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Started By
Message
Payoff house or keep money invested?
Posted on 2/19/24 at 6:48 am
Posted on 2/19/24 at 6:48 am
I owe roughly 150k on my 30 year 5.5% mortgage with 25 years remaining. Mid 30s and have enough to payoff loan in a brokerage account currently invested in an s&p index fund. I’m at 30k cap gains if I sold so I’d take a tax hit on that but I have enough after the tax burden for the payoff. Should I keep the money invested or payoff mortgage?
16
Posted on 2/19/24 at 6:54 am to Redstickbaw
Man tough call. Get the peace of mind of paying off versus investing. Crummy rate from 5 years ago tbh. 3 years ago you could have re-fi’ed to 2.5. Could have then easily said to not pay it off, if so
Posted on 2/19/24 at 7:16 am to Redstickbaw
Keep money invested. Don’t overthink this.
Posted on 2/19/24 at 7:19 am to Redstickbaw
Depends on what else you have. If it’s just the brokerage account and it would be wiped out by the payoff, you may just want to stay the course.
Posted on 2/19/24 at 7:25 am to Redstickbaw
I think the answer needs more info
How is cash flow?
Would a 15 year work for you?
Would you really invest the amounts currently used to pay mortgage?
Do you have wife?
Any kids?
How is cash flow?
Would a 15 year work for you?
Would you really invest the amounts currently used to pay mortgage?
Do you have wife?
Any kids?
This post was edited on 2/19/24 at 7:26 am
Posted on 2/19/24 at 7:57 am to lynxcat
quote:
Keep money invested. Don’t overthink this.
THIS
END THREAD
and i am all for paying shite off but at his age, amount owed, and rate. f that.
INVEST IT!
Posted on 2/19/24 at 8:11 am to Redstickbaw
Limited info to give advice, but would probably keep the mortgage, get on an auto-pay that chips in some extra principal to turn this in to a 15-year mortgage, and stay invested in the market.
Posted on 2/19/24 at 8:25 am to Redstickbaw
quote:5.5% would be high enough for me to want to pay off.
I owe roughly 150k on my 30 year 5.5% mortgage with 25 years remaining. ... I’m at 30k cap gains if I sold so I’d take a tax hit on that
But there shouldn't be an urgent need to cash out all $150K if it entails significant unnecessary Cap Gains exposure (i.e., short-term exposure or long term gains bumping into a higher tax bracket). If that's the case, consider splitting some of the payoff into 2025.
Posted on 2/19/24 at 8:30 am to Redstickbaw
5.5% is border line whether to pay it off or not. Market is likely to out perform but payoff greatly reduces your financial risk. Payoff locks your capital away though and you will suffer opportunity cost for next 25 years.
Worst case, you stay invested then lose your job during a market downturn and your capital is diminished just when you really need it. On other hand, if you stay invested that $ is accessible if ever needed. If your job is very stable I'd lean towards staying invested.
The first home we bought had a 5.5% rate and we rushed to pay it off. Looking back, I regret that decision because we could have done better in market. But we are very disciplined and actually would have invested difference. I was also in a very stable job in military during a time of war with very little risk of job loss so we could have tolerated the market risk.
Worst case, you stay invested then lose your job during a market downturn and your capital is diminished just when you really need it. On other hand, if you stay invested that $ is accessible if ever needed. If your job is very stable I'd lean towards staying invested.
The first home we bought had a 5.5% rate and we rushed to pay it off. Looking back, I regret that decision because we could have done better in market. But we are very disciplined and actually would have invested difference. I was also in a very stable job in military during a time of war with very little risk of job loss so we could have tolerated the market risk.
Posted on 2/19/24 at 8:47 am to Redstickbaw
That’s way too big of a chunk of your investments to take off the table all at once in your mid 30s.
Posted on 2/19/24 at 8:48 am to Redstickbaw
Keep the money invested. Mathematically better even without the capital gains hit
Realistically it will be difficult to maintain throwing your current mortgage monthly into your brokerage for long enough to replenish it to where it is now. It’s much easier to maintain your current lifestyle
Realistically it will be difficult to maintain throwing your current mortgage monthly into your brokerage for long enough to replenish it to where it is now. It’s much easier to maintain your current lifestyle
Posted on 2/19/24 at 8:48 am to SlidellCajun
quote:
How is cash flow? Would a 15 year work for you? Would you really invest the amounts currently used to pay mortgage? Do you have wife? Any kids?
Cash flow is fine we usually have an extra 500-1k per month to invest in taxable brokerage after 401k, ira, and hsa contributions (the p&i portion of our note is $900/month). We have the discipline to invest extra if we had no mortgage as we are doing it now. Yes I have wife and kids
This post was edited on 2/19/24 at 8:52 am
Posted on 2/19/24 at 8:50 am to Redstickbaw
I'm risk averse so I would pay it off. No mortgage debt is no mortgage debt.
Posted on 2/19/24 at 8:54 am to Redstickbaw
Do you plan to be in this house for the next 25 years? If not, then keep the mortgage.
If you are staying, you are going to pay out around $126,000 in interest over 25 years. $11,000 a year.
If you are staying, you are going to pay out around $126,000 in interest over 25 years. $11,000 a year.
Posted on 2/19/24 at 9:04 am to DarthRebel
To me it is a personal question. The math says to keep it invested. I prefer peace of mind. If I was in your shoes and I owed 150k, I would make sure I had something like 300k in the bank. I would pay it off, save some to live off of for 6 months, and put the rest in the market.
Posted on 2/19/24 at 9:07 am to Redstickbaw
I’ve always been curious of this question specifically because of front loaded interest on mortgages. The interest of the entire mortgage is 5.5. Let’s say the OP pays off half the mortgage and keeps the rest to invest. Is this going to cut into more than 5.5 interest since it is front loaded? How does that work for those who know?
Posted on 2/19/24 at 9:49 am to wizard of smart
quote:
To me it is a personal question. The math says to keep it invested. I prefer peace of mind. If I was in your shoes and I owed 150k, I would make sure I had something like 300k in the bank. I would pay it off, save some to live off of for 6 months, and put the rest in the market.
If I was going to be in the house for full term, and had the money, I would be very aggressive paying down principal. $126,000 in interest is a lot of wasted money, IMO. Not sure I would pay it off, but also depends if the property will appreciate enough to off set interest.
Posted on 2/19/24 at 10:10 am to MrJimBeam
quote:
I’ve always been curious of this question specifically because of front loaded interest on mortgages. The interest of the entire mortgage is 5.5. Let’s say the OP pays off half the mortgage and keeps the rest to invest. Is this going to cut into more than 5.5 interest since it is front loaded? How does that work for those who know?
Interest is based off principal at the time, that is why paying extra payments towards principal saves more.
If he paid $75,000 one time towards principal, interest paid would drop to $63,000 over 25 years.
Stay as is
$150 (principal) + $126 (interest) = $276,000ish over 25 years
Pay off half
$150 (principal) - $75 + $63 (interest) = $138,000 over 25 years
Would save around $5000-6000/year
$150,000 invested based off the last 10 years of S&P index funds would be something like $13,500/year
Change my mind, keep the mortgage
$150,000 invested over 25 years with an annual return of 7.467% would be approximately $828,115.35.
This post was edited on 2/19/24 at 10:18 am
Posted on 2/19/24 at 11:14 am to DarthRebel
The math is going to support staying invested albeit it will not be a risk-adjusted return.
Again, don't overthink this. If you want to accelerate the principle paydown then just add some extra dollars each month.
Again, don't overthink this. If you want to accelerate the principle paydown then just add some extra dollars each month.
Posted on 2/19/24 at 12:25 pm to Redstickbaw
I paid off my house first then upped my investment. It's nice to not have that monthly note.
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