Author Topic: Pay down home mortgage vs. invest now  (Read 1607 times)

Dragonstrike

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Pay down home mortgage vs. invest now
« on: October 21, 2016, 11:24:14 AM »
Hi everyone, quick question again:

I just got a home loan with my my wife for about 320k in Hawaii.  With each of our incomes now, we make total combined income every month after taxes about 8-9k (BAH for military is about 5k of that)

I can only contribute $5,500 a year to my current Roth account, VTSAX, with vanguard. 

We are many years from FIRE'ing, and with our financial status being much clearer now, we want to downplay the home mortgage as fast as possible (or until the home appreciates in our area so much that selling is a viable option).

The mortgage is $1500 a month, and we also pay HOA fees to about $400.  Plus, electricity will probably run about $100-$150 a month.

I get BAH for myself to about $2500 per month, and my wife will get the same.

Should I put all my BAH towards the house first, and then another $1000 from the wife, so in total about $2500 ($1000 over mortgage) every month?

Or should I contribute a smaller amount, say, just an extra $500 per month, towards the mortgage and the rest into a (taxable?) retirement account?

CNM

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Re: Pay down home mortgage vs. invest now
« Reply #1 on: October 21, 2016, 11:32:04 AM »
What's the interest rate on your mortgage?

Also, do you all have 401Ks?  How much do you contribute annually (Not including employer match)?

And is there a rule or some other restriction that BAH must be spent on housing? 

Heroes821

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Re: Pay down home mortgage vs. invest now
« Reply #2 on: October 21, 2016, 11:59:57 AM »
What's the interest rate on your mortgage?

Also, do you all have 401Ks?  How much do you contribute annually (Not including employer match)?

And is there a rule or some other restriction that BAH must be spent on housing?

BAH is meant for housing, but no you can theoretically spend it on anything you want, it is simply income not filed as taxable income.  It's why military retirements are so small compared to what you make because your BAH and BAS(food pay) were not "income" they were tax free stipends.


I'm interested in how OP and his spouse are pulling the same BAH because mil to mil married are allowed 1 BAS (368a month for enlisted, 253 for officers) and 1 BAH dependant rate and 1 BAH single rate.

I think Hawaii counts as overseas like Alaska so they would technically get COLA over BAH, but functionally the same thing.   Either way BAH is not tracked on where you spend it.


zephyr911

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Re: Pay down home mortgage vs. invest now
« Reply #3 on: October 21, 2016, 12:19:51 PM »
You just bought, and priority #1 is being able to sell?

If you have no equity, and you want some breathing room, then yeah, maybe pay down to 90% LTV, but otherwise, you're probably better off investing the surplus. Keep a little in something fairly liquid if you're worried about it.

Caveat: this is assuming you have a rate in the 3-4% range.

Mother Fussbudget

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Re: Pay down home mortgage vs. invest now
« Reply #4 on: October 21, 2016, 02:34:03 PM »
1) This has been asked hundreds of times here.  Do yourself a favor, and read through earlier responses first - search "mortgage invest".  A few examples from the first page of results:
Extra mortgage payments vs investing
Pay off mortgage or invest
Mortgage or invest
Pay down 2.75% 15 yr mortgage vs invest in taxable
Pay off mortgage or invest
Pay off mortgage or invest
After refinance what should I do pay off loan, pay off mortgage, or invest
Mortgage paydown vs investment

(hmmm... .I sense a pattern here)

2) See Sensible Bogleheads comments on how to prioritize paying off loans here:
http://www.bogleheads.org/wiki/Paying_down_loans_versus_investing


Consensus:  (look it up - it does NOT mean 'unanimous')

Invest. Investments are liquid. Potential ROI is greater than the 2%-to-4% returns/savings from paying off a loan.
Mortgages are not liquid. Must sell your house or refinance to recapture investment dollars.

Dragonstrike

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Re: Pay down home mortgage vs. invest now
« Reply #5 on: October 21, 2016, 03:33:57 PM »
What's the interest rate on your mortgage?

Also, do you all have 401Ks?  How much do you contribute annually (Not including employer match)?

And is there a rule or some other restriction that BAH must be spent on housing?

BAH is meant for housing, but no you can theoretically spend it on anything you want, it is simply income not filed as taxable income.  It's why military retirements are so small compared to what you make because your BAH and BAS(food pay) were not "income" they were tax free stipends.


I'm interested in how OP and his spouse are pulling the same BAH because mil to mil married are allowed 1 BAS (368a month for enlisted, 253 for officers) and 1 BAH dependant rate and 1 BAH single rate.

I think Hawaii counts as overseas like Alaska so they would technically get COLA over BAH, but functionally the same thing.   Either way BAH is not tracked on where you spend it.

Rate is 3.25% on mortgage.  And my mistake, I looked into the BAH rating and you were right, my numbers were mixed up.  For Hawaii, its like $2,600 something for with dependent rate and $1950 for without dependent.  So under 5k estimate, though my numbers could be more accurate.  This is just a quick question/response thread. And we both get COLA, that's to offset the living expenses.  COLA isn't taken over BAH, its both given.

I have a TSP which I invest $200 a month into, and then $500 for my VTSAX every month.  Quite honestly, when I do the math a majority of my paycheck ultimately goes to roth ira in VTSAX, the TSP and then the house.  Everything else is frugal living expenses.

@zephyr911, no the priority is not selling the house.  When it came to renting vs. buying in Hawaii, it made more sense to buy an actual place.  I don't like paying someone else's mortgage, as we say here.  The minimum time in living for the house on a VA loan is 1 year.  Our current plan when the wife comes back from training is a minimum 4.5 year commitment.  IF we stay longer, more power to us.  Otherwise, we will rent it out to a military couple and have them pay off the long term part of the mortgage.  Selling the property is only ideal when the conditions are ideal, in that the real estate value pitches enough to the point that we either 1) make money off it to pay down our next house or 2) equity in home is worth it.

@bender, I agree with your idea, and I'm waiting till after this month to really crunch numbers to see where energy, food bill, gas, etc. get me for this area.  I'll have a better picture then, but your idea is very safe to me and I was thinking along those lines anyway.

@ Mother Fussbudget, dude, calm down.  Yes, the topic I'm sure has been asked a thousand times even, and yes, they are everyone else's topics.  Reason this isn't a case study is because I'm not there yet, and yes I've looked and peered over forums before for these topics and got various ideas and responses, some not all that great but still insightful.  Reason I asked is because more senior people like you, being the greenhorn I am, look up to you for advice and opinions, not a lynching session.  So "do yourself a favor" too and let the forum be a forum.