Should I pay off my mortgage?

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jr-batman

jr-batman

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For those of you with lots of experience... Say I have a $600k condo with a $100k mortgage. I want to sell it in roughly 6 months and roll the equity into a larger property. I have $150k in cash on hand. (The reason so much cash is another story.)

Anyway... I'm thinking of paying off the mortgage now, which would save me ~$1500 interest before I sell. That would leave $50k in rainy day fund (plenty).

Anything I should consider before doing this? I hesitate to write a $100k check before thinking anything I missed.

All other debts (credit card) are already paid off.  And I am not interested in playing the stock market with a 6 month timeframe to try doing better.

TIA any advice.
 
Don't you need this fund when you purchase that larger property?

Unless you sell your existing property first then purchase your next property there will be or might be a transitional period that you will keep both properties and you will need all the fund you need to help you doing this transitional period.  Examples of funds that  will be need for your next purchase include  down payment, 6 month of reserve that are require by some lender, upgrades after the closing (flooring, window treatment, closet organizers etc) and landscaping. 

And if you are about to or likely to facing such scenario where you haven't sold your existing condo and your new home are just about to COE, don't pay it off just yet. 



 
Rent it out.

jr-batman said:
For those of you with lots of experience... Say I have a $600k condo with a $100k mortgage. I want to sell it in roughly 6 months and roll the equity into a larger property. I have $150k in cash on hand. (The reason so much cash is another story.)

Anyway... I'm thinking of paying off the mortgage now, which would save me ~$1500 interest before I sell. That would leave $50k in rainy day fund (plenty).

Anything I should consider before doing this? I hesitate to write a $100k check before thinking anything I missed.

All other debts (credit card) are already paid off.  And I am not interested in playing the stock market with a 6 month timeframe to try doing better.

TIA any advice.
Click to expand...
 
Wouldnt you want to know what the rental income is before recommending rental?  Also if you are doing a refi with intend to use as rental, wouldnt you want to go 30 year refi?

Just a quick calculation of a refi with 480K loan, keep 120k in equity.  refi rates of 3.25% for 15 years.  rent of 2700 a month (most likely less for a 600K condo), vacancy rate of 8.3%, property taxes estimated at 4500 a year, insurance estimated at 200 a month, hoa estimated at 250 a month, maintenance and repairs at a conservative 1000 a year results in a negative cash flow of 1560 a month. 

I didnt calculate tax savings, but I do not think it will make up this negative cash flow.  Furthermore, I would typically calculate cost of property management regardless of whether you use a PM or not.  Why?  because time is money. 
 
Thanks for the feedback. I like the cash out, refi idea but imagine it will hurt my DTI when trying to qualify for a trade-up. Also seems impractical to get a short-term renter, like 2-3 months, while I go house-shopping. I should add that I don't wish to keep my condo as a long-term rental. It would cash flow horribly (HOA + Mello-Roos).

I'm thinking another possibility is to sell it with the intent to ask for a short term rent-back while I find another property.

Anyway appreciate the feedback which is forcing my brain to keep working.

 
FWIW, I plan to pay ours off as soon as I can with keeping enough of a rainy-day fund (still several years away for us).

I don't like paying interest anywhere I don't have to. Even when it's tax-subsidized.

Sounds like a good problem to have for you, though :-)

Good luck!
-IR2
 
IrvineRealtor said:
FWIW, I plan to pay ours off as soon as I can with keeping enough of a rainy-day fund (still several years away for us).

I don't like paying interest anywhere I don't have to. Even when it's tax-subsidized.

Sounds like a good problem to have for you, though :-)

Good luck!
-IR2
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The best advice so far in my opinion.
 
IrvineRealtor said:
FWIW, I plan to pay ours off as soon as I can with keeping enough of a rainy-day fund (still several years away for us).

I don't like paying interest anywhere I don't have to. Even when it's tax-subsidized.

Sounds like a good problem to have for you, though :-)

Good luck!
-IR2
Click to expand...

I agree.
 
jr-batman said:
For those of you with lots of experience... Say I have a $600k condo with a $100k mortgage. I want to sell it in roughly 6 months and roll the equity into a larger property. I have $150k in cash on hand. (The reason so much cash is another story.)
Anyway... I'm thinking of paying off the mortgage now, which would save me ~$1500 interest before I sell. That would leave $50k in rainy day fund (plenty).
Anything I should consider before doing this? I hesitate to write a $100k check before thinking anything I missed.
All other debts (credit card) are already paid off.  And I am not interested in playing the stock market with a 6 month timeframe to try doing better.
TIA any advice.
Click to expand...

Congratulations to you for being in a good financial situation and turning your nose away from short term speculative gambles.

The first question I'd ask is, what is your urgency to buy a larger property in 6 months?

IMO if you found a house that you and your SO absolutely loves and want to raise your family in the home/community, then by all means, go for it.  But don't be hasty just because the numbers add up.
 
IrvineRealtor said:
FWIW, I plan to pay ours off as soon as I can with keeping enough of a rainy-day fund (still several years away for us).

I don't like paying interest anywhere I don't have to. Even when it's tax-subsidized.

Sounds like a good problem to have for you, though :-)

Good luck!
-IR2
Click to expand...

Seems like the Op needs the equity when the op sells it, for the down payment of the new place.
The question is how much is the new place? 
 
What's really funny about financial advice is that it's the opposite depending on how the question is phrased.

Question #1: Should I pay off my mortgage? I own a $1,000,000 home with a $500,000 mortgage and have $400,000 in cash. How much should I use to pay down the mortgage:

Almost Universal answer: Zero - you get a better opportunity to invest elsewhere

Question #2: Should I take get a cash out refi? I own a $1,000,000 home with a $100,000 mortgage and $0 in cash. How much should I cash out with a refi to invest in other investments?

Almost Universal answer: Zero - you shouldn't take on a mortgage you might not be able to afford to pay

People don't realize that they are in many ways the same question.
 
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