# Pay Off Loan or Not



## FrancesAnn (Feb 24, 2021)

I've got a 1st and 2nd mortgage on my house. The 2nd mortgage was to finance a home improvement project. It's at $15,562. with a monthly payment of $235. Normally, I pay $335 to advance the end date. The interest rate I think is 4.5% on the 2nd mortgage. In reviewing my accounts, I have separate club accounts I use to manage various expenses. House, Oil heat, insurance and a money market fund. All added up, they reach $9,432. If we have another round of stimulus payments, I'll have $10,832 in cash. If I put all this to that 2nd mortgage, it reduces the debt to $4729. Should I pay off the 2nd mortgage or as much as I can? I'd have to start from zero to fund my separate accounts again for this year. 

I hesitate because it's hard for me to figure out what's in my best interest here. My Toyota Corolla is a model 2006. At 155,000 sooner or later, it needs to be replaced. I keep thinking to keep piling into the money market for the day I do need a new car. 

I am still working at 60, have a job, it's a modest income but pays for everything.


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## Aunt Bea (Feb 24, 2021)

Paying off the mortgages will probably give you a higher return than putting your money in a savings or money market account but cash reserves give you options and peace of mind.

I would keep my powder dry and maintain a strong cash cushion for emergencies above and beyond the accounts to pay bills and replace the car.

My goal would be to pay off the mortgages by retirement if you plan to stay in the home.

Good luck!


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## asp3 (Feb 24, 2021)

One thing to consider about your auto replacement is that if you time it right there are often zero interest loans available.  That might help you with the decision.  I'd start looking at possible replacements for your car now to give you an idea of what you might want and how much that may set you back.  Also establishing a relationship with a dealer and/or salesperson can sometimes get you an inside track to the availability of the type of loan or car you want.


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## fmdog44 (Feb 24, 2021)

Interest is a banking term for cheating. When you write a check you need to get something for that check.
155,000 miles on a modern vehicle is in now way a time to sell if it was properly maintained. 3-400,000 is not unusual now again if properly maintained. If I understood you your cash position is not huge so are you going to go back in to another debt by buying a new care? I hope not.


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## Pecos (Feb 24, 2021)

Aunt Bea said:


> Paying off the mortgages will probably give you a higher return than putting your money in a savings or money market account but cash reserves give you options and peace of mind.
> 
> I would keep my powder dry and maintain a strong cash cushion for emergencies above and beyond the accounts to pay bills and replace the car.
> 
> ...


Your point about maintaining a strong cash cushion is excellent given the uncertainties we see these days. I would recommend continuing to pay extra money toward that 2nd mortgage, but I would keep a large cash cushion like Aunt Bea recommends.


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## FrancesAnn (Feb 25, 2021)

fmdog44 said:


> Interest is a banking term for cheating. When you write a check you need to get something for that check.
> 155,000 miles on a modern vehicle is in now way a time to sell if it was properly maintained. 3-400,000 is not unusual now again if properly maintained. If I understood you your cash position is not huge so are you going to go back in to another debt by buying a new care? I hope not.


Yes, the car is maintained well. Corolla's are known to go for 300K miles so it may have a long life ahead. No, I don't want another debt to pay for a new car.


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## FrancesAnn (Feb 25, 2021)

asp3 said:


> One thing to consider about your auto replacement is that if you time it right there are often zero interest loans available.  That might help you with the decision.  I'd start looking at possible replacements for your car now to give you an idea of what you might want and how much that may set you back.  Also establishing a relationship with a dealer and/or salesperson can sometimes get you an inside track to the availability of the type of loan or car you want.


I am trying to figure out if I can move into a smaller town where I can walk to everything in 10 years and possibly not need a car. It'll be a big shift in freedom but less expense. Cars are so complex to maintain. It's in planning now, someday to happen


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## Don M. (Feb 25, 2021)

As a person approaches retirement age, the Priority should be on being Debt Free, and building up an Emergency Fund.  New cars, IMO, are of secondary importance...so long as the existing vehicle is in reasonably good shape.  Buying/leasing new cars frequently is like flushing money down the toilet, unless a person has taken the steps to insure their financial stability.


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## asp3 (Feb 25, 2021)

FrancesAnn said:


> I am trying to figure out if I can move into a smaller town where I can walk to everything in 10 years and possibly not need a car. It'll be a big shift in freedom but less expense. Cars are so complex to maintain. It's in planning now, someday to happen



That sounds like a great idea.  In this area there are several options for getting personal transportation for a few hours or the day.  Hopefully the same will be true in the area you move to.  That way when you do need transportation you can get it.  I'd agree with everyone else who suggested you keep your existing car especially since you are maintaining it well.


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## HoneyNut (Feb 25, 2021)

FrancesAnn said:


> Should I pay off the 2nd mortgage or as much as I can? I'd have to start from zero to fund my separate accounts again for this year.



Sounds too risky to me to pay off the mortgage and have no spare cash.  When are you likely to sell the house, because then you could pay off the mortgages?  Though of course it would be nice to not be spending all the money on interest.
I would also like to find a nice walk-able community when I'm older.  I had a great-aunt who lived in a high-rise in Chicago who was very happy with that location in her old age.  I hope post-pandemic to travel around the country and stay a month or two (or three) in several locations to try out different life styles.
From watching YouTube videos of Dave Ramsey, I imagine his advice would be that you should get a second job to pay off the second mortgage faster.   Either a second job or a "side-hustle".
Personally, I cannot think of any second job that wouldn't just exhaust me to the point life would be miserable.  I feel I hardly have the energy for my one job.   And I have not been able to think of any side-hustle.  I have seen three separate friends/coworkers try pet breeding.  One was going to make money breeding poodles.  Never any puppies!  So she gave up and had the boy dog neutered and just had extra pets (= more expense instead of making money).  Another friend tried Husky breeding.  Again, never any puppies!  It was weird, I probably have conspiracy-brain but made me wonder if breeders somehow sterilize their animals to avoid competition!  And the third was a coworker who was going to breed some type of domestic cat (I forget which).  I thought for sure he'd make a lot of money, but no, the boy cat terrorized the girl cats and after a few months he gave up and managed to sell the boy cat (who was also spraying and stinking up the house) back to the breeder.
My daughter seems to be able to make a little side-money by creating customized water bottles and selling them on Facebook.  I don't know how much her initial investment was for the equipment or how much she spends on supplies. And the tax laws changed 4 yrs ago so that now a craft selling person has to pay taxes on all the income but cannot deduct the cost of supplies/equipment!  It is so insane for politicians to have passed a lot of tax cuts for rich people and then increased taxes for crafting.  Grrrrr.


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## Gary O' (Feb 25, 2021)

Pay Off Loan or Not​


FrancesAnn said:


> The interest rate I think is 4.5% on the 2nd mortgage.


If nothing else, refi (if they let you) while interest rates are still nuts low


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## Butterfly (Feb 26, 2021)

Aunt Bea said:


> Paying off the mortgages will probably give you a higher return than putting your money in a savings or money market account but cash reserves give you options and peace of mind.
> 
> I would keep my powder dry and maintain a strong cash cushion for emergencies above and beyond the accounts to pay bills and replace the car.
> 
> ...


strongly agree


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## ronaldj (Feb 26, 2021)

Aunt Bea said:


> Paying off the mortgages will probably give you a higher return than putting your money in a savings or money market account but cash reserves give you options and peace of mind.
> 
> I would keep my powder dry and maintain a strong cash cushion for emergencies above and beyond the accounts to pay bills and replace the car.
> 
> ...


being debt free is one goal you should reach by retirement, also if you can i would pay off any debt as soon as possible. having no payments makes life a little better.


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## mathjak107 (Feb 28, 2021)

Never leave yourself house rich and cash poor ...a house is a one way funnel ...all that extra money you pump in can’t come out without costly loans .

you cannot even count on those loans ,as 2008 saw helocs closed ..you also need the same criteria for a heloc as a mortgage .

having liquid extra cash can be more comforting than a pile of money you cannot access easily.

there is nothing wrong with debt if the benefits of it are greater ...many seniors today carry mortgages because they find it smarter to do so and they have that money not tied up accessible for spending if need be or investing .


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## Uptosnuff (Mar 16, 2021)

Having two mortgage loans on a house is in no one's best interest.  Do you know how much money you will have ended up paying to the banks by the time the loan is paid off?  I retire in 6 months.  My goal was to be debt-free by that time.  We were able to pay off our mortgage loan but it took a little self-sacrifice on our part.  We now have no debt going into retirement and boy does it feel great!

I would heartily recommend you make an effort to pay off at least that second mortgage as soon as you can.  If you feel more secure having cash, then pay more every month on the loan than you are currently doing to pay it off faster.


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## DGM (Mar 26, 2021)

What is the interest rate on the first mortgage?  With borrowing rates being what they are today it might be wise to refi.  While I'm aware that "you cannot borrow your way out of debt" interest rates may prove that incorrect in your case.


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