How nice would it be to have the peace of mind that would come with 100% ownership of your home? We are not talking about ownership where the bank still has your mortgage, but true ownership. No more monthly budget line item for House Payment. Let's take a look at the Pros and Cons of paying off your loan early.

Pros:
Income Stream - does it make more sense for you to have that additional income stream and spend it on other expense requirements. What is the benefit for you eliminating the payment? Or, just cut that particulate expense item and save or invest that additional income. It is also a possibility that a highly stressful job could be eliminated for a lower income, pleasurable pursuit, position that provides greater satisfaction and enjoyment. What percentage of your current salary is necessary to make the house payment.

Interest Rate Risk - if you take the money that you would have spent on paying your mortgage, and invest it elsewhere, can you make the same amount or greater. If your mortgage is 4.5%, is the return on the investment you make with the money you no longer pay for that expense, a better investment than the one you are paying off. What are the inherent risks of fluctuations for that alternative investment. So, if you pay off the mortgage, you essentially have a return of 4.5%.

Interest Savings - interest payments on a mortgage can equate to tens of thousands of dollars. Paying off your mortgage will free up the money that would have gone to pay the interest alone. You are freeing up future cash flows to be spent elsewhere. Lost will be the mortgage interest tax deduction, but the after-tax cost savings of the debt may still be substantial. Also, the closer you get to paying of the debt, more of the payment goes to principal and the tax benefits diminish over time.

Peace of Mind - do it and get it over with. No more worries about this portion of your debt load. We suggest you use funds from taxable accounts. Avoid using funds from IRAs or 401Ks. These will be taxable as income in the year they are withdrawn reducing any savings rate you may have realized on interest. Using taxable account withdrawals could lower your total tax bill assuming that you do not have to pay significant capital gains related to the assets you utilized.

Cons:
Underfunded Retirement - focus on funding your retirement first. If you have not contributed the maximum allowable, do that first. Is your retirement fully funded.

Analyze Your Debt Structure - if you do have the extra cash, focus on the debt structure of the other obligations you have. Pay off the higher interest rates first. Concentrate your efforts on the non-deductible debt such as credit-card debt first.

Available Reserves - if you do pay of your mortgage, your strategy must include analysis of required cash reserves. Ensure you have accounted for money needed to fund emergencies, general expenses and all discretionary spending. You will still be required to pay property taxes, insurance and those unknown monthly maintenance items. Make sure you have adequate cash reserves in your strategy.

Opportunity Costs - While paying off the mortgage is risk-free in the sense that there's no volatility in this investment, you do risk losing out on potential gains you might have made by investing the money elsewhere. Compare the mortgage interest rate to the after-tax rate of return on an investment such as a high-quality, tax-free municipal bond with a similar term to determine whether investing the funds makes better sense than paying off the mortgage.

Diversification of Investments - If you do pay off your home, that could represent a substantial amount of your total portfolio in one area.  One of the best ways to try and increase opportunities for growth is to hold a variety of investments in different asset classes. Tying up significant funds in your home equity reduces those opportunities—and even if your house appreciates in value, you would have to either sell it or refinance it to tap into that equity.

Contemplating a Possible Move - If you are thinking about moving, you might as well carry the existing mortgage until then.

Other Options and Considerations - If your mortgage has no prepayment penalty, an alternative to paying it off entirely before you retire is paying down the principal. You can do this by making an extra principal payment each month or by sending in a partial lump sum. Interest is a killer, this approach can save a significant amount of interest and pay off the loan much quicker while preserving liquidity and diversification. Are you getting the best rate available? Keep an eye on interest rates, refinancing with a lower interest rate may work nicely into your strategy.

The strategy that is best for you will depend on your goals and financial plan, preferences and your individual circumstances. Do watch, and beware of developments in the economy. Keep an eye on interest rates monthly, if not daily. What would you do, if you could? Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management

    It's no secret that we Americans are an arrogant lot. Full of ourselves, egocentric, totally lacking in self-awareness. With the current government stalemate on raising the debt ceiling, and possible default, we have hit a new low. We are not leaders, leaders are humble and measured by their deeds for the common good. It's not always about compromise, it's the ability to address the current issue and come to a solution that is in the best interest of the world economy. The US is no longer the world leader, we are acting more like financial terrorists.

    We are all too familiar with the religious extremist organizations that resort to violence and threats to intimidate and coerce, for political purposes, the world's populous. The basic concept of terrorism is to advance your ideals by creating a state of fear in order to have your target enter a state of submission.

    If you didn't know it was the US government, you would think it was coverage of Al Qaeda or the Taliban. Destined to bring down the capitalist western society and the global economy. This current wave of terrorism, being inflicted on the world, has little to do with policy, or even ideology, but has all the extremist insurgent tactics and suicidal strategies. These western insurgents are championed by wealthy religious ideologues who simply seek to tear down our government. Follow the money trail of millions in unregulated, untraceable "dark money."

     While the economic turmoil, we have experienced since 2007/2008, has generated some of the greatest wealth creation we have seen in our lifetime, this current group of so called leaders is striking fear into the hearts of SSWM. Sure, buy on the dips, take profits on the news of a potential agreement. We know the congressional leaders trade on proprietary information. There is a delicate balance here. Most of congress, that I have seen testify, just don't get it, reading from scripts prepared by some MBA intern looking to advance his/her own agenda. This has the potential to be a Black Swan event, one never seen before in the history of the world. Would the egos of our current leadership group really send the globe spiraling out of control, you bet they would. It's all about the perception of winning, winning in your own mind, winning at all cost

    The black swan theory is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight. Our leaders are very good at hindsight, no foresight. With hindsight comes the ability to rewrite history.

The theory is founded in this basic view:

1. The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology
2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
3. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs
   

    Did Congress ever care what the voters think? We don't think so. Every election, held after a government shutdown, did not result in a change in the House or Senate majority party. Reelection rates remain extremely high. More than 90 percent in the House and greater than 80 percent in the Senate. Only when Congressional salaries are impacted, and planes begin to crash, do we stand any chance of an impasse being resolved. Why?:

• the essential portions of government continue to function
• leaders will get reelected anyway
• they do not lose elections because of shutdowns
• the big one - they still get paid
  

    Plus, as we have written before, they know they have the power to manipulate markets.  They can trade on information not available to the general public. Let’s say Michele puts in an option to sell one share of a hypothetical company called, I don’t know, “Morons” at $15. If she knows that continued squabbling and poor results drive the price down to $5, she can buy a share on the open market for $5 and exercise the put to sell at $15, booking a $10 profit. Where is she putting her money, companies like Lockheed Martin, GE, BAE, Tyson Foods and Textron.

    If it wasn't so scarey, it would been fun to sit back, profit from the volatility and laugh at some of the best poorly acted comedy on television.

    Maybe those 'fat cats' in Washington aren't fat after all. Could be they are just wearing suicide vests under those Armani suits ... and they think they look marvelous. Sua Sponte.

Bradford C. Bruner for Sua Sponte Wealth Management