Posted by MarkB_MI on March 08, 2014 at 06:55:38 from (75.219.104.64):
In Reply to: paying off mortgage posted by austin carpenter on March 08, 2014 at 06:18:21:
I have to agree with your friends, but perhaps not for the same reasons. Paying off your mortgage early makes sense if you have a high interest rate or many years left to pay. It really doesn't make good financial sense for you, because you have a dirt cheap interest rate and 15 year mortgage.
I can say one thing about interest rates with absolute certainty: THEY WILL GO UP! As discussed in an earlier post, the Fed discount rate is essentially zero, so the only possible direction for interest rates to move is UP. You are locked into a 3.25 percent interest rate loan for the next 15 years. THAT IS A BARGAIN! Let's say you take that money you would pay against the principal and put it in the bank. Five years from now let's say you want to buy a second property and the interest rate for mortages is now 6 percent. You can use the money you put away against the principal of the new house, essentially paying only 3.25 percent interest for that amount versus 6 percent for the rest of the balance.
Another way to look at it is this: If you pay down your mortgage now, you're getting an effective return of 3.25 percent on your money. That's better than bank interest, but not much. The stock market has been doing much better than; the long term return for the DJIA is around ten percent. Did I mention that interest rates will be going up? You'll feel silly about paying down your 3.25 percent mortgage if bank interest rises to, say, 4 percent.
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