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  • mortgage prepayment strategy

    Dear all

    I and my wife are both physicians. we have 2 kids 8year old and 2.5 years old. we are frugal in financial terms and mostly try to live like residents. we do max contributions to our retirement accounts and 529 accounts for kids.
    we owe a mortgage of around 480K in NY @ 2.4% for 15 years started in fall 2021. When do u think is the best time to think about prepaying the mortgage and is there any specific rule or formula that you use.
    also, I heard that it's always good to prepay the mortgage than to invest that money into a taxable account? I am not sure why? I have heard wci podcasts, Dave Ramsey, and several saying that.
    Just need some insights or inputs. How early do u recommend prepaying it?
    Thanks in advance.

  • #2
    Don’t prepay

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    • #3
      Originally posted by auggie1983 View Post
      Don’t prepay
      plus 1.

      “we do max contributions to our retirement accounts”.
      • Retirement savings rate @20% including taxable.
      • WAR- wealth accumulation rate. https://thephysicianphilosopher.com/...ecree-30-rule/
      • You need a plan for accumulating wealth and aligning it with your goals. A two physician couple will have plenty of money to spend and save. Decide in advance so you use the earnings to achieve your goals.
      • The blogs have a treasure chest of articles like writing an IPS (investment policy statement, a Tale of 4 physicians etc. to help you. Don’t rely on what you have heard and rules of thumb that you are not sure apply. Set your own goals and plan.

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      • #4
        You have a good rate on a reasonable mortgage. No reason to prepay unless you are looking to lower risk in your portfolio. But if you have not already starting a taxable account would be the bigger benefit

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        • #5
          Mortgage advice in the past not really correct right now with a solid low fixed rate insetting of inflationary pressures.

          Save even more for retirement and conservative AA if you're worried in sp500 overpriced.
          ​​​​​​

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          • #6
            Debt is not always bad. Low, deductible interest paid with inflated dollar = good. I would not pre-pay. You could always pay it off later from money earned in the taxable account.

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            • #7
              another vote not to prepay.
              the only thing that would push you towards prepaying is if the debt is affecting you psychologically but... it shouldn't be
              no one is trying to game anything or be overly cute here, you appear to have a very reasonable loan w/ a crazy low rate on a 15 year timeline, there is just better stuff to do with your money including (i would argue) spending some of it.

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              • #8
                I would just continue to pay whatever you owe every month for the next 15 years.

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                • #9
                  Depends on your goals. Our rate is 2.5% but we will continue to pay down the mortgage instead of more into taxable because I want more cash flow when my kids start college. I acknowledge the math does not favor this but some piece of mind is worth more to me than others on this issue. Personal finance is personal

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                  • #10
                    another vote for don't pay, I paid 200K in 2017( fear of market crashing!), was 3.37%, if only had invested it!

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                    • #11
                      You probably itemize, so the 2.4% rate is more like 1.5% post tax, well below inflation.

                      Andx more importantly, 15y from now (when you’re already scheduled to pay off) almost exactly lines up with your youngest going off to college. Sounds perfect. And, fwiw, im very eager to pay off my mortgage.

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                      • #12
                        Originally posted by sandy View Post
                        I heard that it's always good to prepay the mortgage than to invest that money into a taxable account? I am not sure why? I have heard wci podcasts, Dave Ramsey, and several saying that.
                        Nope, other way around.

                        Another vote to NOT prepay. You’re probably an ideal candidate to invest instead.

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                        • #13
                          Well done! Enjoy the best of both worlds: maybe treat as a 7.5 (or even 10) year mortgage and invest the rest? You get the psychological benefit of no mortgage a little earlier coupled with the gains on your investing...

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                          • #14
                            Originally posted by JBME View Post
                            Depends on your goals. Our rate is 2.5% but we will continue to pay down the mortgage instead of more into taxable because I want more cash flow when my kids start college. I acknowledge the math does not favor this but some piece of mind is worth more to me than others on this issue. Personal finance is personal
                            We are on the same path. Goal is to have our house paid off in 9.5 years when our oldest goes to college. Doesn't involve a lot extra each month, and then gives us a lot extra once she's gone.

                            In addition, I've run the numbers of more in a taxable account now vs. later. Since we still have the mortgage to pay, the "extra" that would go towards taxable now is not that much ($500/month). The difference of that for 15 years (length of mortgage) vs paying off the mortgage in 9.5 years and then dumping more of the mortgage payment towards a taxable account in 9.5 years actually works in our favor assuming similar returns.

                            In the end, we don't like debt very much. And each time we pay off one debt and significantly increase our monthly cashflow, it gives us more opportunity.

                            Could we end up being wrong and lose out a little? Sure. But to know that in 9.5 years we'll have no debt, more freedom, and can essentially do what we want with work seems worth it to us.

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                            • #15
                              I think we’ll be paying around $1k per month extra to mortgage while also paying $2k per month towards 529s instead of taxable. So we are giving up $3k per month in taxable which is a lot considering we have $0 in taxable now. Might change strategy in less than 10 years but at least for now this is the plan

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