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This is a big decision. Help me make the right one!
Old 01-08-2020, 01:57 PM   #1
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This is a big decision. Help me make the right one!

Hello,

I'm very close to having no debt besides my mortgage. Hooray! Still no time to take my foot off the gas. Let's keep going.

When I pay off this last debt, I will be maxing out my ROTH IRA every year and I will be contributing 15% of my income to a 401k. However, at this point I'll have a decision to make and I really don't know what is best.

I did the math and I can pay off my house in around 6-7 years. It seems like a long time, but compared to 30 years it isn't much. Do I continue to max out my ROTH, slowly increase my 401k contribution and then throw every single dollar I can at the mortgage or do I ignore the mortgage and just invest everything?

I'm really stuck because I think the idea of having no mortgage and being totally debt free is very alluring. Still I think it makes more mathematical sense to just invest everything. Of course life throws plenty of curve balls and having no mortgage means you need way less money for necessities if something goes wrong. Still I'm one to want to do what's best for my financials in the long run. What would you do in my situation? I'm very interested in hearing from as many people as I can because the more explanations on which one is best the better.

I hope you're all enjoying your 2020 and so far.

Take care and I hope to hear from you.
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Old 01-08-2020, 02:14 PM   #2
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When you say investing, I presume that you are talking about investing in equities, or mostly equities. Also, what your mortgage interest rate is would be relevant to know.

However, over a 6-7 year time frame I think it is likely that equity returns will exceed your mortgage interest rate, so I would invest in taxable accounts.

OTOH, if the investment will be in bonds, then paying off the mortgage might be preferable.

Now all of that said, I did pay off my 3.375% mortgage recently... but I did it with cash that was earning 1.7%.

Being debt-free wasn't alluring to me.
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Old 01-08-2020, 02:16 PM   #3
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I too have these thoughts occasionally. I'm very adverse to debt and like to eliminate it ASAP or not get into it at all.
Except when it makes financial sense. I decided to contribute to investments instead of paying off the mortgage. What is a great reminder, is that the gains on one of my investments is enough to pay off my mortgage. It stares me right in the face when I login to my account and see that reminder that the money has been better invested rather than paying off the mortgage.
YMMV, it is a financial vs mental/emotional decision.
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Old 01-08-2020, 02:18 PM   #4
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And you can always send in extra principal from time to time to accelerate the payback.
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Old 01-08-2020, 02:18 PM   #5
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this topic (should I pay my mortgage it or not) is literally the 2nd most debated on ER.org (right behind when to take SS).

tl;dr version:
If the rate is super low, and you have plenty of other savings, coin flip
If you are able to take a mortgage deduction on your taxes, lean towards keep
If you would really value the sleep at night factor, lean towards pay
Split the difference and pay extra (pay a 30 like it's a 15, etc.)

So for your case, if you'd like to post the approx amount and rate, that will help the arguing along a bit.
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Old 01-08-2020, 02:23 PM   #6
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Originally Posted by Aerides View Post
this topic (should I pay my mortgage it or not) is literally the 2nd most debated on ER.org (right behind when to take SS).

tl;dr version:
If the rate is super low, and you have plenty of other savings, coin flip
If you are able to take a mortgage deduction on your taxes, lean towards keep
If you would really value the sleep at night factor, lean towards pay
Split the difference and pay extra (pay a 30 like it's a 15, etc.)

So for your case, if you'd like to post the approx amount and rate, that will help the arguing along a bit.
I think this is a great way of breaking it down and it will allow me to give you guys the additional information.

1.My rate is 4.25%.
2. I am not able to take the mortgage deduction on my taxes. I take the standard deduction since it's more than what I would gain from itemizing.
3. I would value not having the mortgage but that all depends on "what ifs." What if I lose my job, what if there is a medical emergency, what if I can't pay the mortgage, etc. If my situation didn't change or only slightly improved then I wouldn't worry because I can easily pay my mortgage now.
4. Amount remaining on mortgage is $140,000.

Thank you all so much for the fast replies and trying to help.
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Old 01-08-2020, 02:26 PM   #7
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Originally Posted by pb4uski View Post
When you say investing, I presume that you are talking about investing in equities, or mostly equities. Also, what your mortgage interest rate is would be relevant to know.

However, over a 6-7 year time frame I think it is likely that equity returns will exceed your mortgage interest rate, so I would invest in taxable accounts.

OTOH, if the investment will be in bonds, then paying off the mortgage might be preferable.

Now all of that said, I did pay off my 3.375% mortgage recently... but I did it with cash that was earning 1.7%.

Being debt-free wasn't alluring to me.
Investments would be in index funds via Vanguard. Thank you for your insight. Looking at the 3 fund portfolio. 70% US Equities, 20% international, 10% bonds.
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Old 01-08-2020, 02:28 PM   #8
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Having read most of the back and forth from previous posts, the math usually leans towards invest rather than pay off (using the criteria above to help decide.)

In my case it was strictly a case of reducing my monthly out of pocket expenses and my annual spend (and therefor my 3 % SWR) so I could reach my target savings quicker. I also hate debt. A paid off mortgage is a certainty, future market returns, not so much. I know the math says I could have a larger nest egg potentially if I invested to cover the higher spend needs but I'm not wired that way.

YMMV
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Old 01-08-2020, 02:36 PM   #9
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While there are no guarantees, it is more likely that not that the portfolio that you describe above will exceed 4.5% over the next 6-7 years.... so I would vote to invest.

An investment portfolio gives you more flexibility if you lose your job or have a medical emergency in that you can tap into it for expenses or mortgage payments.. you can't tap into your home equity as easily to pay expenses.
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Old 01-08-2020, 02:38 PM   #10
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Originally Posted by pb4uski View Post
While there are no guarantees, it is more likely that not that the portfolio that you describe above will exceed 4.5% over the next 6-7 years.... so I would vote to invest.

An investment portfolio gives you more flexibility if you lose your job or have a medical emergency in that you can tap into it for expenses or mortgage payments.. you can't tap into your home equity as easily to pay expenses.
Thank for your view on my situation. I appreciate it.
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Old 01-08-2020, 02:44 PM   #11
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So for the last 8 years I have sent an extra 1k to my mortgage.

I now owe 23k and it will be payed for this year.

My rate was 2.875%

I would have made much more if I had invested.

My 401k has grown but my Roth has treaded water. ( clearly I am a terrible stock picker )

I maxed out my 401k every year and while I was single I maxed my Roth.

In hindsight I am happy with the decision that I made. We are retiring at the end of 2020 with no mortgage. No one knows what the market will do over the next 7 years. You might win or lose. I hedged my bets and I am ok with the results.

YMMV
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Old 01-08-2020, 02:46 PM   #12
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So for the last 8 years I have sent an extra 1k to my mortgage.

I now owe 23k and it will be payed for this year.

My rate was 2.875%

I would have made much more if I had invested.

My 401k has grown but my Roth has treaded water. ( clearly I am a terrible stock picker )

I maxed out my 401k every year and while I was single I maxed my Roth.

In hindsight I am happy with the decision that I made. We are retiring at the end of 2020 with no mortgage. No one knows what the market will do over the next 7 years. You might win or lose. I hedged my bets and I am ok with the results.

YMMV
I think that's really what it boils down to. Most people seem to understand that the market normally would return better results, but we don't know for sure. The mortgage is a guaranteed return and while it may come up short it provides some emotional peace and stability.
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Old 01-08-2020, 03:13 PM   #13
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I retired last year. Before I did, I debated long and hard on whether to pay off my mortgage. I would have to sell dividend paying stocks to do so. I decided to do it, and I cant even tell you the relief it gave me. That was the largest bill I had to pay every month, and with it gone, my hard expenses each month nearly dropped 50%. Had I to do it all over again, I wouldnt hesitate.
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Old 01-08-2020, 03:16 PM   #14
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I retired last year. Before I did, I debated long and hard on whether to pay off my mortgage. I would have to sell dividend paying stocks to do so. I decided to do it, and I cant even tell you the relief it gave me. That was the largest bill I had to pay every month, and with it gone, my hard expenses each month nearly dropped 50%. Had I to do it all over again, I wouldnt hesitate.
Congrats on retiring! How early did you pay off the house?
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Old 01-08-2020, 10:03 PM   #15
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I would pay off debt first before doing any investing, house included. From risk management perspective, when the economy goes down, you lock in your loss if you sell stocks/funds and you may not have a choice if you lose the job/income at the recession and need money monthly to pay for living and avoid being homeless. Not to mention the penalty if the money need to be drawn from your retirement accounts before you retire.

If you choose investing while keeping the minimum mortgage payment, basically you are risking your house and long term retirement for the investment gain of 6-7 years. It works only when it works. I would rather have a house that I own that is not going to have a chance to be short sale or foreclosed.
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Old 01-08-2020, 10:07 PM   #16
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I would be in the pay off mortgage camp depending on how much liquidity I had in the event of a what if.
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Old 01-09-2020, 05:52 AM   #17
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Originally Posted by Chris918 View Post
1.My rate is 4.25%.
2. I am not able to take the mortgage deduction on my taxes. I take the standard deduction since it's more than what I would gain from itemizing.
3. I would value not having the mortgage but that all depends on "what ifs." What if I lose my job, what if there is a medical emergency, what if I can't pay the mortgage, etc. If my situation didn't change or only slightly improved then I wouldn't worry because I can easily pay my mortgage now.
4. Amount remaining on mortgage is $140,000.
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I think that's really what it boils down to. Most people seem to understand that the market normally would return better results, but we don't know for sure. The mortgage is a guaranteed return and while it may come up short it provides some emotional peace and stability.
I would say that given how you are torn between the two options, it would be reasonable to split 50:50 between the two. That way you are covering both bases, and you can always change later if you want to.
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Old 01-09-2020, 06:46 AM   #18
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I would say that given how you are torn between the two options, it would be reasonable to split 50:50 between the two. That way you are covering both bases, and you can always change later if you want to.
You beat me to my recommendation by a little bit. This method allows the best of both worlds.
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Old 01-09-2020, 07:05 AM   #19
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If you are going to pay off the mortgage, make sure that you have a healthy emergency fund before doing so (or a HELOC) so if you have an emergency need for money you'll have access to it. If you have a paid-for home and need money fast you are SOL unless you have a HELOC or emergency fund.
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Old 01-09-2020, 07:36 AM   #20
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I would and did pay off my mortgage early. Two reasons: the peace of mind of not owing any money, and the fact that the 4.25% return is definite/guaranteed. Any possible return or loss for that matter by investing that money is speculation. Jmho
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