A Bird In Hand
Recycles dryer sheets
- Joined
- May 10, 2012
- Messages
- 137
If you have a good mortgage rate, you may be too aggressive with early mortgage payoff. You could be investing and saving more. If ROI averages 7-8% and your mortgage is in the 3-4%, you're losing that extra 3-4% as well as increasing your income tax liability.
It's the age-old "should I pay down the mortgage or invest?" question, and I sure as heck hope we don't resolve it in this thread!
From my point of view, I see a lot of "if's" in your last sentence above. Granted, those if's are quite likely, but fall just short of likely enough for me to hang my future FI on.
FYI my rate is 4.25%, and the mortgage interest we paid last year just barely pushed our itemized deductions higher than the standard deduction amount. So the comparison should be "guaranteed 4.25% return vs risky 7-8% return (before capital gains tax?) in the stock market." For a short timeline of ~5 years until FI, we're not comfortable chasing a theoretical 3% spread.
Despite my defense of paying down the mortgage above, we often consider pulling back somewhat on the mortgage payments and increasing our after-tax savings. The main reason is that we'll need more after-tax savings to bridge the gap between ER and the age when we can reasonably withdraw from our retirement accounts (72(t) notwithstanding).Consider cutting your extra payments to a more reasonable amount and save and invest more.
529's don't do a whole lot for us since we don't pay a state income tax. I understand there are a couple other advantages (and also restrictions). Our plan for kid's college expenses is: save what we can after funding for our own ER goals; use some expected small inheritances that we expect by then (I know that sounds crass!); encourage the kids to attend reasonably priced schools; expect the kids to get scholarships and/or work to pay for much of college; possibly help the kids pay off student loans if need be. And as long as I keep working at least 1/2 time, my employer will pay $10k per kid per year.Also have you considered helping your kids through college with 529 plans?
P&I is our biggest non-discretionary expense (we consider private school tuition to be discretionary). Eliminating it will allow us to work part time, have one of us stay home with the kids, etc. So while paying off the mortgage won't get us to FI, it will enable ESR in our low 40s.I was FI before we paid off the mortgage.