Refinance or keep investing to payoff mortg?

[Murr]

Hello all, Looking for some sound advice as my plans have a very emotional feel to them. I've internally debated and researched to no end the whole invest vs. pay off mortgage topic. I've made the personal[/b] decision to pay off the mortgage as having that last bit of debt gone would really allow me to be flexible in what I do with my time, mostly spend more with my kids who are still young as I travel quite a bit for my current job.
Anyway, I've been investing in a taxable account since April(in addition to maxing 401K) and will have about $150K in a few months. I have $310K left on my mortgage and my question is should I just continue to save up until I can knock the whole balance out(about 2 more years) or is there any sense in throwing the $150K at the mortgage and refinancing? I could refinance to a 15 yr or even an ARM to get a lower rate then the 3.99 I am at now. This would lower my monthly outlay, allow me to save more, but would also make me feel like I am making progress. I am going to knock the thing out in about 2-3 years anyway so not sure it makes a difference. Am I nuts?   

[partgypsy]

I'm not going to crunch the numbers, but if you are planning to pay off in the next 2, 3 years probably refinancing doesn't make sense (probably spend more on the refinance than what you are saving in mortgage interest). Just keep hauling away at it! If you are making less than the mortgage interest on the money saved so far, you can always pay off part of the principal with a lump sum, which should reduce the amount of interest you are going to pay. but I would reserve some of that money as an efund if you don't have a separate one. 

[Murr]

Thanks Partygypsy, good feedback. Would you keep the funds I have invested or would you pull them out and keep as cash given the short horizon for when they are needed? I only invested them in the first place since I wasn't 100% sure I was going to pay off the mortgage.

[honeybbq]

I do about 72/25 with my extra cash - about 25% extra to mortgage, 75% into taxable.

I would probably not bother refinancing or going through all that. Just peck away at it IMO. But this is a very personal decision - no crystal ball or smoking gun here.

[Sibley]

You have a bunch of money saved up and dedicated to paying off the mortgage. You're also continuing your regular monthly payments on the mortgage.

Why don't you just throw that money at the mortgage now, and reduce the amount of interest you're paying? If this is an emotional issue for you, then the math of investing probably isn't working for you in the first place, otherwise you wouldn't be posting here. Get at least some benefit out of the math here and reduce the amount of interest you have to pay. After all, principle x interest rate = interest.

[Murr]

Thanks Sibley. You are correct in that this is an emotional decision. I understand the math and concepts here, I just feel good and "right" with the mortgage paydown. Good point about throwing the funds at it now, a guarantee would ease the mind a bit.

[Tyson]

I'd keep saving it in the taxable account till you have the full amount needed to pay it off.  My reasoning is 2-fold - first, there is a good chance that the taxable account will earn more in interest than the mortgage will, so leverage that.  2nd, if you put all the $$ into the mortgage now and get laid off or something happens before full payoff in a few years, you are shit out of luck.  Having the money in the taxable account at least keeps you liquid in the case of unforeseen events. 

[Goldielocks]

My approach:

 I created a separate taxable investment account  that I labelled my "mortgage savings account" and it really helps me see progress.  The plan is when I quit paid employment, or if mortgage interest spikes, I would just divert funds then.  Until then, I don't actually NEED the money on the low interest (2.1%) mortgage I have.

My differences are:
 1.  Mortgage is a large amount (HCOL)- about half the value of my retirement investment, with many more years to pay off. 
2.  I chose a variable ARM for the lowest possible rate, but was having stress attacks worrying about interest increases until I created the dedicated separate account as a buffer. 
3.  I don't get the mortgage tax deduction for mortgage that many others on the forum recoup.  This was all about not locking up the funds too firmly, while getting the best NET return, with the least stress and most freedom for me.

[partgypsy]

The amount to throw towards the mortgage and the amount to save in a taxable account is really a personal one, depending on your estimate of risk in the next say 3 years. If you have stable income for the foreseable future, then save a token amount (4-10K) in a taxable amount and then put the rest towards the mortage, because it may be motivating to see that you are paying that sucker off (plus it is unlikely a taxable account like savings or CD will pay more than the mortgage interest for example ALLY 5 yr CD is 2.1 % while your mortgage is 3.9%). But if your job may be insecure etc until it is paid off you would probably want a bigger cushion.

[Teacherstache]

Could you do a half way approach? Maybe at the end of each year, you could send half of what you have saved towards the mortgage payoff in a large payment, then save for another year, send half of what you have saved, and repeat as often as necessary until you have enough to pay the remainder? That way, you get some of the benefits of paying less interest, while still having the freedom of a large chunk sitting available in your account in case you change your mind about paying it off/lose a job, etc.

[Murr]

Great feedback guys. My wife and I were talking about this tonight and we came to the conclusion that there really is no wrong answer. We got $100K in VTSAX that we will let sit, $20K in cash for emergencies and the rest we will funnel to the mortgage. My wife doesn't work so this will provide a good 2 years of costs should something horrible happen. $125K is my goal next year so hopefully this time next Nov the finish line will be somewhat in sight.

[Goldielocks]

Great feedback guys. My wife and I were talking about this tonight and we came to the conclusion that there really is no wrong answer. We got $100K in VTSAX that we will let sit, $20K in cash for emergencies and the rest we will funnel to the mortgage. My wife doesn't work so this will provide a good 2 years of costs should something horrible happen. $125K is my goal next year so hopefully this time next Nov the finish line will be somewhat in sight.

I am confused.  How do you get the money out of your mortgage to "provide 2 years of costs " if "something horrible happens"?

Do you have  "skip payments" plan or "withdraw over payments whenever you want" type of mortgage?   If so, are you getting the lowest possible rate?

[Murr]

My response was not written well. The $100K in VTSAX plus the cash I have is the 2 years of living expense we have saved. Anything above this will go to the mortgage along with any future savings. Our mortgage is a plain vanilla 30 year fixed.

[Bearded Man]

I would never make anything other than an extra payment a year. If you put 100K into the mortgage and suddenly lose your job, can't find another, etc. then all that money is gone. Much better to have that cash somewhere liquid that you can earn money on it or live off the principle for a bit.

[clarkfan1979]

If you have 2 years of living expenses, then pay off the mortgage. Living expenses will go down after the mortgage is paid off.

Math people will argue to not pay off the mortgage. However, people who have done this are often very happy about the decision because of the psychological benefits.