Pay Off The Mortgage ?

[uscfanhawaii]

I just got my annual letter from the county assessor, telling me that my condo in LA is worth 5% less this year than it was last year. This has been going on since the worm turned in 2008. I've owned the place since 2004, and have a tenant/friend paying me almost as much in rent as I pay in mortgage and HOA each month. So I'm not in too much of a bind. I never looked at the place as a long term investment - thought I'd sell it within 5 years. I guess as long as my friend is renting the place, I'll sit pat.

Any reason anyone can think of to pay down the principal early? I don't have a lot of expendable income - pretty much investing what I don't spend each month in TSP, stocks, and education savings accounts for my two kids. I could probably throw an extra hundred a month at the principal, but would I really see a difference in the long run, or would that extra Benjamin serve me better DCA'ing into dividend stocks?

OK, I'll weigh in....

DCA it!!! If the costs of the place are being covered by rent...let it ride. LA prices will eventually recover and it will pay you well.

On the other side, stocks are cheap now. They may still go lower, or may already be rebounding, but if you are DCA'ing it doesn't matter. In the long run you will make out very well.

So this is a Win-Win. Go for it!!

 

[Stoplight]

ok try this again i have 60k left on 4.75% loan retire 55 house paid off 54 i am 48 now. i have 300k +/- 25k in TSP my payment on loan is 1300. lo9ans today interest from TSP 1.75-2% my mind is thinking of cash flow in as oppose to out. and when i retire IF the loan is not paid off i can always call it a lump sum. what do you think

Hmmmm....interesting question ! My "first thoughts" :

Essentially, you'd be "refinancing" down to the TSP loan rate, without all the closing cost BS and paperwork. Instead, you'd have the TSP loan BS and paperwork

OTOH...your TSP loan repayment comes out of your paycheck contribution/deduction. Is your current contribution more than the loan repayment amount ? If not, then you've effectively frozen your TSP account balance where it's at, ~ 7 years before you retire...of course, that doesn't take into consideration the Agency contribution or match...

I agree with Frixxx on this one...let it ride as is !

Stoplight...

 

[jimijr]

Stoplight I have asked myself 100 times, should I pay off the note? Best I can see, for me it is a wash. It would halve my balance but eliminate two-thirds of the draw on the account, so it sounds like a good deal. Over the next 20 years the account would grow back to where it is now. However if I just let things go, so long as the account can withstand the draws and not diminish in size, then in 20 years it too will be where it is now.

See what I mean? Either way in 20 years my loan is paid off and my account is unchanged from today. Therefore I choose to hold on to the money. But remember if you DO pay off the loan, the money is not 'spent.' It is just re-invested in property instead of equities. You'll get it back when you sell.

 

[Birchtree]

Are you perhaps forgetting about the value of your mortgage deduction - it's one of the few areas where you get a benefit. If you have an income stream you might want to keep the mortgage.

 

[nnuut]

Are you perhaps forgetting about the value of your mortgage deduction - it's one of the few areas where you get a benefit. If you have an income stream you might want to keep the mortgage.

Depends how much interest you pay a year, with the low interest rates now that amount may or may not be worth it depending on your balance. When I paid mine off it wasn't worth it.

 

[Stoplight]

Depends how much interest you pay a year, with the low interest rates now that amount may or may not be worth it depending on your balance. When I paid mine off it wasn't worth it.

Birch,

Nnuut is right...for me, after just doing a re-fi in January to a 3.25% rate, the mortgage deduction "benefit" has gone away.

For now, I've decided just to keep the mortgage, and pay extra on the principal, as many have suggested. This keeps me from taking a big tax hit, allows me some flexibility, month-to-month, on how much extra principal I pay, and keeps my retirement pot working for me, rather than being tied up in a non-liquid investment.

Thanks for all the comments and opinions !

Stoplight...

 

[Birchtree]

Now don't forget you have access to a home equity line of credit with a deductable interest rate that will be variable - but if the Fed tells us that interest rates will hold steady until the end of 2014 and beyond now is the time to leverage up and lock those bottom rates. Having a line of credit available doesn't mean you have to use it, it just provides some extra potential when the right price comes along. The current bull market is going to run on for years.

 

[Stoplight]

Now don't forget you have access to a home equity line of credit with a deductable interest rate that will be variable - but if the Fed tells us that interest rates will hold steady until the end of 2014 and beyond now is the time to leverage up and lock those bottom rates. Having a line of credit available doesn't mean you have to use it, it just provides some extra potential when the right price comes along. The current bull market is going to run on for years.

Birch,

I admire your "out-of-the-box" thinking, and your continued "bullish" approach...it's inspired me to try and think creatively ! Call me old-fashioned, or "chicken", but I just don't want any more debt than I need to have, so a home equity line of credit is not something I want to pursue at this time...with real estate values in the tank, I don't have that much equity built up in my home yet anyway...but that may be an option further down the road, when I see how things shape out !

Stoplight...

 

[SWAVET]

Stoplight since you decide to keep your tsp account and continue your morgage payment. You may want to transfer to IRA if your PIP is less than 10%. Here is the old stuff that I received back in 04/30/2009 that show you how to get 13% annual return, then get a home equity line of credit with a few % interest to get more than 13% return is worth for the trade off just like Birch using his margin account, but this take the risk out of buy and hold. "Go to http://fedweek.sparklist.com/t/296018356/7/528/0/ for a complete 2009 schedule.

3. Option Play
--------------
Academic studies support the use of an S&P 500 "buy-write" strategy. Here’s how the process works:
* You invest in an S&P 500 index mutual fund or exchange-traded fund (ETF).
In essence, you’re buying the stocks in that index.
* You sell "covered calls" against the index. The buyer of these options can buy the index from you at given price. As an options seller, you get cash upfront but relinquish the chance of significant gains.
Research indicates that call options are usually overpriced. Thus, sellers of calls generally do better than buyers of calls. Those who sell them tend to make more money than those who buy.
One study found that a buy-write strategy would have generated a 13 percent profit over the past 10 years. Investors who simply bought and held the S&P 500 would have lost 2 percent. Moreover, the buy-write strategy has not been as volatile as a buy-and-hold approach.
Implementing a buy-write strategy on your own is not easy. However, you can buy ETFs and exchange-traded notes (ETNs) that replicate the strategy for investors:
They include iPath CBOE S&P 500 BuyWrite Index (BWV), IQ Investor Advisors' S&P 500 Covered Call Fund (BEP), and PowerShares' S&P 500 BuyWrite Portfolio (PBP)."

 

[Stoplight]

Thanks for the tip and link, SWAVET !

As far as what I'm doing right now, I DID roll most of my TSP into an IRA ("partial withdrawal"), but left a couple of year's worth of withdrawals in my TSP, which I'm taking out ("full withdrawal") in a series of monthly dollar-specified amounts. In fact, it's open season to change the monthly amount for next year, so I need to decide if I'm going to adjust that withdrawal for next year...

With the IRA, I'm dabbling in some buy-and-hold, dividend paying stocks, and some short term trading, as well as bond funds, and cash. I haven't gotten into options yet...still learning the ropes and taking my time !

I have NOT begun paying extra on the mortgage principal, because I knew this year would be the most critical from an income standpoint, and then, sure enough, some unexpected expenses have come up this year..."the best-laid plans..."


Stoplight...

 

[SWAVET]

The best way to learn options is to do the actual trade. You can open an account at Trademonster.com they automatic give you two accounts, one for you to transfer money in to invest and the second is papertrade (for you to pratice with $100K) and everything are on the real time and it is active for 30 days until you transfer the money into the account. Sometime I use the strategy the system recommend to place my trades. On they website they have a lot of course for you to learn. I put in under $2K to start with them. They strategy give you analyze of what is the % of the follow: maximum loss, maximum profit, and of any profit including the breakeven point. I will place with the trade that has at least 80% for probability of any profit and most trade collect any where between 10% to 20% per week. Not all the system recommend are the winner, but I use it as a tool since the system does not know the news or other affecting the movement of the stock. If you go with less votality stocks or ETFs then you have higher chance to lock in the profit with the strategy. When you are ready to trade PM me and I will let you know some options you maybe interest to buy. Since I don't have time to do the research and most of my trade based on unusual volumes by trading at ask price by with majority by one or two investors then I use the strategy atTrademonster to see what is % chance of risk, profit, etc.. The unsual volume is no less than 5,000 contracts (500,000 shares) and buy the options no less than $500K/I prefer $1 Mil or more. If he or she could risk that much then I'm willing to risk $500 to follow as I set a limit $500 per trade to buy straight put or call since I don't have time to watch the market the whole time and I try to take at least 1/2 when profit 50% or more and I prefer over 100% and close the other half when the unusual volume get out. The strategy from trademonster will be different.

If you prefer to buy and hold on certain stock, you could use options to take advance of it such as selling PUT. Example if you really want to own ABC right away and it is trading at $30, instead of buy 100 share for $3K, then you could sell 1 contract PUT at $31 strike expire this week for at least $1.25 (depend on the votality if stock spread is more than $1 then you easily get more than $2). So on the expiration day if stock is trade below $31, then by Monday you will own 100 shares at $29.75 = $31 - $1.25 (or the amount of the put worth), the longer the time the more money you are going to collect (by placing $31 strike you are seriously want to own it right away and can't wait). For me I will sell PUT $30 strike (when it pull back) that way to maximize to saving most of the time are more than 2% of the current price if have to exercise. If it trade above $30 (I even sell the $29 (if you sell it even at $.20 then that is 4% less than current price if you have to own then you buy at $28.80 instead of $30), $28 or even $27 to keep the money available and don't have to buy the stock) and keep the credit that collect 2% is perfect and that is exactly what I prefer as 2% * 52 weeks = 104% a year.