Hello! I'm new to this forum and plan to start posting my journal shortly. I recently have gotten my finances in order, paid off all debt (except my mortgage) and am now looking to start hard core saving for an early retirement.
Currently I have a mortgage on my condo and am wondering whether I should start paying it down faster now or if I should take all my extra money and put it into savings. My plan is to keep my condo long term, possibly for a rental property, as in early retirement I'd like to do some long term travel, but this could change if I come up with a better plan..... Looking for some advice and thoughts....
Additional Details that maybe helpful:
Mortgage Debt: $300,000
Interest Rate: 4.125%
Mortgage Pymt: 1,900 (includes property taxes)
Additional Monthly cash I can put towards paying off mortgage early or into savings: $700
Thank you!
To Pay Off Mortgage Early or Stash the Cash
Rates have come off bottom, but if you are in the US, you might be able to refi and drop that rate a bit.
Mathematically optimizing this requires more knowledge of your income/tax rates/other invesment opps. Also, not to be ignored, your personal emotions around finance and your risk tolerance.
We have no other debt, and have some cash saved. So we are choosing to max out 401(k) contributions and then putting everything else at our mortgage.
Part of that is we just really envision life will be more peaceful with no debt, so I have to suppress the math nerd in me seeking highest ROIC. (Our mortgage is at 3.5% which you should be able to beat investing)
Other people here will have some equally good ideas that differ from this for you.
Mathematically optimizing this requires more knowledge of your income/tax rates/other invesment opps. Also, not to be ignored, your personal emotions around finance and your risk tolerance.
We have no other debt, and have some cash saved. So we are choosing to max out 401(k) contributions and then putting everything else at our mortgage.
Part of that is we just really envision life will be more peaceful with no debt, so I have to suppress the math nerd in me seeking highest ROIC. (Our mortgage is at 3.5% which you should be able to beat investing)
Other people here will have some equally good ideas that differ from this for you.
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George the original one
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frugaladventurer
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I'd suggest:
First - emergency fund, for things like car repairs etc
Second - max out 401k if there is employer matching or you get a significant tax break
Third - save up enough money that you could live on it for a year and pay your mortgage if you lost your job or became disabled or some similar catastrophe (if married, 6 months may suffice, as you would presumably still have the second income)
Fourth - then either pay the mortgage or invest. You very well might make more money investing - but there's an awesome security to owning your own home outright. I'm currently paying off my mortgage, but I'm just a few years from retirement and want to be mortgage free in retirement. If you're much younger, you may do better by investing separately, IF you're disciplined. You are getting a tax break on your interest payments, plus you'll be able to deduct those mortgage expenses against your rental income if you rent it out in the future.
First - emergency fund, for things like car repairs etc
Second - max out 401k if there is employer matching or you get a significant tax break
Third - save up enough money that you could live on it for a year and pay your mortgage if you lost your job or became disabled or some similar catastrophe (if married, 6 months may suffice, as you would presumably still have the second income)
Fourth - then either pay the mortgage or invest. You very well might make more money investing - but there's an awesome security to owning your own home outright. I'm currently paying off my mortgage, but I'm just a few years from retirement and want to be mortgage free in retirement. If you're much younger, you may do better by investing separately, IF you're disciplined. You are getting a tax break on your interest payments, plus you'll be able to deduct those mortgage expenses against your rental income if you rent it out in the future.
All of the above comments are good advice: Emergency fund, maxing out employer-matched 401k, etc...
The crux of the question is very much Emotional vs. Numbers. Since we are talking "Personal" finance, then you need to do what harmonizes with your character and risk tolerance.
I paid off my house in 19 months. I am now paying off three remaining rental houses totaling $177,650 in 3.5 yrs rather than investing in the stock market. You can follow my progress at http://payoffmyrentals.blogspot.com/
Understand that I love Dividend Growth Investing, but paying off the mortgage is a risk-free return. It also feels right to de-leverage and be 100% debt free. I think risk-free deleveraging with a guaranteed return of 4.375% (my interest rate) is worth the potential loss of a couple of riskier percentage points in the market. But, that's me.
Good question!
The crux of the question is very much Emotional vs. Numbers. Since we are talking "Personal" finance, then you need to do what harmonizes with your character and risk tolerance.
I paid off my house in 19 months. I am now paying off three remaining rental houses totaling $177,650 in 3.5 yrs rather than investing in the stock market. You can follow my progress at http://payoffmyrentals.blogspot.com/
Understand that I love Dividend Growth Investing, but paying off the mortgage is a risk-free return. It also feels right to de-leverage and be 100% debt free. I think risk-free deleveraging with a guaranteed return of 4.375% (my interest rate) is worth the potential loss of a couple of riskier percentage points in the market. But, that's me.
Good question!
Ok so some additional information:
- I'm 34
- I have and emergency fund for small emergencies.
- I have $500 a month going into savings account to build up money in case I was to lose my job.
- I have about $13k a year that my employer puts into a retirement account on my behalf and I'm fully vested. Have about 120k in retirement accts now in total.
My fear about maxing out my 401k is that if I put most of my extra savings into a 401k and I want to retire in my early 40's, I won't be able to take it out without penalty and won't have enough in regular savings to retire early.
Thanks for all your feedback so far, I appreciate it.
- I'm 34
- I have and emergency fund for small emergencies.
- I have $500 a month going into savings account to build up money in case I was to lose my job.
- I have about $13k a year that my employer puts into a retirement account on my behalf and I'm fully vested. Have about 120k in retirement accts now in total.
My fear about maxing out my 401k is that if I put most of my extra savings into a 401k and I want to retire in my early 40's, I won't be able to take it out without penalty and won't have enough in regular savings to retire early.
Thanks for all your feedback so far, I appreciate it.
I think the real question you need to be asking is, "are you really serious about retiring early?" If you are serious about retiring early (early 40's) then paying off your mortgage is the way I would go, as the compounding interest over the next 8-10 years won't be a massive increase over the 4% mortgage rate.
Though an extra $700 added to a $1900 mortgage payment won't pay off a $300k mortgage in 10 years. The payment would have to be a little over $3k per month.
Though an extra $700 added to a $1900 mortgage payment won't pay off a $300k mortgage in 10 years. The payment would have to be a little over $3k per month.