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Learning, Sharing, and Teaching => Investor Alley => Topic started by: wkumtrider on May 15, 2015, 01:15:48 PM

Title: Pay off Mortgage or Invest
Post by: wkumtrider on May 15, 2015, 01:15:48 PM
Hello Everybody,

I have a 15 yr mortgage at 2.875%, and I currently pay extra on the principal each month.  I have a Roth IRA, 401K, and a real estate investment. I plan to start investing in some Vanguard funds.  My question is, should I pay off the mortgage first ($124,000) or start investing and just pay the minimum amount on the mortgage?  Any advice is greatly appreciated.  I am not the savviest when it comes to investments.

Thanks!
Title: Re: Pay of Mortgage or Invest
Post by: I'm a red panda on May 15, 2015, 01:20:31 PM
I personally prefer to invest than to pay off my mortgage.
My mortgage rate is so low that I can do much better investing the money.

Title: Re: Pay of Mortgage or Invest
Post by: dandarc on May 15, 2015, 01:31:00 PM
Basically same situation as iowajes.

I'm personally paying off our mortgage before investing beyond our tax-advantaged accounts, but the math is clearly on the side of investing.  If we were being totally rational, we'd have taken out a 30 year, and paid it off as slowly as possible.  Put another way, 2.875% is super cheap money - pretty likely you'll make more on investments than the mortgage is costing you.

Also, in our case, the mortgage and the house itself are a pretty small part of our overall financial picture (house price was like 70% of annual income), so it is not like we'll be paying extra on it for 10 years or something, where this choice might have larger effects.

Ultimately, pay it off, don't pay it off - if you didn't buy too much house in the first place, you'll be OK.
Title: Re: Pay of Mortgage or Invest
Post by: Cheddar Stacker on May 15, 2015, 01:38:56 PM
Some light reading for you:

http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/
http://forum.mrmoneymustache.com/ask-a-mustachian/let's-settle-this-with-a-vote-invest-or-payoff-debts/

Often discussed around here. Summary: It depends on your personal goals and stuff. Dive in for more detail.

I have the exact same terms on my mortgage (but it's $50K bigger). I've never made an extra payment, and never plan to. The rate is just way to cheap to even think about it in my opinion.
Title: Re: Pay of Mortgage or Invest
Post by: zephyr911 on May 15, 2015, 01:58:25 PM
Hello Everybody,

I have a 15 yr mortgage at 2.875%, and I currently pay extra on the principal each month.  I have a Roth IRA, 401K, and a real estate investment. I plan to start investing in some Vanguard funds.  My question is, should I pay off the mortgage first ($124,000) or start investing and just pay the minimum amount on the mortgage?  Any advice is greatly appreciated.  I am not the savviest when it comes to investments.

Thanks!
Invest.
Personally I tend to hold any debt under about 4%... it's too easy to beat the return with low-risk stocks and come out ahead.
I even have a car loan (don't tell MMM). At 2.25% it's not worth paying off, considering I plan to own it forever and my cash is earning 8-10% in stocks and ETFs. I'd only pay down low-APR debt to reduce DTI for another investment mortgage application if need be.
Title: Re: Pay of Mortgage or Invest
Post by: forummm on May 15, 2015, 02:28:52 PM
If it fits with your personal risk profile, investing is a good option. I have a similar situation and I continue to invest. Be prepared for the market to go down 30%--because it probably will. It does that about every 3 years on average. And stay the course.
Title: Re: Pay of Mortgage or Invest
Post by: zephyr911 on May 15, 2015, 02:30:43 PM
If it fits with your personal risk profile, investing is a good option. I have a similar situation and I continue to invest. Be prepared for the market to go down 30%--because it probably will. It does that about every 3 years on average. And stay the course.
...and when it does, cash in everything you own that isn't bolted down, and buy more shares.
Title: Re: Pay of Mortgage or Invest
Post by: birdman2003 on May 15, 2015, 03:24:47 PM
A favorite way to analyze the risk involved is to flip the scenario around:

If your mortgage was retired and your house was paid off, would you take out a new loan against the house so you could invest in a mutual fund?

It's really the same scenario phrased a different way.  If you are risk adverse and wouldn't borrow money against your house to invest, then it's probably a better idea to pay off your house, and then use what would have been your mortgage payment and invest in a mutual fund(s).
Title: Re: Pay off Mortgage or Invest
Post by: wkumtrider on May 15, 2015, 03:37:01 PM
Thanks for the advice everyone. Based on the majority of responses I will go ahead and start investing.  I'll probably use the extra money I've been putting toward the mortgage and invest it. 

Thanks again!