Pay off mortgage or Invest

[mike11]

Hi all, I am new to MMM and love the site and all the help. 

I need assistant in deciding should I pay off mortgage first or invest?
Here is my situation.
I have about $80K in savings and already putting in 401K for the amount employer is matching.   
Monthly saving is around $2,500 after all expenses.
Mortgage $160K just refinanced to 15yr at %2.99.  Monthly payment is $1902 (tax and insurance included)
I need help deciding from these scenarios.
1.   Pay extra $4000 a month and payoff the mortgage in about 30 months (interest will be paid on mortgage $6,800).  After 30 months start investing around $3,500 monthly. 

2.   Pay extra $3000 a month and payoff the mortgage in about 40 months (interest will be paid on mortgage $8,500).  After 40 months start investing around $3,500 monthly. 

3.   Pay extra $2000 a month and payoff the mortgage in about 55 months (interest will be paid on mortgage $11,400).  After 55 months start investing around $3,500 monthly. 

4.   Don’t pay any extra payment keep the mortgage for 15 years and start investing now. (interest will be paid on mortgage $38,000).  In this situation I would invest about $50K from savings + $2000 month.

I do prefer to get the mortgage out of the way but want to hear what others have to say and how my long term financial goal be affected by each situation. 

Thank you in advance.
Mike

[rtrnow]

This question gets asked pretty often and the general answer is it depends on how debt adverse you are. At 2.99% I would personally not overpay at all and invest the difference. You're almost sure to beat that return with a few decent index funds. IMO, there is no compelling financial reason to pay it off. The only reason would be how it makes you feel to know your home is payed off.

[jrhampt]

We are paying off our mortgage early, but I would not do this unless you are also maxing out all tax-advantaged accounts - i.e., not just to get the employer match in the 401k - do the full 17.5k, plus an IRA if you qualify, HSA, etc.  Maybe i-bonds, too.  If you can do this and still have money left over to pay if off, then you can perhaps think of paying extra on the mortgage as a substitute for the bond portion of your investment portfolio.

[mike11]

Thank you very much for your reply.

Wouldn't it be better if I use the scenario number 1?  I would payoff the mortgage in 30 months and after 30 months start investing $3000 monthly. 

If I keep the mortgage for 15 years, then I can only invest $2000 monthly for 15 years.

When I payoff the mortgage in very short time, I have extra $1000 monthly to invest.

Please let me know if it makes any sense.

[Another Reader]

Mathematically it does not make sense, as long as you can earn a better return from investing.  Over the 15 year term of the mortgage, it is likely you will earn a significantly higher return from investing and you will start earning it sooner.  You would be taking advantage of compounding starting as soon as you start investing.

For some people, the security of paying off the mortgage is important.  In your shoes, especially if you are young, I would max out the 401k and the IRA if I qualified.  The remainder would go to taxable investments.  The mortgage would be paid at the historically low interest rate over the 15 years. 

[aj_yooper]

+1 to jrhampt and Another Reader.  If you are a younger investor, it is important to get a good investment nut early so time can be your friend through compound interest.

I am a fan of the paid-off house, but only after having an adequate emergency fund, paying off high interest loans, like credit cards or auto loans, and maxing out tax advantaged options (401k, HSA, and Roth IRA). 

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