Anonymous
Post 04/01/2016 14:31     Subject: Advice needed: order of priority
OP, don't forget to account for the money you'll spend on extended day and summer camp. We went from spending $320/week for daycare to $327/month on extended day, but 10-11 weeks of camp at $350-$500/week can add up. Plus you'll likely end up spending $2K a year on rec activities - a decent dance class alone can run $1,000/year. So unless your daycare is really, really expensive, don't count on saving $12K. (for us, it was more like $5K.)

For me, the answer would depend on my mortgage rate vs. the rate I thought I could get in the market. I would also lean more toward putting money in vehicles you could access for either retirement or education, depending on where you need it. (I.e. not in a dedicated 529 or 401K but in mutual funds that can be cashed out whenever.)
Anonymous
Post 03/31/2016 12:48     Subject: Re:Advice needed: order of priority
Please explain. The interest is what I don't want to pay. Are you saying if I pay off my mortgage early I'l still pay the same amount of interest?


See my post at 12:47.
Anonymous
Post 03/31/2016 12:47     Subject: Re:Advice needed: order of priority
Not OP but I don't understand. Wouldn't you be paying the same interest even if you weren't making extra payments?


No. Home mortgages are amortized so that the interest is front-loaded. The interest on the full loan principle for the full term of the loan is calculated and assigned to the earliest payments.

Your very first mortgage payment is almost entirely interest on the full loan. The very last payment is almost entirely loan principle.

When you pre-pay, the bank credits each dollar to the last payment and moves backward according to how much is pre-paid. You will save a little bit on the total dollars paid in interest, but because of the front-loading, you are effectively driving up your rate of loan interest when you pre-pay. Invest your extra cash somewhere else.

Tip: When you give a bank a mortgage for a home loan (and you are giving one, not taking one, pet peeve and I digress), try and negotiate an amortization schedule based upon bi-weekly payments, rather than monthly payments. Most of us get paid every two weeks and they can just debit our bank account accordingly. In this way, you will save thousands in interest over the life of the loan, without driving up the interest rate on the loaned money.

Anonymous
Post 03/31/2016 12:44     Subject: Advice needed: order of priority
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:If you've got 11 years left on a 15-year mortgage, you are already paying down principle at a good clip (you can Google a 15-year amortization schedule to see where you stand).

The thing to remember about pre-paying a mortgage is that you are effectively increasing the interest rate, by giving the bank back its loan principle while you continue to pay according to the amortization schedule. It may feel good, psychologically, but it will cost you.

I would go with a combo of options 2) and 3) if I were you.



Not OP but I don't understand. Wouldn't you be paying the same interest even if you weren't making extra payments?


Yeah, if you pay down the principal (and many banks require you to specify that you want the extra applied to principal) you are reducing your overall interest payments on the life of the loan and accelerating the payoff date.


Incorrect.


Please explain. The interest is what I don't want to pay. Are you saying if I pay off my mortgage early I'l still pay the same amount of interest?
Anonymous
Post 03/31/2016 12:40     Subject: Advice needed: order of priority
You should have plenty on that income depending on spending. I agree to do all three. That is what we do with a lot less income and one in private (going to public next year too). We pay a few hundred extra to principal every month, do a lump some a few times a year into the college fund. Not organized to do it monthly and max out my husband's ira through work and we contribute to our ira's as well.
Anonymous
Post 03/31/2016 12:37     Subject: Advice needed: order of priority
Anonymous wrote:
Anonymous wrote:
Anonymous wrote:If you've got 11 years left on a 15-year mortgage, you are already paying down principle at a good clip (you can Google a 15-year amortization schedule to see where you stand).

The thing to remember about pre-paying a mortgage is that you are effectively increasing the interest rate, by giving the bank back its loan principle while you continue to pay according to the amortization schedule. It may feel good, psychologically, but it will cost you.

I would go with a combo of options 2) and 3) if I were you.



Not OP but I don't understand. Wouldn't you be paying the same interest even if you weren't making extra payments?


Yeah, if you pay down the principal (and many banks require you to specify that you want the extra applied to principal) you are reducing your overall interest payments on the life of the loan and accelerating the payoff date.


Incorrect.
Anonymous
Post 03/31/2016 12:31     Subject: Advice needed: order of priority
Anonymous wrote:
Anonymous wrote:If you've got 11 years left on a 15-year mortgage, you are already paying down principle at a good clip (you can Google a 15-year amortization schedule to see where you stand).

The thing to remember about pre-paying a mortgage is that you are effectively increasing the interest rate, by giving the bank back its loan principle while you continue to pay according to the amortization schedule. It may feel good, psychologically, but it will cost you.

I would go with a combo of options 2) and 3) if I were you.



Not OP but I don't understand. Wouldn't you be paying the same interest even if you weren't making extra payments?


Yeah, if you pay down the principal (and many banks require you to specify that you want the extra applied to principal) you are reducing your overall interest payments on the life of the loan and accelerating the payoff date.
Anonymous
Post 03/31/2016 12:23     Subject: Re:Advice needed: order of priority
Anonymous wrote:
If your dream scenario is to have the house paid off in 12 years when the first gets to college, and your current payment schedule has it paid off in 11 years, you're on the right track. You might not get great returns from investments this year, but if your strategy is long-term then this is the time to get in. The market is on sale. Buy it now. For the allocation between 529s and taxable accounts, I'd fund the 529s up to the point you feel like you've got it covered for each kid. My earlier post assumed you're already contributing there, since you've got $85K, but if that money is coming out of the $4K/month then I'd do maybe a thousand for each kid and invest the rest. That way you get tax advantages but all of your savings isn't tied up in dedicated accounts.

Long story short: this is a great conundrum to have! You guys are so on track in so many areas that there's not really a "wrong" choice to make (although I'd strongly advise against prepaying an historically-low mortgage because the market is shaky).


+1. OP has got real First World problems!

I second the motion on not over-saving in 529s. Those funds will be taxed heavily if not used for approved college expenses. If Larla gets a scholarship, mom and dad will get burned. Similarly, if they're saving for Larla's medical school and Larla decides at 23 she wants to be an astronaut, the Tax Man will be thrilled for her.


OP here. Agreed, its a first world problem and a good one to have. Given that DH and I are from a 3rd world country and our families went through a lot, we are very grateful, you can be sure.

Okay, so it seems like the most prudent thing is what DH has been insisting - put cash in brokerage accounts. Really, he'll be thrilled that he was right
Anonymous
Post 03/31/2016 12:15     Subject: Advice needed: order of priority
Anonymous wrote:If you've got 11 years left on a 15-year mortgage, you are already paying down principle at a good clip (you can Google a 15-year amortization schedule to see where you stand).

The thing to remember about pre-paying a mortgage is that you are effectively increasing the interest rate, by giving the bank back its loan principle while you continue to pay according to the amortization schedule. It may feel good, psychologically, but it will cost you.

I would go with a combo of options 2) and 3) if I were you.



Not OP but I don't understand. Wouldn't you be paying the same interest even if you weren't making extra payments?
Anonymous
Post 03/31/2016 12:14     Subject: Re:Advice needed: order of priority
Op here. So I think that's a good plan. However, what if the kids don't want to go to college? Or what if they want to do college abroad, where its cheaper? Or what if they get a full-ride ? Not sure if any of these things will happen, but you never know.


You beat me to it, OP. I addressed this at 12:13. Good luck to you!