IBJNews

WOJTOWICZ: Lots to consider when weighing mortgage payoff

Back to TopCommentsE-mailPrintBookmark and Share
Jean Wojtowicz

Q: The old saying “cash poor, property rich” may apply to me. I own a small manufacturing business in a building that we borrowed to buy years ago. But my interest rate is too high, and the monthly payments take a large chunk of money.

I think that if I paid off my loan early, I would have more cash to spend on the business. On the other hand, paying off my loan would require a big outlay from current resources and I would have to delay buying a couple of machines that I need to keep up with technology in my industry.

This is a tough one for me. Do I continue to pay on my mortgage loan or suck it up, pay off the mortgage now and have more cash to buy machinery upgrades in a few months?


A: You didn’t tell me the number of employees in your company, nor did you disclose your industry, but you refer to your company as a “small” manufacturer.  Whatever your number of employees, keeping and expanding your market share in your industry is crucial to them and you, meaning that you need to maintain your company’s technical capabilities.

(I realize that technology comes at us at dizzying speed and we are well-advised to pick-and-choose our upgrades rather than jump at the “next greatest thing” to come down the road.)

Given all this, here are a few thoughts to help you make your decision to pay off, versus keep paying, your mortgage:

What is going on in your business right now? What cash needs are most immediate? Can you stand pat on equipment purchases for a few months? Does your building need maintenance that would require a major expense? Will new rules for employee health insurance change your cash flow? In other words, is there currently a major need for spending?

Is there a possibility of a new account in the next few months that will require you to buy a major piece of equipment? Could you handle a big purchase with cash in hand? Or could you finance new equipment at a lower interest rate than you are currently paying on your mortgage?

It is very tempting, and understandable, to complete your obligation to a mortgage lender, or any lender. (I’m assuming here that you will not be hit with a prepayment penalty or a large payment at the end. Either would dramatically impact your calculations.)  
You certainly don’t want to keep paying a mortgage if it restricts your business in other areas. But you don’t want to cough up too much at once and have the same effect. You want to move forward without slipping into reverse.

Generally we recommend matching the term of the financing with the life of the asset.  Paying off your building (a long-term asset) may restrict the amount of money you have available for other needs like purchasing equipment (generally assumed to be a five- to seven-year asset).  

If you are concerned about the cost of your mortgage, you might consider refinancing it to lower your monthly payments and then have more money available to grow the business.

Talk things over with your banker, financial adviser or CFO (if you have one). Be honest about your company’s position and prospects. They may suggest another alternative.

And when you make the decision, do what feels right for you and for your employees.

Good luck!
____

Wojtowicz is president of Cambridge Capital Management Corp.

 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT

facebook - twitter on Facebook & Twitter

Follow on TwitterFollow IBJ on Facebook:
Follow on TwitterFollow IBJ's Tweets on these topics:
 
Subscribe to IBJ
  1. If what you stated is true, then this article is entirely inaccurate. "State sells bonds" is same as "State borrows money". Supposedly the company will "pay for them". But since we are paying the company, we are still paying for this road with borrowed money, even though the state has $2 billion in the bank.

  2. Andrew hit the nail on the head. AMTRAK provides terrible service and that is why the state has found a contractor to improve the service. More trips, on-time performance, better times, cleanliness and adequate or better restrooms. WI-FI and food service will also be provided. Transit from outlying areas will also be provided. I wouldn't take it the way it is but with the above services and marketing of the service,ridership will improve and more folks will explore Indy and may even want to move here.

  3. They could take the property using eminent domain and save money by not paying the church or building a soccer field and a new driveway. Ctrwd has monthly meetings open to all customers of the district. The meetings are listed and if the customers really cared that much they would show. Ctrwd works hard in every way they can to make sure the customer is put first. Overflows damage the surrounding environment and cost a lot of money every year. There have been many upgrades done through the years to help not send flow to Carmel. Even with the upgrades ctrwd cannot always keep up. I understand how a storage tank could be an eye sore, but has anyone thought to look at other lift stations or storage tanks. Most lift stations are right in the middle of neighborhoods. Some close to schools and soccer fields, and some right in back yards, or at least next to a back yard. We all have to work together to come up with a proper solution. The proposed solution by ctrwd is the best one offered so far.

  4. Fox has comments from several people that seem to have some inside information. I would refer to their website. Changed my whole opionion of this story.

  5. This place is great! I'm piggy backing and saying the Cobb salad is great. But the ribs are awesome. $6.49 for ribs and 2 sides?! They're delicious. If you work downtown, head over there.

ADVERTISEMENT