I owe 45000 at a 3% loan on a home worth 700,000. I have the money to pay this off and could invest what I am currently paying per month, $2600. Suggestions? I have been told not to pay this off as it is my only tax shelter. I have no other debt.
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2Tax questions require the country. Please add the appropriate country tag.mhoran_psprep– mhoran_psprep2025-12-31 13:50:34 +00:00Commented 19 hours ago
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1Just doing the math, that's a debt-to-value ratio of 6.4% on the mortgage -- it was nearly paid off anyway.Ben Voigt– Ben Voigt2025-12-31 17:08:06 +00:00Commented 15 hours ago
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If you have $45k that you don't need (meaning you have other funds that could be used in an emergency) I'd be very tempted to just pay off the mortgage and be done with it. Then use the mortgage payment to invest, save for college, emergencies, whatever you want.
Yes there is favorable tax treatment for mortgage interest, meaning if you itemize you can deduct the interest from your income, but in your case very little of your payment is interest at this point. you're paying about $1,000 in interest over the year, which would be a tax savings of about $250 (depending on your tax bracket) if you can itemize deductions. It's not enough to prevent me from just paying off the mortgage and having one less debt on my shoulders.
If you don't have an emergency fund saved up, I would put the 45k in a high-yield savings account, where you'll hopefully get 3% interest or better and have the liquidity to cover any emergencies without going back into debt. The interest you earn will make up for the interest you're spending on the mortgage.
"Smart" finance people will tell you that you can make more then 3% in the stock market, and it's true, on average you can make more, but you can also lose money in some years, which can be disheartening if you don't have the experience of investing through downturns. Or you can pay it off, and take that mortgage payment and invest it, and will be back to where you would have been very quickly, and you won't have a mortgage to worry about.
If you ever regret doing it you can always borrow against the house again :)
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Unless what you are doing with the money produces more profit than the interest is costing you, paying down your highest-interest loans is generally a good low-risk choice. But also remember that common advice is that you should have 6 months' to a year's worth of essential spending in low risk accounts (I use CDs) to minimize the risk of an emergency forcing you to cash out equities at possibly unfortunate prices. That buffer amount should probably include loan payments.keshlam– keshlam2025-12-31 18:36:02 +00:00Commented 14 hours ago
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Not only do you have to be itemizing to realize a tax savings on mortgage interest, you're only really getting a break on the amount by which your itemized deductions exceed the standard deduction. Given the $10K SALT limit (pre-2025), very few people could actually save much money by deducting mortgage interest on a low-rate loan like 3% (or less).nobody– nobody2026-01-01 02:31:25 +00:00Commented 6 hours ago