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  • Mortgage Advice

    Hi everyone, I'm hoping to get some advice regarding what to do with some of my savings each year.

    My wife and I are 40 years old and both physicians. Our only debt is a $900k mortgage at 3.5%, and our net worth is roughly $4 million. Each year we max out 401k and backdoor Roth IRA accounts. We have two kids and contribute 600/month/kid towards a 529 and 800/month/kid towards wealthfront brokerage accounts. In addition, we save between $50-90k each year on top of this, and up until now I have been putting this extra money towards a wealthfront joint brokerage account.

    My question is if I should be completely paying off my mortgage with this excess savings. My thought was to invest in a brokerage account, since assuming a long-term 6% return in the stock market I may make out better even after capital gains compared to paying a 3.5% mortgage. Any advice would be greatly appreciated!

  • #2
    Personally I think it is fine to carry low interest debt when you have a good net worth. You have to decide when you want to have the mortgage paid off by. I had a partner who did a million dollar refinance at roughly age 60 because he wanted to be fully invested aggressively. I believe his net worth allowed for him to do that.

    personally, I want my mortgage paid off by 55, so I am paying down my mortgage a bit every year to achieve that. Maybe I am biased because of the long bull market, but after the loans were done, I prioritized investing.

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    • #3
      We just had a client get an offer for 2%, 15-yr mortgage, no closing costs. Might want to look into refinancing. I would not recommend borrowing to invest but retiring mortgage-free with rates so low just doesn’t seem to be as much of a priority as it would be in a different rate climate. The main reason to pay off for doctor families who are in good financial shape is more of an emotional decision - but doctor families can usually afford to make emotional decisions in the right areas (this does NOT include timing the market).

      I just met with a 71-y.o. dentist practice owner who is slowing down that it didn’t make financial sense to pay off a big chunk of his new mortgage when his old house closed but that was because he wanted me to help him decide what to do with the funds. He has higher priorities, which is what I recommended, and they are quite financially stable. When he said, “but it will lower my payments”, I replied, “yes, but you’ll have the money to use for XXXX this way”

      People often seem to forget that it costs liquidity to pay off a mortgage - I’ve never understood that.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        OP you can't screw this up.

        your NW is so high compared to your mortgage that you are bulletproof.

        personally i'd probably pay it off but that's emotional not math.

        congrats on killing it.

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        • #5
          You should go on the milestones to millionaires podcast!

          Comment


          • #6
            Is your current mortgage a 30 year term? Do a 15 year refinance and keep plowing money into investments.

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            • #7
              It's currently a 30-year mortgage, and when I looked at refinancing to a 15 at a lower interest rate (2.25%) the math didn't seem to work out with closing costs. It seemed if I just paid extra principal on my 30-year mortgage to make up the difference between my principal between the 30 and 15-year mortgage amounts I would be in better shape after accounting for closing costs. I also would not be "on the hook" for the obligatory higher monthly payments and could do it optionally each month.

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              • #8
                Originally posted by MPMD View Post
                OP you can't screw this up.

                your NW is so high compared to your mortgage that you are bulletproof.

                personally i'd probably pay it off but that's emotional not math.

                congrats on killing it.
                Genuine question- when would OP not be bullet proof? Is there a NW where OP should put the 50-90k/year towards his mortgage and not his taxable account?

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                • #9
                  Originally posted by Iso1.1 View Post
                  It's currently a 30-year mortgage, and when I looked at refinancing to a 15 at a lower interest rate (2.25%) the math didn't seem to work out with closing costs. It seemed if I just paid extra principal on my 30-year mortgage to make up the difference between my principal between the 30 and 15-year mortgage amounts I would be in better shape after accounting for closing costs. I also would not be "on the hook" for the obligatory higher monthly payments and could do it optionally each month.
                  Refinancing puts a guaranteed savings and paydown. If you're asking should you do it now, why are you looking not to be 'on the hook' as your savings rate appears to be fine not to have that come into question. rough math for 30y 3.5% vs 15 2.25% usually break even 2 years.

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                  • #10
                    Originally posted by jfoxcpacfp View Post
                    We just had a client get an offer for 2%, 15-yr mortgage, no closing costs.
                    jfoxcpacfp - which lender by chance? We're at 2.375 15y and if no closing, we may bite

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                    • #11
                      I wouldn’t say that op couldn’t screw it up, but it would take a lot of bad choices to mess it up for sure.

                      I’m more in the camp that OP is winning/won the game and they need to figure out how much more they want to win by and if they want to take the risk to do so.

                      Mathematically refinancing to a lower interest rate and paying the mortgage slowly while investing the difference wins over the long run historically.

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                      • #12
                        I would not refi to a 15 year, big deal you save some interest but thats because you pay more, you can pay more now but as you realize, its wasted money.

                        Just dump it in the market and if people are remotely right about any inflation, you'll win twice.

                        Comment


                        • #13
                          Originally posted by StarTrekDoc View Post

                          Refinancing puts a guaranteed savings and paydown. If you're asking should you do it now, why are you looking not to be 'on the hook' as your savings rate appears to be fine not to have that come into question. rough math for 30y 3.5% vs 15 2.25% usually break even 2 years.
                          It’s a small local bank in their hometown where the practice is. I believe they have a personal relationship. I’m at home now but can get it later if you still want it but I have a feeling it’s not offered to non-locals.
                          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                          Comment


                          • #14
                            Originally posted by ObgynMD View Post

                            Genuine question- when would OP not be bullet proof? Is there a NW where OP should put the 50-90k/year towards his mortgage and not his taxable account?
                            sorry don't understand this.

                            what i mean is that OP said they had 4M nw and <1M mortgage.

                            OP could pull enough out of accounts to totally pay off mortgage and still have a $2.5M NW.

                            that's pretty bulletproof.

                            Comment


                            • #15
                              Originally posted by MPMD View Post

                              sorry don't understand this.

                              what i mean is that OP said they had 4M nw and <1M mortgage.

                              OP could pull enough out of accounts to totally pay off mortgage and still have a $2.5M NW.

                              that's pretty bulletproof.
                              Oh, not criticizing your comment. Just wondering if there was a NW where someone like OP should pay down the mortgage. Selfishly asking for myself because our NW is lower. We are putting money in taxable but wondering if we should consider paying off the mortgage. (Although it sounds like from this thread as long as one is saving >20% pretax income, investing in diversified index funds, and mortgage interest rate is <3%, there is no reason besides emotional reasons to pay off the mortgage early)
                              Last edited by ObgynMD; 08-22-2021, 07:00 PM.

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