Author Topic: What to do with $50,000?  (Read 1531 times)

moosejaw

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What to do with $50,000?
« on: June 10, 2019, 01:05:07 PM »
Hey all,

I just came into $50,000. Based on my family situation, kids, wife etc I am relatively conservative at this point.

We owe about $635,000 on our home at 2.875% mortgage with 26 years left.

My gut tells me to pay the home down by $50,000 and just allow the same payment to occur(no refinance).

Does this sound like a reasonable idea?

I tried figuring out the numbers myself via a mortgage and amortization calculator, but if someone could possibly break down:

How much more will be paid off per month, and what total savings in time and money I'd have to be mortgage free I'd appreciate it.

honeybbq

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Re: What to do with $50,000?
« Reply #1 on: June 10, 2019, 01:13:49 PM »
I would probably not put it in my house.

Assuming you have no other debts, how is your retirement savings?

cloudsail

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Re: What to do with $50,000?
« Reply #2 on: June 10, 2019, 01:15:08 PM »
Your interest rate is really low. I don't think I'd put it into the house at this point.

moosejaw

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Re: What to do with $50,000?
« Reply #3 on: June 10, 2019, 01:18:16 PM »
We have about 300-350k in retirement savings. 

Emotionally I feel like it's security/stability to pay down the house and the small savings accrue with the current payment schedule.

I've experienced multiple moments of volatility in the stock market(hindsight says I've likely lost out big if I picked the right tech stocks). 

I understand the importance of investing but I feel the market is due for a correction in a major way.

JLee

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Re: What to do with $50,000?
« Reply #4 on: June 10, 2019, 01:24:39 PM »
You can get 3% APY in a 5 year CD from Ally.  That's mathematically superior to paying a 2.875% mortgage, but still barely ahead of inflation.

ketchup

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Re: What to do with $50,000?
« Reply #5 on: June 10, 2019, 01:58:43 PM »
VTSAX.

Fishindude

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Re: What to do with $50,000?
« Reply #6 on: June 10, 2019, 02:27:03 PM »
I'd invest it towards retirement.   Doesn't have to go into your existing retirement plan(s), but something that will be there and make a little extra along the way when you reach retirement age.
Could just stick it in a CD too, you won't have to worry about losing.

Scortius

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Re: What to do with $50,000?
« Reply #7 on: June 10, 2019, 02:29:51 PM »
Putting it into your mortgage is basically the worst option aside from sticking it in a checking account.

Even if you subscribe to the idea that it's worth it to pay off a sub 3% mortgage early, it's still not a good idea to do it until you can pay it off in one go.

One thing to think about. Go check out the investment order in Investor Alley. Your primary goal should be to maximize tax-advantaged accounts. You can't do this with a gift, but what you can do is use it to subsidize your life while you divert excess earned income into 401ks/HSAs/IRAs. If you're not maxing your tax-advantaged space, that is by far and away your best bet.

Other than that, you're best ogf investing it in a taxable account. If you're uncomfortable with a pure stock portfolio, chose a stock/bond asset allocation that works for you.

DadJokes

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Re: What to do with $50,000?
« Reply #8 on: June 10, 2019, 02:40:21 PM »
Paying off a mortgage is an emotional decision. Doing so provides peace of mind.

Mathematically, you are better off putting the money in an index fund. We may get a correction soon, but you are likely to be better off 20 years from now if that money were invested as opposed to put towards the mortgage. Short-term volatility means absolutely nothing to me - I'm in it for the long haul.

It sounds like the peace of mind provided by putting that towards the mortgage means more to you than the potential gains from investing it, and there's nothing wrong with that.

JLee

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Re: What to do with $50,000?
« Reply #9 on: June 10, 2019, 02:54:31 PM »
Paying off a mortgage is an emotional decision. Doing so provides peace of mind.

Mathematically, you are better off putting the money in an index fund. We may get a correction soon, but you are likely to be better off 20 years from now if that money were invested as opposed to put towards the mortgage. Short-term volatility means absolutely nothing to me - I'm in it for the long haul.

It sounds like the peace of mind provided by putting that towards the mortgage means more to you than the potential gains from investing it, and there's nothing wrong with that.

That mortgage rate is even lower than CD rates...and that's not a potential gain, that's a guaranteed gain. A tiny one, but a gain nonetheless!

DadJokes

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Re: What to do with $50,000?
« Reply #10 on: June 10, 2019, 02:59:59 PM »
Paying off a mortgage is an emotional decision. Doing so provides peace of mind.

Mathematically, you are better off putting the money in an index fund. We may get a correction soon, but you are likely to be better off 20 years from now if that money were invested as opposed to put towards the mortgage. Short-term volatility means absolutely nothing to me - I'm in it for the long haul.

It sounds like the peace of mind provided by putting that towards the mortgage means more to you than the potential gains from investing it, and there's nothing wrong with that.

That mortgage rate is even lower than CD rates...and that's not a potential gain, that's a guaranteed gain. A tiny one, but a gain nonetheless!

That doesn't change the fact that some people are more debt averse than others, including MMM himself, who paid off his mortgage. It's not what I would do, though I also couldn't imagine having a mortgage that large. My chest actually hurts thinking about owing that much money on something.

RWD

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Re: What to do with $50,000?
« Reply #11 on: June 10, 2019, 03:03:10 PM »
Investment order

There's no way I would pay extra on a 2.875% mortgage. It sounds like you could definitely stand to have more in investments.

JLee

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Re: What to do with $50,000?
« Reply #12 on: June 10, 2019, 03:06:04 PM »
Paying off a mortgage is an emotional decision. Doing so provides peace of mind.

Mathematically, you are better off putting the money in an index fund. We may get a correction soon, but you are likely to be better off 20 years from now if that money were invested as opposed to put towards the mortgage. Short-term volatility means absolutely nothing to me - I'm in it for the long haul.

It sounds like the peace of mind provided by putting that towards the mortgage means more to you than the potential gains from investing it, and there's nothing wrong with that.

That mortgage rate is even lower than CD rates...and that's not a potential gain, that's a guaranteed gain. A tiny one, but a gain nonetheless!

That doesn't change the fact that some people are more debt averse than others, including MMM himself, who paid off his mortgage. It's not what I would do, though I also couldn't imagine having a mortgage that large. My chest actually hurts thinking about owing that much money on something.

Spending $10 on breakfast to avoid spending 15 minutes at home to make it is also not something I would do, but saying there's nothing wrong with it is a bit farfetched.  It's an irrational and objectively mathematically bad decision.  The OP is free to do as they wish but saying "there's nothing wrong with that" is...well, incorrect. : )

ketchup

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Re: What to do with $50,000?
« Reply #13 on: June 10, 2019, 03:07:05 PM »
Paying off a mortgage is an emotional decision. Doing so provides peace of mind.

Mathematically, you are better off putting the money in an index fund. We may get a correction soon, but you are likely to be better off 20 years from now if that money were invested as opposed to put towards the mortgage. Short-term volatility means absolutely nothing to me - I'm in it for the long haul.

It sounds like the peace of mind provided by putting that towards the mortgage means more to you than the potential gains from investing it, and there's nothing wrong with that.

That mortgage rate is even lower than CD rates...and that's not a potential gain, that's a guaranteed gain. A tiny one, but a gain nonetheless!

That doesn't change the fact that some people are more debt averse than others, including MMM himself, who paid off his mortgage. It's not what I would do, though I also couldn't imagine having a mortgage that large. My chest actually hurts thinking about owing that much money on something.
So if someone offered you a $1M loan at 1%, you'd say no?  Debt-is-always-bad is something that took a bit for me to shake.

DadJokes

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Re: What to do with $50,000?
« Reply #14 on: June 10, 2019, 03:25:01 PM »
Paying off a mortgage is an emotional decision. Doing so provides peace of mind.

Mathematically, you are better off putting the money in an index fund. We may get a correction soon, but you are likely to be better off 20 years from now if that money were invested as opposed to put towards the mortgage. Short-term volatility means absolutely nothing to me - I'm in it for the long haul.

It sounds like the peace of mind provided by putting that towards the mortgage means more to you than the potential gains from investing it, and there's nothing wrong with that.

That mortgage rate is even lower than CD rates...and that's not a potential gain, that's a guaranteed gain. A tiny one, but a gain nonetheless!

That doesn't change the fact that some people are more debt averse than others, including MMM himself, who paid off his mortgage. It's not what I would do, though I also couldn't imagine having a mortgage that large. My chest actually hurts thinking about owing that much money on something.
So if someone offered you a $1M loan at 1%, you'd say no?  Debt-is-always-bad is something that took a bit for me to shake.

I answered that in my post. You're just picking and choosing portions of my post to respond to while ignoring others.

I simply understand both points of view. Peace of mind is worth more to some people than others. If the path to financial independence means spending money on things that you value more, what is wrong with someone valuing a paid-off mortgage more? You can get on to someone for buying anything besides the bare necessities with your point of view.

cloudsail

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Re: What to do with $50,000?
« Reply #15 on: June 10, 2019, 04:25:05 PM »
The problem is that throwing the $50,000 at the mortgage right now does absolutely nothing for anyone's peace of mind. It only makes a small dent compared to the total amount owed. It doesn't change his monthly payments, should he lose his job, etc. He could refinance at the new lower principal, but at today's mortgage rates I'm not sure if that would even significantly lower his payment.

I'm in the "pay off mortgage" camp myself, but I would only do so with a lump sum, especially with such low rates.

martyconlonontherun

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Re: What to do with $50,000?
« Reply #16 on: June 10, 2019, 04:38:04 PM »
Hey all,

I just came into $50,000. Based on my family situation, kids, wife etc I am relatively conservative at this point.

We owe about $635,000 on our home at 2.875% mortgage with 26 years left.

My gut tells me to pay the home down by $50,000 and just allow the same payment to occur(no refinance).

Does this sound like a reasonable idea?

I tried figuring out the numbers myself via a mortgage and amortization calculator, but if someone could possibly break down:

How much more will be paid off per month, and what total savings in time and money I'd have to be mortgage free I'd appreciate it.

Moosejaw: I'm really conservative right now
Also Moosejaw: I just bought a 2/3 million dollar house.
:) Probably a reasonable house based on your finances, but just kind of a shockingly high amount for someone who posts here.

the_fixer

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Re: What to do with $50,000?
« Reply #17 on: June 10, 2019, 04:49:26 PM »
With how much you owe and your interest rate I would not put it towards the house.

If you had 50 or 70k to go I would say do it becuase you would have a paid off house, free up monthly money and remove a big part of the risk.

However in your current situation it does not remove the risk or free up money and at your interest rate you can easily beat it.

Personally I would make sure I had an adequate emergency fund and then invest the rest but I am just a nobody so think it through and decide for yourself.

FYI my plan is to have a paid off house in retirement so this is coming from someone that is a fan of a paid off house just less risky ways to go about it.


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moosejaw

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Re: What to do with $50,000?
« Reply #18 on: June 10, 2019, 05:00:56 PM »
Thanks for the replies everyone, no need to argue, I appreciate everyone's opinion.  I mentioned this would be an emotional decision of security, essentially owning 10% more of what is currently owed, plus it pays down a little more principal automatically since my payment doesn't change. 

My interest rate is ridiculously low so I understand the potential for higher gains elsewhere, and wanted to know what other conservative(typically debt averse people thought.)

As far as personal finances, we got a good deal on our home in a very nice area(Think Seattle) and the cost of living is what it is, and is far different than most areas of the country.  When we moved to this particular area my wife's salary doubled and mine stayed the same.  Many people send kid's to private schools, but we live in an area now that avoids that need or want since the school system is so desirable.  Essentially their public school is paid for in home price to live in the area.

It's a hefty mortgage no doubt.  We have zero other debt, and don't spend much on vacations and stuff.  Just enjoy the home.  Also, I certainly don't feel like I have to defend our choices, but some people live in other areas that cost a lot more to live.  In this entire PNW region a million dollar home is much more the norm than the exception.

I like the idea of just putting it to work as mentioned and may have to consider that in a Vanguard index fund.

JLee

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Re: What to do with $50,000?
« Reply #19 on: June 11, 2019, 06:26:07 AM »
Thanks for the replies everyone, no need to argue, I appreciate everyone's opinion.  I mentioned this would be an emotional decision of security, essentially owning 10% more of what is currently owed, plus it pays down a little more principal automatically since my payment doesn't change. 

My interest rate is ridiculously low so I understand the potential for higher gains elsewhere, and wanted to know what other conservative(typically debt averse people thought.)

As far as personal finances, we got a good deal on our home in a very nice area(Think Seattle) and the cost of living is what it is, and is far different than most areas of the country.  When we moved to this particular area my wife's salary doubled and mine stayed the same.  Many people send kid's to private schools, but we live in an area now that avoids that need or want since the school system is so desirable.  Essentially their public school is paid for in home price to live in the area.

It's a hefty mortgage no doubt.  We have zero other debt, and don't spend much on vacations and stuff.  Just enjoy the home.  Also, I certainly don't feel like I have to defend our choices, but some people live in other areas that cost a lot more to live.  In this entire PNW region a million dollar home is much more the norm than the exception.

I like the idea of just putting it to work as mentioned and may have to consider that in a Vanguard index fund.

One thing you may want to consider is putting it into an index fund and adding to it until you have enough to pay the mortgage off in a lump sum. Your money will be more effectively placed in the interim and you will then be able to drop the mortgage payment as well (instead of chipping away at the mortgage over time without impacting cashflow at all).

ender

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Re: What to do with $50,000?
« Reply #20 on: June 11, 2019, 06:34:59 AM »
You can get 3% APY in a 5 year CD from Ally.  That's mathematically superior to paying a 2.875% mortgage, but still barely ahead of inflation.

Depends on tax situation, if OP isn't itemizing it's probably worse to do a CD @3% than pay off a 2.875% mortgage.

Dicey

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Re: What to do with $50,000?
« Reply #21 on: June 11, 2019, 07:11:24 AM »
Paying off a mortgage is an emotional decision. Doing so provides peace of mind.

Mathematically, you are better off putting the money in an index fund. We may get a correction soon, but you are likely to be better off 20 years from now if that money were invested as opposed to put towards the mortgage. Short-term volatility means absolutely nothing to me - I'm in it for the long haul.

It sounds like the peace of mind provided by putting that towards the mortgage means more to you than the potential gains from investing it, and there's nothing wrong with that.
But he's not talking about paying off the mortgage, he's suggesting paying down the amazingly cheap mortgage, which is actually risky. There is no added peace or security until the mortgage is gone, so why put yourself at risk? The safest position until then is to have lots and lots of payments available.

The true power move is to invest until you have enough to obliterate the mortgage outright.

Feel free to hang out with us on the DPOYM thread until you feel at home...

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/950/
« Last Edit: June 11, 2019, 02:23:57 PM by Dicey »

ketchup

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Re: What to do with $50,000?
« Reply #22 on: June 11, 2019, 10:58:35 AM »
Paying off a mortgage is an emotional decision. Doing so provides peace of mind.

Mathematically, you are better off putting the money in an index fund. We may get a correction soon, but you are likely to be better off 20 years from now if that money were invested as opposed to put towards the mortgage. Short-term volatility means absolutely nothing to me - I'm in it for the long haul.

It sounds like the peace of mind provided by putting that towards the mortgage means more to you than the potential gains from investing it, and there's nothing wrong with that.
But he's not talking about paying off the mortgage, he's suggesting paying down the amazingly cheap mortgage, which is actually risky. There is no added peace or security until the mortgage is gone, so why put yourself at risk? The safest position until then is to have lots and lots of payments available

The true power move is to invest until you have enough to obliterate the mortgage outright.

Feel free to hang out with us on the DPOYM thread until you feel at home...

https://forum.mrmoneymustache.com/throw-down-the-gauntlet/dont-payoff-your-mortgage-club/950/
Yes, let's not conflate "peace of mind" with "false sense of security."  Thinking you're doing the less-risky thing doesn't make it less risky.

moosejaw

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Re: What to do with $50,000?
« Reply #23 on: June 11, 2019, 12:34:41 PM »
I get this.

If the housing market bombs or just goes down by 10% that money is essentially gone...but I do owe what I owe on the home. 

More than likely based on everyone's opinion I will invest all of it in a Vanguard index fund, and add to that fund every month.  Hopefully within a 10-20 year span there will be enough there to pay off what is left in the mortgage and then some.

Thank you for the advice everyone.


honeybbq

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Re: What to do with $50,000?
« Reply #24 on: June 11, 2019, 01:43:50 PM »
How did you get a 2.8% jumbo mortgage?

Fuzz

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Re: What to do with $50,000?
« Reply #25 on: June 11, 2019, 05:31:45 PM »
The most risk averse thing is to hang on to the cash. Even if you have $350K in retirement accounts, you still have the how do I make my mortgage if I lose my job problem. Do you feel good about your emergency fund?

Radagast

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Re: What to do with $50,000?
« Reply #26 on: June 11, 2019, 10:30:02 PM »
I'm in the "pay off mortgage" camp myself, but I would only do so with a lump sum, especially with such low rates.
+1

Depends on tax situation, if OP isn't itemizing it's probably worse to do a CD @3% than pay off a 2.875% mortgage.
Yes

But he's not talking about paying off the mortgage, he's suggesting paying down the amazingly cheap mortgage, which is actually risky. There is no added peace or security until the mortgage is gone, so why put yourself at risk? The safest position until then is to have lots and lots of payments available

The true power move is to invest until you have enough to obliterate the mortgage outright.
Yes, let's not conflate "peace of mind" with "false sense of security."  Thinking you're doing the less-risky thing doesn't make it less risky.
This is the key element!

More than likely based on everyone's opinion I will invest all of it in a Vanguard index fund, and add to that fund every month.  Hopefully within a 10-20 year span there will be enough there to pay off what is left in the mortgage and then some.
It doesn't even need to be a total stock index. It could be a balanced fund like Moderate Growth, or Tax Managed Balanced index fund if your income is extremely high.

How did you get a 2.8% jumbo mortgage?
Curious about this too

moosejaw

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Re: What to do with $50,000?
« Reply #27 on: June 11, 2019, 11:45:18 PM »
We bought our home a few years ago(2015), and I was speaking to a friend of mine who was a banker at KeyBank.  He says, "Hey, we have a number of jumbo loan refi programs right now."

I believe the available rate to me was 3.25 and I bought it down to 2.875 which covered all costs after year 2.  I told a ton of my buddies about the loan product they had but the only other person to get the rate was my sister.

I found it impossible that it existed AND expected it not to close, but it closed.

My guess is they expected me to be rich and keep my banking with them.  I'm not and I didn't.

How did you get a 2.8% jumbo mortgage?

frugaliknowit

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Re: What to do with $50,000?
« Reply #28 on: June 12, 2019, 08:44:08 AM »
We bought our home a few years ago(2015), and I was speaking to a friend of mine who was a banker at KeyBank.  He says, "Hey, we have a number of jumbo loan refi programs right now."

I believe the available rate to me was 3.25 and I bought it down to 2.875 which covered all costs after year 2.  I told a ton of my buddies about the loan product they had but the only other person to get the rate was my sister.

I found it impossible that it existed AND expected it not to close, but it closed.

My guess is they expected me to be rich and keep my banking with them.  I'm not and I didn't.

How did you get a 2.8% jumbo mortgage?

This is an argument for NOT prepaying the mortgage:  You just paid for a buydown a few years ago.  Paying it off is arguably flushing some of the money you paid down the toilet.

There's nothing WRONG with prepaying it, per se.  It's a risk free 2.875%*(1.0-marginal tax rate).  So, if your marginal tax rate is 28%, you're risk free after tax return is ~2.07%.

Goldy

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Re: What to do with $50,000?
« Reply #29 on: June 12, 2019, 08:59:28 AM »
Until you can outright pay the mortgage off tossing 50k at it is just increasing your risk.  If you toss that money into a taxable or account itís there if you both lose your jobs.  Even if the market immediately tanks 50% you still have 25k to pay bills with. 

aetheldrea

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Re: What to do with $50,000?
« Reply #30 on: June 12, 2019, 11:20:54 PM »
Strongly suggest that you follow Dicey's suggestion and hang out a bit with the Don't Pay Off Your Mortgage folks, and learn what they are about. I did pay off my mortgage early. If I had invested instead, I would be about $160,000 richer today. So I get to work an extra 3 or 4 years before I can retire. That sucks.

Dicey

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Re: What to do with $50,000?
« Reply #31 on: June 13, 2019, 12:33:14 AM »
Strongly suggest that you follow Dicey's suggestion and hang out a bit with the Don't Pay Off Your Mortgage folks, and learn what they are about. I did pay off my mortgage early. If I had invested instead, I would be about $160,000 richer today. So I get to work an extra 3 or 4 years before I can retire. That sucks.
Oh, aetheldrea, I am so sorry to hear that! You know, we're not allowed to comment on the mortgage payoff thread. By the time people discover the true cost of prepaying the mortgage at the expense of other investing, there will be too much water under the bridge. At least you've figured it out while you can still work a few more years. For many, they will make the sad discovery when an easy recovery is no longer possible. I hope you enjoy your work and the extra years fly by.

BrickByBrick

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Re: What to do with $50,000?
« Reply #32 on: June 13, 2019, 11:26:41 AM »
Until you can outright pay the mortgage off tossing 50k at it is just increasing your risk.  If you toss that money into a taxable or account itís there if you both lose your jobs.  Even if the market immediately tanks 50% you still have 25k to pay bills with.

This is my issue as well.  Unless you pay off the mortgage in one fell swoop you don't even reap the benefits of increased monthly cash flow from having no mortgage, all you've done is increase your personal risk factors by decreasing your liquid cash, locking up equity, with no near-term benefit.

aetheldrea

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Re: What to do with $50,000?
« Reply #33 on: June 14, 2019, 10:57:14 AM »
Strongly suggest that you follow Dicey's suggestion and hang out a bit with the Don't Pay Off Your Mortgage folks, and learn what they are about. I did pay off my mortgage early. If I had invested instead, I would be about $160,000 richer today. So I get to work an extra 3 or 4 years before I can retire. That sucks.
Oh, aetheldrea, I am so sorry to hear that! You know, we're not allowed to comment on the mortgage payoff thread. By the time people discover the true cost of prepaying the mortgage at the expense of other investing, there will be too much water under the bridge. At least you've figured it out while you can still work a few more years. For many, they will make the sad discovery when an easy recovery is no longer possible. I hope you enjoy your work and the extra years fly by.
Honestly, I doubt that most people will bother to figure this out ever. Itís easy to see how much mortgage interest you are avoiding (in my case, over $200,000), but historical stock market returns with reinvested dividends are harder to find. And once the decision has been made, thereís no incentive to look back at what might have been, except morbid curiosity:-)

robartsd

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Re: What to do with $50,000?
« Reply #34 on: June 14, 2019, 03:47:53 PM »
So if someone offered you a $1M loan at 1%, you'd say no?
Please do offer me a non-callable $1M loan at 1% fixed APR. Can we make it interest only in perpetuity pretty please? It wouldn't quite push me to FIRE, but it would reduce the time needed by more years than many here take.

RWD

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Re: What to do with $50,000?
« Reply #35 on: June 14, 2019, 09:24:39 PM »
So if someone offered you a $1M loan at 1%, you'd say no?
Please do offer me a non-callable $1M loan at 1% fixed APR. Can we make it interest only in perpetuity pretty please? It wouldn't quite push me to FIRE, but it would reduce the time needed by more years than many here take.
A loan with those terms would make us instantly comfortably FI.