200k - mortgage or market

[Anonymous]

We’re 43 and 44. He has 600k in retirement and a fed job salaried at 100k. She has 370k in retirement and a private sector job salaried at 300k. Mortgage of 850k at 4.5%. Two kids under 10, 529s funded over 100k each. Emergency fund of 50k. No other debt, no other investments. We have 200k in savings, but are unsure of whether to put it into the market or pay down the mortgage.

Conventional wisdom always seems to be putting it into the market, but the mortgage has 28 years remaining and we don’t want to be paying it in our late 60s. Plus we are already contributing the max to our 401ks and Roth IRAs.

Thoughts?

[Anonymous]

College and regular savings

[Anonymous]

Just put the 200k in cryptocurrencies, and then next year it'll be 800k and you can pay off your whole mortgage in one go! Easy!

[Anonymous]

I think it's perfectly reasonable in situations like this to do some of both.

One way to look at it would be to consider what your overall asset allocation for this money should be-- at 43 some people may be 100% in equities but most advisers would suggest you have somewhere between 20 and 40% in bonds, so you could consider putting something in the range of $40-80k into paying down the mortgage and that would still be a moderately aggressive investment of the $200k.

Another way to look at it is to figure out how much you need to pay down so it's paid off by retirement. You could also compare that number to the range above and see how close they are.

Or you could just split it-- 50/50 is a little more conservative but if you are maxing your other accounts I think it's fine to be a little more aggressive on paying down the mortgage (worst case it frees up some cash flow later).

[Anonymous]

Anonymous wrote:College and regular savings

How much into each? Why not the mortgage?

[Anonymous]

Anonymous wrote:I think it's perfectly reasonable in situations like this to do some of both.

One way to look at it would be to consider what your overall asset allocation for this money should be-- at 43 some people may be 100% in equities but most advisers would suggest you have somewhere between 20 and 40% in bonds, so you could consider putting something in the range of $40-80k into paying down the mortgage and that would still be a moderately aggressive investment of the $200k.

Another way to look at it is to figure out how much you need to pay down so it's paid off by retirement. You could also compare that number to the range above and see how close they are.

Or you could just split it-- 50/50 is a little more conservative but if you are maxing your other accounts I think it's fine to be a little more aggressive on paying down the mortgage (worst case it frees up some cash flow later).

Do you think splitting it would be effective? Putting 40-80 into the mortgage seems like it would hardly make a dent.

[Anonymous]

Make 2 extra mortgage payments a year or pay 5-10 percent more of the payment each month to get rid of the loan sooner than 28 years. Buy some stocks and bonds then put some in retirement, maybe $50K then $25K each in college savings. Spread it around a bit. It's a good time to buy stocks if you have the money and can wait out the down cycle.

[Anonymous]

Anonymous wrote:Make 2 extra mortgage payments a year or pay 5-10 percent more of the payment each month to get rid of the loan sooner than 28 years. Buy some stocks and bonds then put some in retirement, maybe $50K then $25K each in college savings. Spread it around a bit. It's a good time to buy stocks if you have the money and can wait out the down cycle.

Is it a good time to buy stocks, though.

[Anonymous]

Is it all or nothing? All in market, or all in mortgage?

[Anonymous]

Anonymous wrote:Is it all or nothing? All in market, or all in mortgage?

OP here. That would seem to have the most impact, but I'm coming here for advice on it.

[Anonymous]

First of all, ignore the poster that said to put it in 529s. You already have 100k in each and need to think about your retirement first.

You left out some key details, such as how much you have remaining on your mortgage and the interest rate. If the 200k would pay off the mortgage or get you much closer to it such that it could be paid off in a few years, I would strongly consider sending it to the mortgage. If, however, the 200k would leave you with several hundred thousand left to pay off, especially if the interest rate was low, I would not send the money to the mortgage. Paying down a mortgage creates some liquidity risk (you still owe the bank the monthly payment every month for X decades) that is not present with paying off the mortgage in one fell swoop.

[Anonymous]

Anonymous wrote:First of all, ignore the poster that said to put it in 529s. You already have 100k in each and need to think about your retirement first.

You left out some key details, such as how much you have remaining on your mortgage and the interest rate. If the 200k would pay off the mortgage or get you much closer to it such that it could be paid off in a few years, I would strongly consider sending it to the mortgage. If, however, the 200k would leave you with several hundred thousand left to pay off, especially if the interest rate was low, I would not send the money to the mortgage. Paying down a mortgage creates some liquidity risk (you still owe the bank the monthly payment every month for X decades) that is not present with paying off the mortgage in one fell swoop.

OP here. I included those items - it's 850k remaining balance, at 4.5%, with 28 years remaining. So putting 200k into it would knock it down almost by a quarter and lower our monthly payment by 1k and save us roughly 400k in interest over the life of the loan.

[Anonymous]

Are you kidding me? Mortgage of course! Where else can you get 4.5% post tax risk free return

[Anonymous]

Anonymous wrote:

Anonymous wrote:I think it's perfectly reasonable in situations like this to do some of both.

One way to look at it would be to consider what your overall asset allocation for this money should be-- at 43 some people may be 100% in equities but most advisers would suggest you have somewhere between 20 and 40% in bonds, so you could consider putting something in the range of $40-80k into paying down the mortgage and that would still be a moderately aggressive investment of the $200k.

Another way to look at it is to figure out how much you need to pay down so it's paid off by retirement. You could also compare that number to the range above and see how close they are.

Or you could just split it-- 50/50 is a little more conservative but if you are maxing your other accounts I think it's fine to be a little more aggressive on paying down the mortgage (worst case it frees up some cash flow later).

Do you think splitting it would be effective? Putting 40-80 into the mortgage seems like it would hardly make a dent.

You should run amortization tables to see but as a quick estimate you can divide 80k by your mortgage payment— if it’s 8k then you would shave 10 months off your mortgage. You could also call your bank and ask about recasting the mortgage.

[Anonymous]

Anonymous wrote:Are you kidding me? Mortgage of course! Where else can you get 4.5% post tax risk free return

Well, the counterargument I hear is that you'll surpass 4.5% in the stock market. We could always use more retirement funds, but we already have close to 1M in the stock market (plus some bonds) across our retirement and 529s.