Author Topic: Anything else I should do? Start paying down mortgage?  (Read 737 times)

jamesbond007

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Anything else I should do? Start paying down mortgage?
« on: July 23, 2021, 08:29:58 PM »
I am maxing out 401K, getting full employer match, Backdoor Roth IRA, Mega backdoor Roth, Max HSA, Max ESPP.


I am not funding 529 as I am in California, and I am not completely sold (Read: do not yet understand the need or impact on FAFSA etc. as I did not study in the USA. So not aware of the unnecessarily complex education system). Investing everything into VTSAX, FXAIX, SWPPX or equivalent where possible.


Shall I also consider paying down my mortgage? Currently have $319K @ 2.625% 30 year. Refi'd 10 months ago. The approach I took so far has been, invest everything to take advantage of the low rate. But I am itching to pay it off (I know) for psychological relief. Not important but why not? What I did was invest a $1000 a month in VTSAX in a separate taxable account and planned to pay off the mortgage when the balance hits my mortgage balance + tax burden. That'd be equivalent to taking out a 15-year mortgage instead of a 30 year. Does that make sense?

StartingEarly

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Re: Anything else I should do? Start paying down mortgage?
« Reply #1 on: July 23, 2021, 08:48:41 PM »
Make sure you have liquid or easily liquid money in an emergency fund, probably want around 12 months.

nereo

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Re: Anything else I should do? Start paying down mortgage?
« Reply #2 on: July 24, 2021, 05:14:25 AM »
You are in a great situation, and whatever choice you make isn’t going to put you in any kind of financial danger. Personally I would never give up a fixed 2.652% loan, but if you are going to do it, then your approach of creating a ‘home sinking fund’ is a good way of doing it. There’s no added safety in pre-paying the mortgage until the note is completely gone, and you won’t save much in interest with a rate that low (you’ll most likely lose out to opportunity cost if you over-paid each month).

I always advocate taking an objective, rational approach to money, so I would speond some time reflecting on why having a paid off home would give you ‘psychological relief’.  Your expenses will be lower, but you will have less in savings. It may ‘feel’ like you own your home free-and-clear, but you still have taxes and insurance. Fail to pay those and you risk eviction, just as you would not paying your mortgage. None of those are likely to happen as you have more than sufficient savings to cover any SHTF scenario. So why is having no mortgage so appealing?

FWIW my parents created a home sinking fund with a plan much like your own, but once they reached the milestone of having a larger balance in the sinking fund they decided they preferred the safety of this six-figured account rather than the lower expenses on a mortgage taken out decades ago (and who’s monthly PI payments now seemed minuscule thanks to inflation and wage growth).

Regardless of what you do, congrats on being in a position of financial strength.

jamesbond007

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Re: Anything else I should do? Start paying down mortgage?
« Reply #3 on: July 24, 2021, 09:05:28 AM »
You are in a great situation, and whatever choice you make isn’t going to put you in any kind of financial danger. Personally I would never give up a fixed 2.652% loan, but if you are going to do it, then your approach of creating a ‘home sinking fund’ is a good way of doing it. There’s no added safety in pre-paying the mortgage until the note is completely gone, and you won’t save much in interest with a rate that low (you’ll most likely lose out to opportunity cost if you over-paid each month).

I always advocate taking an objective, rational approach to money, so I would speond some time reflecting on why having a paid off home would give you ‘psychological relief’.  Your expenses will be lower, but you will have less in savings. It may ‘feel’ like you own your home free-and-clear, but you still have taxes and insurance. Fail to pay those and you risk eviction, just as you would not paying your mortgage. None of those are likely to happen as you have more than sufficient savings to cover any SHTF scenario. So why is having no mortgage so appealing?

FWIW my parents created a home sinking fund with a plan much like your own, but once they reached the milestone of having a larger balance in the sinking fund they decided they preferred the safety of this six-figured account rather than the lower expenses on a mortgage taken out decades ago (and who’s monthly PI payments now seemed minuscule thanks to inflation and wage growth).

Regardless of what you do, congrats on being in a position of financial strength.

Thank you. What you said makes sense. The main reason I started thinking about this that I am about 5 years away from FIRE and I don't want to have mortgage payments in FIRE. I counted my P+I payment as my insurance premium money. I guess it'd be a wash either way but I must go back and readjust my FIRE number.

wenchsenior

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Re: Anything else I should do? Start paying down mortgage?
« Reply #4 on: July 24, 2021, 10:12:15 AM »
I would never in a million years pre pay a mortgage loan at that rate.  Our is 3.5% and if I refid now, I'd take out a much bigger loan than the remaining mortgage total and then use the proceeds for home repairs/refurb projects, but that's me. I don't care if I never pay our house off as long as the interest rate is super low.  But as you said, psychological relief sometimes can take precedence.

Once we maxed out retirement vehicles and a 6-month cash emergency account, we just started investing in a taxable account with Vanguard.  I did initially motivate myself (as you have) with the idea of having our total debt amount cross our taxable investment account funds total, but once that happened and we hypothetically could have paid off all our debt, I found I wanted to hold onto the cash a whole helluva lot more than I wanted to have no debt LOL.



seemsright

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Re: Anything else I should do? Start paying down mortgage?
« Reply #5 on: July 24, 2021, 04:33:36 PM »
paying off your mortgage is not financial question. It is a emotional/psychological question. Only you can answer the question.

MDM

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Re: Anything else I should do? Start paying down mortgage?
« Reply #6 on: July 24, 2021, 11:48:22 PM »
Shall I also consider paying down my mortgage? Currently have $319K @ 2.625% 30 year. Refi'd 10 months ago. The approach I took so far has been, invest everything to take advantage of the low rate. But I am itching to pay it off (I know) for psychological relief.
Of course you should consider it, but should you do it?  Aye, there's the rub. ;)

If your investments are 100% stocks, then you will likely be much better off paying only the mortgage minimum.  But if you are holding a large cash balance, or have bond investments paying less than 2.625%, paying more on the mortgage may work better. 

See Investment Order and Prioritizing investments for more.

Malcat

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Re: Anything else I should do? Start paying down mortgage?
« Reply #7 on: July 25, 2021, 06:10:16 AM »
Most of us who are against paying off your mortgage are actually fine with it once you hit FI.

Once you have enough money, it doesn't really matter.

I think it's also very smart to save the total amount first. Once you have enough, you will be able to decide then what to do with it. That's a future you decision though, you don't know how you will feel then. Maybe at that point you will be so used to your mortgage and your FI status that you don't care.

Basically, the approach you are taking prevents a lot of suboptimal outcomes, and defers the actual decision to a time where you will be even more financially secure.

Smart move.

bacchi

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Re: Anything else I should do? Start paying down mortgage?
« Reply #8 on: July 25, 2021, 10:02:25 AM »
A mortgage ]can affect your ACA subsidies due to the cliff unless the current (2021 and 2022) 8.5% of income is made permanent.

US I-bonds are paying 3.54%. That's a guaranteed return until October, when the rate is reset. If you cash out early and take the 3 month penalty, you'd still earn more than your mortgage rate with current inflation.