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Old 12-25-2009, 09:19 AM   #21
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Originally Posted by SecondCor521 View Post
Public opinion on this one wavers with the tides of the market. When the market was going up up up a few years ago, the reaction to "pay off your mortgage?" was "are you crazy?" With the recent downturn and job losses, the reaction is more along the lines of "hmmm, maybe it is a good idea to pay the thing down.
Great observation!

POV's really swung around dramatically as the markets plunged and most of us got a dose of seeing our RE portfolios take a beating. In addition to the pay-off-the-mortages attitude change, I've also noticed that the fear of dieing with a lot of money left on the table or working longer than necessary of the pre-recession days has now been replaced with folks wanting the security of very low WR's and cushions and backup plans and all that.

To OP - As others have mentioned, there is generally little financial reason one way or the other concerning the pay-off or not decision with mortgages (assuming the mortgage is at a currently competitive interest rate). Do whatever feels good. Just remember that if you chose to not pay it off (or pay it down), invest that money prudently so it's available if you do need it for house payments sometime in the future.

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Old 12-28-2009, 10:10 AM   #22
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I don't know if this will be of any value, but here's my input:

If I was sitting on that type of portfolio, coupled with this type of economic environment (and labor market funk), I would throw that 47.5k at your mortgage. The house would be paid off in 6-ish years. Meanwhile, I would still have the large portfolio, and I would still be contributing 26k per year to it. Once the house is paid off, I would have that peace of mind and, if applicable, I could use the 47.5k per year to continue to bolster the portfolio.

Unless the fit hits the shan in a major way, you guys are going to be sitting on a considerable portfolio by the time you hit age 50. two cents. (and it probably ain't worth even that...)

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Old 12-28-2009, 01:11 PM   #23
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Originally Posted by sirion View Post
I just really need some opinions on this because I just keep going round and round in my head. Here is our situation as a 35 year old married couple:

--Approx $1M in a well-diversified 80% stock/20% bond portfolio at Vanguard
--Emergency fund $20,000 in CD ladder
--$95,000 in 529 for our one nearly 4 year old daughter (no plans for more children)

$295k on a 5.25% 30-year fixed mortgage with 29 years left

combined salaries: $94,000/yr
annual gift from parents: approx $47,500/yr

--Max out 401(k) - $16,500
--Fully fund Roth IRAs for me and hubby - $10,000
--Hubby has no retirement plan at work, unfortunately

We usually have about $10,000 annually "left-over." So my question is should I pre-pay the mortgage? Here are my thoughts:

--If we prepay $10,000/yr, we will have it paid off by the time my daughter enters college, thus allowing us to supplement her tuition, if necessary, with cash flow.
--After daughter finishes college, we can think about retiring early (in our 50s) and with no mortgage payment. I don't like the idea of having to generate an extra $1,700/month in income from our investments until we are 65 and the mortgage is paid off.

--We are 35 years old and our savings rate is still really important. That $10,000 will have about 20 years to grow if we invest it yearly in our taxable account.
--The rate on our mortgage is low (5.25%), but our tax bracket is also pretty low (15%) so we don't get too much savings from the deduction. Our itemized deductions are only about $9,000 more than the standard deduction,.

Any thoughts? From people who have been there/done that? Thanks so much for any input. Like I said, I am really stuck on this.
My thoughts are as follows...

you answered your own question below (it depends)...

...And you have a decent idea on how to run various numbers. To retire early you need to have the means of paying off the mortgage, and at some point of retirement saving, it makes more sense to pay down the mortgage than it does to keep it. Peace of mind, return on investment and projecting what you want 20-30 years down the line all factor into the decision.

I am in same situation as you right now- do I pay down mortgage or invest... and I have chosen to invest for a short time. In my case I am attempting to get enough invested that I can project a 9% return from the investments and pick a retirement date. I am "close"- meaning within next 2 years I would expect all the money we have invested to be enough to retire on if it grows at the expected rate of return.

At that point some of the money we invest will be re-directed to mortgage to pay it off faster. In my case I want to direct only enough to pay it off the year our kids (twins) go to college. Will still invest after the inflection point, but that is more for cushion to build into the plan than it is because we need to invest.
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Old 12-29-2009, 10:14 AM   #24
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Originally Posted by Texas Proud View Post
There is a two edged sword that I see.... you get over $47K from parents!!!

That either means they are rich, and you might be in line to get a big estate payment later in life... OR, they are spending a lot of money on you and will have nothing when they go...

But it also seems like most of what you have now is because of them (savings I mean)... If they have been doing this for 12 years, that is almost half of your savings... and I would assume the other half is from earnings...

SOOO, to my point.... what would happen IF you did not get this money Do you have enough to live on with your own salaries? It looks close to me... If so, then maybe paying down the mortgage NOW is easier with the extra cash you receive and if it stops and you are in a cash flow problem (because you don't want to touch savings), then you can refinance and spread out the payments...
Thanks for your comments. We budget on our combined income of $94,000 and never include the annual gift. We live semi-comfortably in a HCOL area on that amount. However, our Roth IRA contributions currently come from the annual gift. I used to make about twice what I make now and took a lower-paying job so that I could continue to be near to home and not work a lot of hours (I stayed home for 3 years after my daughter was born.) I anticipate being able to find a higher-paying job if we need more cash. However, our lifestyle will not suffer if they cannot continue gifting, even if our savings rate would suffer. We use the gift money to spend on things we don't really "need" but would like to have. For example, we used some of the 2009 gift money to purchase a kitchen table and nightstands since we didn't have either. We were just using the dining room table and old tray tables beside our bed.

You are correct that my parents have been gifting us money for a long time and that a good chunk of my portfolio is due to them, however, I have also always been a huge saver. They have a portfolio of about $4M and figure they are better giving some of it away while we actually need it (every one of their grandkids had the benefit of a stay-at-home parent until age 3). They hope to leave us an inheritance, but it will depend on many factors, of course. So far, they have never given more than they have generated in income (between SSI, Dad's pension, and Mom's salary). My mother still works FT at age 70 and shows no signs of stopping (Dad FIRE'd at 55). I guess I expect to receive about $1M in about 5-10 years (but I never want them to die ). If I do receive an inheritance of that size, I will definitely pay off the mortgage.

I hear you about trying to pay the mortgage down so that if the gifting stops, our current income can get a boost if we refinance. That's definitely something to consider. It's hard to plan for every scenario, but even if I invest in my taxable account instead of paying down the mortgage, I can always take some out and refinance with a chunk of cash.

Thanks to everyone for the input...

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