Being highly leveraged in your 50’s or 60’s is not a good thing. We have limited time horizon to make it back if the other investments went south. It’s very likely that we will have a few bear market in real estate and stocks market in the next 30 years. I just want to protect my principle and keep everything simple.
I know there’s many considerations. I am wondering, though, if it’s actually more risky having more of your money physically tied up in your home, than having someone else’s money. There is peace of mind in not having debt, but peace of mind that if your house gets destroyed, than your net worth doesn’t get pummeled. I don’t think we would get foreclosed on, if money ever ran low, we could sell, as we have about 50% equity in it. I figure our actual interest rate is about 2%, after accounting for tax write off, and the fact that we can only deduct a portion of the interest. I’m pretty certain I can get more than 2% in investments, after taxes, in a decent equities mutual fund.
If interest rates were higher, it would be an obvious choice. We are not risk averse at this point, however, we don’t want to do anything particularly stupid.
That’s probably recently bias. You could get -50%, and it might not come back as quickly as our markets did recently. Think Japan.
We took our money and invested in real estate in 2011 and they have about doubled in value.
It was great and better than mutual funds. Howevere, compare to those who bought individual stock
The returns are not very great. Those are high risk high returns investing. You cannot equate them to an FDIC
Insured account.
And yes, your real estate could be destroyed by fire, earthquake, flood mud slide and hurricane, but that is what insurance for.
@busdriver A lot depends on your personal situation. For the average person, paying the home off fairly quickly is probably a good idea. But if you have investments that you are truly confident will make more than the interest rate you are paying, then invest the money. But few things are certain. Certainly before you start trying to pay down your home mortgage you should first invest the maximum amount in your 401k or IRA.
Do you have any credit card debt? Paying off one’s credit card debt is considered the best investment almost anyone can make.
Eleven states have laws making home loans non-recourse. So in the event of foreclosure there is no judgment against the borrower. These states include: Alaska, Arizona, California, Hawaii, Minnesota, Montana, North Dakota, Oklahoma, Oregon, Washington, and most recently, Nevada. In these states there is very little risk in carrying a high debt load on a house. If you get upside down and have financial trouble, you just let the house go back and find a place to rent. In other states you risk losing not only your house but other assets as well should you find yourself underwater on a house. In these states it makes more sense to pay down the mortgage.
“And yes, your real estate could be destroyed by fire, earthquake, flood mud slide and hurricane, but that is what insurance for.”
Do you know where to purchase slide insurance? Because when I was searching for it, it doesn’t appear to exist. That’s my issue. If every possibility was covered by insurance, then there would be little risk.
My DS said that earthquake insurance is outrageously expensive and has a huge deductible. And the biggest cost is not the house, its the land. So most don’t carry it because its cheaper so self insure and pay OOP to rebuild, assuming the land is still stable. No mention of landslide insurance, though they are on a very steep hill. At least they aren’t on that landfill stuff that liquefies in an earthquake.
We never bought earthquake insurance when in CA. Jym, DS is right - very costly for ROI.
Busdriver, we are on a hill too - but much more concerned about what happens when/if Mt. Rainier blows.
Homeowner’s covers many things, but there are still plenty of scenarios shere you might fall short.
Yeah, we looked into earthquake insurance, but it was pretty expensive like jym said, and had a massive deductible. Plus, that 7.0 earthquake we had here many years ago, they said they didn’t even feel it. Not even a glass broke. This house has a foundation that took two years to build, it really is a fortress. But I’m more concerned about slides due to rainfall and the dang mountain beavers nearby. They can take out a house.
It’s an alarming scenario about how many people would be in danger if Mt Rainer blows. However, it might not be for another 100 million years, so hopefully we don’t have to worry about that! But landslides are not uncommon.
EarlVanDorn, I definitely agree about paying off all debt and investing fully in retirement before even thinking about paying off the mortgage. I can only dream about the day I have the extra money to pay it down further. However, if rates stay low, at some point we might consider taking out a larger mortgage to pay off all other debts, but it feels good to have the term of the mortgage decreasing. Then again, if we look at it purely in a financial, non emotional way, it’s a tough call.
Landslides are scary. Our house is set back far enough that if one happens, we could theoretically lose part of lot, but probably not likely to lose the home, itself.
Might have to intensify your beaver eradication plan, busdriver. Wow. Had no idea these animals were so destructive.
My husband captured one. They are pretty cute. It is actually illegal to release them anywhere, you have to kill them. He took it to a pest control company that did the deed. But we see evidence of more on the lot next to us. It is an empty lot, and considered a landslide risk, so we are doing things to try to mitigate the risk.
Busdriver11, part of your mortgage is not tax deductible? Maybe pay off the mortgage over time that isn’t tax deductible.
I probably would not pay off the mortgage. Your rate sounds like it is 3.25-3.5.
You can buy munis for 15 years with a 3.5 percent rate. You need to talk to a cpa to make sure the interest is tax free.
You can buy a mix of bonds and stocks. This will cut your risk. Or you can buy more real estate.
I don’t like the slide issue.
These are just opinions.
Our rate is actually 2.875, but in two years, it could adjust up to a max of 4.875 for five years, but likely it will be 3-3.5%. We might refinance in a few years if the index looks like it’s going up. I agree with paying down to the tax deductible portion, at least. I wonder if the rate for munis will go up in the next couple of years, as we wouldn’t do anything different for awhile. Just wondering about cutting homeowner risk, still willing to risk income we don’t need in the market, though.
Well…wait and see what happens in two years. No rush to pay off that loan.
Wow. We had squirrels in our attic. They were pretty destructive. We paid a company to trap them and get rid of them, and they told us it was illegal to kill them. They have to take them out to a more natural habitat and leave them there. It was a really costly endeavor.
I think the mountain beavers are so destructive, that they don’t want you passing on your problem to someone else. However, it was hard for him to watch that little guy getting gassed.
Here’s how to get rid of the squirrels https://www.youtube.com/watch?v=UjYLRLwphcs&list=RDUjYLRLwphcs&index=1
Now that is hilarious! Fling em right into your neighbors yard. Unfortunately, they might just keep on coming back. Who thinks up these kind of ideas?
^^ Now how can we get those ground hogs into the fling? They are all over my yard in addition to a fleet of turkeys and deers?
Why don’t you practice with the turkeys and deer first? Send us a video!