Paying off your own home?

Question

I've recently left my long term real job. I'm now working full time as a realtor and investor. I've got my living expenses pretty low, but still trying to get used to the idea of not having a steady stream of paycheck income. I owe about $100k on my residence. P&I is $525 with about $350 going to interest and $175 to principle. I can pay off my home, but that takes up most of my investing reserves. I know I could probably use that money to earn more money but I keep coming back to the idea of paying off my home. Has anyone paid off their home just to feel more mentally secure?

Rich Weese · Answer

I've always looked at this a bit differently. I feel secure having a residence free and clear. I like the sense of security. However, it is NOT where I live. The only reason to have one free and clear is to enjoy the feeling of not losing a home if problems arise, imo. have always had a home F&C to move into if needed. This allows me to live in a nicer home and receive some tax benefits for interest etc that I don't get if F&C. I still get some help on rental from depreciation. I also use multiple entities for ownership, but that wasn't the topic...

Extra thought- Never have your F&C home be a condo. They're NEVER F&C due to regular HOA fees and those dreaded "special assessments". I also make sure I have enough Cash to pay taxes, insurance etc if economy really tanks. I like feeling prepared for the worst but continue to hope for the best. Rich

Elizabeth Bassett · Answer

That is a difficult question.  I think it depends on how secure you want to feel, and how quickly you want to grow your investing business.  If you pay it off, you can always borrow against it later if needed (although that pretty much defeats the point of paying it off).  If you decide to spend the money on investing, take a decent chunk of it and leave it somewhere safe.  That way if you hit a dry spell, you won't be at risk of not making your mortgage payments.

Rolanda Eldridge · Answer

@Scott Schuetz ..IMO..use money to invest and apply all cash flow to pay off primary quickly...Gazelle intensity...

Ben D. · Answer

@Scott Schuetz To me it comes down what interest rate are you paying on your mortgage and what return do you expect to get if you invest?  For example, if you have a mortgage at a 5% interest rate and you can invest and expect to get a return of 9%, then you'll do better to borrow at 5% to earn 9%.  Since interest rates are still pretty low, I think a lot of people would do better to borrow instead of paying off debt.

It also comes back to your risk tolerance.  If you have a mortgage on your personal home and also take out a loan to buy an investment property, you are more leveraged and would stand to lose more if the homes go down in value or you can't make the payments.

Hope that helps!

Mike Sattem · Answer

Scott,

My wife and I did this in November. I also am a Realtor, and we decided to cash out our IRA's to pay off the mortgage. I go back and forth on this, as every time I run low on cash I am thankful I no longer have that payment, but every time I see a smoking deal and I can't buy it for cash, or almost for cash, my heart hurts. I think ultimately it comes down to your personal comfort level. I teach a yearly Dave Ramsey Financial Peace class, so being debt free is important to me. Additionally, I have now linked up with a great lender who will allow me to place this home as collateral against buying other rental properties, so while the cash would have been nice, it hasn't killed my ability to pull the trigger on investment homes.

Just a few thoughts, but I hope this is somewhat helpful. My vote says pay it off, but I am sure the next ten comments will say leverage debt to the hilt :)

Paying off your own home?

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