With foreclosures on the rise and mortgage companies swamped with calls from distressed borrowers, who wouldn’t want to be out from under the biggest loan of their lifetime if they afford to?
Is it a good idea to pay off my mortgage early?
— Mary A, Pennsylvania
It’s hard to put a value on the feeling of being mortgage-free. But before you scrape together every nickel you’ve got to get the mortgage monkey off your back, you’ve got to do some math.
First step: Pay off higher-cost debts first. It makes no sense to divert your savings to a mortgage costing you 6 percent if you’ve got a significant credit card balance at 18 percent.
The next question is whether the money you’ve got set aside is earning more than your mortgage is costing you — after taxes. Here comes some math:
Let’s say you’ve got a $50,000 mortgage balance that’s costing you 6 percent interest. If you’ve got $50,000 stashed in low-risk savings like CDs or Treasury bonds, you’re probably earning about half that at best — let’s say 3 percent. So far, you’re better off paying off the loan.
Now factor in the tax impact. If you’re in the 25 percent tax bracket, the after-tax return on your savings drops to 2.25 percent. Your after-tax mortgage cost is also cut because you can deduct the interest expense from your tax bill — if you itemize your deductions. For homeowners, mortgage interest and state and local taxes are usually the biggest deductions.
But only about a third of taxpayers itemize, according to the IRS. So if your total deductions aren’t more than the standard deduction ($11,400 for married couples filing jointly; $5,700 for singles and married people filing separately, and $8,350 for heads of household), your mortgage isn’t creating any tax savings.
Even if you do itemize, if you’re in the latter years of paying off your mortgage, your deduction is shrinking. That’s because, early on, mortgages are almost pure interest, gradually shifting to pure principal by the end of the loan. Only the interest portion of your mortgage is deductible.
That means to beat your 6 percent mortgage cost, you’ll have to generate an 8 percent return on your investments, year-in, year-out. Even if you put everything you have in stocks, the average historical return is closer to 7 percent. And there’s no guarantee that the financial markets are going back to that historic norm anytime soon.
For retirees — or near retirees — putting everything is stocks is a pretty risky strategy. So when you add it all up, it usually makes sense for older homeowners to pay off their mortgage, according to a recent paper from the Center for Retirement Research. This assumes you have enough left over to retire on; if not, you’ll be right back to borrowing against your house to pay expenses. If you don’t have a big enough nest egg, you maybe better off selling the house, buying a smaller one with cash, and retiring on the difference.
Paying off a mortgage may make less sense for younger homeowners, for several reasons. First, they should have as much of their savings as they can in tax-advantaged accounts like an IRA or 401(k) — and raiding those to pay down a mortgage comes with hefty penalties. Younger homeowners are also more likely to be in the early years of their payment schedule when the interest deduction is bigger. And they may be better-suited to riskier investments.
But the only way to decide is to do the math.
In what hospital was Barack Obama born?
— Michael G., Address withheld
The current president was born at 7:24 p.m., August 4, 1961 at Kapi'olani Medical Center in Honolulu, Hawaii. The current address is: 98-1079 Moanalua Road, Aiea, Hawaii 96701. Visiting Hours are between 11:30 a.m. to 8:30 p.m., seven days a week.
Last month, the state’s health director published a statement that: “I, Dr. Chiyome Fukino, Director of the Hawai'i State Department of Health, have seen the original vital records maintained on file by the Hawai‘i State Department of Health verifying Barack Hussein Obama was born in Hawai‘i and is a natural-born American citizen.”
In March, A federal judge threw out a lawsuit questioning the president’s citizenship and called the case a waste of the court's time.
"This case, if it were allowed to proceed, would deserve mention in one of those books that seek to prove that the law is foolish or that America has too many lawyers with not enough to do," U.S. District Judge James Robertson said in his written opinion.
None of which has satisfied a small but extremely persistent group of rumor-mongers who insist that the president was born in Kenya, is not an American citizen and, therefore, was not legitimately elected as president.
Americans love conspiracy theories. Hollywood generates tens of millions of dollars at the box office and advertisers spend sell tens of millions more on TV dramas based on the premise that shadowy powers control our government and that the “mainstream media” is either clueless or in on the plot.
The lies about Obama’s citizenship could easily be dismissed as one more conspiracy theory concocted by the lunatic fringe and fueled by fact-free Web sites and YouTube “documentaries.” The problem with doing so is that an absurd number of people claim they either believe these lies or say they’re not sure. One recent poll put the number at roughly one in ten Americans. Another found that more than half of Republicans either believe Obama was not born in the US (28 percent) or are not sure (30 percent).
The wide following gained by these folks (aka “birthers”) suggests one of two things. They may, in fact, accept the truth but are deliberately casting doubt because they don’t like Obama and his policies and wish to do everything possible to thwart them. At a time when the country faces serious problems that need tough, fact-based solutions, this does not bode well for our future. It also distracts from the very legitimate debate over whether the president is moving the country in the right direction.
The other possibility is that millions of people living and working among us, many of whom vote, have completely lost touch with reality.
We’re not sure which is worse.