Author Topic: Pay of Mortgage or Invest  (Read 1253 times)

gpyros85

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Pay of Mortgage or Invest
« on: January 03, 2019, 12:57:26 AM »
Hello All,
      I am wanting to know if I should focus on paying off my mortgage or invest the funds in index. Forewarning, this might not be our forever home since I am early in my career (33 yrs) and could easily move to another city for more money.
 
      I owe 126,000 on a 30 year that opened on January 2015 @ 4.125%. Put down 20% on a 170k purchase, so already have 10k paydown equity.

      I currently max out my 401k, roth IRA and invest an extra $930/month into taxable accounts. I make 98k/year. (I have 173k in a mix of retirement & roth and same taxable and I get a 5% match up to 6% salary)

      However, I am currently on an expat assignement until Oct 2019 where I am making an extra $4,420/month to put to taxable, but this ends in Oct 2019.

      I could possible paydown in 3-4 years.

      3 year scenario

      10 months would be 126,000 to 65,250 by direction the temporary (4,420 + 930 + 500 (roth) + ~225 (princple paydown))

      10-36 could be from 65,250 - 0 by (930+500+230 (princle paydown)+ reducing 401k contributions to 9%)

      4 year scenario

      10 months (same as above)

      10-48 could be same without 401k contribution reduction
 



      Any opininos on where I should go? My only hesitation is being potentional moved in the next 3-4 years.

Laura33

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Re: Pay of Mortgage or Invest
« Reply #1 on: January 03, 2019, 06:58:20 AM »
Invest.  Say your home appreciates to $200K in 4 years, and you want to sell.  It will be worth $200K regardless of whether you have $10K in equity or $200K.  So putting additional money into your mortgage will not get you any more profit; it just saves you 4.125% in interest.

OTOH, the money you are putting into the market right now, today, has by far the largest effect on your future retirement 'stache.  Actually, the money you have already invested has the biggest effect -- but as between today's dollar and tomorrow's, today's is more important, and tomorrow's is more important than the day after tomorrow's.  Math:  Rule of 72 says if you get around a 7% return, your investments will double every 10 years.  So if you have $100K in the market today, that is $200K in 10 years, $400K in 20, and $800K in 30.  OTOH, if you wait 10 years (because, say, you're paying off your mortgage first), you will only have $400K in 30 years -- half as much, because you missed an entire doubling. 

I am a believer in paying off the mortgage before you FIRE, and in fact my mortgage is currently scheduled to be paid off by my planned RE date.  But you have said this is not your forever house, so why rush to pay it off?  Worse comes to worst and you do stay there forever, you can always take money out of the market to pay off the mortgage -- and you'll still have more money left than if you had put the money in the house to start with.

Car Jack

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Re: Pay of Mortgage or Invest
« Reply #2 on: January 03, 2019, 07:50:05 AM »
You are likely to get strong opinions on both sides.....pay mortgage and don't pay mortgage.  You can actually go into threads here on both of these topics to see all of the reasons people have for each side.

It comes down to what you feel most comfortable with.  Paying the mortgage is a guaranteed, easily calculated savings of interest.  Investing is not guaranteed and while over the long term will most likely return more than your mortgage savings would, there's no guarantee of this nor of when you'd get those returns.

People will ask how long you plan to be in the house.  That does not matter one bit.  If you made an extra payment and sold the house in 2 months, the amount you get in cash after the house sale is going to be exactly the same.  Either it's money in your hands already or it's money applied to the check because it was in equity.

I'm going to also say that either is a good place to be.  The vast majority of people with a mortgage put no extra money towards it and don't invest.  So either way, you're ahead of the game.  If you're worried that you might need equity back in cash for something, take out a no cost HELOC now.  I have one that's over 20 years old, just in case.  My mortgage was paid off in the early 2000's.

TexasRunner

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Re: Pay of Mortgage or Invest
« Reply #3 on: January 03, 2019, 09:10:09 AM »
Why would anyone recommend forgoing investing in this situation????....

OP is talking about not maxing out tax-deferred buckets and instead paying off a fixed, low-rate, non-callable mortgage and is nowhere near FIRE. 
There is absolutely no reason to pay down your mortgage early.  And don't even think about it before you at least max out 401k (for you and the spouse if possible) and both IRAs.

Being moved in 3-4 years makes no difference at this point (only on the rent-or-buy equation does length of stay apply).

Based on a 30-Year timeline of investing vs paying extra in the mortgage, OP would come out ($667,271.00) BEHIND by paying extra in the mortgage.  That is pushing back FIRE by YEARS just to get a good feeling about not paying interest...

The market has never lost to a 4.125% mortgage on a 30-Year timeline (in fact it has never lost to a 7.5% mortgage on a 30 year timeline) so "risky investment returns" is BS.  There is absolutely no way OP comes out ahead by prepaying this instead of maxing out the tax buckets.

After tax buckets, however, is your call.  If you want to prepay at that point it isn't optimal but you have already set yourself up for FIRE with investing that it makes less of a difference.

RWD

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Re: Pay of Mortgage or Invest
« Reply #4 on: January 03, 2019, 09:49:48 AM »
I would invest. Take a look at the investment order post.

gpyros85

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Re: Pay of Mortgage or Invest
« Reply #5 on: January 03, 2019, 11:13:31 PM »
Some good advice here!

After posting this and thinking about it for 2 days, I have come to the conclusion to keep investing BUT, I am going to keep paying down the mortgage with the difference I would be paying as if I were renting, which would be 230/month. This way I am still investing and also paying down the mortgage by ~ $455/month.


Telecaster

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Re: Pay of Mortgage or Invest
« Reply #6 on: January 03, 2019, 11:42:58 PM »
Some good advice here!

After posting this and thinking about it for 2 days, I have come to the conclusion to keep investing BUT, I am going to keep paying down the mortgage with the difference I would be paying as if I were renting, which would be 230/month. This way I am still investing and also paying down the mortgage by ~ $455/month.

Nope. This is the worst of both worlds. 

Brother Esau

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Re: Pay of Mortgage or Invest
« Reply #7 on: January 04, 2019, 05:23:19 AM »
Some good advice here!

After posting this and thinking about it for 2 days, I have come to the conclusion to keep investing BUT, I am going to keep paying down the mortgage with the difference I would be paying as if I were renting, which would be 230/month. This way I am still investing and also paying down the mortgage by ~ $455/month.

Nope. This is the worst of both worlds.

True story.

TexasRunner

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Re: Pay of Mortgage or Invest
« Reply #8 on: January 04, 2019, 08:02:43 AM »
Some good advice here!

After posting this and thinking about it for 2 days, I have come to the conclusion to keep investing BUT, I am going to keep paying down the mortgage with the difference I would be paying as if I were renting, which would be 230/month. This way I am still investing and also paying down the mortgage by ~ $455/month.

Nope. This is the worst of both worlds.

True story.

So increase your risk for a loss...  Without even maxing out your tax accounts...  Makes sense.

gpyros85

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Re: Pay of Mortgage or Invest
« Reply #9 on: January 05, 2019, 06:05:58 PM »
Very confused by the last comments? I was only going to pay my mortgage like it would be rent. However, I am going to continue 401 MAX, ROTH IRA MAX and the remaining in taxable.

clifp

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Re: Pay of Mortgage or Invest
« Reply #10 on: January 05, 2019, 07:11:25 PM »
My gut level says to invest. The only thing that would make me hesitate is that I suspect given the information you've presented that you are taking the standard deduction.  So paying down your mortgage so paying down the mortgage gives you an after-tax return of 4.125%.   This is a significantly higher interest rate than you can get for any type of low-risk fixed income investment.

Historically, yes a 100% stock portfolio will make more than 4.125 over a 30 years period.  But if you believe smart guys like Jack Bogle, who think were are looking at 4-5% equity returns over the next decade the decision isn't so clear-cut.  So if you are planning on investing only in equities in your taxable account than by all means invest. If however 100% equities in your taxable account would be too nerve-wracking for you then I'd opt for the guaranteed 4.125% return

AccidentalMiser

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Re: Pay of Mortgage or Invest
« Reply #11 on: January 05, 2019, 08:52:26 PM »
Iím in a similar situation but 20 years older.  I am going to retire my mortgage then retire myself in a couple of years.  I would strongly recommend investing for you, especially if you are thinking of moving.