question re mortgage
Question: I have a question for those of you who are good with numbers. I have a mortgage that costs around $1500 per month, most of which of course goes to interest. The interest is at 7 %. At the moment I actually have the money saved to pay the mortgage in full but my accountant doesn’t want me to do it.
At the moment, I am earning hardly anything. Without going into details, suffice it to say that this situation will continue for another year and a half, at which point, my earnings will increase again. For this reason, the $1500 per month going to the mortgage hurts a lot, and is being paid for from my savings. My accountant adamantly states that is better to keep the mortgage and pay for this expense out of my savings. If I just paid the mortgage off, I would have $1500 less per month in expenses to worry about. Yes, at the moment, I have a huge emergency fund, but if I didn’t have the mortgage payment each month, I could, as my income goes up, start putting that much away, or at least not spending it.
If I am not earning much money now, then I fail to see how the mortgage interest deduction helps very much. If I need that deduction in a year or two, I suppose, with a completely paid off house, I could easily get a mortgage then.
I am having a hard time seeing how I am saving more money in the long run by keeping this debt. Of course, I am earning interest on my investments, but not enough to pay the mortgage each month, so my investments/savings are actually declining even as they earn.
If I sound confused, it is because I am. I am hoping that someone on this group might be able to offer good financial reasons one way or the other, rather than just spout that all debts are bad in the same way that my accountant seems to spout that mortgages are good.
Answer: everyone has their own savings plan, etc. and risk factor. If your job is stable, I’d consider paying the mtg off. Especially if your house is in a good area not likely to go down in the next 5-10 years. You’re paying 7.0% for using your own money, basically (maybe 4.5% – 5.0% after taxes). The rate on cd’s is now about 2.00% on 6 month jumbos (over $100,000). If you ever needed some cash your equity would provide you with a good source. Pay it off and dollar cost average the additional $1,500 you’ll have every month in the stock market or invest in something with less risk.
I don’t agree with your CPA unless he gives me a spreadsheet in writing that proves his point. Then I can do the same for my point.
I’d seriously look at paying it off.
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