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3 Year Check-up
Old 06-23-2013, 08:41 PM   #1
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3 Year Check-up

I have been out of college for 3 years now and started working soon after. Right now my goal is just to build my assets. Below are key stats.

Age: 26
Single

Salary: 55k but 63k beginning 7/1 after promotion

401k: 20k
Roth: 27k
Cash: 11k
HSA: 9k
House: 128k

Mortgage: 124k (3.35% rate, 30 year)
Student Loan: 3.5k (approximate 4% rate)

In addition, my 5yr old car is paid for. Overall, I have been saving roughly 30% (10% 401k, max Roth, HSA, and cash). Credit card gets paid off monthly.

My main concern now is my mortgage. I took advantage of the low interest rates to by a house but am below 20% equity so paying pmi right now. With my raise, I will have $400 per month extra to apply to mortgage. Hoping to get rid of pmi ASAP but do not think its with suspending/reducing 401k, Roth, or HSA. Agree?

Anything else I am missing? Have disability, high limit auto insurance, etc.
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Old 06-23-2013, 09:09 PM   #2
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I agree, eliminating PMI sounds like your best move. That's just an expense, and you're getting rid of it by paying off debt. Two good things at once. Even though the rate is low, it might be nice to get rid of the student loan after that, just to eliminate the hassle.

Make sure you have some idea of how much you'll need to save for your next car and home repairs/replacements like appliances, painting, A/C or furnace. Any major expense that you don't want to let surprise you.
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Old 06-24-2013, 08:09 AM   #3
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What is your PMI for a year dividend by the amount of your mortgage in excess of 80% (~$22k)?

To me if you add that percentage to the 3.35% you are already paying on that excess, that is the effective interest rate on the last ~$22k of your mortgage. IOW, think of your mortgage as being two parts; the first 80% (~$102k) that you pay 3.35% on and the excess (~22k) that you pay 3.35% + PMI on.

If the "interest" on that ~$22k is more than 5% (what I presume you are earning on your investments) then I would consider paying down the excess; if not, then keep investing.
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Old 06-24-2013, 08:23 AM   #4
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The interesting thing about PMI is of course it is about the 20% of appraised value. In other words, if your property appreciates you may be able to be relieved of the payment. Keep an eye on that as well, if you happen to be in an more quickly appreciating area.
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Old 06-24-2013, 07:01 PM   #5
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Congrats! You seem to be doing really well, very impressive compared to most at only 3 years out of college. And congrats on the raise as well.

Regarding your specific question, I agree with the advice already given.
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Old 06-25-2013, 03:48 PM   #6
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Quote:
Originally Posted by RedHawk View Post
I have been out of college for 3 years now and started working soon after. Right now my goal is just to build my assets. Below are key stats.

Age: 26
Single

Salary: 55k but 63k beginning 7/1 after promotion

401k: 20k
Roth: 27k
Cash: 11k
HSA: 9k
House: 128k

Mortgage: 124k (3.35% rate, 30 year)
Student Loan: 3.5k (approximate 4% rate)

In addition, my 5yr old car is paid for. Overall, I have been saving roughly 30% (10% 401k, max Roth, HSA, and cash). Credit card gets paid off monthly.

My main concern now is my mortgage. I took advantage of the low interest rates to by a house but am below 20% equity so paying pmi right now. With my raise, I will have $400 per month extra to apply to mortgage. Hoping to get rid of pmi ASAP but do not think its with suspending/reducing 401k, Roth, or HSA. Agree?

Anything else I am missing? Have disability, high limit auto insurance, etc.
Wow. When I was 26, I was happy just to be able to pay my rent and have money for fun and clothes. Good job.
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Old 06-29-2013, 08:09 AM   #7
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Quote:
Originally Posted by RedHawk View Post
My main concern now is my mortgage. I took advantage of the low interest rates to by a house but am below 20% equity so paying pmi right now. With my raise, I will have $400 per month extra to apply to mortgage. Hoping to get rid of pmi ASAP but do not think its with suspending/reducing 401k, Roth, or HSA. Agree?

Anything else I am missing? Have disability, high limit auto insurance, etc.
What are your expenses per month? My main concern would be getting 6 months of expenses in the bank - stuff happens

After that I would kill the student loan - small balance and there is no way out of it. Better to be done with it now.

After that I would consider the PMI. As PP said, if you have had appreciation, at some point it is probably worth paying $300 for an appraisal and then paying down the difference to clear the PMI.

In no case would I stop investing to clear sub 5% debt. At 26 time is on your side and anything you put away now will save you when/if you have spouse/kids etc.
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Old 06-29-2013, 09:03 PM   #8
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RedHawk,

Great job - You are on the right track. My one piece of advice would be to never sell that first home. Keep it and rent it out. Start now and you will be surprised how quickly you can build a portfolio of rentals. That 3.35% mortgage is sub 3 after interest deductions. This is close to free money.

Good Luck.
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