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  • Money towards student loan or something else?

    Savings rate around 30% of gross income which puts us on track to be FI in < 10 yrs. which is our goal. Only debt is mortgage 20 yr fixed at 3.875%. Still owe $600k but paying extra each month. Will be paid off in 13 yrs at current pay off rate. When money being paid for student loans each month is redirected to mortgage after 44 months (when it’s fully paid off) mortgage will be paid off within 10 yrs. Balance on student loan is $44k and minimum payment is currently $1005 a month with variable rate. I have a question of is it better to pay more on the student loan to free up that money each month even though the current variable rate is < 25 basis points? Or would it be better to throw more into mortgage or taxable account? We do itemize deductions and our after tax mortgage rate is 2.81%. From month to month we have some extra $$s over our savings goal. Just want to know how best to deploy these funds. Wife is against debt, but I don’t think the current situation is bad considering we are well on track.
    Last edited by ShredtheGnar; 09-06-2020, 09:57 AM.

  • #2
    Beware: the following isn't the smartest financial idea but I think it's the smartest overall move. Pay off the student debt and refinance your mortgage to a 15 year term and quit paying extra. You should be able to get something in the 2.5% range. Plow the rest into taxable.

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    • #3
      I think you’re splitting hairs at this point, and are obviously going to be fine either way. Can you refinance the mortgage to a lower rate and 15 year? Maybe not since it looks like a jumbo mortgage.

      My personal preference is taxable over mortgage, particularly with such a low rate on the student loans. Paying them off less than 4 years from now at that rate is plenty good.

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      • #4
        Originally posted by ShredtheGnar View Post
        Savings rate around 30% of gross income which puts us on track to be FI in < 10 yrs. which is our goal. Only debt is mortgage 20 yr fixed at 3.875%. Still owe $600k but paying extra each month. Will be paid off in 13 yrs at current pay off rate. When money being paid for student loans each month is redirected to mortgage after 44 months (when it’s fully paid off) mortgage will be paid off within 10 yrs. Balance on student loan is $44k and minimum payment is currently $1005 a month with variable rate. I have a question of is it better to pay more on the student loan to free up that money each month even though the current variable rate is < 25 basis points? Or would it be better to throw more into mortgage or taxable account? We do itemize deductions and our after tax mortgage rate is 2.81%. From month to month we have some extra $$s over our savings goal. Just want to know how best to deploy these funds. Wife is against debt, but I don’t think the current situation is bad considering we are well on track.
        It probably wont matter at all in the long term if you actually accomplish your stated goals. But I recommend you just go ahead and get rid of the rest of that student loan immediately. Silly to keep that going for 44 months. Just pay it off aggressively now. Also, I just refinanced our 30 year mortgage from 3.8% down to 2.8% fixed. I would look into this as well if I were you. With a large mortgage such as that, a percentage point drop can really save you some serious cash, even if you plan on paying it off in 10-15 years. I don’t recommend 15 yr mortgages because the rates aren’t much better and you give up some flexibility.
        Your wife is smart not to like debt. Don’t let yourself become too comfortable with it. $644k is a lot of money that you still have to work for and earn.

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        • #5
          Have decided to throw an extra $2000 a month at the mortgage right now to get it down to under jumbo status to do a refi. Once that is done will just pay off the student loan before interest rates go up (if they go up). Still will be able to meet savings goals this way and the house will be paid off in less than 10 yrs.

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