This is a big decision. Help me make the right one!

[Chris918]

For someone like me going 50/50 may be best. I won't be able to pay off the house as fast, but I'll have an emergency fund and continue to max out my ROTH IRA and contribute to my 401k at work.

[mrfeh]

Quote:

Originally Posted by Chris918 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.

Don't know how much we can help you. Sounds like you have all the info you need.

In the end, it is a very personal decision.

[jollystomper]

Quote:

Originally Posted by DrRoy 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.

I am in a similar situation and am now leaning this way.

Mortgager balance a little over $50K. Interest rate of 2.875%. Current payment of just over $600/month has the payoff date in 2028, when I turn 70. The monthly payment are among our "regular" living expenses that are covered by my pension. The interest we pay pushes us just over the standard deduction, but not by much.

I have enough in cash to pay it off, not touch any investments, and, based on our retirement spending so far being half of we planned on, still have enough cash left to not have to touch investments before we choose to take SS - at which point pension + SS (for both of us) + investment income is looking like it will more than cover our expenses.

I mentally debate if I should invest some or all of this cash, as the monthly payment is not causing any issues. On the other hand, paying it off means one less payment to deal with, should. For DW, should I pass before her, it means one less financial issue to manage.

So I will likely take a middle ground... pay it down by a 3rd or a quarter this year, and see if our other spending stays below projection. Then re-evaluate at the beginning of next year.

One interesting thing: We bought the house in 1990, with a 30 year mortgage and a 10% interest rate. We refinanced 3 times over the years to the current mortgage. Paying it off this year would match the original mortgage term. An interesting thought for us.

[Aerides]

Since it doesn't sound like you are in a position "today" to pay it off, it's a decision you can (and should) kick down the road.

Continue to build your savings, and then when you have more than enough - plus an emergency fund - you can take the pulse of the market at that time.

And as far as "but maybe I'll make more in the market" - we paid ours off in December of 2008, with cash (ie, right around the low point). Had we invested that $100k-ish we'd have made leaps and bounds more back in the market. But that has never been a regret for one moment.

[RetiredAt55.5]

Quote:

Originally Posted by Chris918 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?

In this situation, I would be maxing out my 401k contribution (in addition to the ROTH), before paying down the mortgage. Why? Because you don't pay federal taxes on the 401k contributions, so that would likely save you a lot more than 4.25%. Even if this extra money was put in a money market fund at 1-2%, I would've come out way ahead.

But then I am in the camp that mortgage debt isn't necessarily a bad thing, and money is fungible.

Note, in case the sky falls in, the Roth contribution portion can always be used tax free for expenses. So over 6-7 years that's about 40k of emergency money.

[MikeTN]

Several have said you can probably make more than 4.25% by investing in equities. But You will have Federal (and state?) tax to pay on those earnings. There is no tax on the money you save by paying off the mortgage and avoiding the 4.25% interest cost. So now you need to make more than 5 to 6% in the market to make it come out ahead.

How about this: use savings to pay down mortgage while the market stays high. When a correction lowers stock prices you have the option of buying equities at that time.

[street]

^ that is great advise. I have always wanted to pay off loans as soon as I could. I felt I could always do better with those dollars in my hands instead of paying the lender each month.

[golfnut]

Quote:

Originally Posted by jollystomper I am in a similar situation and am now leaning this way. Mortgager balance a little over $50K. Interest rate of 2.875%. Current payment of just over $600/month has the payoff date in 2028, when I turn 70. The monthly payment are among our "regular" living expenses that are covered by my pension. The interest we pay pushes us just over the standard deduction, but not by much. I have enough in cash to pay it off, not touch any investments, and, based on our retirement spending so far being half of we planned on, still have enough cash left to not have to touch investments before we choose to take SS - at which point pension + SS (for both of us) + investment income is looking like it will more than cover our expenses. I mentally debate if I should invest some or all of this cash, as the monthly payment is not causing any issues. On the other hand, paying it off means one less payment to deal with, should. For DW, should I pass before her, it means one less financial issue to manage. So I will likely take a middle ground... pay it down by a 3rd or a quarter this year, and see if our other spending stays below projection. Then re-evaluate at the beginning of next year. One interesting thing: We bought the house in 1990, with a 30 year mortgage and a 10% interest rate. We refinanced 3 times over the years to the current mortgage. Paying it off this year would match the original mortgage term. An interesting thought for us.

The annual interest can't amount to much with a 2.875% rate and a $50,000 balance. Just curious how this could push you over the $24,400 sd?

[mystang52]

$140,000 seems a big nut to crack, to me. So, in the interest of simplicity I'd vote to continue to invest, and maybe make some additional payments to principal. When the mortgage principal becomes much smaller, perhaps in the 30-50,000 range, revisit the idea of paying it off.

[RetireAge50]

My checklist was:
1. Stay out of debt except mortgage
2. Fund 401k to company match
3. Fund Roth to max level
4. Fund 401k to max level
5. Pay kids college
6. Pay off mortgage
7. Retire with $1.5 million

I completed them in order except I never did pay off the mortgage.

[RobbieB]

I paid my mortgage off early, it was 8.5%.

If it was 4% I wouldn't have been in such a hurry.

[RetiredAt55.5]

Quote:

Originally Posted by MikeTN Several have said you can probably make more than 4.25% by investing in equities. But You will have Federal (and state?) tax to pay on those earnings. There is no tax on the money you save by paying off the mortgage and avoiding the 4.25% interest cost. So now you need to make more than 5 to 6% in the market to make it come out ahead.

But you're not considering the tax savings by contributing to a 401K, since that reduces your AGI for the year. Every dollar added reduces your taxable income by one dollar.

The OP is probably in either the 12% or 22% tax bracket, so they're gaining (saving) 12 or 22% right from the get go, even if they make 0% in the market.

[jollystomper]

Quote:

Originally Posted by golfnut The annual interest can't amount to much with a 2.875% rate and a $50,000 balance. Just curious how this could push you over the $24,400 sd?

10K for State/'Local taxes + charitable contributions put us very close to the standard deduction, the mortgage interest is enough to push us over.

[pdxgal]

[QUOTE=MikeTN;2352328]Several have said you can probably make more than 4.25% by investing in equities. But You will have Federal (and state?) tax to pay on those earnings. There is no tax on the money you save by paying off the mortgage and avoiding the 4.25% interest cost. /QUOTE]

Good point!

[teejayevans]

If you ever need extra cash, you might regret paying it off. If any doubt, I would not.

[pb4uski]

Quote:

Originally Posted by street ^ that is great advise. I have always wanted to pay off loans as soon as I could. I felt I could always do better with those dollars in my hands instead of paying the lender each month.

This is silly. If you feel you can "always do better with those dollars" in your hands why would you write a big check to the mortgage lender to pay off your mortgage? By your own assertion you could always do better with those dollars. Bad advice.

[mckittri2000]

Paying off the mortgage was the second most important thing for me as far as ER. FireCalc was the first. Not having debt will make it much easier for you to pull the plug as far as early retirement.

[pb4uski]

Quote:

Originally Posted by MikeTN Several have said you can probably make more than 4.25% by investing in equities. But You will have Federal (and state?) tax to pay on those earnings. There is no tax on the money you save by paying off the mortgage and avoiding the 4.25% interest cost. So now you need to make more than 5 to 6% in the market to make it come out ahead. How about this: use savings to pay down mortgage while the market stays high. When a correction lowers stock prices you have the option of buying equities at that time.

Not necessarily Mike. Depending on the OP's other income, if the money not used to payoff the mortgage is invested in domestic equities, then the tax rate on qualified dividends and LTCG could be 0%... at most would likely be 15%. Ditti if invested in international equities, plus you get the foreign tax credit for any foreign taxes paid.

[street]

Quote:

Originally Posted by pb4uski This is silly. If you feel you can "always do better with those dollars" in your hands why would you write a big check to the mortgage lender to pay off your mortgage? By your own assertion you could always do better with those dollars. Bad advice.

Silly to you LOL! I make it just fine and won the game to where I'm at today, doing it the silly way. Thanks!

[RetiredAt55.5]

Quote:

Originally Posted by RetireAge50 My checklist was: 1. Stay out of debt except mortgage 2. Fund 401k to company match 3. Fund Roth to max level 4. Fund 401k to max level 5. Pay kids college 6. Pay off mortgage 7. Retire with $1.5 million I completed them in order except I never did pay off the mortgage.

+1

This is how I did it, except I deviated after (6) - I had the mortgage paid off, then I bought a second vacation home using a new mortgage on the primary home.

I retired only 5 years into the new mortgage, and I still have 21 years to go. Having a 3.99% mortgage was not an impediment to retiring early. In fact, having cash on hand rather than tied up in a paid up mortgage allows me to manage our income for ACA.

Inflation? Meh, not my worry for the mortgage payment as it's fixed for the next 21 years.

Rising interest rates? Cool, that'd make my 3.99% mortgage look better.

I agree with the other posters that said paying off the mortgage is a personal decision, as it depends on one's situation.