Author Topic: Pay Off Mortgage or Invest More?  (Read 5320 times)

tenns9

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Pay Off Mortgage or Invest More?
« on: February 08, 2014, 02:47:12 AM »
My wife and I want to retire asap. We have no debt except on our home. I'm wondering if I should be investing my extra cash instead of throwing it towards my mortgage? We have a $12,000 emergency fund and about $15,000 in retirement accounts. Right now we are putting $2,800 a month toward the mortgage.

Mortgage Balance: $77,000 at 3% interest

Take home pay:approx. $4,500/month
tithe.................   450
mortgage.........   2800
property taxes.........133
home insurance......   42
Car Insurance..   121
Fuel   .........................200
PGE/utilities.........   100
abraham...........   38
cell phone........   50
groceries..........   200
pet.....................   60
date night........   20   
DMV..................   25
doctor and dentist..   50
Garbage and Water   80
misc.   ........................50
Total.........................4,419

I'm currently maxing out my 401k at work, but am wondering if I should be investing more on top of that instead of throwing our extra money towards the house. My wife and I will be staying in this house long term. Your thoughts and advice are appreciated!


soccerluvof4

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Re: Pay Off Mortgage or Invest More?
« Reply #1 on: February 08, 2014, 04:21:09 AM »
Unless i missed it how long of a mortgage do you have? Whats the house's value? do you have or are you planning on having kids?

Need more info. Based on what you have listed below you are only netting 81$ a month after your costs and i dont know what tithe is. Your other costs seem in line but your mortgage is pretty high and again i dont not what tithe is. Personally not knowing the answers to the other questions i would keep maxing out your 401k. Does your wife have one or work? if so same with her . Is there employee match? but i would pay off mortgage as fast as i can but still start investing some in index funds for long term.

Wesmon

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Re: Pay Off Mortgage or Invest More?
« Reply #2 on: February 08, 2014, 05:12:47 AM »
Nice budget.

Stop paying extra on the mortgage.  Max out 401k if available.  Throw every penny into IRA/ETF at a low cost brokerage.

Please stop tithing 10% , that's way too much for your situation.  Perhaps you can donate time instead.

What's Abraham?

Olórin

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Re: Pay Off Mortgage or Invest More?
« Reply #3 on: February 08, 2014, 08:28:46 AM »
Nice work on your budget!  I agree with Wesmon that you should max out all 401k options and invest everything else rather than paying extra on the mortgage.  That rate of 3% is quite low, so you should make more in the market.

All that said, I finally  made the leap to create an account on here because I couldn't let Wesmon's comment about tithing (giving 10% of your income to church, charity, etc) go.  I think members in this community can sometimes get so caught up with the goal of early retirement and wealth building that generosity and cultivating a spirit of giving to others goes out the window.  Tenns9, I'm encouraged to see that you are intentionally building generosity into your budget, and I just want to throw out there that I totally support that.  My wife and I have made the decision that we are going to give away a larger and larger % of our income every year, whatever that income is. 

Keep up the good work Tenns9, and put all that extra money towards investments.

Joel

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Re: Pay Off Mortgage or Invest More?
« Reply #4 on: February 08, 2014, 09:59:04 AM »
A 3% mortgage rate is extremely low. I would not pay anything extra on the mortgage, and instead invest that money. You are almost guaranteed a return greater than 3% over the duration of the mortgage.

GlassStash

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Re: Pay Off Mortgage or Invest More?
« Reply #5 on: February 08, 2014, 10:07:34 AM »
A 3% mortgage rate is extremely low. I would not pay anything extra on the mortgage, and instead invest that money. You are almost guaranteed a return greater than 3% over the duration of the mortgage.

This. Max the 401(k) and invest the remaining in a Traditional or Roth IRA. 

mh1361

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Re: Pay Off Mortgage or Invest More?
« Reply #6 on: February 08, 2014, 10:10:09 AM »
Please stop tithing 10% , that's way too much for your situation.  Perhaps you can donate time instead.

Not to jump on Wesmon but I have to agree with NotJustFrugal on tithing. My wife and I will be getting married in July with about 74k in student debt combined, and the first thing we decided was tithing 10% was non-negotiable.

tenns9

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Re: Pay Off Mortgage or Invest More?
« Reply #7 on: February 08, 2014, 10:52:53 AM »
Thanks for all the replies. I really appreciate the input. Glad to see others on the road to ER incorporating giving into their budgets.
 
We've been paying extra on the house since we purchased it 2 years ago. I just hate owing someone money and that is what will make it difficult to invest our surplus instead of paying off the mortgage.

Wesmon, I like the idea of donating time. Abraham is a friend we support in Nicaragua. I can't cut out the 10% giving though. I don't want to hold onto my money too tightly because it isn't even mine, its God's money that He's given us to manage. Since I've been blessed with far more money than I need I want to turn around and bless others with it.

My wife and I are 24 so we would be subject to early withdrawal fees when it comes time to retire if we are investing everything in our Roth's and 401ks, correct? Should we also open a separate account that isn't subject to early withdrawal fees and invest the majority in that instead of the roth's and 401ks?

Olórin

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Re: Pay Off Mortgage or Invest More?
« Reply #8 on: February 08, 2014, 11:50:39 AM »
Tenns9, I would read this piece on early retirement and tax-deferred accounts.  It was quite helpful to me:  http://www.madfientist.com/retire-even-earlier/

There are other threads here on MMM, but this should get you started, as it mentions some ways that you can take advantage of low spending levels to avoid high taxes and early withdrawal fees upon early retirement.

Dicey

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Re: Pay Off Mortgage or Invest More?
« Reply #9 on: February 08, 2014, 06:27:40 PM »
I just hate owing someone money and that is what will make it difficult to invest our surplus instead of paying off the mortgage.

My wife and I are 24 so we would be subject to early withdrawal fees when it comes time to retire if we are investing everything in our Roth's and 401ks, correct? Should we also open a separate account that isn't subject to early withdrawal fees and invest the majority in that instead of the roth's and 401ks?

Tenns9 - Last night I was thinking about how the market seems to have lifted from the bottom and that the days of sub 4% mortgages are probably long gone. My next thought was that the people who got those great loans and are furiously paying them off early will rue that as interest rates inevitably rise.

Some specific points in response to this thread:

1. Do not let anyone talk you out of your beliefs about tithing.
2. Unless there's money you haven't mentioned, you do not have enough saved to be pre-paying your mortgage.
3. If you want to retire early: yes, you are going to need enough cash to live on until you can access your retirement savings penalty-free, so you have to save for both scenarios.
4. Early money is worth far more than later money. You are young and can reap the rewards of compound interest, but not if you spend it on killing the ridiculously cheap mortgage.

Could you challenge yourself to think in terms of "owning some money" (for yourself) instead of "owing someone money"? To this end, I recommend the first chapter of Ric Edelman's book, "Ordinary People, Extraordinary Wealth". It's old-ish and should be cheap used or free at your library. IMHO, it should be required reading for everyone before they graduate from high school.

Finally, you are to be commended for doing a lot of things right so far. The right steps now will set you up for life.

bikebum

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Re: Pay Off Mortgage or Invest More?
« Reply #10 on: February 08, 2014, 06:40:04 PM »
For whatever it's worth: My mortgage is 30-year fixed rate of 3.375% and I decided to invest more by not paying any extra to the mortgage.

Faith2014

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Re: Pay Off Mortgage or Invest More?
« Reply #11 on: February 08, 2014, 07:10:59 PM »
Rather than 'either/or', think about 'both/and'.  Why not split the extra money you've been paying into your mortgage and invest some in a taxable account  in addition to paying down the principal?

God loves a cheerful giver!  While I don't fully tithe (we Catholics approach it differently), I do partially support my sister and her young kids.  That's probably more than 10% on its own.   

Congrats on the gazelle intensity!