?? about Mortgage payoff

Mikemustang289 · #1 (**permalink**) 09-13-2009, 05:40 AM

Without getting into a debate about paying down a mortgage vs. investing the money, I have decided to payoff the remaining balance on my mortgage but I am short about $15k.

By January I will have $85k to payoff the remaining $102k on my mortgage. Let me preface this by saying that I can itemize on my taxes but it does not save me much vs. taking the standard deduction given my mortgage balance is so low.

My question is, how much financial sense would it make for me to payoff the $102k with the $85k in savings and put the remainder on a low interest rate credit card?

I have done the math and by continuing to pay the ~$630 mortgage payment to the Credit Card company on a $17k Balance, it will take me 30 months to payoff and I will have paid about $1,600 in interest assuming my interest rate of 7% does not change.

If I were to choose to avoid this method, it would take me roughly 15 months to save the additional $15k I would need to payoff the mortgage balance (~100k 15 months from jan 2010).

Common sense tells me that I can avoid paying the mortgage company 15 months of additional interest (I am in year 2 of my mortgage) and save myself roughly $7,000 over the next 30 months.

My only concern is that my credit card company will raise my current interest rate of 7% once I begin carrying a balance close to the card's limit of $20k since this will likely hurt my credit score despite the fact that I have paid off my mortgage balance in the process. How likely is this to happen and how can I circumvent it?

Would I be better off trying to find a 6 month 0% fixed credit card?

sapphirecapital · #2 (**permalink**) 09-13-2009, 07:40 PM

You obviously have good income and good credit, I do not agree with the decision but if you want to play it that way a 0% card is probably the best, hope you left room for desaster striking as a possibility; it is a gamble and frankly it has nothing to do with common sense.

BabyStep6 · #3 (**permalink**) 09-13-2009, 07:52 PM

I would put 80k on the mortgage, keep 5k for the possible emergency, leave the rest on the remaining loan. Pay off the remainder as fast as possible. I think it is a great idea to pay it off though. If I put the remainder on a CC (which I would never do, but anyway) I would worry about something happening, not an financial emergency, that caused you to be late on one payment, and then the CC company jacking the interest rate sky hi on a card that had 15k on it. Just my two cents.

Mikemustang289 · #4 (**permalink**) 09-13-2009, 08:26 PM

The $85k is not going to run me dry. Technically, I would still have 10 months of an emergency fund should I lose my job and that's not counting unemployment income.

It really doesn't make sense to give the mortgage company $85k and continue making $635/month payments to them when I can keep the money in savings and at least earn interest on it in the mean time.

Another option would be to put the $17k on the CC and pay higher payments, say $1,650 a month and payoff the card in 11 months, which would effectively cut down my interest to roughly $600; I nearly pay that in 1 month on my mortgage. The only issue is that doing the above would limit my ability to continue building savings every month but it's kind of a moot point since I would be eliminating the debt faster.

I do not see it as much of a gamble, should shit hit the fan I could sell off one of my vehicles to payoff the credit card.

The reason I want to payoff the mortgage is that it will reduce my monthly debt by about 45%. I can then take that 45% (or roughly $650/month) and invest that money without having to worry about losing my income and having to cash in on my investments to pay the bills. With the house paid off, I can effectively invest without the risk of having to cash in on those investments at the expense of any losses or early withdrawal penalties.

Or,...am I better off putting the $85k in various liquid investments and hoping they do not lose money should I need to cash them in in the event of a loss of income? I see paying off the mortgage as the better option despite the fact that I "might" be able to do better investing the money elsewhere but of course there are no guarantees. I'm not the type of individual that likes to roll dice with my money; I'd just rather have the security of knowing I'm in control. If I don't payoff the mortgage, the money will just sit in savings earning me about $100/month interest (as of now @ 1.60%) while I continue to pay my mortgage company $500+ in interest every month.

Mikemustang289 · #5 (**permalink**) 09-13-2009, 08:40 PM

Not sure where my reply went but in short, what would be the best option for paying off my mortgage asap assuming the $85k will not run me dry and I will still have roughly 10 months of expenses set aside for an emergency.

I just don't like the idea of continuing to save the additional $15k while I continue paying big interest to the mortgage company. It makes sense to me that I could avoid those interest payments by using a CC to fill the gap.

robert fourman · #6 (**permalink**) 12-11-2009, 12:52 PM

I agree with all the other posters. I am a CFP who works for execplan express financial planning software, used primary by financial service professionals. So I undrstand people often have an objective that may not make financial sense but it has a personal satisfaction and thus need to look at the least damaging impact.

That saidif you cant find a low interest rate tax card, consider a home equity line of credit, the interest rate will be low and it will also give you the ability to tap into the line in case you have an emergy need.

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