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Message
Paying off a mortgage early vs Putting money into an IRA
Posted on 1/3/13 at 9:20 am
Posted on 1/3/13 at 9:20 am
Which is the better option to work towrads? I have a mortgage that's approximately $275,000 right now. I opened a Roth IRA about three or four years ago for my wife and myself. Is it wiser to send those IRA funds towards extra payments to get the house paid off early or should I continue putting money into an IRA and just pay the mortgage as is.
I'm leaning towards suspending the IRA payments and using those funds towards paying off the home early. My wife and I contribute towards 401K plans for retirement.
ETA: I just ran the numbers on bankrate.com and it's estimated that our 30 year mortgage can be shortened by 12 years if I did this and we'll save approximately $75,000 in interest payments over the term of the loan.
I'm leaning towards suspending the IRA payments and using those funds towards paying off the home early. My wife and I contribute towards 401K plans for retirement.
ETA: I just ran the numbers on bankrate.com and it's estimated that our 30 year mortgage can be shortened by 12 years if I did this and we'll save approximately $75,000 in interest payments over the term of the loan.
This post was edited on 1/3/13 at 9:24 am
8
Posted on 1/3/13 at 9:23 am to Hammond Tiger Fan
Someone that can run the numbers would need your interest rate on the home loan...
Posted on 1/3/13 at 9:24 am to Hammond Tiger Fan
quote:
Which is the better option to work towrads?
I would imagine paying down the mortgage would be the smartest option. Hell, 90% of your monthly payment for the first 15yrs goes strictly towards interest. Plus, yall are already contributing towards 401ks.
But I'm def not a financial expert
Posted on 1/3/13 at 9:27 am to Hammond Tiger Fan
Your effective RoI for paying off principle is likely around 3%. You are very likely to do better than that investing. It's difficult to measure the "good feeling" of having your house paid off vs having a few extra $100grand in the bank earning interest. Also from a risk standpoint, a home is a very difficult process for banks to take from you if you start missing payments. Also check out your state laws with regard to bankruptcy and liability claims if you want to get down to the details. Also as you get older and if you or your wife need to be made wards of the state, you may want to see what the state can take from you.
Posted on 1/3/13 at 9:31 am to Hammond Tiger Fan
quote:
ETA: I just ran the numbers on bankrate.com and it's estimated that our 30 year mortgage can be shortened by 12 years if I did this and we'll save approximately $75,000 in interest payments over the term of the loan.
What would the value of the 401K be at retirement if you suspended contributions for 12 years? I'm just shooting from the hip here but if you get an average annual 7-10% return in the 401K and are paying current rates for your mortgage 3.5-4% you may be better off paying the mortgage down more quickly but not quite as aggressively as you planned. Theres some tax benefits of the 401K, the mortgage interest deductions and whatnot to consider too.
This post was edited on 1/3/13 at 9:32 am
Posted on 1/3/13 at 9:36 am to wiltznucs
quote:
What would the value of the 401K be at retirement if you suspended contributions for 12 years? I'm just shooting from the hip here but if you get an average annual 7-10% return in the 401K and are paying current rates for your mortgage 3.5-4% you may be better off paying the mortgage down more quickly but not quite as aggressively as you planned. Theres some tax benefits of the 401K, the mortgage interest deductions and whatnot to consider too.
Well, we would be suspending payments to our ROTH IRAs. We've been sending extra money there when we have it. But I've been thinking about would it be smarting to send that extra money over to pay the mortgage early. We will still be contributing to our 401ks.
After the house is paid off, we can then likely max out our 401ks and ROTH IRAs. Our kids would've graduated and be on their own by that time.
This post was edited on 1/3/13 at 9:38 am
Posted on 1/3/13 at 9:44 am to Hammond Tiger Fan
I'd personally feel better if you kept funding one or the other (Roth or 401K) as the benefits of compounding are really diminished minus the 12 years of contributions/interest. So if you plan on funding the 401K and want to pay down the house more quickly by reducing only the Roth contribution I dont see much harm in it. Particularly if the interest rate on the home loan is comparable to or above the rate of return in the Roth. Liquidity and home equity are always a great thing...
This post was edited on 1/3/13 at 9:46 am
Posted on 1/3/13 at 10:06 am to wiltznucs
quote:
Theres some tax benefits of the 401K, the mortgage interest deductions and whatnot to consider too.
Very high on your list when running the numbers. How many years are you in to your loan? Your ages?
Posted on 1/3/13 at 10:26 am to Hammond Tiger Fan
I don't see any way paying your mortgage would be the correct answer here with the interest rates today.
Posted on 1/3/13 at 10:31 am to fishfighter
This question gets asked a lot on a multitude of financial forums.You can figure out the financial benefits to both sides pretty easily. What you can't figure out with math is the feeling of security of having a paid off mortgage.
I'm self employed...I know it'd probably mean more to my retirement account if I was contributing extra there, but if something happens to me down the road I'd rather be debt free.
I'm self employed...I know it'd probably mean more to my retirement account if I was contributing extra there, but if something happens to me down the road I'd rather be debt free.
Posted on 1/3/13 at 10:34 am to Hammond Tiger Fan
I'd save my money and not worry with mortgage payoff. Better to have a pile of cash earning something. Once you give a big dollar amount away, you lose it's earning capacity forever. Can't spend a house when buying necessities.
Posted on 1/3/13 at 10:36 am to yellowfin
quote:
I don't see any way paying your mortgage would be the correct answer here with the interest rates today.
It's not, and it's a peace of mind thing for people more than anything, but these threads are like the, "Where to go in NOLA" threads on the F&D board. At least 2 a week.
No fault though. The search function sucks and people think their situation is unique. It's not. Anybody that refid in the last couple of years under 4.5%, and contributes to a retirement account has considered this.
The numbers don't lie.
This post was edited on 1/3/13 at 10:44 am
Posted on 1/3/13 at 10:40 am to LSUAfro
quote:
The search function sucks and people think their situation is unique.
No one made you click on my thread. If you do like the subject, don't read it. I posed the question, b/c I wanted responses to my personal situation.
This post was edited on 1/3/13 at 10:41 am
Posted on 1/3/13 at 10:40 am to Venelar
quote:
I know it'd probably mean more to my retirement account if I was contributing extra there, but if something happens to me down the road I'd rather be debt free.
I just don't understand this as it doesn't make any sense. Your money is still there, it didn't disappear, and actually had a greater earning potential.
Posted on 1/3/13 at 10:42 am to LSUAfro
quote:
I know it'd probably mean more to my retirement account if I was contributing extra there, but if something happens to me down the road I'd rather be debt free.
You can't eat your house if something happens down the road.
Posted on 1/3/13 at 10:42 am to Hammond Tiger Fan
quote:And obviously you thought you were unique as the same thread is 3 pages back, and then another one 2 pages from that, and so on...and so on.
No one made you click on my thread. If you do like the subject, don't read it
Anyways, good luck.
Posted on 1/3/13 at 10:44 am to Venelar
quote:
if something happens to me down the road I'd rather be debt free.
there isn't a debtors prison.
Posted on 1/3/13 at 10:48 am to Hammond Tiger Fan
max out the roth ira annually! do not stop doing that!
as far as paying off the house that is up to you. depends on interest rate and your goals and situation in life. i paid mine off early for many reasons that may not be applicable to your situation.
how much do you put in the 401k annually?
as far as paying off the house that is up to you. depends on interest rate and your goals and situation in life. i paid mine off early for many reasons that may not be applicable to your situation.
how much do you put in the 401k annually?
Posted on 1/3/13 at 10:52 am to Hammond Tiger Fan
quote:
Well, we would be suspending payments to our ROTH IRAs.
ok well that answers it. keep the mortgage on its current path and max out roth iras first. then if you have the extra money you can decide later if paying it down is for you depending on job situation, interest rates, etc.
Posted on 1/3/13 at 10:54 am to Fat Bastard
To clarify, the wife and i contribute to our 401k/simple ira's as well as max both roth's. We do however have a 15year mortgage and throw a little extra on it each month.
My comment wasn't mean to be a "piss on investing, debt free baby!" thing. We had a personal goal to have our house paid for by the time our children were almost out of high school.
My comment wasn't mean to be a "piss on investing, debt free baby!" thing. We had a personal goal to have our house paid for by the time our children were almost out of high school.
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