Is it completely stupid to pay off our mortgage?
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Anonymous
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We are 35. Two kids. No debt other than mortgage.
House worth 475. mortgage on it 285K. we are doing a 15 year, at 3 percent. We are maxing out our 401Ks, non-deductible IRAs yearly. we have about 300K in those accounts (evenly split by spouse). Have maxed out 529 contribution for kids yearly since they were born. we have good life term insurance coverage, both through work and privately held. we have about 250K sitting in savings because we are really scared of investing (other that the mutual funds/etfs/index funds we are invested in for our retirement accounts). Thinking about making a massive payment to our mortgage, and just paying it down fast. is this dumb, and if so, please explain why? FWIW, we are the kids of hard working immigrants who fear debt and want to be free. - completely financially unsavvy person |
Anonymous
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First of all, when you say you "max out" 529s, do you mean you contribute enough to get the max tax deduction (maybe $2-4k a year depending on where you live), or enough to get the max gift tax exclusions (around $14k now)? If it's the former, you might want to put some more money into 529s (and then you probably can take any excess state tax deductions in future years as a "roll forward").
Second, if the choice is between paying down your mortgage and leaving the money in a low interest savings account then the question is really comparing the returns on those two (which is probably 3% vs. 0.1%) and the liquidity, meaning your ability to access it if you suddenly need a chunk of money (which is obviously much easier if it's in the bank). You should at least keep a chunk of the money accessible as an emergency fund to provide some liquidity, but paying down the mortgage is not a bad financial move with the other money. There is another question about whether it makes sense to do some more investing in the market-- perhaps start with $1-2k a month in a broad based index fund (or a balanced fund, with both stocks and bonds)-- but that depends on you being comfortable investing in stocks. |
Anonymous
| Not having a mortgage gave me an indefinite amount of mental security. I realize it isn't the smartest way to maximize your money but it was something I really wanted to achieve and it was also the last "to do" before my wife became a SAHM. Having the mortgage out of the way eased that transition. |
Anonymous
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Personally, I would rather invest in the stock market than in paying down a mortgage at 3 percent.
Having said that, if the choice is between paying down a 3 percent mortgage or earning close to zero on a savings account, then I would pay down the mortgage. Or, as pp suggested, you could do some of both. Pay down 150 K of your mortgage, and start investing a couple of grand a month in the market - stick to low fee index ETFs or mutual funds - can't go wrong with Vanguard. Whatever you do, I would not just have $250K sitting in the bank getting negative real interest rates... |
Anonymous
| If I had your savings, I would pay off my mortgage in a heart beat...and my rate on my 15 is 2.65%. |
Anonymous
| I would pay off the mortgage. Maybe just keep enough of a mortgage to be able to get homeowner's insurance. |
Anonymous
| Another option so you don't eliminate the whole of your savings... Call your lender. See if they would becelingvto recast your loan if you make a large payment (like 100k). Them your monthly required payments drops, but your int rate and term don't. Then if you keep making your current payment you will pay it off much more quickly. |
Anonymous
| i wish we could pay off ours |
Anonymous
| please take a moment to recognize and appreciate your level of focus, discipline and purpose. I totally get the values your immigrant parents shared w. you. Don't know how much you make but I can tell you that you will keep more of the money you earn than 99% of your peers by the fundamental financial management you've shown - stats share that most folks over 50 have only 50K assets outside their home, etc. If you don't like debt, evaluate a plan to pay off the mortgage in say 5-7 years from FUTURE savings, w/ options of taking a small part of your savings as downpayment. We paid off our 400K mortgage off in about 8 years. You may want to qualify the 529 savings - is it the max or the max tax dedectable? |
Anonymous
Why....for homeowner's insurance...you can pay that on your own. |
Anonymous
| I think it's time to get an advisor and start investing some money rather than pay down a mortgage with such a low interest rate. |
Anonymous
I agree that's an odd comment. The only thing I can think of is if you really want the mortgage co. to escrow your tax and insurance payments instead of taking over responsibility for making them yourself. |
Anonymous
This. |
Anonymous
Exactly. You're leaving so much potential money on the table. |
Anonymous
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We have a 15-year mortgage at 4% and have more than enough money to pay it off today. We do not, because we are earning more than that in the stock market!
You have to understand, instead of fearing, debt, and avoid going to either extreme. The financially savvy solution is to look for investments that will yield more than what you owe. The money you plan on using to pay your debt will instead grow faster, and you will become richer. We are invested in domestic tech stocks, which have done very well in recent years. To avoid paying too much in fees, we use TD Ameritrade, an online brokerage firm. |