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Budgeting and Sacrifice
Old 12-09-2014, 03:45 PM   #1
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Budgeting and Sacrifice

Recently locked in a new mortgage.

It's roughly 52% of my NET Income (discluding other rental income I don't figure in)

This also includes extra Principle payments to payoff the loan early. My question is, do I sacrifice paying the mortgage note in exchange for buying more shares in the market?

It would be nice to have the house paid off by the time the kid is in college, but at the same time, it would be nice to increase my opportunity in the market by about 10% each year as well. Hard to tell which bucket I should place any extra freed up moneys I have... hmmm
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Old 12-09-2014, 04:02 PM   #2
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What is the interest rate? What is the projected payoff date?

The market is due for a correction, or not. What other investment alternatives do you have that can equal or exceed the mortgage interest rate?

Can you live easily on 48% of your income?
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Old 12-09-2014, 05:21 PM   #3
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My question is, do I sacrifice paying the mortgage note in exchange for buying more shares in the market?
I am not a financial genius (there are plenty here in the forum), but I did manage to save enough to retire. When I was preparing for retirement I found that both (1) putting my money into investments, and (2) putting my money into paying off my house, were surprisingly effective. In my opinion the important thing is not so much which one you pick, but to knock yourself out putting as much as you can into one or the other or both. Preferably both, so that if the market crashes or the house burns down (or other, lesser problems occur with one approach or the other) you won't be set back too much.
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Old 12-09-2014, 05:33 PM   #4
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What Senator said, what is your interest rate?

Your 3-4% interest on your loan will not be much in 10 years compared to your salary progression. You can't make up for lost time as effectively when one considers compounded interest. I'd say invest extra in market.
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Old 12-09-2014, 05:46 PM   #5
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If you have right now 500k in equities and 500k in mortgage then you can look at it as having portfolio of 1 Million with 50% in REITs where 50% of your portfolio is bought on margin.

Hard to say if you should first cover margin or buy more equities. But in any case it is heavily tilted toward REITs. That may be good thing may be bad.

Ohh and margin is cheap.... none the less I look at it as margin debt.
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Old 12-09-2014, 05:56 PM   #6
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BOTH.

Put some into the market and some into your mortgage. They both are good ideas and one isn't obviously that much better than the other for most people.
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Old 12-09-2014, 06:11 PM   #7
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In simplest math terms, it is the trade-off of investment return vs interest cost. If your mortgage is 4%, and Uncle Sam helps you out for approximately 1% of that, your actual cost is about 3%. If you can get more than 3% return on the money after tax, then it makes sense to invest in savings vs paying. The value of compounding is tremendous, and I would say that is worth a lot of credit to making the retirement goal in itself.

On the pay off mortgage side, there is peace of mind in having a paid off house and no requirement for that monthly expense. The "sleep well" factor as many call it.

I guess my conclusion is better to invest in savings and not pay of mortgage, assuming you have those investments in some reasonable aggressive allocation to maximize the difference between interest cost and investment returns.
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Old 12-10-2014, 10:32 AM   #8
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What Senator said, what is your interest rate?

Your 3-4% interest on your loan will not be much in 10 years compared to your salary progression. You can't make up for lost time as effectively when one considers compounded interest. I'd say invest extra in market.

when you factor in TIME, this makes the most sense
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FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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Old 12-10-2014, 10:58 AM   #9
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Not sure what you are including in net income, but how did you get a new mortgage that has such high carrying costs? I recall in the news that Ben Bernanke was unable to refinance recently.

FWIW, to me it all depends on your interest rate compared to what you expect to earn on your investments and how big that mortgage is in relation to your net worth.
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Old 12-10-2014, 12:00 PM   #10
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Not sure what you are including in net income, but how did you get a new mortgage that has such high carrying costs? I recall in the news that Ben Bernanke was unable to refinance recently.
52% of Net income is probable about 33% of gross income. EG: you make 100k, pay 32k in taxes, leave 68k in net income 50% of that is 34k, which is 32% of gross income. Well within ranges for a new mortgage. And that 52% includes extra payments on the mortgage, so actual payments are less than the 52%

Ben has the problem refinancing because he has no "income" he only has fees for speaking and investment income. He has the same issue people that are retired have finding a mortgage.
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