Author Topic: Talk me out of paying down my mortgage!  (Read 2244 times)

themagicman

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Talk me out of paying down my mortgage!
« on: February 23, 2017, 01:31:01 PM »
I purchased a home for about $300k in November with the intention for getting a long 30 year mortgage and investing the difference. I was happy with that decision and was expecting to get about a 3.375% rate. But now I am about to close on the house and my rate is 4.25%. Also on top of that the stock market has gone up drastically (I know, don't time the market) . I have about $180k in cash that I could invest or put towards the mortgage.

I guess for me, I know that it still makes sense mathematically to pay down the mortgage as slowly as I can.

But mentally, I cannot shake the fact that if I would have been a couple of months earlier with this I would have saved about ~$40k in interest over the 30 years as well as would have already made ~$18k on the invested portion.

It just really discourages me that I feel like I "Missed the boat" and I feel like just throwing money towards the mortgage and paying it off sooner because the 3 month delay does not have as much affect on that plan.
Any words of encouragement to still stick with the original plan and pay the mortgage down slowly?

dandarc

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Re: Talk me out of paying down my mortgage!
« Reply #1 on: February 23, 2017, 01:35:36 PM »
4.25% is still a very low rate for a 30 year loan.

Whatever you decide, do something with that $180K.  Sitting in cash is a sure losing move.  Paying mortgage vs. investing is an optimization question, but either option is better than sitting on the cash.

themagicman

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Re: Talk me out of paying down my mortgage!
« Reply #2 on: February 23, 2017, 01:38:36 PM »
4.25% is still a very low rate for a 30 year loan.

Whatever you decide, do something with that $180K.  Sitting in cash is a sure losing move.  Paying mortgage vs. investing is an optimization question, but either option is better than sitting on the cash.

Thank you. And I know historically it is low. My issue (Irrationally) is that it is not relatively low to the last couple of years.

As far as doing something with the $180k. I will for sure do one of the two. But I do not close for another month so cannot put it towards the mortgage yet if I go that route. But it will not sit in cash past closing

I'm a red panda

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Re: Talk me out of paying down my mortgage!
« Reply #3 on: February 23, 2017, 01:47:42 PM »
Money decisions often aren't rational. Why not pay off a half or a quarter of it?

KungfuRabbit

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Re: Talk me out of paying down my mortgage!
« Reply #4 on: February 24, 2017, 03:07:51 AM »
Variations of the likely republican tax plan functionally get rid of the mortgage interest deduction. If they go through it will change the tune slightly in the debt vs payoff debate.

There is also option 3. Get a shorter duration mortgage and they give you lower interest rate. I did a 10 year mortgage and it dropped like 0.75% or so compared to 30yr.

themagicman

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Re: Talk me out of paying down my mortgage!
« Reply #5 on: February 24, 2017, 06:06:44 AM »
Money decisions often aren't rational. Why not pay off a half or a quarter of it?

This might be a good compromise for me! What would I do with extra money once tax advantaged is full? More towards the house or invest? Or would I just keep putting half or a quarter to each of them?

I'm a red panda

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Re: Talk me out of paying down my mortgage!
« Reply #6 on: February 24, 2017, 06:38:50 AM »
Money decisions often aren't rational. Why not pay off a half or a quarter of it?

This might be a good compromise for me! What would I do with extra money once tax advantaged is full? More towards the house or invest? Or would I just keep putting half or a quarter to each of them?

We stopped paying down our mortgage and moved to taxable accounts. Our old mortgage wasn't high enough to take advantage of the interest deduction, but our spendypants house is; so at least until that disappears we've finally convinced ourselves we actually do better with the mortgage. 

themagicman

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Re: Talk me out of paying down my mortgage!
« Reply #7 on: February 24, 2017, 08:39:10 AM »
Money decisions often aren't rational. Why not pay off a half or a quarter of it?

This might be a good compromise for me! What would I do with extra money once tax advantaged is full? More towards the house or invest? Or would I just keep putting half or a quarter to each of them?

We stopped paying down our mortgage and moved to taxable accounts. Our old mortgage wasn't high enough to take advantage of the interest deduction, but our spendypants house is; so at least until that disappears we've finally convinced ourselves we actually do better with the mortgage.

Yeah with this mortgage we would barely be over the standard deduction so that makes it less appealing to pay down slowly

letthelightin

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Re: Talk me out of paying down my mortgage!
« Reply #8 on: February 24, 2017, 08:40:40 AM »
If the main thing that's bothering you is that you "missed the boat", you could also do a one-time additional payment to your mortgage (enough to "recover" the amount you "lost"), then invest the rest.

For example, an additional $25,000 payment at the beginning of a 30 year, $300,000 loan at 4.25% ($1478/mo P&I) would save $55,000+ in interest over the life of the loan, and cut 4.5 years of payments off the end of the loan.

Vertex42 has a really awesome Excel debt reduction calculator that I use whenever I'm daydreaming about paying off my mortgage. You could play around with that to see the effect of additional payments to your mortgage payoff schedule. I like their calculator in particular because you can input either additional monthly payments, or one-time payments at different points over the life of the loan.

Good luck!

 

less4success

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Re: Talk me out of paying down my mortgage!
« Reply #9 on: February 24, 2017, 08:45:28 AM »
One caution: even if you feel you have a secure job, I would recommend against paying extra on your mortgage for one simple reason:

If you lose your job, it is better to have money/liquid investments to cover your expenses than a lower mortgage balance -- your lender won't care how much you've reduced the principal owned, they will still want the monthly payment in full and on time.

I suggest investing in a taxable account until you have enough to pay the whole thing off -- then you have a decision to make :)

Mother Fussbudget

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Re: Talk me out of paying down my mortgage!
« Reply #10 on: February 24, 2017, 12:43:57 PM »
What would I do with extra money once tax advantaged is full? More towards the house or invest? Or would I just keep putting half or a quarter to each of them?

You could do a search for the hundreds of other times this question has been asked, and answered (well... opinions given on).  There's another current thread that received the "Investment Order" response - that's certainly something you should read regarding what to do with excess cash.  All the best!

http://forum.mrmoneymustache.com/ask-a-mustachian/debt-vs-more-down-payment/

themagicman

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Re: Talk me out of paying down my mortgage!
« Reply #11 on: February 24, 2017, 12:45:36 PM »
If the main thing that's bothering you is that you "missed the boat", you could also do a one-time additional payment to your mortgage (enough to "recover" the amount you "lost"), then invest the rest.

For example, an additional $25,000 payment at the beginning of a 30 year, $300,000 loan at 4.25% ($1478/mo P&I) would save $55,000+ in interest over the life of the loan, and cut 4.5 years of payments off the end of the loan.

Vertex42 has a really awesome Excel debt reduction calculator that I use whenever I'm daydreaming about paying off my mortgage. You could play around with that to see the effect of additional payments to your mortgage payoff schedule. I like their calculator in particular because you can input either additional monthly payments, or one-time payments at different points over the life of the loan.

Good luck!

I really like this idea! I would not have to put that much down to have the total interest match what it would have been before!