DONT Payoff your Mortgage Club

[Telecaster]

Regarding the bolded part: I think you misread a lot of what I posted. 1966 was probably one of the few years where it made sense (in retrospect) to pay off the entirety of your mortgage loan even at 30 years duration (though I'm not positive on mortgage interest rates (I can't locate great data going back that far), they seem by correlation to 10-year treasuries to be above the calculated breakeven point of 6%). Inflation doesn't matter, because stocks do not correlate well with inflation (in fact there's been a negative correlation with really high interest rates, increasing sequence of return risks).

I think you are misunderstanding what I wrote:

And in this discussion we're talking long term, low interest mortgages, blah, blah, blah.

About the last 50 times I wrote out that caveat I'd say "today's low interest rates" but I realized that makes the advice dated.   So let me fix that.  I mean about 4%-ish on a 30-year fixed.  I'm not talking about the possibility that DPOTM works in all cases and all scenarios.   BTW, I didn't see anyone voice any basic disagreement to your premise, including me.

Anyway in the 1966 scenario, as I stated, I was talking about withdrawals, not accumulation like you used in your examples.  I've fiddled with this extensively in cFIRESIM and what you find is that because you start with a higher portfolio value, and the mortgage payment is fixed  (sometimes people forget to check the "fixed" box), the portfolio value success improves.    That's just what happens.   When I was looking at it, I was assuming I was partway into a 30-year fixed, and the decision would be to payoff the mortgage all at once with some long-ish period remaining on the mortgage  vs.  hold the mortgage in retirement.   That's a pretty real world decision for a lot of people. 

There is a guy named Mike Golio who wrote a book on the topic of retirement.  He's been pretty active on the Internet over the years, and he came with an elegant way to frame this issue (paraphrasing and going from memory).  I mention this because he came up with this illustration:     If someone offered a 30-year loan at zero percent interest, would you take it?   The answer is no brainer! 

How about 1%  Back up the truck!
2% Sure!
3% 
.
.
7%  This one is starting to get iffy.  I'd have to have a clear for the money.
.
.
15%  I'd have to be desperate for the money
.
.
25%  No way!   I'd rather live in my car. 

We're pretty close to no brainer!/back up the truck at the moment.  If we were at "Desperate!"  then mortgage payoff is a different conversation.  I've never seen anyone dispute that notion. 

Usual caveats which need to be repeated every post:  Of course, it is possible to come up with a scenario where paying off a mortgage makes sense and every has different circumstances, financial situations, etc. etc. etc.  And in this discussion we're talking long term, 4%-ish  mortgages, blah, blah, blah.

[Boofinator]

Anyway in the 1966 scenario, as I stated, I was talking about withdrawals, not accumulation like you used in your examples.  I've fiddled with this extensively in cFIRESIM and what you find is that because you start with a higher portfolio value, and the mortgage payment is fixed  (sometimes people forget to check the "fixed" box), the portfolio value success improves.    That's just what happens.   When I was looking at it, I was assuming I was partway into a 30-year fixed, and the decision would be to payoff the mortgage all at once with some long-ish period remaining on the mortgage  vs.  hold the mortgage in retirement.   That's a pretty real world decision for a lot of people. 

Just to clarify, I'm also talking withdrawals. During accumulation, people should be taking more risk and trying to maximize expected returns. Anyone without a giant stash and who's early in the accumulation game shouldn't consider paying off their mortgage at these rates (or even up to 10% if they aren't maxing tax-deferred assets). Once you approach retirement, the strategy should shift toward minimizing the possibility of running out of money, and the calculus changes to emphasize sequence of returns risk.

I've run a lot of cFIREsim scenarios myself (you might have seen this post: https://forum.mrmoneymustache.com/investor-alley/stop-saying-it-is-not-mathematically-correct-to-pay-off-your-mortgage-early!/msg2181733/#msg2181733). I think this post cuts to the heart of the question (though there are certainly other factors involved, this gives a good idea of some of the tradeoffs involved).

[FIreDrill]

Another payday comes and goes....

726 to 401k
269 to HSA
605 to Espp (Minimum 15% discount. Profits will be taken right away at end of offering period)
462 to Taxable Brokerage

Investment Tracking
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738
4/12/19   - $404,719
4/26/19   - $411,264

12mo change = 79,478

Goal is to get our 12mo rolling change to 100k consistantly which should be doable in the next year as investment contributions increase. 



Sent from my moto g(6) using Tapatalk

[Dicey]

Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much to do but wait.

So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.

[DadJokes]

Well, I sign on a refinance Thursday, which will free up ~$1,600 in June and an additional $92/month to invest going forward.

So I've got that going for me, which is nice.

[SwordGuy]

Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much too do but wait.

So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.

In 12 1/2 years when my 15 year fixed rate 2.75% mortgage runs it's course, I'm going over to the other thread and post "I paid off my mortgage!"   Hell, why not?  It will still feel just as great as if I did it today.  :)

[Dicey]

Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much too do but wait.

So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.

In 12 1/2 years when my 15 year fixed rate 2.75% mortgage runs it's course, I'm going over to the other thread and post "I paid off my mortgage!"   Hell, why not?  It will still feel just as great as if I did it today.  :)

It will feel better, I promise.

[TomTX]

Ugh, just over 2 years left on my 2.5% mortgage.

I really ought to have a good discussion with the wife about a cashout refi.

[talltexan]

It took patience, but I eventually got my wife to sign on to my 5/1 ARM plan. It can be done.

Of course, now I'm in the adjustable rate period, and wife wants to move. So maybe it's backfiring ;-)

[Dicey]

It took patience, but I eventually got my wife to sign on to my 5/1 ARM plan. It can be done.

Of course, now I'm in the adjustable rate period, and wife wants to move. So maybe it's backfiring ;-)

Only if she wants a more expensive house :-p

[talltexan]

Without wanting to derail the thread:

Goals of our move are:

• reduce time in cars, which means being closer to my in-laws, an express bus stop to get to work, and kids' activities that are currently 7-13 miles north of us
• improve the school situation
• Keep quality/size of house at least the same

We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.

[Dicey]

Without wanting to derail the thread:

Goals of our move are:

• reduce time in cars, which means being closer to my in-laws, an express bus stop to get to work, and kids' activities that are currently 7-13 miles north of us
• improve the school situation
• Keep quality/size of house at least the same

We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.

I totally think it's relevant. And I was making  joke in response to yours. It's not always the wife who hankers for a better property, as dear @couponvan can attest.

I come from a land where the goal of homeownership came at a cost of HALF of my take-home pay. But I believe in quality of life in the present day, as strongly as I believe in planning for the future. Real estate paved my path to FIRE; it worked out in the end. It sounds like your reasons are solid, so no criticism from this quarter.

Hmm, maybe it would be fair to say that not prepaying your mortgage will enable you make this move comfortably. That puts us all back on track now!

[couponvan]

Ha! Yes, but I did sign myself up for the dream stove.....

[zoochadookdook]

Hey all. Just locked in a C/O refinance 30 year (had to do it this way as my property had no lien/was paying off a loan my father took).

4.25 %/30 30 year. Monthly Payment is 570. add on 330 for prop taxes/insurance.

I owe 113,000, appraisal said 190k

Financial situation:

Take home: 22/hr/40 week around 2800 month (side hustle another 2-300 here and there).
assets: 62K in savings/27K ROTH ira vanguard
debts 13200 in student loans no interest yet

I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

[Telecaster]

Boglehead Harry Sit has an interesting post about off his own mortgage.   He points out very soberly that there is perhaps no financial advantage to doing so*  Worth a read. 

After I paid off my mortgage, although I stopped paying interest to the bank, my total housing cost isn’t going down. In some ways my total housing cost will increase.

The interest portion of the mortgage payments was indeed an expense. It did stop, but I also increased another cost: the opportunity cost.

https://thefinancebuff.com/paid-off-mortgage-housing-cost-not-down.html

*Sit is very smart guy, but he's from the Michael Kitces school (also a very smart guy) that volatility equals risk, which is a common academic definition.    Therefore, according to this line of thought, paying down your mortgage lowers your risk.  I firmly disagree that volatility and risk are the same thing.   Risk is the chance of losing money.  Having liquid assets that can be sold to pay the mortgage in times of illness or job loss reduces the chance of losing your house. 

[Dicey]

Ha! Yes, but I did sign myself up for the dream stove.....

I lovingly call bullshit, sister. You earned that sucker, and it will entice you to cook at home even more.

[couponvan]

Ha! Yes, but I did sign myself up for the dream stove.....

I lovingly call bullshit, sister. You earned that sucker, and it will entice you to cook at home even more.

I will have to cook at home 100 times at $100 to earn that sucker.  Hmmm....maybe that should be a challenge to myself.  Cook at home for 100 days other than vacations?  Once we actually have a refrigerator to store food....Closing in 5 days!

[TomTX]

I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Your rate is below 5%, and seeing your age - your time horizon is long. Don't put a penny toward paying it down early. Invest.

[talltexan]

Just a brief check-in: another month, another mortgage payment sent in. I rebalanced all of my investment accounts this week (this is a quarterly habit of mine), and most of them gained 12%-18% since mid-January. Majorly covering the spread over the next several years of a mortgage.

[RWD]

I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order.

[talltexan]

I happened to notice that mortgage rates have fallen substantially over the past year. Are any of you brave souls looking into refinancing?

[DadJokes]

I happened to notice that mortgage rates have fallen substantially over the past year. Are any of you brave souls looking into refinancing?

I signed on a refinance yesterday. P&I went from $1,572 to $1,480, only extending the length by a year. I've already added that difference to my 401k.

[letsdoit]

can you really get a 15 yr mortgage when you buy a home ?

[couponvan]

can you really get a 15 yr mortgage when you buy a home ?

Yes-yes you can.

[talltexan]

At least ask your lender to quote you a rate on a 15-year. The payments will be substantially higher, but the interest rate could be 100 basis points or more lower.

[RWD]

can you really get a 15 yr mortgage when you buy a home ?

Yes-yes you can.

Uh, yeah, of course you can. Was that a trick question? We got a 15-year loan at 3.125% when we bought our house. The 30 year option was also attractive (3.875%) but I don't expect to be here long enough to benefit from the longer term/lower payments.

[nereo]

can you really get a 15 yr mortgage when you buy a home ?

Yes-yes you can.

Uh, yeah, of course you can. Was that a trick question? We got a 15-year loan at 3.125% when we bought our house. The 30 year option was also attractive (3.875%) but I don't expect to be here long enough to benefit from the longer term/lower payments.

10 year and 5 year mortgages are a thing, too, though the benefits you reap from holding a 30 year mortgage are largely non-existent with a 5 year mortgage. 

[zoochadookdook]

I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order.

I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.

[dandarc]

I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order.

I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.

That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.

[FIreDrill]

Every time that other thread pops up it makes me 1) miss @boarder42 and 2) hope that someone has something new to say on this thread. I suppose it's like waiting for the stache to grow. Once you get the fundamentals down, there's not much to do but wait.

So I congratulate all of you who are out there NOT paying off your mortgages. Even if it is quiet out there, I know good things are happening.

Yep.. I'll peak over there every once in a while and the mindsets can be interesting. People congratulating others for not being a "Slave" to their mortgage anymore.

I'm just glad I'm not a "slave" to emotionally based investment choices.....

Anyways...

Another payday has come and gone.  Trying hard to fight the market swings and stay above 400k invested.

726 to 401k
269 to HSA
605 to ESPP
462 to Taxable Brokerage

Investment Tracking
2/15/19   - $372,432
3/1/19     - $377,098
3/29/19   - $390,738
4/12/19   - $404,719
4/26/19   - $411,264
5/10/19   - $408,897

12mo change = 69,267

Sent from my moto g(6) using Tapatalk

[zoochadookdook]

I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order.

I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.

That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.

got it-so my mortgage is 4.25/student loans are 4.125-which means by that standard I should be paying the minimum payment on both and throwing everything excess into taxable accounts?

[SwordGuy]

I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order.

I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.

That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.

got it-so my mortgage is 4.25/student loans are 4.125-which means by that standard I should be paying the minimum payment on both and throwing everything excess into taxable accounts?

Minimum payment THAT REDUCES THE PRINCIPAL.   I've read that some student loans have minimum payments that don't even cover all the interest.

[zoochadookdook]

I came here in hopes of finding the magical calculation on what to allocate where as far as paying/not paying it down. It'd be much easier if I had a lower rate but hey-this is life.

Right here: Investment Order.

I'll have to make a case study up around that. I'm w2 hourly unless they direct hire me in 4 months-so no 401k/similar. No hsa yet. Do you happen to know if the 5%/3% debt higher than the 10 year treasury means that steps 2/7 mean if your IR is 8%/6% (assuming a treasury IR of 3%)? It reads kind of funny.

That's how I read that part of the investment order. I think that part is trying to get a risk/reward trade off - a suggestion of where to draw the line on the guaranteed return pay-offs and the expected to be higher investment returns.

got it-so my mortgage is 4.25/student loans are 4.125-which means by that standard I should be paying the minimum payment on both and throwing everything excess into taxable accounts?

Minimum payment THAT REDUCES THE PRINCIPAL.   I've read that some student loans have minimum payments that don't even cover all the interest.

I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior

If I make the minimum payment it's 10 years-$137/month=total of  $3,061  in interest paid.

[Boofinator]

I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior

If I make the minimum payment it's 10 years-$137/month=total of  $3,061  in interest paid.

Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.

A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?

[zoochadookdook]

I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior

If I make the minimum payment it's 10 years-$137/month=total of  $3,061  in interest paid.

Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.

A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?

each one has different rates-one I mean total is like 4.2 or so If i don't pay either. If i pay the 5.05 one the 11k will be at like 3.9%.

 Just got hired out of school 2 months ago. 22 Hourly 40 hours a week/w2 with no 401k or healthcare offered. In 4 months they will review and possibly direct hire me. Prior to this I was self employed. Puts me at like 45k/year although this year more like 38 due to start date.

I have 27k in my roth (vanguard target date 2060) with 3200 remaining cont. for 2019.

[Boofinator]

I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior

If I make the minimum payment it's 10 years-$137/month=total of  $3,061  in interest paid.

Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.

A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?

each one has different rates-one I mean total is like 4.2 or so If i don't pay either. If i pay the 5.05 one the 11k will be at like 3.9%.

 Just got hired out of school 2 months ago. 22 Hourly 40 hours a week/w2 with no 401k or healthcare offered. In 4 months they will review and possibly direct hire me. Prior to this I was self employed. Puts me at like 45k/year although this year more like 38 due to start date.

I have 27k in my roth (vanguard target date 2060) with 3200 remaining cont. for 2019.

So the plus if you don't have a 401k option available from your employer is that you can contribute and deduct Traditional IRA without an income cap: https://www.irs.gov/retirement-plans/ira-deduction-limits. However, in your case you look like you'll be in the 12% tax bracket, keeping in mind the 12k standard deduction for filing single: https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Marginal_tax_rates_for_2018. For the 12% tax bracket, I'm borderline in advising people to invest in Traditional or Roth IRA, since it is likely you'll be making much more money down the road and be in a higher tax bracket. If I was advising myself, I'd probably suggest Traditional rather than Roth, but wouldn't hold it against you if you chose Roth. Traditional is like getting stocks on sale at your combined federal and state income tax rates, so it works out to a pretty big deal.

Since it looks like you're maxing the available tax-advantaged space you have available (which is a very good thing), you can consider whether to put money into paying off the loans or into taxable. If you choose to pay off the loans, definitely pay highest interest rate first. Your highest loan is roughly 5%, which in my opinion is borderline for what I would want to pay off versus investing in a taxable account given the current state of affairs. So again, it's up to you. Keep in mind at your tax bracket dividends won't be taxed and you can still tax loss harvest if the stock market goes south (not to mention you'd establish some liquidity), so perhaps I'd lean toward a taxable account if I were in your shoes.

So to answer your original question: In your situation (low liquidity, relatively low loan interest rates, low tax bracket), I'd recommend paying the minimum payment on all your loans and investing any excess money in taxable (also research tax loss harvesting (TLH)). I would also consider changing from Roth to Traditional for your IRA. Finally, it sounds like you might be in a good position to look around for a higher paying job in the near future. Keep using Vanguard, but pick funds that are different from what you use in your IRA (necessary for TLH), and I'd recommend starting with a fund with a TLH good partner (for example S&P 500 and Total Stock Market make good TLH partners).

[iOlly]

Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgage

[Dicey]

Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgage

Great link, thank you! The illustration cracked me up. We're coming to the end of a year-long flip project. I might print that out and frame it. I'll hang it in our office to look at if when we start hankering to do another.

And of course the flip has a mortgage. We bought it just as rates spiked. The interest rate is 5.1%, egads! <--- Don't worry, our credit's fine. That's a non-owner occ rate.

[talltexan]

Without wanting to derail the thread:

Goals of our move are:

• reduce time in cars, which means being closer to my in-laws, an express bus stop to get to work, and kids' activities that are currently 7-13 miles north of us
• improve the school situation
• Keep quality/size of house at least the same

We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.

I totally think it's relevant. And I was making  joke in response to yours. It's not always the wife who hankers for a better property, as dear @couponvan can attest.

I come from a land where the goal of homeownership came at a cost of HALF of my take-home pay. But I believe in quality of life in the present day, as strongly as I believe in planning for the future. Real estate paved my path to FIRE; it worked out in the end. It sounds like your reasons are solid, so no criticism from this quarter.

Hmm, maybe it would be fair to say that not prepaying your mortgage will enable you make this move comfortably. That puts us all back on track now!

I went into a 5 BR house in which each of the kids' bedrooms had a private bath. I'm pretty bad at mustache-ing compared to some of you, but I can not imagine purchasing that degree of luxury for my own family; I think it would warp our 4-yo old forever. Asking price $580,000. I shudder to think about what that would buy in your area, Dicey.

[nereo]

I went into a 5 BR house in which each of the kids' bedrooms had a private bath. I'm pretty bad at mustache-ing compared to some of you, but I can not imagine purchasing that degree of luxury for my own family; I think it would warp our 4-yo old forever. Asking price $580,000. I shudder to think about what that would buy in your area, Dicey.

In just a few short years I've gone from one of the regions with the highest home prices (SF Bay area) to one of the lowest (rural northern New England).  When I was in California my very modest 2br/1.5bath, 900 sqft home was appraised at $740k.  It needed a ton of repairs/maintenance, and hadn't been renovated since the 1980s. Recently in my new locale I've watched two homes, newly renovated, 3br/2bath ~2,000 sqft plus detached garage sell for under $150k on several acres of land.

Twice the house, in much better condition, for 1/5th the price. Basically more than a 10x difference in price-per-square-foot.   It boggles my mind how much of a difference there can be between different locales.

[zoochadookdook]

I only took the interest-free ones-actually interest doesn't start until june 15th. These are extended period-there is a principal payment. Min payment is $137/month. It's 3 separate subsidized loans. Just mathed it out.
$5500/3.76%
$5500/4.45%
$2,292/5.05%

All are fixed, I can pay on them separately before the interest start date (6/15/19) but after that, they combine
$13,292 will be at 4.27% if I don't pay off any of the separate balances prior

If I make the minimum payment it's 10 years-$137/month=total of  $3,061  in interest paid.

Don't worry about the dollar amounts on interest, just worry about the percent return and the volatility/risk of the investment and how it matches up with your life goals and ability to take risk.

A few questions: Do you contribute to an IRA? Traditional or Roth? What's your tax bracket?

each one has different rates-one I mean total is like 4.2 or so If i don't pay either. If i pay the 5.05 one the 11k will be at like 3.9%.

 Just got hired out of school 2 months ago. 22 Hourly 40 hours a week/w2 with no 401k or healthcare offered. In 4 months they will review and possibly direct hire me. Prior to this I was self employed. Puts me at like 45k/year although this year more like 38 due to start date.

I have 27k in my roth (vanguard target date 2060) with 3200 remaining cont. for 2019.

So the plus if you don't have a 401k option available from your employer is that you can contribute and deduct Traditional IRA without an income cap: https://www.irs.gov/retirement-plans/ira-deduction-limits. However, in your case you look like you'll be in the 12% tax bracket, keeping in mind the 12k standard deduction for filing single: https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#Marginal_tax_rates_for_2018. For the 12% tax bracket, I'm borderline in advising people to invest in Traditional or Roth IRA, since it is likely you'll be making much more money down the road and be in a higher tax bracket. If I was advising myself, I'd probably suggest Traditional rather than Roth, but wouldn't hold it against you if you chose Roth. Traditional is like getting stocks on sale at your combined federal and state income tax rates, so it works out to a pretty big deal.

Since it looks like you're maxing the available tax-advantaged space you have available (which is a very good thing), you can consider whether to put money into paying off the loans or into taxable. If you choose to pay off the loans, definitely pay highest interest rate first. Your highest loan is roughly 5%, which in my opinion is borderline for what I would want to pay off versus investing in a taxable account given the current state of affairs. So again, it's up to you. Keep in mind at your tax bracket dividends won't be taxed and you can still tax loss harvest if the stock market goes south (not to mention you'd establish some liquidity), so perhaps I'd lean toward a taxable account if I were in your shoes.

So to answer your original question: In your situation (low liquidity, relatively low loan interest rates, low tax bracket), I'd recommend paying the minimum payment on all your loans and investing any excess money in taxable (also research tax loss harvesting (TLH)). I would also consider changing from Roth to Traditional for your IRA. Finally, it sounds like you might be in a good position to look around for a higher paying job in the near future. Keep using Vanguard, but pick funds that are different from what you use in your IRA (necessary for TLH), and I'd recommend starting with a fund with a TLH good partner (for example S&P 500 and Total Stock Market make good TLH partners).

Ok so the benifits of not having a employer 401k are no cap on how much I can contribute? Traditional Ira is benificial in that you are able to contribute more up front (pre tax) but the profits are taxed when withdrawing. Roth is post tax but is capped per year/no taxes on capital. What is the downside of a roth? You can't contribute if you make x amount? I guess I'm wondering why switch from roth to traditional unless I know I'm going to be making the limit in the very near future (do you have to switch over in a time frame?)

The only space I have available is a Roth ira unless you count HSA as it (which I'm trying to verify a plan-shopping is like the wild west here...).

I think I plan on paying off the 5.05% at 2200 with vanilla cards funded by a credit card (to hit a 500/back after 3k spent bonus). This will put the arp of the other 11k at 4.1% which I will make the minimum payments on. 

Investing I value high liquidity/availability to a degree. I do have low interest loans/4.25 116k/4.1 11k and a low tax bracket for at least this year. I'm trying to figure out THL better (from what I'm reading you can sell for a loss, wait 30 days, then buy the same/similar investment and it saves you taxes as it's taken off your income as a loss?). Does it just count towards losses based on contributions that year or is it net?


My plan right now is to max the roth for 2019 (3200), finish the house refinance this week, figure out a healthcare plan and learn how much makes sense to go to HSA monthly, leave 15k+10k (emergency and side business funds) in ally, and invest the other $35k. From what you saide I should look at funds (within vanguard). Should I be looking for a mix or just 100% stocks (I know stocks are riskier but mixing funds=more fees and the like). Eying just the VSTAX or such.

[nereo]

What is the downside of a roth? You can't contribute if you make x amount? I guess I'm wondering why switch from roth to traditional unless I know I'm going to be making the limit in the very near future (do you have to switch over in a time frame?)

The downside for many people with a Roth is that they are in a higher tax right now during their earning years compared to where they expect to be during their retirement years.  Ergo, a Roth would have them pay more taxes now to save less on taxes later. 

Also, a popular strategy is to convert funds from a tIRA to a Roth slowly in retirement to get the best of both worlds (called an IRA Conversion Ladder).

And of course not everyone makes under the cap to contribute to a Roth ($193k AGI if filing jointly)

[Telecaster]

Ok so the benifits of not having a employer 401k are no cap on how much I can contribute? Traditional Ira is benificial in that you are able to contribute more up front (pre tax) but the profits are taxed when withdrawing. Roth is post tax but is capped per year/no taxes on capital. What is the downside of a roth? You can't contribute if you make x amount? I guess I'm wondering why switch from roth to traditional unless I know I'm going to be making the limit in the very near future (do you have to switch over in a time frame?)

No. There are income limits for IRA contributions if you are covered by an employer's retirement plan.  In other words, if you make too much money you can't make a deductible IRA contribution.  Your income is below that threshhold though, so you don't have to worry about it for now.   

The rule of thumb is that a traditional IRA is better if you have high income (and corresponding high taxes) and a Roth is better with low income.   You are in a grey area where it is hard to say which one is the better choice. 

[letsdoit]

i'm in the grey area re: income
i often wonder the same Roth vs traditional
i've read both sides.
so  i split it 50-50

[zoochadookdook]

Here I was thinking the roth was the clear cut option....

Ok so A traditional I take a deduction yearly-so even though earnings are taxed you save off years of taxes...

However-the cap for a traditional is like 64k vs the cap for a roth is 123k?

https://investorjunkie.com/38369/roth-ira-vs-traditional-ira/

[Boofinator]

Sorry we've derailed the conversation here....

Ok so the benifits of not having a employer 401k are no cap on how much I can contribute?

Unfortunately, no, your IRA contribution limit is capped at $6k just like for everyone else. However, there is no income cap for how much of that you can deduct (which is irrelevant in your case, because as Telecaster has mentioned your income is nowhere near that limit).

I'm trying to figure out THL better (from what I'm reading you can sell for a loss, wait 30 days, then buy the same/similar investment and it saves you taxes as it's taken off your income as a loss?). Does it just count towards losses based on contributions that year or is it net?

We have lots of advice to give in this area and others, but it might be worthwhile to start a case study thread to discuss all of these questions and more.

[Dicey]

Without wanting to derail the thread:

Goals of our move are:

• reduce time in cars, which means being closer to my in-laws, an express bus stop to get to work, and kids' activities that are currently 7-13 miles north of us
• improve the school situation
• Keep quality/size of house at least the same

We are able to handle a larger payment than we are making now, as childcare expenses are being reduced substantially, and we've concluded there will be no more children.

I totally think it's relevant. And I was making  joke in response to yours. It's not always the wife who hankers for a better property, as dear @couponvan can attest.

I come from a land where the goal of homeownership came at a cost of HALF of my take-home pay. But I believe in quality of life in the present day, as strongly as I believe in planning for the future. Real estate paved my path to FIRE; it worked out in the end. It sounds like your reasons are solid, so no criticism from this quarter.

Hmm, maybe it would be fair to say that not prepaying your mortgage will enable you make this move comfortably. That puts us all back on track now!

I went into a 5 BR house in which each of the kids' bedrooms had a private bath. I'm pretty bad at mustache-ing compared to some of you, but I can not imagine purchasing that degree of luxury for my own family; I think it would warp our 4-yo old forever. Asking price $580,000. I shudder to think about what that would buy in your area, Dicey.

Just for grins, I searched. The best I could find for $580k is a 2+2, 1114 sf condo with $410 HOA. At $529k there is a 2+2+Den, 1124SF $350. Both are old, have carports and are adjacent to commuter rail lines. And yes, those are asking prices. Things are still selling for over asking here. I suspect the second one is a "bait" price. If I remember, I'll report back when it sells.

ETA: Damn, that was fast! The second one just went pending.

[iOlly]

Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgage

Great link, thank you! The illustration cracked me up. We're coming to the end of a year-long flip project. I might print that out and frame it. I'll hang it in our office to look at if when we start hankering to do another.

And of course the flip has a mortgage. We bought it just as rates spiked. The interest rate is 5.1%, egads! <--- Don't worry, our credit's fine. That's a non-owner occ rate.

We built 5 years ago and I still feel like that :).

[K-ice]

Balanced https://engineeringpeaceofmind.com/blog/2019/5/should-you-ever-pay-off-your-mortgage

I tried to follow this link but it is password protected.

[Blahhhh456]

Question to the Brain Trust:

TL/DR - would you refinance from 4.625% to 3.75% for no out of pocket closing costs?

Long story:
We bought a house in Dec 2018 when rates were 4.625% for owner-occupied, 20% down, etc. I received a quote option from a different bank to refinance with rolling in all the closing costs at 3.75%. Monthly payment would go from $1982 to $1846 (that includes the tax escrow), effectively saving $136 per month. We currently owe $302K and will refinance at $308K. I am a bit leery about the "no cost" refinance but for a savings of $136 per month, I might just go forward. Thoughts?