200k - mortgage or market

[Anonymous]

Anonymous wrote:

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.

How is it going to knock 1000 off the payment? Are you planning to recast? Recasting will lower the monthly payment but not shorten the loan term.

If you recast, that helps with liquidity, in which case I think at 4.5%, sending it toward the mortgage is reasonable. A 4.5% AFTER TAX return in the max is not guaranteed and I think that is a lot of mortgage balance in your mid-40s.

[Anonymous]

Anonymous wrote:

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.

Yes, a recast of 200k at 4.5% would save about 1k per month, which we could either put into the market or apply to the mortgage. Shaving 10 months off a mortgage with 28 years left doesn't sound like much benefit.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

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.

How is it going to knock 1000 off the payment? Are you planning to recast? Recasting will lower the monthly payment but not shorten the loan term.

If you recast, that helps with liquidity, in which case I think at 4.5%, sending it toward the mortgage is reasonable. A 4.5% AFTER TAX return in the max is not guaranteed and I think that is a lot of mortgage balance in your mid-40s.

Yes, it would be a recast. Not much point in just putting in the 200k and not recasting.

[Anonymous]

Anonymous wrote:

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?

If you don’t want to be paying a mortgage into your 60s, why would you recast? Keep your current payments with more going to the principal.

That said, I would put some, but not all towards the mortgage. I would keep some relatively accessible, and put some into stocks, etc.

[Anonymous]

Anonymous wrote:

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.

You will have to surpass something closer to 5.7 pre tax in stock market to be comparable since you will pay 20% capital gains tax. That is not that far from long term stock market returns of 8%. Many argue that the stock market is expensive right now implying lower long term returns. Add to that that nothing is guaranteed in stock market and guaranteed 4.5 post tax return becomes very appealing

[Anonymous]

Anonymous wrote:

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.

To reduce your monthly payment, you would have to actually refinance, right? Otherwise you're just putting $200K toward principal and your monthly payment stays the same, just for fewer months.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

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.

How is it going to knock 1000 off the payment? Are you planning to recast? Recasting will lower the monthly payment but not shorten the loan term.

If you recast, that helps with liquidity, in which case I think at 4.5%, sending it toward the mortgage is reasonable. A 4.5% AFTER TAX return in the max is not guaranteed and I think that is a lot of mortgage balance in your mid-40s.

Yes, it would be a recast. Not much point in just putting in the 200k and not recasting.

The point of paying down your mortgage withOUT recasting is to save the interest you would have paid in n the $200k over however many years. But you’re right that it won’t change anything about your current cash flow.

[Anonymous]

Anonymous wrote:

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.

The rate of return would need to be close to 6% since taxes will have to be paid.

No need to recast while both have jobs which pay well. Better to shorten the payment period as OP is under no financial pressure to reduce payments.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

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.

How is it going to knock 1000 off the payment? Are you planning to recast? Recasting will lower the monthly payment but not shorten the loan term.

If you recast, that helps with liquidity, in which case I think at 4.5%, sending it toward the mortgage is reasonable. A 4.5% AFTER TAX return in the max is not guaranteed and I think that is a lot of mortgage balance in your mid-40s.

Yes, it would be a recast. Not much point in just putting in the 200k and not recasting.

The point of paying down your mortgage withOUT recasting is to save the interest you would have paid in n the $200k over however many years. But you’re right that it won’t change anything about your current cash flow.

Putting $200k towards a mortgage to reap the benefits of it in 25 years sounds not great.

[Anonymous]

A $50K EF does not seem nearly enough for a $400K income highly imbalanced between the two jobs, 2 kids under 10, and what is probably a $5000/month mortgage payment. I would make sure I had 12 full months of expenses and then the rest is what you have left over.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

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.

How is it going to knock 1000 off the payment? Are you planning to recast? Recasting will lower the monthly payment but not shorten the loan term.

If you recast, that helps with liquidity, in which case I think at 4.5%, sending it toward the mortgage is reasonable. A 4.5% AFTER TAX return in the max is not guaranteed and I think that is a lot of mortgage balance in your mid-40s.

Yes, it would be a recast. Not much point in just putting in the 200k and not recasting.

The point of paying down your mortgage withOUT recasting is to save the interest you would have paid in n the $200k over however many years. But you’re right that it won’t change anything about your current cash flow.

Putting $200k towards a mortgage to reap the benefits of it in 25 years sounds not great.

So true. I want what I want now and I don't want to wait for it. Wahhhhhhh! You've heard about saving for retirement, right?

[Anonymous]

If you want to stay in your house at retirement and you cannot afford to pay the current mortgage amount once you retire, it seems like recasting the 200 is a good idea to lower the payment right? I’m not sure why people aren’t seeing it that way. Welcome someone clarifying.

[Anonymous]

Anonymous wrote:If you want to stay in your house at retirement and you cannot afford to pay the current mortgage amount once you retire, it seems like recasting the 200 is a good idea to lower the payment right? I’m not sure why people aren’t seeing it that way. Welcome someone clarifying.

I guess if they can’t afford bit could afford the new payment that would make sense, but it won’t shorten the loan period. They’d probably be better off putting it towards principal and being done with the loan sooner.

[Anonymous]

What are you college funding goals? You have 100K for each child currently. If you want to fully fund 4 years of private for each, you need to front load the 529s with the 200k. Then you'd be done saving for college. Anything you would have put towards college savings in the future could go to extra mortgage payments or the market. And TBD, I'd put it in the stock market which will have a better return than your 4.5%

[Anonymous]

I’d probably put it all in the market, but I’d do it over the course of the next year.

I can’t imagine working until I’m 65, there for in addition to our 401ks, mega Roths, and HSA, we balance it out with taxable brokerage and 2 modest rentals.