Keep investing or payoff mortgage?

[laurence]

ROTC, USNA and Army AD is what saved me LOTS of money about 30 years ago. Got a Navy Captain, 2-RN's and a CPA for my efforts (and of course theirs). Old Dad was a HS Dropout and proud of it!, until he "saw the light".

That's your brood? Impressive! Having spent way too much time at Children's hospital, I have grown to truly admire RN's and Nurse Practitioners, the doctors swoop in for 5 minutes and mumble a few things and are gone, meanwhile the nurses do all the healing. Not the doctors' fault, they are just stretched too thin.

 

[Rich_by_the_Bay]

Cheap b@st@rd! I just thought a little student loan debt never hurt anybody.

While I have no problem with kids having to pay their own college expenses through loans, the situation may not be as simple as you young'ns think.

* if the economy is rough, especially with inflation, their loans may not be so "little" and they might start life a little deeper in the hole than you think or want.
* once they can borrow, they will borrow, sometimes more than they should borrow. Unintended consequences...
* if they choose to go to grad or professional school, add another 50% or so
* state schools may be great for undergraduate school but sometimes private schools are best for specific specialized disciplines
* trust me, you may want to pay when the time comes. Not saying it's wrong not to, but... well.. it's a parent thing
* I wish my parents could have done it for me (they just didn't have the money) because my debts didn't get paid off til I was age 40 something.

What we did, for better or worse: paid all undergraduate tuition, room, and board for both kids. Play money was on them. Same for 3 years of law school for one kid and 2 years of grad school for the other, though the latter had some grant money which helped. I am grateful to have been in a position to do so.

Of course that may be part of the reason I'm not retired yet. But the kids got started in life with no debts, already have nest-eggs started, and overall I think it was a family success.

If you don't have the money to spare for it, no shame or problem, and no dilemma. But if you can swing it, you may find yourself more ambivalent than you are now.

 

[Alan]

Originally Posted by laurencewill

Cheap b@st@rd! I just thought a little student loan debt never hurt anybody.

We paid most of their expenses and don't begrudge a penny of it - Good investment in our view. Even so, DD had a partime job for most of her college years to pay for what we didn't, and DS came out with a small amount of debt ($6K).

 

[cute fuzzy bunny]

Wow that was rough, just rough, I guess play Wii at the neighbor's house until 2 a.m. DID have an effect on me ( or was it the wine?).

I didnt know the Wii had a drinking game. Off to search at amazon for it!

Apologies to the fine institute and to Yo Yo Ma.

To be fair, I dont think I've ever seen Yo Yo Ma and Yao Ming together at the same time. Might be the same guy.

I think I just insulting the Cal State University system too since they gave me a diploma!

Yeah, I think I have to rethink that whole idea of sending Gabe to one of the state run schools. Maybe sac state or chico would be a better choice.

 

[popowich]

Bad mistake, you are correct. That was something I had heard in the past. Can't remember where, but looking at my own spreadsheet I see that it is not correct. The main advantage would be that you are losing the tax advantage as most of the payments go to principal.

I think you are on target, just backwards, or I missed the point. There is a huge benefit to making extra principle payments in the first 5 years of the mortgage not the last couple years. Lets say you have a $100,000 mortgage around today's rates with a $950 payment and only paying $100 in principle. There are huge benefits to paying extra principle and getting the long term interest savings along with taking several years off the length of the loan.

-Raymond

 

[Finance Dave]

For me the decision would be strictly financial. Let's say your mortgage is 5.5%. You'll need to calculate the after-tax rate...so put pen to paper and see how much your mortgage is saving you in taxes, then add that on to the 5.5% above (would need to know more details about amortization, marginal rate, other deductions, etc). If you think you can get more than that in the market, then don't pay off the mortgage and invest instead.

Given that the market has taken a beating the past 10 months, and I believe in "mean reversion", I'd probably keep investing.

Dave

 

[cute fuzzy bunny]

Wow, if it were only that simple.

 

[jIMOh]

While I have no problem with kids having to pay their own college expenses through loans, the situation may not be as simple as you young'ns think.

* if the economy is rough, especially with inflation, their loans may not be so "little" and they might start life a little deeper in the hole than you think or want.
* once they can borrow, they will borrow, sometimes more than they should borrow. Unintended consequences...
* if they choose to go to grad or professional school, add another 50% or so
* state schools may be great for undergraduate school but sometimes private schools are best for specific specialized disciplines
* trust me, you may want to pay when the time comes. Not saying it's wrong not to, but... well.. it's a parent thing
* I wish my parents could have done it for me (they just didn't have the money) because my debts didn't get paid off til I was age 40 something.

What we did, for better or worse: paid all undergraduate tuition, room, and board for both kids. Play money was on them. Same for 3 years of law school for one kid and 2 years of grad school for the other, though the latter had some grant money which helped. I am grateful to have been in a position to do so.

Of course that may be part of the reason I'm not retired yet. But the kids got started in life with no debts, already have nest-eggs started, and overall I think it was a family success.

If you don't have the money to spare for it, no shame or problem, and no dilemma. But if you can swing it, you may find yourself more ambivalent than you are now.

I look at mortgage payoff and kids education as the same problem- short term or mid term intermediate expenses. I think allocating (budgeting) for these expenses is the same.

Mid term expenses- both are expenses a person would expect to incur in less than a 18 year period.

Because of the timeframe, suggesting a standard (70-80%) equity position for them makes little sense (too much risk too close to timeframe money is needed).

My plan is to budget for "mortgage payoff" by adding $200/month to a taxable account which might or might not be used to pay off the mortgage. That same account also gets $200/month for each kid for education expenses. Other money is also put here for mid term expenses (for example any expected car payment is contributed to same account). Account is expected to grow at about 6-7% rate (after taxes).

When account has enough to pay off mortgage, it is possible to cash out (maybe mortgage payment becomes a tuition payment). Depends if investment did well and outperformed 5.75% mortgage payment- this might be done if investment balance paid off mortgage in 10 years as opposed to 15 or 20, for example.

When account has enough to pay off mortgage, the $600/month might go towards mortgage payment to change the risk profile (have the liquidity needed, so pay off mortgage with new money and let investment grow).

It's possible to cash out all or portion of account for kids education. Maybe they get the principal ($2400/year*18 years) and I keep the interest for FIRE.

The important variable in all this is liquidity. If the money went to the mortgage first, the only option I have left is to use the mortgage payment to pay for the education, regardless of retirement picture at the time.

The day my kids graduate HS is the probable FIRE date I had selected before they were born anyway. Flexibility (liquidity) is needed.