#FinancialAdvice #MortgageVsInvesting #MoneyManagement
Hey everyone! 🤔💰
So, here’s the dilemma – we have enough cash to pay off our mortgage (325k, 7%) but we’re torn on whether we should do it or invest the money instead. The interest on the mortgage is eating up a huge chunk of our monthly payment… What would you do in our shoes?
Here are some options to consider:
– Pay off the entire mortgage to be debt-free
– Pay off a portion of the mortgage to lower monthly payments and invest the rest
– Invest the full amount and continue making mortgage payments
I’m leaning towards paying off a chunk of the mortgage to reduce monthly payments and then investing the rest. What do you think? Any advice or personal experiences to share? 💡💭
Let’s discuss and help each other out! 🙌🏼💸
Make sure you have a fully funded emergency fund and are maxing out your tax advantaged retirement accounts and will be able to continue to max them out. Then with the money left over instead of putting that into a taxable brokerage account – use that to pay down your mortgage. It’s like getting a guaranteed 7% return on that money which is a pretty good deal.
IMO max 401k and Roth first, then house. Hard to beat a guaranteed 7% return.
But don’t wipe out all of your savings doing if.
I don’t know the answer to this, but have seen the question posed before. I think it’s kind of a value decision. However one thing I have noticed that doesn’t get discussed much is that the mortgage interest is tax deductible. Just another thing to consider.
Pay off your mortgage. 7% guaranteed is tough to beat. You will never regret not having a mortgage payment. Trust me.
I vote pay off mortgage. Getting rid of that nasty loan was the best thing I ever did. I hated having a mortgage.
If there are tax advantages, keep it.
I’d pay the whole amount off, then invest what you would have paid in interest. It’s a great feeling knowing the house is yours and not the Banks. 😉
At 7%, I’d pay it off.
Paying off a 7% mortgage is pretty good. The main downside is that you’re out all that cash, though if you’re paying it off in full then you’ll be able to build back a decent amount pretty quickly.
You could theoretically make more than 7% back if you invest it properly in tax advantaged accounts, but not so much more that it’s the obvious choice.
But you don’t have to do all or nothing. Have you considered paying off half the mortgage and refinancing it down to a much shorter term with lower interest? That would keep a good chunk of cash that you could invest, while still reducing the interest burden.
I would 100% pay off the house and never look back. It seems like you got the house/mortgage fairly recently given the interest rate which means you accumulated that extra cash fast give or take.
You’ll rebuild quickly and you’ll be doing it without a mortgage payment and you’ll be so thankful you did.
Pay it off. That still leaves with $75k for emergency fund. 7% gaurnteed is pretty good. Everyone looks at the market today with visions of grandeur..kinda like the late 90’s and early 2000’s.
Its a lot easier to max 401k, ira, hsa in tough times when you dont have a mortgage
I’m actually in a similar position (6.99%) with the ability to pay it down substantially by the end of the year, if certain business dealings pan out.
Anyway, after maxing the retirement accounts, I’ll be throwing it at the mortgage.
I’m sure there is someone here who will crunch the numbers and discover you will get .025% more by tax harvesting on the day of the full moon, or whatever. But for me it’s a large part emotional decision and I want the darned house paid off!
I would place down $200k on the mortgage, contact your lender and recast the loan. Lower payments, more principle applied to the loan. Then invest the remaining and have a emergency fund
How old are you? If you’re less than ~45 and still have time for that money to grow, I’d strongly consider keeping the mortgage and investing that cash, or paying down a portion of the mortgage to ease your mind, then investing the remainder of the lump sum.
I recognize that your mortgage can feel like a burden and that the relief of not having that monthly payment seems very lucrative. At the same time, your house will likely appreciate in value, and inflation will continue to lessen the impact of your fixed debt. As it stands now, parking that cash in a half decent HYSA is going to give you at least 4% annually, putting the spread on your mortgage at a mere 3%.
If you’re about to retire or are over age 45 and on your glide path to having enough in retirement by your target age, then paying off the house could well be the better option.
I would pay off and rebuild your rainy day fund as if paying your mortgage monthly. Then invest once you have built up enough. Plus it is easy to go in reverse unless you have a firm grasp of each position before buying.
I digress, but if i pay off the house, can i choose not to carry home insurance? just like you don’t need to carry comprehensive insurance on your paid off cars.
There is no Copy-Pasta solution to this. Age and retirement account balances would help understanding your scenario. This looks like a brand new mortgage. If you’re mid-30s and have more than 2x your annual salaries saved in tax-advantaged retirement accounts, and are maxing out your contributions every year, it might make sense to pay off your house. If you are in your 50s and don’t have 6-7x your salaries saved, you’re probably better off putting a chunk of that toward retirement. There are potential confounding variables missing so the calculation is difficult.
I would pay off debts/mortgage.
There is not a wrong answer here, and it’s going to be part emotional, part math.
Me, I would keep the mortgage for the following reasons:
1. tax breaks
2. liquidity
3. the future ability to refinance is highly likely
4. Ability to short sell if you got in a huge bind (highly unlikely and also not ideal, but with a mortgage, technically you could walk away from the property with only a credit ding if you REALLY fell on hard times).
How old are you? How much do you make? How much do you have saved for retirement?
Paying off your mortgage leaves you with peace of mind. Paying off a mortgage with a higher interest rate, even better.
Pay it off. It’ll be the best thing you ever did for yourself.
Hell no. If your worried out a small portion of your paycheck towards it. The Fed has become dovish and rates are already dropping within a year they will drop more.
I think those saying to max out your retirement investments first are probably correct. But if it’s a home your planning on living at even when you retire, i’d say pay it off. Having the flexibility of not having to worry about a mortgage payment if you get laid off for the next decade would be a great feeling. Plus 2200 a month savings would be helpful investing, saving for the future. Just my two cents.
Here’s how I would handle it. First, get any company matches. You can’t beat 100% (or 50% gains, if you have a shittier company). After that? Make sure I have a little security fund in a HYSA or in short-term government bonds. Something that’s liquid or close to it. Then pay down that mortgage aggressively.
Why the backup cash?? Because you never know when you’ll need money. Therefore you need a few months safe, available funds. Maybe you need a new car or your roof has a leak or you whatever. There’s so many times when I’ve been happy to have a 5-figure emergency fund. Trust me, you’ll never be sad that you can afford to pay for something rather than going in debt for it.
Why the mortgage? You are guaranteed a 7% return! Lets say all things are equal and you get 7% return in the market too. That’s decent. Slightly below what the market has done for the past 30ish years, but still pretty good. Here’s the problem: That mortgage is getting paid with post-tax $$$ while your stock returns still need to be taxed. Of course, if you itemize, you could save on taxes but 90% of filers don’t itemize… so, yeah, that tax “benefit” isn’t seen by 90% of people. What that really means is: you get a 7% return on your investment, you’ll be paying (at best) capital gains on that $$$. If you are paying down your mortgage you are lowering the amount of post-tax $$$ you’re going to have spend on interest. In other words, you get more bang for your buck on paying down your mortgage in any scenario where your stock gains are 7% or less.
Bi weekly payments on mortgage to the principle. Throw an extra 2-300 to it each month.
Where is the $400k? Savings? HYSA? If it’s not in an HYSA you’re missing out on 5% a month.
The best you can do is trust the power of compound interest. The longer some of that money is building over the next 5 years is worth more than saving 7%. And worth more than paying off house compared to starting with a fraction of the $400k. Market is around 11-15%. And you double money every seven years. I think you should compare numbers against a timeline and different scenarios. I’m on mobile so can’t now. Maybe next week.
Also consider that you can likely deduct interest on your mortgage so depending on your situation that deduction can tilt the scales in favor of keeping the debt as is.
Congratulations on reaching a point where you have the financial flexibility to consider paying off your mortgage! This is a significant achievement and opens up several options for managing your finances. Let’s break down the pros and cons of paying off the mortgage versus investing the money, and some strategies to consider:
# Paying Off the Mortgage
**Pros:**
1. **Guaranteed Return**: Paying off a 7% mortgage effectively gives you a guaranteed 7% return on your money, which is risk-free. This is quite attractive compared to the uncertain returns from the stock market.
2. **Debt-Free**: Eliminating your mortgage can provide a great sense of financial freedom and reduce stress, knowing you own your home outright.
3. **Cash Flow**: Freeing up $2,200 a month can significantly increase your monthly cash flow, allowing for greater financial flexibility.
4. **Interest Savings**: You will save a substantial amount in interest payments over the life of the loan.
# What Would I Do?
If I were in your position, I might lean towards the hybrid approach. Paying off a portion of the mortgage can give you immediate relief in monthly payments and reduce the interest burden, while still keeping a significant portion invested for growth. This way, you benefit from both reduced debt and the potential upside of the market.
Ultimately, the best choice depends on your personal financial goals, risk tolerance, and comfort with debt. It’s a great problem to have, and whichever route you choose, you’re in a strong financial position.
4oCongratulations on reaching a point where you have the financial flexibility to consider paying off your mortgage! This is a significant achievement and opens up several options for managing your finances. Let’s break down the pros and cons of paying off the mortgage versus investing the money, and some strategies to consider:
# Paying Off the Mortgage
**Pros:**
1. **Guaranteed Return**: Paying off a 7% mortgage effectively gives you a guaranteed 7% return on your money, which is risk-free. This is quite attractive compared to the uncertain returns from the stock market.
2. **Debt-Free**: Eliminating your mortgage can provide a great sense of financial freedom and reduce stress, knowing you own your home outright.
3. **Cash Flow**: Freeing up $2,200 a month can significantly increase your monthly cash flow, allowing for greater financial flexibility.
4. **Interest Savings**: You will save a substantial amount in interest payments over the life of the loan
#
# What Would I Do?
If I were in your position, I might lean towards the hybrid approach. Paying off a portion of the mortgage can give you immediate relief in monthly payments and reduce the interest burden, while still keeping a significant portion invested for growth. This way, you benefit from both reduced debt and the potential upside of the market.
Ultimately, the best choice depends on your personal financial goals, risk tolerance, and comfort with debt. It’s a great problem to have, and whichever route you choose, you’re in a strong financial position.
Don’t discount the emotional piece of the equation. Knowing that you’ve a fully paid your house is a great feeling compared to checking your investment’s return.
Simple for me, pay it off today. Then pay yourself the mortgage payment into your savings. It’ll build up quickly and no more mortgage. I’m sure many will say I’m wrong but, to each his own
Would you take out a 325k loan at 7% to invest in the market? If not, pay down your mortgage.
I would pay off the house and use the savings of the mortgage (minus property tax and insurance) and invest it. A paid off house is my goal as I don’t know how long I will last in IT (hitting 40 next year). The stress of it all would go away for me.
Wiping out your savings when index funds are performing so well every year is madness
Are you able to write off your interest? That’s a consideration.
Have your retirement fully funded? Have an emergency fund? Home office? How long do you plan on living there?
Fully funded emergency fund and then hammer that mortgage. That’s high interest working against you