Pre-pay mortgage or put extra $ into savings?
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Anonymous
| DH and I are feds. We both put a good amount into our TSPs. We have IRAs, but currently make too much to put into a Roth. We've been paying about 10% extra towards our mortgage every month in an effort to prepay and reduce the amount of interest we pay in the long term. However, I can't help but think that this is not the best use of our money, given our low mortgage interest rate (3.25%). Our savings accounts/money market are only making around .75% right now. We have a DS and we put money in his college fund. What should we be doing? |
Anonymous
| Do you have a well funded emergency account (at least 6 months expenses, preferably more)? Are you carrying any other debt? |
Anonymous
|
If you are deciding between a money market account and your mortgage, and you don't need the liquidity of the MM (because you have a decent emergency fund, aren't planning to move soon, etc.) then it's a no brainer to prepay the mortgage.
On the other hand, you could put it into ibonds (very liquid after one year, better interest rate than savings account), or, if you want to take a little more risk, a mutual fund (a low cost balanced fund, or index fund). You might also consider converting the IRAs to a Roth (depending on how much gain there is in them), |
Anonymous
| You say you 'put a good amount' into your TSPs. Does that mean you max them out? I'd max out the TSP first. |
Anonymous
|
Good point, we should probably max out the TSPs. I think we do 12% right now.
I'll look into ibonds. I've done some CDs. Yes, we have a good amount liquid in a money market that would cover 6 months of expenses. No other debt other than our mortgages (house and rental property). We have Roth accounts but our combined income is too high to contribute any more. |
Anonymous
| Even if your income is too high to contribute to a Roth, you can still contribute to a traditional IRA (without taking a deduction) and then convert it to a Roth -- you end up in the same place. The only issue is if you have other traditional IRAs you will have to pay tax as if you converted part of those IRAs as well |