Podcast Episode - To Pay Off or Not To Pay Off

Credit Union, Financial Advisor, Home Buying, Home Mortgage, Stock Market, Taxes

February 27, 2022

Listen to Podcast Episode:

In this podcast, we go to Suze School about when is the best time to pay off a mortgage.  Are you trusting your gut or believing people who really do not have your best interest in mind?

Podcast Transcript:

February 27, 2022. Now I'm actually recording this on February 23rd, one day before I go into surgery. Just so you have a new podcast to listen to. So many things that I wish I could talk to you about today. But that would mean I need at least a five-hour podcast. So, what I normally do is I sit down in front of the microphone. Then I look at all the emails that are printed out or as I'm going through the emails that you're sending into AskSuzePodcast@Gmail.com. And normally what happens as it happened this morning? One of the emails catches my eyes and it aggravates me and normally when I get aggravated it is a great sign that says all right let's just straighten this out and let's do a Suze school on it. So today I'm going to do a Suze School on why when you own a home that you know you're going to keep for the rest of your life, why I want you to pay off the mortgage by the time you are retired and why I do not want you to listen to your financial advisors that say no that's ridiculous, I can get more of a tax write off for you, I can invest for you, I can do this and that. No. That's going to be the Suze school today. However, before we do Suze school, I just want to talk a little bit about the markets. I've told you and I'm going to be telling you this for a while. These markets are going to be chaotic. They're going to start going up and then they're going to end down 600 points for the day or they're going to go down and they're going to maybe finish flat for the day. But what's very sad to me about these markets is that everything is being hit, everything. And really the main reason that I think everybody is freaking is because of the potential of us going to war or war happening between Russia and Ukraine and where else that leads and that makes everybody nervous and probably rightfully so. However, there are many, many stocks, fabulous companies that are being hurt that have absolutely really nothing to do with what's happening with Ukraine and Russia. They're not being affected by that. Except that the overall market is simply afraid because of the war. Now. I have learned in the past that when everybody is freaking, when stocks great stocks that have earnings that have a product that have people buying it, that our reporting and meeting expectations get really hurt because everybody is so negative that those are times to just stop and think and then take a plunge. Now as I said to you, I would start nibbling on these stocks. I said that a week or two ago or nibbling in the market, but I would not put all of my money in at this point. Do I think that these markets will continue down? Do I think that we've seen the bottom? Yeah, I think we're going to continue to go down because everybody is so negative, everything will be affected. And so, I don't think that this is the bottom. So, I think you'll have a great opportunity some time here before April whatever it is to really start entering the market. And if you are somebody who buys individual stocks and in my opinion, you should only be buying individual stocks if you own at least 25 or 30 stocks and you know that you are going to hold them for at least five years or longer. You are not to put all of your money into two or three different stocks. No, you need diversification. Which is why Exchange Traded Funds or Mutual Funds that diversify are great for you. So, if you're somebody who's doing that, even if you're buying Exchange Traded Funds, choose your days carefully as to when you want to invest. So let's say you are dollar cost averaging, which, you know, I'm a tremendous advocate of and you decide that you're going to put $100 or $200 a month into an index fund or an exchange traded fund when the market is down 600 points in one day, that's the day that you put your $100 in. Don't put your $100 in when the market is up, 700 points or 400 points on a day because chances are during this time the markets are going to continue to go down, how much are they going to go down? I don't know, but I do know that over time, three years from now, five years from now, whatever it may be, what you purchase during this time, especially if you are purchasing stocks that have really low multiples and I did a podcast on that a while ago. So, look it up that they're not selling at exorbitant prices anymore that they're really now have come down. The markets have given you a chance again to buy some extraordinary stocks and so you might want to look into that, but choose wisely here also, you know, I've always been an advocate for dividend paying stocks because during times when the markets are going down and you're seeing your principal erode at least, you know, you're still making 2, 3, 4, 5% on your money in terms of dividends and there are some incredible dividend paying stocks out there, incredible. So, it's really important that you look at that, when do I think a stock that's a really good quality stock is at a low enough price that you might want to think about purchasing it. And for me it would be when the dividend yields you about 3%. So where a great company that pays a dividend has a solid dividend is a solid company, but they're going down with the rest of the market and because they're going down in price that means their dividend is increasing in terms of their yield meaning the percentage that pays you based on what you paid for the stock when that percentage gets to about 3% or higher, that's a signal to me that I would probably buy that stock. That's a really nice dividend yield. Just something to think about. Right now, the stock that's giving you the highest dividend yield of all stocks on the stock market is Devon Oil symbol DVN and they're giving you about 7%. Now they very well may come down here a little bit more but it's a stock that if your needing income the way they figure their income and everything is something that you might want to consider. You need to watch it closely because again it's related to oil and Chevron, which was another stock that I liked a long time ago that I told you about, still one of my favorite stocks for a dividend yield and growth because of oil, Exel E the ETF for oil, nice dividend yield as well. Fabulous dividend yield when I told you to buy it almost two years ago now you do have to watch them closely because again, they are related to oil. Oil is high here very well could continue to go higher based on what's happening. But just watch them just in case oil starts to really really turn okay everybody but overall, everybody is too negative. If you ask me two negatives. one other thing is this, if you're thinking about converting a traditional IRA to a Roth IRA or a traditional 401K to a traditional IRA and then converting to a Roth when markets are down and the stocks in your portfolios have gone down significantly. That is the time if you were thinking about converting to convert because then you will pay income tax unless money when you convert, when the markets are really high and your portfolio is worth more and you convert, you owe more income taxes because your portfolio is worth more. Alright. So, I ask you all to keep a very clear head here that obviously we're going through rough times. But if you have time on your side and you don't need this money for 5, 10 years or longer, I don't know, I would keep dollar cost averaging into these markets but choose the days that you dollar cost average, choose a day when the market is down. Suze school. I got an email on February 19, from somebody and the subject is to pay off or not to pay off. And I happened to read that email this morning and here is what this email said to me that absolutely aggravated me. It said the following Dear KT and Suze, this is a person that thinks KT would read this and choose it because her name came first. I have been listening to your podcast and watching your show since the beginning, I believe we are doing the right things but want to validate my husband and I are in our 50s and moved into our forever home about five years ago. We have been working to pay it off. As you say, the goal of money is to make you feel secure and nothing makes me feel more secure than knowing we will always have our home. My financial advisor says not to pay it off as he can garner more than the 4%, I would save in interest if he invested the funds. Put a pin in that for a second. Are you so sure about that Financial Advisor? Really? Seriously? You could guarantee somebody now more than 4% over the long run given what's happening in the markets. Are you positive about that? And did you even ask your client, would that make him or her feel secure? Would that scare them? This person just said to me, nothing would make them feel more secure than owning their home outright. Well, Financial Advisor, don't you care about the security of your client more than you care about the commission's that you would make because you could invest their money for them. Are you serious? Really Financial Advisor, or are you a financial advisor that happens to have your best interests at heart versus your client's? Because money is never the end goal. Making more money is never the end goal if during the process of you making money make somebody feel insecure because when somebody gets insecure, they are powerless and when they are powerless, they make mistakes with money of all kinds. So really Financial Advisor, really you care about that, you could do better, you could do better, you're sure about that than having these people simply pay off the mortgage on their home. Alright, alright. I'll try to calm down here, right. But I really, really hate when you work so hard for your money and you're doing everything like you're supposed to be doing and you get really, in my opinion, seriously bad financial advice from a Financial Advisor, but it wasn't just from this person's Financial Advisor. Let me continue with this email. My parents also say you should never pay off the mortgage due to the tax benefit, really. Do all of you understand how the laws have changed that. You can deduct interest up to $750,000 of a mortgage. But after $750,000 of a mortgage, you cannot deduct any interest whatsoever. And look at the prices of homes today. It is not unlikely that you, even though it's not a big home, It's maybe a little home that you've purchased a home for $1 million dollars and maybe you were only able to put 10% down, Which is $100,000. So that means you have a $900,000 mortgage. So, you can only take the interest deduction on the 1st $750,000 of that $900,000 mortgage. So that extra $150,000 of a mortgage in this case isn't giving you any tax write off at all. But yet I have a parent here who says you should never pay off the mortgage due to the tax benefit. So, the first thing you all have to ask yourself is are you even getting a tax benefit on 100% of your mortgage? Because if you carry a mortgage above $750,000, guess what? You are not getting a tax benefit on all of that mortgage. Did you all know that? Alright again, I'll try to calm down, but I don't want to calm down because it's important that all of you know this. Then this person says the house is worth $650,000 and we only have about $85,000 left. $85,000 left. That means this person over the last five, some odd years that they bought the house either put down a significant down payment or they put down their normal 20% down and they have taken all the rest of their money to pay down this mortgage as fast as they possibly can. So basically, this person says that they have the cash to pay it off and that they do live below their means they have no other debt and they have significant savings. They say if they pay it off that they still would have a 12-month emergency fund. So, they want to know should they pay it off or not? So, the question becomes, should they listen to me or should they listen to a Financial Advisor who will make money off of investing that $85,000 for them? Or should they listen to their parents that may know, or they may not know what would you do in that situation? And if you don't say me, oh what am I going to do with all of you? So, let's though do the numbers because numbers don't lie now, I have no way of knowing really how much they put down, what did they do? But just let's make some assumptions here now you might want to get out paper and pencil just so you can start to understand how you figure out these things for yourself, for yourself, because I will forever stand by the advice if you're going to keep in your home forever make it your number one priority to have it paid off by the time you retire. Alright this couple or this person is obviously in their mid-fifties now when they bought their home. So, let's say they're 55 and let's just say since their house is worth today, they bought it about five years ago, it's worth $650,000. Today. It is entirely possible that when they bought it was worth maybe 400,000. Let's also assume that they put 20% down or $80,000 down, which left them with a mortgage of $320,000. Now they mentioned in this email that it was at a 4% fixed rate because their advisor says that he could get better for them than 4%. So, I'm going to assume that they took a 30-year fixed rate mortgage out for 4% with $320,000 that they owed. If that is the case, their monthly payments would be $1,528 a month, or $18,336 a year. Now, obviously they have been paying a lot more towards the mortgage. But regardless of how much they have been paying extra on every monthly payment, they still owe a mandatory $1,528 a month. Now they simply want to pay off that $85,000. I want you to think about this. If they paid off that $85,000 right now, that would save them about $18,000 a year in payments. That would reduce their expenses by $18,000 a year right now. But yet their advisors and their parents are saying, no don't give up the tax write off. Did any of you have any idea one you owe $85,000 left on this mortgage? What your tax writes off is the interest at that point in time is about $289 a month. That's it. So, they would pay about $3,500 a year in interest right now. Which saves them maybe $1,000 a year in interest. All right, so you have $85,000 sitting in an account and somebody says they can make 4% for you at least. Alright. So, let's say they make 4,000, 5,000 a year for you. And let's just say that's taxable. Really? And that's maybe if they could do that, but you could guarantee yourself of 4% savings because you're still doing what you are still paying $1,528 a month or $18,000 a year. Do you know that? In just 4.7 years, if you were to pay off that mortgage right now, and you were to save that 1,528, every month back into your Alliant Credit Union account and make a .55% currently on it and qualify for that $100 bonus. Oh my God, are you kidding me? I mean, that would be incredible for you. You would have all $85,000 back and during these next 4.7 years before your 60 years of age you would have owned your home outright for the entire time. So, if these markets do crash, if everything does go down, if your advisor can't return the 4% or more for you, if you realize that the tax deduction really saves you nothing in the long run. So, your parents are totally wrong in this case. I mean, can you imagine how you would feel, why would you do that to yourself when your gut has told you what to do over all these years? Which is why you only owe $85,000 and now somebody else, a so called professional steps into the situation and tells you to change what you have been doing because they can do better for you and your parents tell you not to do it because you need a tax write off, what tax write off. So, I did a podcast um, I don't even know when maybe it was last Sunday or whatever that said, the three steps to a super life and one of them was to trust yourself more than you trust others. So, you know what to do. The numbers tell you what to do. But everybody listening, it's not just the numbers in this particular situation, it is always better for you to make sure that you are secure to own your home outright by the time you retire, it's always the right thing to do. It's always the better thing to do. It's always the thing for you to do so that you feel what you feel strong, you feel smart, and you feel secure and I think it was last Thursday’s podcast just a few days ago where KT ended it by saying, you feel safe? Yeah, safe. Don't you want to feel safe in these seriously uncertain times, uncertain times about inflation, uncertain times, about what the markets are doing, uncertain times, about everything. Don't you want to put a little bit certainty in your life and I'm going to tell you this over and over again. The best way you can put certainty in your life is to own your home outright by the time you retire. Now, I am not telling you to do this if you are 35 years of age and you know that you are going to move in three or four years fine, then you don't pay your house outright. But the majority of people, which makes me so happy by the way, that are listening to this podcast are in their 50s, 60s, and 70s, you are looking for security, you are looking for safety, you are looking to make moves so that you don't have to worry. I mean, isn't that the goal of money? So, you don't have to worry. And when it's in the market, no matter how much money you have, when the markets start to do what the markets are doing, you worry, you just do otherwise you would be an alien from some crazy planet that doesn't worry about money and everybody worries about money. When the markets start to go down. Alright everybody so that is your Suze School for this Sunday. There's only one thing that I really want for all of you and you know what that is, I want you to be smart, I want you to be smart, I want you to be strong, and most of all I want you to be secure, and the way that you really stay secure is by making smart moves for you, listening to your gut and when you're smart enough to do that then you're strong because you believe in who you are and you believe in what you know is true for yourself and when you do what's true for yourself and you're strong enough to do that in the end, you are secure. Now, do you all understand why I want you to be smart, strong, and secure? Alright everybody. See you soon. Bye bye.

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