Author Topic: Paying towards mortgage principal vs ira  (Read 624 times)

zoochadookdook

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Paying towards mortgage principal vs ira
« on: July 17, 2018, 09:55:59 AM »
Rough numbers:
115K On mortgage on a variable federal interst rate. I can't refinance to fixed for at least another year and a half.

Currently paying $485 a month to max my ira contribution.

Age: 26.

Would it be better to put the roth money towards the mortgage principal monthly or keep contributing it?

Regards

jlcnuke

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Re: Paying towards mortgage principal vs ira
« Reply #1 on: July 17, 2018, 10:14:47 AM »
Assuming your mortgage interest rate is low - keep putting money into your IRA.

zoochadookdook

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Re: Paying towards mortgage principal vs ira
« Reply #2 on: July 17, 2018, 10:17:22 AM »
Assuming your mortgage interest rate is low - keep putting money into your IRA.

I believe it's around 4%; waiting to hear back from my lender today

lisa_mustache

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Re: Paying towards mortgage principal vs ira
« Reply #3 on: July 17, 2018, 10:23:58 AM »
If you can invest in your Roth at 8%-12% over that year and a half (yes, I know this is historical, and not guaranteed to stay), that will get you farther than paying down at a guaranteed mortgage rate of 4%.  At the time you refinance, you could decide use some of that invested money to pay off more principal then (having still made more in the market, fingers crossed), or you can leave it invested and let it ride, and continue to (hopefully) outperform the mortgage rate with market returns. 

For me personally, the math of investing extra money makes more sense than the emotional value of paying down my mortgage.  However, there are two very opposite ends of that spectrum.  You should go look for the two Pay Down My Mortgage and Don't Pay Down My Mortgage threads in the "Throw Down the Gauntlet" section.  It could be worth some time to read both and see where your comfort level falls, and go from there. 

Jrr85

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Re: Paying towards mortgage principal vs ira
« Reply #4 on: July 17, 2018, 11:06:39 AM »
Rough numbers:
115K On mortgage on a variable federal interst rate. I can't refinance to fixed for at least another year and a half.

Currently paying $485 a month to max my ira contribution.

Age: 26.

Would it be better to put the roth money towards the mortgage principal monthly or keep contributing it?

Regards

What is your variable interest rate tied to and why can't you refinance to fixed?   And what is your marginal tax rate?

But barring something unusual, I'd put it towards a roth.  If your mortgage interest rate ratchets upward, you can draw from your roth contributions if worse comes to worse, and with the tax advantages, you'll probably do better getting that money into a roth.

But if your marginal tax rate is already 22%, then maybe the answer is different.  Or if putting that money towards the mortgage would allow you to fix your interest rate in a few months rather than a year and a half, maybe the answer is different.