Author Topic: Pay off House or Stuff extra money in a Vangaurd Mutual Fund  (Read 2032 times)

mustachianit

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Pay off House or Stuff extra money in a Vangaurd Mutual Fund
« on: March 27, 2013, 10:49:24 AM »
Hi,

I could use some advice.  The only debt we have is our house at $149,000k for a 15 year at 3.25%.
And a car at 19k but interest at 1.9% totalling 1500.00 life of loan.
I know I want to punch myself for the car but we Tried to sell and would lose money so we are keeping the prius. Bought it prior to the change and have 4 years left.

We have 200k saved for retirement and have begun Maxing it out.  I want to go part time in 10 years or less.  My concern is if I throw all the extra cash at the house then I will need to work longer for retirement money.  But if I put it all in the mutual fund I have to pay taxes since it is not a retirement account.

Any advice would be awesome!!
Andria

AJ

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Re: Pay off House or Stuff extra money in a Vangaurd Mutual Fund
« Reply #1 on: March 27, 2013, 10:59:53 AM »
A couple of thoughts:

1. Would you actually "lose" money selling the car and buying a cheaper one - or would you just have to sell it for less than you currently owe? Even if you have to bring money to the table to sell, you may still come out ahead in the long run driving something cheaper - especially if it is cheap enough not to require full coverage insurance.

2. Do you have PMI on the mortgage? If so, it is probably worth it to pay down the loan enough to remove that. But if not, IMO, there is no real reason to throw more money at an already accelerated and low-interest loan unless it really bothers you to be in debt.

Catbert

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Re: Pay off House or Stuff extra money in a Vangaurd Mutual Fund
« Reply #2 on: March 27, 2013, 12:51:29 PM »
Given the low interest rates on both loans I wouldn't be in a giant hurry to pay off either IF I had a better alternative.  I would consider paying extra on the mortgage so that it's paid off in 10 years when you want to go part-time.  I would pay off the car loan early only if it were a future cash flow issue.

With regards to putting money in mutual funds outside retirement accounts, yes you will pay tax on what you put in (just as you would on money you pay on either of the loans.)  But it largely grows tax deferred until you sell it and then you only pay at the capital gains rate.  Currently in the US cap gains are 15% (0% if you are in the 15% income tax bracket).  While its hard to guess what future tax rates/policies will be, capital gains rates have been less than income tax rates for quite awhile (Reagan era, if memory serves).   Getting money out of a mutual fund will probably be cheaper than the money you take out of a 401K or traditional IRA.

mustachianit

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Re: Pay off House or Stuff extra money in a Vangaurd Mutual Fund
« Reply #3 on: March 27, 2013, 01:49:48 PM »
Hi,

Thanks so much this is very helpful.

No PMI on the house.  So I think I might split up extra money into a account and the other half at the house.
Thanks for explaining how it is taxed.
 
Thx for thr car tip too.  We would have to pay to get rid of it bit I think you are right.  We might be better off.
That way more money can be saved.