy knows his priorities.
<< <i>$455/month?! For a mortgage? F me for living in the northeast. I'm looking at double that, at a minimum for a decent place not in the ghetto. Even the ghetto around here is kinda gentrifying and prices are rising. >>
I think ours is ~$740/month, but that also includes the escrow for real estate taxes and insurance on the house....so the actual principle/interest
is<$455/mo.....for a 4 bdrm house w/ a 3 car garage and screened in patio w/ inground pool on a small lake, in an A-rated school district, 10 min from the Atlantic Ocean. But the summers are hot here
<< <i>ldhair, My point was that you can make more money from the money used to pay off your mortgage, than the carrying costs associated with the mortgage. That is why the cash flow is critical. It is just a perspective for well to do people about money management. Would you rather tie your money up in a fixed investment or have the flexibility of investing it elsewhere.
If you have the entire value of the house tied up in the house, then you are effectively investing in real estate. If that is your choice in terms of appreciation, so be it. The idea is that you have the choice with your assets. It does not matter if you are living in the house, it is about asset allocation. >>
I understand cash flow and agree with everything you said. We were typing at the same time. I bought about 20 investment properties by leveraging other property. My point is that some don't need to be paying interest on everything. It's a waste to pay interest on a property that is not paying you to own it. You can always pull from the equity if a deal comes along and you need more cash.
The after tax part is key. Many people seem to forget, or aren't aware, of the massive tax sheltering benefits that the mortgage interest and property tax deductions offer. At higher income levels, the net result is a redirection of money you were going to pay in income tax anyway towards the ownership costs of an asset that benefits you directly. For example, for a $750,000 home loan (not at all uncommon in California), the net result is a redirection in almost $40,000 in taxes to the borrower's direct benefit. It's a huge government subsidy of homeownership.
So back to the original question. I am seriously considering the sale of a major portion of my collection for exactly this purpose.
NGC registry V-Nickel proof #6!!!!
working on proof shield nickels # 8 with a bullet!!!!
RIP "BEAR"
And no, the $40,000 is not a direct benefit. The first $12,000 or whatever is a complete waste, as it coincides with the Standard Deduction.
Any investment has risks. I did not do complex math when I pulled the trigger. Debt-free made me sleep better every night
Chris' Complete Lincoln Variety Set 1909-date
<< <i>I did that, in 2009. I sold some coins that I can never replace but am overall in a superior financial position as a result. >>
Oh My God!
They Melted Them!?!?!?!??!
Not our primary residence, which is paid off, but the house that belonged to my parents. My dad passed away 5 years ago, and I moved my mom to senior living 18 months ago. We let a missionary family on furlough live in the house for a year, rent free, and when they left, I bought out my mom, and decided to redo the house, (I am 58 and retired for 5 years (Thanks, Dot Com), but my wife is still working, and also younger and loves her job) The house is 35 years old, never updated.
My wife loves those home redo shows, etc. so we thought it would be a good experiment. She got to pick floors, colors, etc. and I did most of the work. The biggest cost was $6K in granite, including one piece that was 6 feet by 8 feet for a kitchen island with JennAir Cooktop.
I never got finished. We are in BOOM right now, especially the area exactly where the house is located. Many large businesses moving in right now in Richardson / Plano (Dallas) Texas.
The reason I never finished was the KNOCK on the door. Is this house going to be for sale? Could we make you an offer to take the house AS IS, that you would pick up your tools and walk away?
Well, we closed Friday. The profit was staggering (2 years of income, before taxes for the wife and I combined) for 5 months of piddling around in the house, and the check is probably the largest I will ever hold in my hands.
Another family made an offer on the neighbor's house, now accepted, and they did not have it on the market, but thought about selling in a couple years. It was 100K+ over what they would have sold it for.
Now my wife is wondering about selling our home and moving to a house more appropriate to our lives, no children at home anymore.
This is why we do not rent, and also have the house (s) paid off for freedom in the cash flow world.
<< <i>Perhaps the question should be, should I take out a mortgage on the house to buy a coin
John J. Pittman took out a second mortgage on his house to buy coins in the King Farouk sale!
Pittman was not a wealthy man and he didn't start with a silver spoon in his mouth. He was a
chemical engineer in my old hometown of Rochester, New York (he worked for Eastman Kodak).
I believe his collections eventually sold for $30 million or so.
Interest deduction on home is another one of the scams of the century, who would give away a dollar to get .30 cents back, pretty amazing hornswoggle people love to believe and talk themselves into....
<< <i>
Interest deduction on home is another one of the scams of the century, who would give away a dollar to get .30 cents back, pretty amazing hornswoggle people love to believe and talk themselves into.... >>
This. Why would anyone give a mortgage banker a dollar for the privilege of getting 30-40 cents [state & federal tax reduction] back from someone else. That's a nice perk if you can't afford a house without borrowing, but makes no sense to do it otherwise.
<< <i>
<< <i>
Interest deduction on home is another one of the scams of the century, who would give away a dollar to get .30 cents back, pretty amazing hornswoggle people love to believe and talk themselves into.... >>
This. Why would anyone give a mortgage banker a dollar for the privilege of getting 30-40 cents [state & federal tax reduction] back from someone else. That's a nice perk if you can't afford a house without borrowing, but makes no sense to do it otherwise. >>
It makes perfect sense to NOT pay off the mortgage if someone's investments of the funds are paying a greater annualized return than the interest rate on the mortgage loan.
Folks who don't understand this aren't as sophisticated as they think they are.
Liberty: Parent of Science & Industry
<< <i>
<< <i>Perhaps the question should be, should I take out a mortgage on the house to buy a coin
Now this guy knows his priorities.
I think I read once that David Lawrence Coins got started or a major boost that way.
<< <i>
<< <i>
<< <i>
Interest deduction on home is another one of the scams of the century, who would give away a dollar to get .30 cents back, pretty amazing hornswoggle people love to believe and talk themselves into.... >>
This. Why would anyone give a mortgage banker a dollar for the privilege of getting 30-40 cents [state & federal tax reduction] back from someone else. That's a nice perk if you can't afford a house without borrowing, but makes no sense to do it otherwise. >>
It makes perfect sense to NOT pay off the mortgage if someone's investments of the funds are paying a greater annualized return than the interest rate on the mortgage loan.
Folks who don't understand this aren't as sophisticated as they think they are. >>
My coin collection was paying less interest than my mortgage, so it worked for me.
If you can invest the money elsewhere, and get a guaranteed return greater than the mortgage interest (net of fees, taxes, etc.), I agree that it makes little sense to pay off the mortgage. (And please show me where I can get these guaranteed returns, too.)
<< <i> At 3%, 2% after taxes, I can do better with coins and other investments than paying off my mortgage.
The after tax part is key. Many people seem to forget, or aren't aware, of the massive tax sheltering benefits that the mortgage interest and property tax deductions offer. At higher income levels, the net result is a redirection of money you were going to pay in income tax anyway towards the ownership costs of an asset that benefits you directly. For example, for a $750,000 home loan (not at all uncommon in California), the net result is a redirection in almost $40,000 in taxes to the borrower's direct benefit. It's a huge government subsidy of homeownership.
So back to the original question. I am seriously considering the sale of a major portion of my collection for exactly this purpose. >>
Could you illustrate with something close to a realistic example? Where do you get $40K from? A $750K loan at 4% would be something less that $30K in interest paid at the end of the first year and would decrease yearly thereafter. What would California property tax be on a $1.1 million home? A $1 in deductions is not a $1 in tax reduction. Generally, the mortgage interest and property taxes are the biggest contributors to itemized deductions so you would be looking at the effect of those 2 items above the $12,400 federal level and whatever the state is.
<< <i>
<< <i>
<< <i>
Interest deduction on home is another one of the scams of the century, who would give away a dollar to get .30 cents back, pretty amazing hornswoggle people love to believe and talk themselves into.... >>
This. Why would anyone give a mortgage banker a dollar for the privilege of getting 30-40 cents [state & federal tax reduction] back from someone else. That's a nice perk if you can't afford a house without borrowing, but makes no sense to do it otherwise. >>
It makes perfect sense to NOT pay off the mortgage if someone's investments of the funds are paying a greater annualized return than the interest rate on the mortgage loan.
Folks who don't understand this aren't as sophisticated as they think they are. >>
I understand that as well and I see nothing wrong with that as long as folks are comfortable with it. I just have an issue with the folks who push the tax deduction as a reason to take out a loan.
<< <i>
If you can invest the money elsewhere, and get a guaranteed return greater than the mortgage interest (net of fees, taxes, etc.), I agree that it makes little sense to pay off the mortgage. (And please show me where I can get these guaranteed returns, too.) >>
I've always wondered why the bankers aren't doing this instead of lending out $$ to people for a few % a year.
``https://ebay.us/m/KxolR5
<< <i>
<< <i>
<< <i>Perhaps the question should be, should I take out a mortgage on the house to buy a coin
Now this guy knows his priorities.
I think I read once that David Lawrence Coins got started or a major boost that way.
While a home mortgage for your personal residence is an exception, the only valid time to borrow money is to make money - not to live beyond your means.
Though we haven't seen how the Quantitative Easing story ends yet, that is what is driving the equities market right now. Big institutions are borrowing money from the government (that doesn't really exist since the Fed is creating it on the books) at near 0% interest and taking that money and investing it equities, thus driving those prices up.
When the Fed ends QE and 0% interest rates dry up, there will be a major downshift in the stock market. So be careful out there.
No Way Out: Stimulus and Money Printing Are the Only Path Left
I think DeepCoin expressed my view best, so will reproduce his post below. I had resisted posting until a couple of know-it-all trolls (only one of them self-admitted
<< <i>Much depends upon your financial circumstances and risk profile. I would make the argument that for someone with substantial assets, paying off their mortgage is not the best idea.
If you have an investment portfolio that is substantial, and your marginal tax bracket is 28 percent (notice I did not use the higher ones with greater income, but just up the numbers for that), then your loan is subsidized by a reduction on your taxes. Now look at a 200,000 mortgage at current rates.
Principal and Interest at about $950 a month for total of about 11,400 a year. Now deduct the interest paid times 28 percent as your tax saving or 8,000 x .28 = 2,240. Subtract that from 11,400 paid and you are now around 9,160. That is 4.58 percent of $200,000. In the last 6 years the market has been WAY over that number. In fact, my portfolio (conservative diversified) is at a 5.34 gain Y-T-D and that includes a small holding of bonds that have a very small return. If you made 9 percent on your investment, you would have made 18,000 less the 9,160 paid in mortgage costs. I used 9 percent as that is the long term stock average over a very long period of time.
The bottom line is that if you have the cash flow, it is often a better investment strategy to keep your money in a more active investment venue that have it ties up in your home. On the other hand, if you are risk averse, pay off your house. If your cash flow is tight, pay off the house and have more cash available. If you are in the top 10 percent of Americans with regard to wealth, and your money is not all in real estate, it makes sense not to pay off your home.
That said, many sleep better at night with a paid off home. >>
Liberty: Parent of Science & Industry
$735k loan @ 4%, 30y fixed used to buy an $885k house in California incurs about $28,800 in mortgage interest a year, and about $11,000 in property tax a year. Both of these work as federal tax deductions.
Now here's the part some seem to be missing. For someone earning $150k a year, this ~$40,000 deduction, on top of the federal itemization of state income tax ($15,000), and retirement contribution deductions (~$17,000) would drop the effective taxable income down to less than $100,000. It takes tax money one would be paying to the federal government anyway and redirects it locally in the form of property tax, and makes the interest expense out of essentially pre-tax dollars.
Let me clarify a little further. Someone earning $150,000/yr in California who doesn't own a home is already itemizing their federal because the $10+k in state income tax they pay is greater than the federal standard deduction. So the mortgage interest and property tax deductions are directly additive.
<< <i>Here's a worked example.
$735k loan @ 4%, 30y fixed used to buy an $885k house in California incurs about $28,800 in mortgage interest a year, and about $11,000 in property tax a year. Both of these work as federal tax deductions.
Now here's the part some seem to be missing. For someone earning $150k a year, this ~$40,000 deduction, on top of the federal itemization of state income tax ($15,000), and retirement contribution deductions (~$17,000) would drop the effective taxable income down to less than $100,000. It takes tax money one would be paying to the federal government anyway and redirects it locally in the form of property tax, and makes the interest expense out of essentially pre-tax dollars.
Let me clarify a little further. Someone earning $150,000/yr in California who doesn't own a home is already itemizing their federal because the $10+k in state income tax they pay is greater than the federal standard deduction. So the mortgage interest and property tax deductions are directly additive. >>
The federal standard deduction for a couple is $12,400. So you get at least $27,400 in extra deductions which is a wash since you are paying $28,800 to get that. I thought you were talking about someone who was/is making $500K or more. I wouldn't consider $150K to be higher income in CA. Iowa probably. How can someone making $150K even afford a house that's $885K? That $750K mortgage isn't even a 20% down situation so you are tying up a lot of $$ in escrow which is returning nothing back to you.
I would only put extra $$ to the principal if it was money that I didn't need, because once you do you can't get it back without selling the asset or taking out a HELOC against the equity. One wants to avoid the situation where one is house rich and money poor.
<< <i>If you could sell your coin collection to pay off your house mortgage, would you? >>
I don't have a mortgage, so this doesn't apply to me.
BUT if you want to know what YOU should do, I'd suggest using one of the many online calculators available to run the numbers that apply in your situation.
Along with personal preferences, it's just a question of mathematics with variables.
<< <i>RYK, as you imply "guaranteed" and "investment" used together is an oxymoron. Level of risk, time horizons, and "the big picture" including hopes, dreams, and fears all play into it.
I think DeepCoin expressed my view best, so will reproduce his post below. I had resisted posting until a couple of know-it-all trolls (only one of them self-admitted
<< <i>Much depends upon your financial circumstances and risk profile. I would make the argument that for someone with substantial assets, paying off their mortgage is not the best idea.
If you have an investment portfolio that is substantial, and your marginal tax bracket is 28 percent (notice I did not use the higher ones with greater income, but just up the numbers for that), then your loan is subsidized by a reduction on your taxes. Now look at a 200,000 mortgage at current rates.
Principal and Interest at about $950 a month for total of about 11,400 a year. Now deduct the interest paid times 28 percent as your tax saving or 8,000 x .28 = 2,240. Subtract that from 11,400 paid and you are now around 9,160. That is 4.58 percent of $200,000. In the last 6 years the market has been WAY over that number. In fact, my portfolio (conservative diversified) is at a 5.34 gain Y-T-D and that includes a small holding of bonds that have a very small return. If you made 9 percent on your investment, you would have made 18,000 less the 9,160 paid in mortgage costs. I used 9 percent as that is the long term stock average over a very long period of time.
The bottom line is that if you have the cash flow, it is often a better investment strategy to keep your money in a more active investment venue that have it ties up in your home. On the other hand, if you are risk averse, pay off your house. If your cash flow is tight, pay off the house and have more cash available. If you are in the top 10 percent of Americans with regard to wealth, and your money is not all in real estate, it makes sense not to pay off your home.
That said, many sleep better at night with a paid off home. >>
>>
We should be thankful that interest rates are cheap. How would you feel if rates were 9% instead of 3%? Would you still rather pay all of that interest? Instead of jailing all of those Wall Streeters and bankers who created that mess in 2008 we should be thanking them for the low interest rate situation we have now. At least those in a position to take advantage of same. Back in 2008, there were many who were under water and in over their heads, the minute they signed the loan papers and walked away from the loan officer's desk. I don't have a mortgage anymore, but I probably wouldn't sell other assets to pay it off unless I needed to. However, if I was to luck into some sort of financial windfall and could buy up, I would pay CASH and not carry a mortgage.
Yes
How would you feel if rates were 9% instead of 3%?
Differently
Would you still rather pay all of that interest?
No.
Liberty: Parent of Science & Industry
<< <i>We should be thankful that interest rates are cheap.
Yes
How would you feel if rates were 9% instead of 3%?
Differently
Would you still rather pay all of that interest?
No. >>
I guess it would be nice to be able to take advantage of the times, they may go away and not come back. I sold off a lot of coins simply because I had IMO too much $$ into the hobby. It would be even nicer never to have to fret over money too!
This is a great thread. Great comments! I paid off my mortgage about 10 years ago after selling a small rental house. I went back and forth, and kept doing math over and over again, until I was half crazy. I considered investing more in the stock market. I also considered buying another rental or two. In the end, I just paid off my mortgage, as I sleep better that way. That said, with mortgage rates so very low, I can surely understand people investing in other ways. It really comes down to personal choice, I suppose.
Dave
<< <i>We should be thankful that interest rates are cheap.
Yes
How would you feel if rates were 9% instead of 3%?
Differently
Would you still rather pay all of that interest?
No. >>
Here is something of a hypothetical situation. Do you think that we as a country would be better off if most folks [say 85%] could simply pay cash for things that they needed? That is the credit market would be a lot less of a factor in finances than it is now. Personally I hate owing money and esp. paying for the past; that is buying something non-essential using credit and taking several months to pay for it.
$885k net 20% down call it $177k is $735. That's what we're talking about here. And in California, the salary may be close to the tech worker median, but many such people have meaningful compensation in the form of equity that could easily be worth hundreds of thousands. So no, a $735k single income mortgage on an income of $150k is not necessarily unreasonable.
<< <i>Bajjer, who is talking as a couple? And BTW, an income of $150k/yr is sufficient to qualify for a loan of $735k.
$885k net 20% down call it $177k is $735. That's what we're talking about here. And in California, the salary may be close to the tech worker median, but many such people have meaningful compensation in the form of equity that could easily be worth hundreds of thousands. So no, a $735k single income mortgage on an income of $150k is not necessarily unreasonable. >>
An $885K home with 20% down means that you would finance $708K not $735K. I just assumed it was a couple since nothing was indicated otherwise/either way. Anyways, everyone knows their own situation better than anyone else I suppose. One of the things about asking questions like the OP did is that generally you will get a number of responses, some of which you may not have considered before.
<< <i>If you could sell your coin collection to pay off your house mortgage, would you? >>
Why would selling your collection be an "if" situation? Is there some reason that it may not be salable or are you thinking selling it only if you can get back what you put into it?
Rent and mortgage payments going to a place I live is not an investment. My primary home is not an investment. If I don't own it outright, then I am tied to a job or lifestyle I may not want, just to pay the bill. If I own the house, yes there are carrying costs (upkeep, property taxes...just like I have for my car I might add, but I paid cash for that, rather than lease or pay interest, but I digress). However those are not of the same magnitude as the additional costs of a mortgage, or paying escalating rents with little control. Getting rid of a mortgage was a huge step towards living a lifestyle on my own terms.
If I was close to retirement or was trying to get off the hamster wheel, and my coins would enable that, then they would be sold in a heartbeat. I have several coins and bullion bought just for that..a backup to the backup plan so to speak. The idea is they are hedge and can get sold at any time, and if I was approaching retirement (at whatever age) I'd pay it off. Peace of mind, lack of escalating rents, and 'only' the upkeep and taxes to cover. This is a place to live, not my 401K. If losing the mortgage means not having to work feeling like a drudge, then it would be well spent.
My answer for second/recreation homes is No Way, only because I would not take a mortgage for one. My answer rental property is No Way, because then the beauty of leverage is working for you.