Stop 401k to pay off mortgage?

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Futureretiree
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Stop 401k to pay off mortgage?

Post by Futureretiree »

Would it be wise or unwise decision to stop 401k contributions for 2 years to pay off mortgage? I am sick of having the mortgage hanging over my head and I want the peace of mind To own my home. This is eating at me badly and i am venturing into the idea of forgoing 401k contributions for 2 years to knock down the mortgage and pay off the house in 2-3 years. Then I can invest even more in 3 years from now since I’ll have more cash flow freed up. I know i can typically make more if I invested instead of paying off a low interest home loan but the peace of mind would mean so much to me and it would only be 2-3 years worth. I am 35 years old

Gilberto de Piento
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Re: Stop 401k to pay off mortgage?

Post by Gilberto de Piento »

Do you get a 401k match?

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unemployable
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Re: Stop 401k to pay off mortgage?

Post by unemployable »

What are the rate and terms on the mortgage and what kind of 401k match do you get? Do you contribute enough, or more than enough, to get the entire match?

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Re: Stop 401k to pay off mortgage?

Post by jacob »

The consequences of the match are typically less significant than the tax-deferral of decades of compound gains.

Make a spreadsheet. Everybody should make a spreadsheet.
There's not enough details in the OP to answer this.

Futureretiree
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Re: Stop 401k to pay off mortgage?

Post by Futureretiree »

No match. Profit sharing is given regardless of my contribution amount.

2.5% 15 year 100k mortgage
Currently have 350k in 401k at age 35.

If I had much less saved for retirement this idea of not contributing to 401k would not be happening but I figured since I have decent saved up to this point that missing 2 years of contributing so I can have a paid off home would be worth it atleast in my peace of mind

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unemployable
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Re: Stop 401k to pay off mortgage?

Post by unemployable »

I wouldn't lose that mortgage. You're already paying a substantially negative real rate. I think the ability to borrow money at 2½% is going to become an increasingly scarce prospect over the next couple of years.

Futureretiree
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Re: Stop 401k to pay off mortgage?

Post by Futureretiree »

unemployable wrote:
Thu Nov 18, 2021 2:22 pm
I wouldn't lose that mortgage. You're already paying a substantially negative real rate. I think the ability to borrow money at 2½% is going to become an increasingly scarce prospect over the next couple of years.
I understand that but I hope and plan and don’t ever want to have to ever borrow money again.

white belt
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Re: Stop 401k to pay off mortgage?

Post by white belt »

What is your taxable income?

I think I'm in agreement with @unemployable; you should just be happy you're getting paid to have a mortgage at the moment with CPI running at >6%.

Some people seem to get excited about having a paid off house, but the reality is you are still going to have to pay ongoing costs like property taxes and maintenance. It's not like once your house is paid off you can just stop putting money into housing costs. The government can still re-possess your house if you are delinquent on property taxes and they can also condemn your property if you don't keep up with maintenance.

Of course, we're providing you rational answers to what seems like to you is an emotional issue, but this is the ERE forums so that's what I would expect. Financially, it doesn't make sense to pay off your mortgage early. But emotionally maybe it does for you.

Edit: You seem to have the mindset that borrow money = bad, while many on this forum view borrowing money as a tool that has its place in certain situations.
Last edited by white belt on Thu Nov 18, 2021 2:35 pm, edited 3 times in total.

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Lemur
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Re: Stop 401k to pay off mortgage?

Post by Lemur »

+1 Unemployable

The Mortgage debt is of 2.5% is less than current inflation...which means your debt is literally being eaten away meanwhile your 401(k) contributions will likely grow at a rate greater than inflation while getting tax deferral treatment. Financially this is a no brainer.

I wouldn't look at this as borrowed funds - mentally you're missing out something that you're "gaining" such as not paying rent that does increase with inflation. Having a mortgage at these rates should be a friend.

Futureretiree
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Re: Stop 401k to pay off mortgage?

Post by Futureretiree »

I know the math doesn’t add up to a benefit exactly to pay it off early and yes this is a very emotional decision. With uncertainty of my wife’s job as a new start up business. I figured while her income is good and so many question marks upon it that maybe we should pay this off ASAP for the just in case moments.

Futureretiree
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Re: Stop 401k to pay off mortgage?

Post by Futureretiree »

Also. How does my 350k 401k stack up at 35 years old? I haven’t been around these forums much and it’s hard to find many individuals numbers to gauge my position

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Re: Stop 401k to pay off mortgage?

Post by white belt »

Futureretiree wrote:
Thu Nov 18, 2021 3:46 pm
Also. How does my 350k 401k stack up at 35 years old? I haven’t been around these forums much and it’s hard to find many individuals numbers to gauge my position
viewtopic.php?p=248983#p248983

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unemployable
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Re: Stop 401k to pay off mortgage?

Post by unemployable »

That sounds like quite a lot for 35.

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jennypenny
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Re: Stop 401k to pay off mortgage?

Post by jennypenny »

Futureretiree wrote:
Thu Nov 18, 2021 3:46 pm
Also. How does my 350k 401k stack up at 35 years old?
Does it matter?

Just figure out where you want to get to and do the math.

Futureretiree
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Re: Stop 401k to pay off mortgage?

Post by Futureretiree »

jennypenny wrote:
Thu Nov 18, 2021 4:59 pm
Does it matter?

Just figure out where you want to get to and do the math.
I have done the math over and over and over but it’s all assumptions and guesstimating on the growth aspect of investments and cost of living. It’s nice to get a gauge of where I stand among others to help make sure I’m on the right track

take2
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Re: Stop 401k to pay off mortgage?

Post by take2 »

Futureretiree wrote:
Thu Nov 18, 2021 5:06 pm
I have done the math over and over and over but it’s all assumptions and guesstimating on the growth aspect of investments and cost of living. It’s nice to get a gauge of where I stand among others to help make sure I’m on the right track
Would it make you feel better if you had more than others? Would it make you feel worse if you had less? Would how you feel change what you actually have?

I agree with @JP - it’s irrelevant. The logical financial answer is clear that keeping your less-than inflation mortgage rate makes more sense than foregoing a contribution to your 401k. If it would help you sleep better at night to eliminate your debt then maybe that makes more sense for you personally.

Whether someone had 50k and someone else has 5m shouldn’t affect your decision. I can guarantee you many have less and some have more than you, but knowing that won’t actually do anything for you.

What are your goals? When do you want to retire? Is it before or after you can access your 401k? Don’t constrain yourself to these two choices if a different one altogether could help you better achieve what you want.

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unemployable
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Re: Stop 401k to pay off mortgage?

Post by unemployable »

I can see the amount of assets in the 401k having a tremendous amount of relevance, for example if that's what OP has to fall back on if they both lose their jobs or encounter some other spending need. It could be 2x their baseline annual spending, it could be 20x. Of course at age 35 you'd want to figure it net of taxes and penalty. If it's 20x one may be more comfortable stepping off the gas for awhile and allocating those funds elsewhere.

What sort of taxable (non-retirement) liquid assets do you have, in terms of number of years of living expenses? Would you be comfortable trying to make it through the worst downturn you can reasonably imagine on these funds? If you are, keep contributing to the 401k and throwing payments at the mortgage. If you're not, it's reasonable to prioritize building that up to two or three years' worth of funds. But again, I wouldn't be so quick to pay the house off.

Scott 2
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Re: Stop 401k to pay off mortgage?

Post by Scott 2 »

You want to pay off your mortgage. The peace of mind gives you mental freedom, and could change the way you live as a result. So do it.

Life doesn't have to be mathematically optimal. It's not like you'd be blowing the money on beanie babies or collectible whisky. Outside of money nerds on the internet, "I paid off my house at 38" is impressive. The most likely response is "I wish I could do that, but *insert excuse*".


I personally chose to max retirement accounts, then put any surplus towards paying down my mortgage. A combination of cutting expenses and raises let us pay the mortgage about 10 years after moving in. Outside of the math discussed in prior posts, the other tradeoff was having minimal post tax retirement savings. That is definitely a complicating factor for early retirement. We worked a couple more years and it sorted itself out.

The most unexpected result - with the demand for monthly cash flow so low, I started spending more. Had we kept the mortgage, I would have felt more financially insecure and kept spending lower. Would that have been better? Maybe for my net worth. My overall quality of life might have been worse though.


$350k in the 401k at 35 - outside of people on the internet, I don't know too many who are there. I do think it is more of a traditional retirement trajectory than early. If you could figure out how to cut expenses, so you can both keep investing in the 401k AND pay down the mortgage, that would get you on a significantly earlier trajectory.

The Old Man
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Re: Stop 401k to pay off mortgage?

Post by The Old Man »

Futureretiree wrote:
Thu Nov 18, 2021 1:17 pm
...peace of mind would mean so much to me...
Peace of mind is important. Go ahead, stop the 401K, and prepay the mortgage.

This is, however, a poor financial decision.
(1) Do you plan to do Roth IRA conversions? Do you plan to move to a state with lower taxes? Do you plan to retire early? If so, then the tax deferral may be very important.
(2) An interest rate of 2.5% is very low. Dividends on VTSAX (Vanguard Total Stock Market Index) are currently below 1.5%, but in the past have been approximated 2%. You only need annual capital gains of 0.5% to 1% to match the return obtained by prepaying your mortgage (excluding tax considerations), which should be doable over the long term.

If you want to know the opportunity cost for "peace of mind", then you would need to create a spreadsheet to analyze the different scenarios.

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Re: Stop 401k to pay off mortgage?

Post by Chris »

Futureretiree wrote:
Thu Nov 18, 2021 3:00 pm
I figured while her income is good and so many question marks upon it that maybe we should pay this off ASAP for the just in case moments.
What is the "just in case moment" you're thinking about? In a situation where you couldn't make a mortgage payment with wage income, wouldn't you just take a loan against your 401k?

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