Continue to Invest or Pay Down Mortgage Question

[dsp0725]

34 years old, wife is 30.

- 285k left on mortgage (house would sell for 420k)
- 103k cash
- 240k between Roth IRA & solo401k
- No debt from cars, loans, credit cards, etc.

The past few years we've been maxing out my Roth and my solo401k w/ an employer contribution through my LLC S Corp.


Current interest on the mortgage is 4.625%

We've been sitting on our lump sum cash because we were considering putting in a pool. Current house isn't our forever home but I wanted to get an opinion on paying down the mortgage vs continuing to invest aggressively.

Let me know your thoughts please!

 

[SecondCor521]

I would never put in a pool.

Opinions vary on paying down the mortgage. I think most would say max out the Roth and 401k first. If you have left over and are willing to invest that in a taxable account in stocks for the long term, you'd probably come out ahead in the long run. If your taxable investments would be more moderate or conservative, or if your mortgage payment is a large percentage of your budget, or if your mortage rate is adjustable, then all those things would point towards paying down the mortgage IMHO.

 

[COcheesehead]

Continue to invest.
Don’t buy a pool.
Put that cash to work.

 

[street]

IMO I would pay down with your cash but I wouldn't use any money you have invested in the markets. I can tell you I got to where I got not doing what the majority would do.

When I was 28 I paid my home off and hit the savings hard after that. Like I said I do things unorthodox way but it worked for me.

The one thing if you don't plan on staying at that home I wouldn't be paying it off. The interest on that mortgage will make a difference in what my judgement would be also.

 

[COcheesehead]

IMO I would pay down with your cash but I wouldn't use any money you have invested in the markets. I can tell you I got to where I got not doing what the majority would do.

When I was 28 I paid my home off and hit the savings hard after that. Like I said I do things unorthodox way but it worked for me.

The one thing if you don't plan on staying at that home I wouldn't be paying it off. The interest on that mortgage will make a difference in what my judgement would be also.

What?

 

[Another Reader]

I would avoid adding a pool to a property you intend to sell. Pools add little if any value in most areas and can actually devalue a property if perceived as dangerous by buyers with young children. Spending ten percent or more of the home's value on a pool would be a huge waste of money. Buy a house with a pool and let the seller take the depreciation hit if you want a pool at some point.

At 4.625 percent, I would continue to invest rather than pay down the mortgage. If you want to accelerate payment on a mortgage, do it on the house that will be the long term home. Max out your tax deferred accounts and put any extra in taxable savings. $103k in cash seems high unless it has a specific, near term purpose. Give up the pool idea and put most of that cash to work.

 

[Texas Proud]

IMO I would pay down with your cash but I wouldn't use any money you have invested in the markets. I can tell you I got to where I got not doing what the majority would do.

When I was 28 I paid my home off and hit the savings hard after that. Like I said I do things unorthodox way but it worked for me.

The one thing if you don't plan on staying at that home I wouldn't be paying it off. The interest on that mortgage will make a difference in what my judgement would be also.

What?

+1.... when did you do that? It was smart to pay down during the 70s and 80s for sure... probably even into the early 00s.... but with low interest rates things have changed....


BTW, I payed mine down when it was high interest rate, but with what I have now no way...

 

[TwoByFour]

You need one of this web site's polls.

My vote:
Don't pay off the mortgage, although 4.6% is right on the edge for me. Any higher and I would pay it down.
Invest.
You are young, I would be 80/20, or even 90/10.

 

[Sunset]

Forget the pool.
You may be hitting a sweet spot, given the market may drop more and more and more.... so you will be able to invest in stock/etf's at low prices.

Of course it could be considered dirty market timing....

 

[DrRoy]

If you are not sure you can do some of both.

 

[Ginny]

I agree with above. Also, fund your wife's Roth and hire her in your LLC/S corp and contribute for her in your company retirement plan.

 

[SmallCityDave]

Pay down/payoff the mortgage unless you can find an investment that beats 4.625% and has 0 risk.

 

[Montecfo]

It is a high enough rate to be paying down using some of your low return funds. You could choose an amount to pay down each year as a portion of your new money available for investment. Also, check tax impact. How much tax benefit are you getting from mortgage interest? The less tax benefit you are getting, the better the investment case for mortgage paydown.

I think establishing all the tax favored accounts you can is also wise. Be maxing those out.

I did this when I was at your stage. But I stopped paying down mortgage with the extremely low rates over past 10-15 years. I have kept a very small mortgage but mine is at 2.75%.

Congrats on all your success so far. Well done.

 

[Andre1969]

I'll agree with the others, about a swimming pool. Don't put one in, unless you plan on using it a lot, and also plan on staying in the house for awhile. It's not going to add much value to your property...definitely not enough to offset the costs of putting it in. So put the value more on your experience, and enjoyment of the pool, rather than what it does to resale value.



That being said, I recently bought a house with a pool, so I might sound a bit hypocritical. But, when I was looking at houses, I noticed that whether the house had a pool or not had little difference on the asking price. And, while I didn't set out to specifically buy a house with a pool, I decided that, if I liked everything else about the house (location, yard, layout, other amenities, etc), I wouldn't let the fact that it had a pool be the deciding factor and automatically reject the house.


If I had bought a house without a pool though, it's doubtful that I would have taken the plunge and had one built.

 

[kgtest]

Don't invest much into home upgrades if it isn't your forever home. Only maintain it.



Pools are literally a money pit. Like a boat, or a country club membership. Do you want to retire early, or do you want people using your pool, your boat, your guest at the country club? I want money, not friends.

 

[COcheesehead]

If you are not staying in the house, I wouldn't pay off the mortgage. Houses drop in value too and you are illiquid.

 

[ExFlyBoy5]

I'll agree with the others, about a swimming pool. Don't put one in, unless you plan on using it a lot, and also plan on staying in the house for awhile. It's not going to add much value to your property...definitely not enough to offset the costs of putting it in. So put the value more on your experience, and enjoyment of the pool, rather than what it does to resale value.



That being said, I recently bought a house with a pool, so I might sound a bit hypocritical. But, when I was looking at houses, I noticed that whether the house had a pool or not had little difference on the asking price. And, while I didn't set out to specifically buy a house with a pool, I decided that, if I liked everything else about the house (location, yard, layout, other amenities, etc), I wouldn't let the fact that it had a pool be the deciding factor and automatically reject the house.


If I had bought a house without a pool though, it's doubtful that I would have taken the plunge and had one built.

I agree on your sentiment on the pool. We recently moved and *were* going to custom build. Long story short, we have nixed that idea and instead are buying a pre-existing home that DOES have a pool. We weren't looking for one with a pool, but at the price point it essentially was 'free' with purchase of the home. When the house was built, they spent nearly $60K on the pool and we are getting the house at a very good price (the owner is desperate to sell because of divorce/loss of j*b). There is a similar house in the neighborhood without a pool, and it's listed for $15K MORE than we paid for the house w/ a pool. SO...if you put in a pool, you have most likely thrown that money away.

As far as paying down the mortgage, it's on the borderline rate that I would have to run a lot of numbers. Stocks aren't doing great right now (but who knows what will happen in the near/mid term future) and interest rates continue to rise. Also, if stocks continue to decline, you would be at risk of not being able to buy these stocks "on sale" if you started throwing $ at the mortgage.

 

[TwoByFour]

I find it funny that OP is getting so many opinions on the swimming pool when what he asked was:

I wanted to get an opinion on paying down the mortgage vs continuing to invest aggressively.

 

[ExFlyBoy5]

I find it funny that OP is getting so many opinions on the swimming pool when what he asked was:

Hey, I mentioned the mortgage, too.

 

[W2R]

Whether or not to pay off a mortgage is one of those questions that our members do not agree on, for the most part. Some say yes, some say no.

As for me, I am in the "pay off the mortgage" camp. When I was preparing for retirement, I bought a low cost house, paid off my mortgage in 4 years, and while doing that invested at least as much in Vanguard and the TSP. In other words, I didn't choose to either pay off the house or invest; I did both at the same time.

How could I do that? Well, for the 11 years just before retirement, I spent less than a student and much less than I am spending now, in retirement. I was newly divorced at age 50, and had a lot of catching up to do. So that was MY choice, but it may or may not be yours.

Then, after my 2009 retirement, the market soared so I sold some of my portfolio, sold that house, and bought my Dream Home in cash. Like Frank Sinatra, "I did it my way". There are a million ways to skin a cat.

As for the pool? You could put that money into paying off the house, and look for a gym to join that has a nice pool but isn't too expensive.

 

[Texas Proud]

It is a high enough rate to be paying down using some of your low return funds. You could choose an amount to pay down each year as a portion of your new money available for investment. Also, check tax impact. How much tax benefit are you getting from mortgage interest? The less tax benefit you are getting, the better the investment case for mortgage paydown.

I think establishing all the tax favored accounts you can is also wise. Be maxing those out.

I did this when I was at your stage. But I stopped paying down mortgage with the extremely low rates over past 10-15 years. I have kept a very small mortgage but mine is at 2.75%.

Congrats on all your success so far. Well done.

Sorry for attacking this post, but what are you thinking? What are 'low return funds'?... this makes no sense to me...


If you have low return funds (which again, I do not know what that means but I will go with it) then you have them for a reason.. and if you spend them your AA is now out of whack and you should move money from your high return funds to your low return funds to get it back in order...


But what not just get rid of those low return funds by moving them into high return funds? Sounds like a better use of the money than what you propose...

 

[Montecfo]

Sorry for attacking this post, but what are you thinking? What are 'low return funds'?... this makes no sense to me...


If you have low return funds (which again, I do not know what that means but I will go with it) then you have them for a reason.. and if you spend them your AA is now out of whack and you should move money from your high return funds to your low return funds to get it back in order...


But what not just get rid of those low return funds by moving them into high return funds? Sounds like a better use of the money than what you propose...

I think I was pretty clear. I understand that if you are committed to investing all funds as aggressively as possible, then this strategy may not make sense, and you should not do it. I certainly have no reason to try to convince you.

But that is not what most people do, in my experience.

 

[kgtest]

Its really a personal choice. For some they dont have the option to pay it off. Everytime one of these invest or mortgage threads comes up I say the same thing. If valuations and the market are historically high you arent really buying low so paying the mortgage at 4+% might get a better return than a flat or decloning market. Akin to market timing but you need to balance investing against servicing debt. For me I just do an equal split. For instance this year I put about 30k in the market and also about 30k towards the mortgage. Not much for my brain to debate with the equal split and I sleep alright. 13more years before I FIRE

 

[Texas Proud]

I think I was pretty clear. I understand that if you are committed to investing all funds as aggressively as possible, then this strategy may not make sense, and you should not do it. I certainly have no reason to try to convince you.

But that is not what most people do, in my experience.

Sorry, but it is not as clear as you think... I do not understand what low return funds are... now, if you mean cash... well, I would think that you want a certain amount of cash on hand... if you spent it I would assume that you would want to replace it since you wanted it there in the first place... that means selling higher return funds which then means you did not use low return funds...


If low return funds means bonds, then the same as above.... you used your bonds to pay off the mtge but now you have an imbalance in your AA and you will fix that at some point as you like your AA... if you do not, then you are now investing more aggressively than you were when you had a mtge...



If low return funds means a MF that is not doing well, then my first post come back.... just move those to a better fund....






So I will ask again... what do you mean by low return funds?

 

[cooch96]

OP, do you currently live in Austin? I’d totally get a pool if I lived in central Texas; I’m a little shocked at all the suggestions to the contrary. I suggest focusing on value. Is there something that provides 90% of what you want for 40% the cost, like an above-ground model?

I was in a very similar financial state to yours five years ago and I elected to focus on my mortgage. I maxed out my 401k and Ira contributions, then hammered what I had left on the house principal. With the big run up of the market in 2017, it hasn’t proven to be the wisest choice. But hindsight is 20/20 and I don’t regret my decision too much. I still plan on taking a brief sabbatical next year or some other semi-FIRE measure. Which isn’t too bad for 40 years old.