Should I pay off my mortgage loan if I have it in the bank?

“I have $93,000 left on my mortgage and I just hit $93,000 that was saved in my bank account. Should I pay off my mortgage?”

We receive financial questions all of the time. I thought it may be helpful to others to share some of the more common ones we see-

There are a lot of armchair financial advisors out there willing to tell you what their second cousin’s neighbor’s best friend’s dog groomer did ten-years ago that worked great for them. You truly have no way of knowing whether it was a financial strategy that worked, whether it was sheer luck, or whether or not it will work now.

Heck, scrolling through Facebook while standing in line at the grocery store I get at least three good eye rolls in from completely ludicrous suggestions and recommendations. (BTW, when talking about big money issues, ask someone that’s the real thing, like with credentials and all- We have a lot of credentials-)

Without having more information, there’s really no way to answer this question with any certainty. Sure, you can run the numbers and figure out the dollar amount you may save by paying the loan off early, but there are other things to consider.

Is this $93k ALL you have saved? Do you have anything stashed away for emergencies? What will you do if your AC unit, dishwasher, stove, microwave, washer, and dryer go out…all at the same time? What if it all of these items go out at the same time you need new tires or a new engine for your vehicle? The odds are astronomically high these will all happen at the same time, but is still possible. These are all things to consider.

What is your mortgage interest rate, and how aggressive of an investor are you? Is your “risk tolerance” based on more than just your gut or intuition? Will the bank account make you more or less than the interest rate of the mortgage? Could you make more if you placed this money into an investment account? Will your stomach allow you to place the money into an investment account? 

What are your intentions with the house? Do you plan on selling it soon or living in it until you die? Why do you want to pay the pay off the mortgage? Is this an emotional decision? Is this a personal goal you have set for yourself? Or is it simply for bragging rights towards your buddies? By the way, these are all really valid reasons.

There are many things to consider when deciding to make a big financial move, and all things being considered are just as important as the next. However, if you want a general rule of thumb (or in this case multiple thumbs), I would likely recommend if your mortgage interest rate is less than 4.5%, then investing the funds and allowing them to grow, while making the payment directly from the investment account may be your best bet in the long run. An advisor can come up with strategies to “ladder’ the money into various investment vehicles, not only making sure the payment needed for the next 12-months is available but also gaining some growth on the assets not needed for a bit longer.

However, if you have a low-risk tolerance and investing is not your cup of tea, the odds of your bank (checking or savings) earning you more than the interest rate you're paying is rather slim, so paying off the note will likely work in your favor. Just cross your fingers and hope your appliances remain in good shape for a while longer.

In any case, I suggest talking with a financial advisor. The few hundred dollars it costs to run an analysis may save you thousands in the long run-

Should You Borrow From Your 401(k)?

It's Not A Loan

If you were wondering whether or not taking a loan against your 401(k) to pay off credit card debt makes sense, the answer is quite simple. Maybe…

Although it has been tagged with the term, accessing a portion of your 401(k) assets, and making payments to replenish that amount, is not truly a "loan". There are typically no credit checks, nor income requirements to qualify. If you have funds in your 401(k) account, odds are you have already been approved. That's why so many borrow against their retirement funds...its convenience and ease.

Tips For Getting Through Unplanned Debt

I can’t remember my parents ever talking about money matters with my siblings and me. I know for a fact my grandparents never openly discussed such things. However, I see it becoming more common place for families to open up about financial matters around the dinner table, and I think it’s great.

When everyone is involved, it helps them understand why certain things are, or are not, possible. Better yet, keeping the lines of communication flowing is the best thing for any relationship, regardless of the topic.

How patiently waiting for your tax refund is better than eating expired meat

A while back I wrote in my blog about watching a few episodes of Extreme Cheapskates (don’t judge…). I also made clear to point out that I could undeniably, one hundred percent, without a doubt guarantee:

• You would not see me at the park picking unknown weeds for a salad;
• I would opt for Quilted Northern toilet paper in my bathrooms rather than cutting up old pieces of cloth, which I would later launder ;
• I would not ask other diners at restaurants if they were finished with their meals, and if I could have their leftovers; nor
• Would I boil a goat’s head for dinner simply because I could snag it for $1.17

I like saving a buck just as much as the next gal, but I have to draw the line somewhere, and that somewhere happens to be right in front of eating goat eyeballs. Let’s face it, the episodes were amusing. Do I think the stories may have been slightly exaggerated for our viewing entertainment? Probably so. Does it really matter all that much? Nope. The lesson I walked away with was the same: patience, in many capacities of life, can be beneficial. In these Cheapskate’s cases, they didn't mind things taking a little extra time as long as it saved a few pennies. So why do we?

Getting a loan on your money

This is particularly true when is comes to tax refunds. The average refund in 2014 was $3,116. Of those receiving refunds, one in ten taxpayers opted for a refund anticipation type loan. And of that ten percentile, half were low income wage earners. Why are the numbers so high for this particular group of individuals? Sadly, they are the ones who typically need the funds the fastest, and usually don’t have a bank account for a direct deposit.

Using a less expensive, do-it-yourself electronic service like TurboTax gives you the option to have your refund either mailed or direct deposited into your bank account. With a check usually taking anywhere from four to six weeks, most of us choose the direct deposit method. This may well decrease the wait time to around two weeks. However, without an account to deposit these funds into, you’re at the mercy of the good ole boys at the postal service.

Paying to speed things up

Most of the larger tax preparation services offer some type of an accelerated refund product, most commonly in the form of a prepaid card. They sweeten the deal by allowing their fees to be deducted from the refund directly so the customer is not on the hook for any up-front, out-of-pocket expenses. Simply sign on the dotted line, and in a no time at all you’ll be on your way to shopping bliss.

The price of impatience

So how much does this impatience cost the taxpayer in the long run? Well first you need to understand what the service they’re offering really is: it’s a loan. A pretty big one at that! Last year Americans paid $1.4 billion in interest for these tax refund loans. Just in case you missed it, that’s billion with a “B”. But let’s not stop there. Add another $500 million in application and processing fees, and jump that number up to almost $2 billion spent on, well, time. Two to four weeks of time to be precise. I guess Benjamin Franklin was right; “Time is money”.

Other options

Walmart is offering an alternative to the refund anticipation loan called Direct2Cash. Participating partners may offer the service, which costs up to $7, at the time of filing, and the provider may opt to not charge a fee at all. Once the customer completes the filing process, they receive a confirmation code via email. They can take that confirmation code to the Walmart Money Center or customer service desk, show proof of identity, and collect cold hard cash on the spot.

What are the benefits of this service versus the traditional paper check, or prepaid card?

• No check to get lost in the mail
• No check cashing fee (a 2% fee on a $3,116 refund is $62.32)
• Issuing of an actual paper check could result in an addition fee; often $20 more
• Prepaid cards can charge fees to access your funds (H&R Block Emerald Card charges a $2.50 per ATM transaction, and a $.95 per online/mobile bill pay transaction). In addition, the ATM owner may also charge a fee.

So what are the downsides to this too good to be true service? Well, for one they limit the amount of the refund to $7,500. However, if your refund is anywhere near that amount you’re giving the government an interest free loan…and we need to talk. Next, if you've filed a joint return both parties will need to be present to collect the funds. Fair enough. Also, I’m sure the participating tax preparation partner will have fees for their services. After all, we can’t expect them to work for free. But since this isn't an refund anticipation loan, you won’t be side-swiped by those fees. Oh, and the confirmation code does have an expiration date, but since you are already paying extra to expedite things this shouldn't be a problem. Right?

Plan for next year

You can always save yourself all of this trouble, and lots of money, by simply waiting for a paper check. Once you receive it you can use it to open a savings account so next year you won’t be in such a rush to get the money you need.

Your tax return is not an annual bonus. It's not "free money" that is worth losing a percentage of just to get a portion of it faster. It's your money that you overpaid the government throughout the year. As long as so many people treat it as that way, these fees will continue to chip away at YOUR hard earned dollars.

How important do you think it is that we stop thinking of a tax return as an annual bonus? Give your opinion in the comment section below.

Disclaimer: In case I haven't made it clear...consult a tax specialist. I'm not one. I don't hold myself out to be one. Don't sue me~ 

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"Image courtesy of ddpavumba, published on 01 August 2013 Stock Image - image ID: 100188090  FreeDigitalPhotos.net"