First of all great job with your finances! Secondly it is always better to pay off the primary residence first. Here's how to confirm the decision... If you owned the house outright, would you take out a mortgage to play stocks etc. No one has told me yes yet.
Mortgage payoff experiences
- Thread starter emmett442
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We were the general contractor for our first house at age 30 and were able to build our house for about 25% less than the market price.
Interest rates were very high (over 11%) at that time so we paid the mortgage off after 5 years. We've bought 4 different houses since then (work, education and retirement moves) and have always moved into a better house and paid the difference in cash. We haven't had a house payment since age 35 or 36.
Since age 30 we've invested in stocks and bonds (50:50 initially, with more in stocks than that currently). My experience is that the stock market goes up and the stock market goes down, but in my case generally up over the long term. I'm not sure how things will pan out in the future but I don't expect future results will be as good as the past 20 - 30 years. When I started investing, interest rates were high (so bonds were a good investment) and PE ratios were low (so stocks were a good investment).
But paying off our first mortgage was an excellent investment.
Interest rates were very high (over 11%) at that time so we paid the mortgage off after 5 years. We've bought 4 different houses since then (work, education and retirement moves) and have always moved into a better house and paid the difference in cash. We haven't had a house payment since age 35 or 36.
Since age 30 we've invested in stocks and bonds (50:50 initially, with more in stocks than that currently). My experience is that the stock market goes up and the stock market goes down, but in my case generally up over the long term. I'm not sure how things will pan out in the future but I don't expect future results will be as good as the past 20 - 30 years. When I started investing, interest rates were high (so bonds were a good investment) and PE ratios were low (so stocks were a good investment).
But paying off our first mortgage was an excellent investment.
I'd pay it off even if it meant draining savings to $0 for a short while. If that bothers you take out a HELOC a month later and use that as your "savings account" until you get them back to where you want them to be. You don't pay anything for not using the HELOC and it's there if you need it until you build up your savings. Having a paid off house could be a great feeling and would allow you to accumulate savings at a much greater rate than having a mortgage. Only caveat would be to make 100% sure you have tax money saved up each year to pay those bills when they come due. No rolling it into the monthly payment like with a mortgage.
I came from a 3rd world country. Pretty much pennyless. Worked in factory and paid international students fee. After marriage and a small house that was the goal pay the mortgage. We stayed in that house and geared up on 401k and IRA and reserve's. Bought a second home paid it off in 2 years by selling reserve fund. ITo us it is a great feeling of a shelter paid off.
So in a nutshell if you want peace of mind I would do that. I was able to retire at 57 from a large defense contractor (30 years). Now 63 I have no regrets. During our early days of our marriage we would cringed at buying a happy meal. It has paid off well. Sorry for digressing. Extra cash go with Vanguard Balanced Index or their Health care fund.
So in a nutshell if you want peace of mind I would do that. I was able to retire at 57 from a large defense contractor (30 years). Now 63 I have no regrets. During our early days of our marriage we would cringed at buying a happy meal. It has paid off well. Sorry for digressing. Extra cash go with Vanguard Balanced Index or their Health care fund.
gathermewool
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The OP seems too logical to be swayed by the "peace of mind" argument. Either other investments will outperform his mortgage rate or not. Take into account the fact that the mortgage interest is tax deductible and the argument NOT to pay off a mortgage early becomes much stronger. Even conservative investments seem like better bets than wasting money paying off a low-interest mortgage early.
Similar logic would be those who buy new cars for cash instead of taking out a 1% interest loan. Makes zero sense.
Similar logic would be those who buy new cars for cash instead of taking out a 1% interest loan. Makes zero sense.
I'm betting the tax savings on the mortgage interest isn't much different than taking the standard deduction in your case. I'd pay the mortgage down with the $50k and pay it off early.
If you decide to use the $50k to pay down the mortgage, an option is to see if your lender will allow you to recast your mortgage. At $50k, (if I've done my math correctly from paperwork my lender sent me), for each $1000, your mortgage would go down by ~$7-8 dollars, or $350-400. Invest this money or still keep the same payment, but adding it to principle...even add to it as you were originally thinking. It doesn't cost that much to do...$250-300.
Google recasting mortgage.
Google recasting mortgage.
Bought our 1st house in 1986 at 26 years old. $143,000. Paid if off by 1991, always on variable rate mortgage, rates were 5 to 8 percent. Never looked back.
Pay it off asap in my opinion.
Pay it off asap in my opinion.
Originally Posted By: emmett442
This can be a highly debated topic. I've done some reading on it, and there are a lot of mixed opinions out there. Unfortunately, most of them are from financial advisors and such, who are great at delivering an analytical view, but I'm more interested in hearing about other's real world experiences.
Background:
My wife and I are 30 and 31 years old. We don't make a ton of money (both public employees - her a high school teacher, myself an engineering tech/construction inspector), but we are both pretty conservative. No debt outside of the mortgage. Large expenses like education and cars were always saved for and paid for in cash; no credit card debt.
In 2014, we purchased a home for $223000. We opted for a 15 year fixed @ 3.25% on a $178,400 loan. No points, no PMI, just a straightforward 15. We set up direct deposit into a separate checking account dedicated to mortgage payments, where biweekly payments are automatically withdrawn (equating to one extra monthly payment per year).
Fast forward 2.5 years later. We now have a $150k loan balance remaining.
With no other debt, we've been able to save quite a bit as well. Quite a bit of cash has accumulated in our bank accounts. As many of you may know, it's not doing much for me sitting there earning 0.01% interest from the bank (that's all the love they can show us for making X% on the loans they fund with it?). I don't like it. I'm getting antsy.
Modern wisdom says that with such a low mortgage interest rate, I'd be better off investing the cash elsewhere. I've dabbled in stocks in the past with moderate success, but I have a hard time stomaching the ups and downs of the market. I can't keep my eyes off of it, I worry, I spend too much time on it. I just don't have the mindset for it.
I realize the investor's world is huge, but am pretty unfamiliar with most of it.
Given my long winded story, I'm thinking about pulling the trigger on taking some of the idle savings and using it to pay down the mortgage. $50k now, and then increasing the automatic payments nearly $300 dollars to pay off the house in 4-5 years before my kids start school. Essentially earning a tax-free 3.25% on the extra payments, this will save me $18000 in interest vs sticking with only the biweekly payments over 13.6 years, and save $23000 vs making the standard minimum monthly payments over 15 years.
Over the course of years, I think that's kind of insignificant and I can't help but think I could do better investing. However, imagining the financial freedom and cash flow of not having a house payment is intoxicating to me. It's almost difficult to grasp.
So... have any of you paid off your mortgage early? If so, was there ever any doubt as to if it was the right decision or not? How did you do it? Any benefits you didn't realize until it was done? Any other insight?
You do not mention kids. You can pay off a couple of mortgages for the cost to raise a child through college.
But I would still pick the kid over paid off mortgage.
This can be a highly debated topic. I've done some reading on it, and there are a lot of mixed opinions out there. Unfortunately, most of them are from financial advisors and such, who are great at delivering an analytical view, but I'm more interested in hearing about other's real world experiences.
Background:
My wife and I are 30 and 31 years old. We don't make a ton of money (both public employees - her a high school teacher, myself an engineering tech/construction inspector), but we are both pretty conservative. No debt outside of the mortgage. Large expenses like education and cars were always saved for and paid for in cash; no credit card debt.
In 2014, we purchased a home for $223000. We opted for a 15 year fixed @ 3.25% on a $178,400 loan. No points, no PMI, just a straightforward 15. We set up direct deposit into a separate checking account dedicated to mortgage payments, where biweekly payments are automatically withdrawn (equating to one extra monthly payment per year).
Fast forward 2.5 years later. We now have a $150k loan balance remaining.
With no other debt, we've been able to save quite a bit as well. Quite a bit of cash has accumulated in our bank accounts. As many of you may know, it's not doing much for me sitting there earning 0.01% interest from the bank (that's all the love they can show us for making X% on the loans they fund with it?). I don't like it. I'm getting antsy.
Modern wisdom says that with such a low mortgage interest rate, I'd be better off investing the cash elsewhere. I've dabbled in stocks in the past with moderate success, but I have a hard time stomaching the ups and downs of the market. I can't keep my eyes off of it, I worry, I spend too much time on it. I just don't have the mindset for it.
I realize the investor's world is huge, but am pretty unfamiliar with most of it.
Given my long winded story, I'm thinking about pulling the trigger on taking some of the idle savings and using it to pay down the mortgage. $50k now, and then increasing the automatic payments nearly $300 dollars to pay off the house in 4-5 years before my kids start school. Essentially earning a tax-free 3.25% on the extra payments, this will save me $18000 in interest vs sticking with only the biweekly payments over 13.6 years, and save $23000 vs making the standard minimum monthly payments over 15 years.
Over the course of years, I think that's kind of insignificant and I can't help but think I could do better investing. However, imagining the financial freedom and cash flow of not having a house payment is intoxicating to me. It's almost difficult to grasp.
So... have any of you paid off your mortgage early? If so, was there ever any doubt as to if it was the right decision or not? How did you do it? Any benefits you didn't realize until it was done? Any other insight?
You do not mention kids. You can pay off a couple of mortgages for the cost to raise a child through college.
But I would still pick the kid over paid off mortgage.
Here's how I experienced that phase of my life: get your fixed monthly cash outflow as low as you can (pay off the mortgage) and then invest in your family before you invest in stocks and bonds. Set up education funds for your kids, but don't stop there. You and/or your wife will benefit from additional education. Sign up for the next level of post-secondary degree, whatever that might be. Added education is an investment that can generate a whole new level of income for the rest of your life.
Originally Posted By: jaj
Here's how I experienced that phase of my life: get your fixed monthly cash outflow as low as you can (pay off the mortgage) and then invest in your family before you invest in stocks and bonds. Set up education funds for your kids, but don't stop there. You and/or your wife will benefit from additional education. Sign up for the next level of post-secondary degree, whatever that might be. Added education is an investment that can generate a whole new level of income for the rest of your life.
I agree, kids education is extremely important.
Very wise for OP and his wife to have a college fund for both kids... not blow that money leasing fancy cars and buying silly expensive jewelry.
Here's how I experienced that phase of my life: get your fixed monthly cash outflow as low as you can (pay off the mortgage) and then invest in your family before you invest in stocks and bonds. Set up education funds for your kids, but don't stop there. You and/or your wife will benefit from additional education. Sign up for the next level of post-secondary degree, whatever that might be. Added education is an investment that can generate a whole new level of income for the rest of your life.
I agree, kids education is extremely important.
Very wise for OP and his wife to have a college fund for both kids... not blow that money leasing fancy cars and buying silly expensive jewelry.
Great mindset and thought process.
I had the same thought process.
If I were you, great plan and execute it!!!
Pay it off, the interest in the mortgage is compound interest.
You will have more accumulation of capital to do things like investing.
I had the same thought process.
If I were you, great plan and execute it!!!
Pay it off, the interest in the mortgage is compound interest.
You will have more accumulation of capital to do things like investing.
It is nice having a paid off house why not save the $$$ you have and increase the payment [principle greatly] It will be paid off quickly and the money in the bank will be a nice emergency fund or you can invest some of it maybe. I have 4 paid off houses and when I had 1 paid off years ago house it was awesome.
No reason not to borrow against 401K for college.
Originally Posted By: rsylvstr
No reason not to borrow against 401K for college.
I have to wonder if its a good idea. You pay back your 401k loan with taxed dollars, then you pay tax on those dollars again when you withdraw your 401/403k for retirement.
No reason not to borrow against 401K for college.
I have to wonder if its a good idea. You pay back your 401k loan with taxed dollars, then you pay tax on those dollars again when you withdraw your 401/403k for retirement.
IDK what the max contribution is to kids' college accounts, but I'd start modestly now when they're babies/toddlers and keep it modest throughout.
If you & wife get annual raises better than 3.5% you'll effectively beat your own mortgage by paying it off with cheaper money. The extra surplus you have you can "enjoy" (even if this means investing elsewhere.)
I'm rocking my own retirement account more than my kids' college accounts, because cynical me says that if a school sees my kid with a bunch of money to his name, they'll give him less financial aid in return. So his focus will be on making A's in high school and being desirable in that regard. I don't think college financing in 2025 is going to be like it is now, and there'll be lots of traps to milk "rich" parents as well as lots of opportunities. But be a contrarian, or think like one.
I also figure during the next recession they'll invent a loophole letting people "raid" their IRAs for stuff like tuition to get money back in the economy. Gotta protect the vested interests, ya know.
If you & wife get annual raises better than 3.5% you'll effectively beat your own mortgage by paying it off with cheaper money. The extra surplus you have you can "enjoy" (even if this means investing elsewhere.)
I'm rocking my own retirement account more than my kids' college accounts, because cynical me says that if a school sees my kid with a bunch of money to his name, they'll give him less financial aid in return. So his focus will be on making A's in high school and being desirable in that regard. I don't think college financing in 2025 is going to be like it is now, and there'll be lots of traps to milk "rich" parents as well as lots of opportunities. But be a contrarian, or think like one.
I also figure during the next recession they'll invent a loophole letting people "raid" their IRAs for stuff like tuition to get money back in the economy. Gotta protect the vested interests, ya know.
529 plans are also another option for saving for college.
Originally Posted By: gathermewool
The OP seems too logical to be swayed by the "peace of mind" argument. Either other investments will outperform his mortgage rate or not. Take into account the fact that the mortgage interest is tax deductible and the argument NOT to pay off a mortgage early becomes much stronger. Even conservative investments seem like better bets than wasting money paying off a low-interest mortgage early.
Similar logic would be those who buy new cars for cash instead of taking out a 1% interest loan. Makes zero sense.
He should stick with mutual funds like an S&P 500 index fund.
As for your car point, lots of people tend to make this point, but the last few cars I bought, I paid cash for. Why? Just wasn't worth the hassle. Used car loans are in the 2-3% range. Over 10 years, the S&P500 index funds have returned under 7% although they've done very well the last couple years although everyone keeps saying that they're overvalued. They said the same back in 96 and it took 4 years for the market to crash and it didn't crash down to the levels it was at in 1996. So you're really looking at just a 3-4% return investing it in the market and paying 2-3% on the loan. For a 20k car, that works out to about $600-$800 a year if the market doesn't drop out. But there's the time involved with the paperwork and sending in payments. Paying cash is also a much simpler transaction. Can't be bothered. Probably why I bought a Mercedes that gets under 20 mpg and uses premium. For 150k though, that works out to 6k a year, that might be more worthwhile or for the 50k lump sum, that's about a 2k difference.
The OP seems too logical to be swayed by the "peace of mind" argument. Either other investments will outperform his mortgage rate or not. Take into account the fact that the mortgage interest is tax deductible and the argument NOT to pay off a mortgage early becomes much stronger. Even conservative investments seem like better bets than wasting money paying off a low-interest mortgage early.
Similar logic would be those who buy new cars for cash instead of taking out a 1% interest loan. Makes zero sense.
He should stick with mutual funds like an S&P 500 index fund.
As for your car point, lots of people tend to make this point, but the last few cars I bought, I paid cash for. Why? Just wasn't worth the hassle. Used car loans are in the 2-3% range. Over 10 years, the S&P500 index funds have returned under 7% although they've done very well the last couple years although everyone keeps saying that they're overvalued. They said the same back in 96 and it took 4 years for the market to crash and it didn't crash down to the levels it was at in 1996. So you're really looking at just a 3-4% return investing it in the market and paying 2-3% on the loan. For a 20k car, that works out to about $600-$800 a year if the market doesn't drop out. But there's the time involved with the paperwork and sending in payments. Paying cash is also a much simpler transaction. Can't be bothered. Probably why I bought a Mercedes that gets under 20 mpg and uses premium. For 150k though, that works out to 6k a year, that might be more worthwhile or for the 50k lump sum, that's about a 2k difference.
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