Large Payment to Mortgage

[erkevin]

Would love some varying insight into a dilemma:
I have 30k sitting in a savings account (earning .01%). IRAs are maxed out and I am not too keen about the current stock market anyway.
CD's are paying 2.00- 2.25%, but that is taxable so the net is even less.
I like the feeling of having an emergency fund of that size but as everyone knows, i am losing money due to inflation.
I have no debt, other than 95k on a mortgage at 3%. Retirements are fully funded (I retire in 11 months, wife in 34).
I am considering making a 15k payment to principal, just so that money earns something. The 30k in savings is really just a security blanket- it is not earmarked for anything.
I do not have plans to move for a minimum of 3-5 years.

Thoughts?

 

[GrayHare]

Yes, there's a cost to having an emergency fund but compared to the cost of most insurance it's small.

 

[tulak]

You could put the 30k in high yield savings account. Amex gives me 0.9% and there are others that are a little bit higher.

 

[Meadbh]

I'm doing what you are proposing. The mortgage I am paying down (on a rental property) has an interest rate of 4.17%. I have a HELOC on my principal residence. I can use the HELOC as an emergency fund if sh1t happens.

 

[Ready]

I don' think you could go wrong either way you choose, because the difference between the two options is really just a few pennies. Your mortgage is 3% but you get some tax breaks on it, CDs pay 2.25% but you pay ordinary income tax on it. So all in all, it's just not that significant either way you go. Do whatever makes you feel better.

 

[erkevin]

Except......

Ready-
My tax situation is less-than ideal. Have not been able to itemize the past two years- do not come close to the standard deduction on schedule A.....so no mortgage interest deduction.

Of course, the flip side of that is I do not much interest, much medical, etc.

 

[samclem]

Your wife is planning to retire in 3 years, do you guys have any plans (travel, fix up the house, etc) that might require a slug of money? You say you might move in as soon as 3 years, and that always requires money. Cash is very handy sometimes, and at your mortgage rate, it's very cheap--a lot cheaper than selling investments and paying cap gain, or having to sell them if they are down in price. The Fed continues to make noises about raising rates, and your present mortgage could look like a tremendous deal eventually ("I can't believe I paid off a 3% mortgage! Now inflation is 4%, I could have been paying it off with fewer real dollars every year, and I'd have all that money working for us in investments.")
You can't get hurt much in very short term bonds. If your really sure you won;t need the money soon: stocks still pay dividends--hold them long enough and the price you paid when you bought them (today's price or after the next pullback) is likely to not matter all that much in the big scheme of things.
But it's not a major issue, you probably won't wind up much different either way. On which side of the decision does greater risk reside? I think there's likely more risk/opportunity for regret in paying off the mortgage.

 

[grasshopper]

About 3 years before we retired I realized that I had a REIT investment that equaled my mortgage. Paid off the mortgage and auto deposited the amount of my mortgage payments into a stock fund every month. Wow did the investment grow, that and not having a mortgage clinched my retirement at 54.

 

[dallas27]

Pay down the mortgage, listen to the math.

(Else find place to invest it that beats 3%)


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[Sunset]

Pay down the mortgage, listen to the math.

(Else find place to invest it that beats 3%)....

+1

Impossible these days to get 3% guaranteed return without risk.
Put the other 15K into an online bank and earn 1%

 

[pb4uski]

Another thing to consider is to look at your asset allocation and if there is an area that you are underweight on (such as international equities) then consider using that excess cash to rebalance.

 

[Koolau]

If 30K is a big chunk of your net worth, you may be right to "agonize" over which way to go. If it's a couple percent of your NW, it's difficult to see how you could make a lasting mistake going either way. IOW, not something to lose sleep over. Personally, I like having more cash than I "need" since we don't always know what we need before we need it. YMMV