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Started By
Message
Pay $1,000 extra to house or invest?
Posted on 6/14/16 at 5:25 am
Posted on 6/14/16 at 5:25 am
Brand new 30 year mortgage @ 3.5%
$1,000 left over each month
One kid, 1 year old
Roth IRA with $23,000
Wife has a pension at work that would pay her roughly $35,000 a year after 30 years of service
Do I pay off the house very early or invest that $1,000 each month and pay minimum on the house for 30 years?
$1,000 left over each month
One kid, 1 year old
Roth IRA with $23,000
Wife has a pension at work that would pay her roughly $35,000 a year after 30 years of service
Do I pay off the house very early or invest that $1,000 each month and pay minimum on the house for 30 years?
10
Posted on 6/14/16 at 5:40 am to poops_at_parties
the last thing I would do with guaranteed 3.5% money over 30 years is allocate money to that. Just me, I'm sure others will disagree.
I would definitely be maxing out pre tax investments. I'm also a super cash heavy guy but being in real estate I have to be should an opportunity arise. Even so I'd say having a year + living expenses on hand is never a bad idea.
I would definitely be maxing out pre tax investments. I'm also a super cash heavy guy but being in real estate I have to be should an opportunity arise. Even so I'd say having a year + living expenses on hand is never a bad idea.
Posted on 6/14/16 at 5:47 am to poops_at_parties
Unless you were paying down to avoid PMI, I wouldn't put it to the mortgage
Wife could use a Roth, even with the pension
Wife could use a Roth, even with the pension
Posted on 6/14/16 at 5:52 am to ItNeverRains
Also, what advantage do I have in doing a traditional IRA over a Roth? I'm of the strong opinion that taxes will go up, not stay the same.
Posted on 6/14/16 at 6:01 am to poops_at_parties
Most people agree
Only caveat is if you think you are in a higher tax bracket now than you would be at retirement
If you are only contributing to a Roth IRA at this point, I'd implore you to use other vehicles as well because 5500 a year isn't gonna go far enough at retirement
Only caveat is if you think you are in a higher tax bracket now than you would be at retirement
If you are only contributing to a Roth IRA at this point, I'd implore you to use other vehicles as well because 5500 a year isn't gonna go far enough at retirement
This post was edited on 6/14/16 at 6:31 am
Posted on 6/14/16 at 7:09 am to poops_at_parties
I would save 20 percent of the amount you owe on your mortgage and refinance into a 15 year note.
Posted on 6/14/16 at 7:20 am to poops_at_parties
This post was edited on 11/8/20 at 12:03 pm
Posted on 6/14/16 at 7:33 am to BigD13
quote:
I would save 20 percent of the amount you owe on your mortgage and refinance into a 15 year note.
I would run numbers to see if you pay 30 like a 15 what that will cost vs cost to refi. That plus flexibility if SHTF leaves me inclined to stay in a 30
Posted on 6/14/16 at 8:37 am to poops_at_parties
If you have PMI, put it toward the mortgage and refinance when you can.
Otherwise, 3.5% is a sweet deal. Save that money!
Otherwise, 3.5% is a sweet deal. Save that money!
Posted on 6/14/16 at 8:59 am to poops_at_parties
I actually am paying $1,000 extra on house every month. (3.75%) I want to be rid of the mortgage before my kids enter college and that is our plan. It all started to make sure we could sell and weren't upside down. It has turned into a great way to attempt to free up that money down the line. It is not what some would do, but it works for what my goals are.
Posted on 6/14/16 at 12:27 pm to statman34
quote:
I want to be rid of the mortgage before my kids enter college and that is our plan
I would rather have a liquid asset (e.g. college fund with $180,000+ for your kids or taxable account) in 15 years when they go to college instead of an illiquid asset and no money for my children's education.
Like someone said above, the irrational fear of debt outweighs the logic of investing and compounding. You're missing out on a substantial opportunity to build wealth by forgoing 15+ years of investing.
Posted on 6/14/16 at 1:09 pm to GoIrish02
Yeah I go back and forth on this but my thought process is I can do a lot with the extra money that I will free up and you always have to have a place to live. So not having any money is factually accurate but you now have means to pay for things you would not have if you still had a mortgage payment. And for me to pay off the mortgage at the current rate I am going is only 6 or so more years. Not 15. So I would not be able to amass 180K in that time frame.
Every situation is different and things can change, but this is the preferred option for us at this time.
Every situation is different and things can change, but this is the preferred option for us at this time.
Posted on 6/14/16 at 1:49 pm to statman34
As long as you're okay throwing basic concepts like opportunity cost, the time value of money and liquidity out the window to pursue this short sighted strategy, enjoy having no mortgage and no money for the next 6+ years.
Good luck getting access to your equity if you lose your job, get disabled or have a financial emergency. As someone with college expenses on the horizon, liquidity should be a bigger priority.
No matter the term left on your current mortgage, if you can get money at 3.75%, you should invest the surplus elsewhere. At a minimum, you stay liquid and get flexibility, not to mention you can buy assets that yield more than home equity. The yield on home equity is always 0%, plus you have to sell your house and incur very high transaction costs should you need to realize it.
Your house will never pay you dividends, produce earnings or appreciate more than equities (historically) or otherwise put money in your pocket.
Good luck getting access to your equity if you lose your job, get disabled or have a financial emergency. As someone with college expenses on the horizon, liquidity should be a bigger priority.
No matter the term left on your current mortgage, if you can get money at 3.75%, you should invest the surplus elsewhere. At a minimum, you stay liquid and get flexibility, not to mention you can buy assets that yield more than home equity. The yield on home equity is always 0%, plus you have to sell your house and incur very high transaction costs should you need to realize it.
Your house will never pay you dividends, produce earnings or appreciate more than equities (historically) or otherwise put money in your pocket.
Posted on 6/14/16 at 4:39 pm to GoIrish02
Do either of you have a 401k or other pre tax retirement plan? If you have $1000 post tax that's like $1250+ before taxes.
I'd take a 25% instant gain on a pre tax retirement plan first.
If your are planning on more kids $1000 doesn't go far.
No way especially with a mother would I rely on a pension requiring 30 years. I'd consider it pure fluff unless she is under 10 years away.
ETA: I'd also make sure you had at least $25k in equity in your house so if you ever need to sell you can walk away without owing anything.
I'd take a 25% instant gain on a pre tax retirement plan first.
If your are planning on more kids $1000 doesn't go far.
No way especially with a mother would I rely on a pension requiring 30 years. I'd consider it pure fluff unless she is under 10 years away.
ETA: I'd also make sure you had at least $25k in equity in your house so if you ever need to sell you can walk away without owing anything.
This post was edited on 6/14/16 at 4:47 pm
Posted on 6/14/16 at 6:23 pm to ItNeverRains
quote:
the last thing I would do with guaranteed 3.5% money over 30 years is allocate money to that. Just me, I'm sure others will disagree.
Me too. No way in hell would I want to prepay a mortgage at that rate, especially if I'm able to deduct interest.
Posted on 6/14/16 at 6:27 pm to GoIrish02
What would you recommend as a way to invest that much money a month vs. paying down your mortgage. I am not eligible for Roth IRA and I am not experienced or comfortable with the stock market on my own. Just curious to see what other options I would have.
Posted on 6/14/16 at 10:38 pm to statman34
Traditional IRA
And/or mutual funds
And/or mutual funds
Posted on 6/15/16 at 9:42 am to statman34
quote:
What would you recommend as a way to invest that much money a month vs. paying down your mortgage. I am not eligible for Roth IRA and I am not experienced or comfortable with the stock market on my own. Just curious to see what other options I would have.
Do you have a 401k at work? Are you maxing it out?
Stick it in an index fund if you aren't experienced.
I would definitely not be trying to pay off my mortgage right now. Interest rates can't get much lower, but they sure can go a hell of a lot higher.
Posted on 6/15/16 at 10:02 am to statman34
quote:
What would you recommend as a way to invest that much money a month vs. paying down your mortgage. I am not eligible for Roth IRA and I am not experienced or comfortable with the stock market on my own. Just curious to see what other options I would have.
like barry said, make sure you're maxing out your 401k and then whether you're putting the additional money into the 401k or an individual/personal investment account the safe bet would probably be an array of index funds as they have low costs and typically perform pretty well
This post was edited on 6/15/16 at 10:03 am
Posted on 6/15/16 at 10:53 am to poops_at_parties
quote:
Do I pay off the house very early or invest that $1,000 each month and pay minimum on the house for 30 years?
Ask yourself, what happens if my wife cheats and leaves me for another man?
She gets the House 99.99% of the time, so don't pay it toward that.
She gets a pension, so don't invest in her name.
Set up an account in your name only that she doesn't know about and pay into that, or put it toward your own retirement account and in case of divorce...amicably "give her the house"(contingent upon not tapping the retirement accounts.)
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