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  • Pay down mortgage or invest in taxable ?

    Hello all,

    I'm trying to decide whether I should pay down a 30 year fixed mortgage at 3.875 with about 550K left on a 1M home that I plan on living in forever; or invest in my taxable account?

    I already contribute max to two 401ks, hsa, 2 back door roths, ... all other debts have ostensibly been paid off. so it would just be where excess income goes..

     

    my thoughts are this: I should contribute to my taxable until I reach my financial goals for retirement, then use the income earned in this account to pay down the house whenever this goal is reached, but I just want to make sure I'm thinking about it the right way..

    I know we're not supposed to "time" the market, but my other thought was since the market is doing very well right now, it might be time to pay down debts, and then when we have a market correction to start investing at that point (although, I still would be investing with all of the retirement accounts) so this was kind of a way to hedge my bets??

    Thanks!!

     

  • #2
    50:50 Split.

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    • #3
      I think you're in FL - great homestead (100%) is protected from creditors. I'd err on paying that down more. Maybe a 70-30 split.

       

       

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      • #4
        I had read that since 1950, the stock market closed at an all-time high on ~7% of the days the stock market was open. That's about 1 in every 14 days. The S&P was also within 5% of its all-time high on 32% of trading days. So, looking at it from that standpoint isn't the right way to look at it.

         

        Does putting money into taxable or reduce your mortgage make you happier? That's your answer. Your answer may very well be to split it.

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        • #5
          don't stress about it.  it probably won't make too big a difference as long as you continue to save aggressively.

          personally i favor carrying mortgage and building up taxable as i think the interest rates are fairly low and mortgage deduction is of some value.  i don't like having so much of my personal worth tied up in a single relatively illiquid investment.  i know that opinions vary widely here on this subject.  most of my partners swear by having the paid off house and say they sleep very well at night however.

          if you are trying to time the market, you need some taxable dollars to get in when the getting is good.  i don't know if you are ahem experienced enough to be worried about timing the market yet though.

          50/50 sounds good to me as well

           

           

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          • #6
            Pretend your going to pay off your mortgage by investing in taxable index fund.. then once you've build enough to pay off the mortgage, you can decide if you want to pay one time and lock up your money in the house hoping for 2-3% annual appreciation or keep it invest in an index fund over the long term with 6-7% annual interest.

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            • #7
              Whatever you do, I'd advise against making a decision that's influenced by current market values and valuations (at least if you see yourself as a bona fide buy and holder and not a market timer).  Assume the market is just as likely to go up another 30% as it is down 30%, even though it doesn't seem that way right now.  Also ask yourself if you would follow the same plan if the market were where it was nine years ago (and everything else was still the same).  If that's not the case, you're at least a little bit guilty of market timing.

              That said, I paid mine off this past year, but that was because I anticipated selling my house.  But if you're going to live in that house forever, the benefits of paying it off are much more weighted to the psychological side.
              I sometimes have trouble reading private messages on the forum. I can also be contacted at [email protected]

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              • #8
                Either way, your net worth goes up, which is good.

                I have a similar mortgage, and am in the process of doing a refi into a 7/1 ARM at 3.125 vs the 3.75 fixed I'm in now.  I continue to save aggressively, maxing out all available retirement vessels available to me.  I think a lot depends on your age and plans, too. If you are in your 20's, then I'm less worried about the debt.  If you are retiring soon, then debt free is stress free.  I'm planning to be "retirement eligible" in 10 years, and being debt free is part of that equation for me, so I'm aiming for debt free in 7.

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                • #9
                  Ok,

                  Lots of great advice. I'm 36. I think the mortgage ends when I'm 61. I had actually done this analysis, and had planned on NEVER paying off the mortgage because of inflation and I'd basically be paying off my mortgage in today's dollars 30 years from now (plus the low interest rate), plus the benefit of the tax deduction (at least currently) and psychologically, this debt doesn't bother me...

                   

                  But I like to question my assumptions.. I guess I'll just contribute to taxable..

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                  • #10




                    Ok,

                    Lots of great advice. I’m 36. I think the mortgage ends when I’m 61. I had actually done this analysis, and had planned on NEVER paying off the mortgage because of inflation and I’d basically be paying off my mortgage in today’s dollars 30 years from now (plus the low interest rate), plus the benefit of the tax deduction (at least currently) and psychologically, this debt doesn’t bother me…

                     

                    But I like to question my assumptions.. I guess I’ll just contribute to taxable..
                    Click to expand...


                    Amen. You are 100% correct. Also talking about simple and compound interest on top of it all.

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                    • #11
                      why not convert to a 15 year mortgage?

                      makes more sense to me to just get done earlier this way as you might get a better interest rate since you already have a equity in the house.

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                      • #12




                        why not convert to a 15 year mortgage?

                        makes more sense to me to just get done earlier this way as you might get a better interest rate since you already have a equity in the house.
                        Click to expand...


                        I'd not change into/out of any kind of mortgage product until we know more about this tax bill.

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                        • #13
                          @jessikur,  I know we’re not supposed to “time” the market, but my other thought was since the market is doing very well right now, it might be time to pay down debts, and then when we have a market correction to start investing at that point (although, I still would be investing with all of the retirement accounts) so this was kind of a way to hedge my bets??

                          I would execute exactly that strategy all life long. !!!!!!!!

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                          • #14
                            Depends on your tolerance for stashing all your $$$ in a single place.

                            Nearly same funding situation:   House: $1.2M bought with 600k mortgage at 30 year rate;

                            We have saved in our taxable account over the years in a very conservative fund designated to balance the mortgage ---which recently surpassed the mortgage loan itself -- so now we can at any time hit the 'dump/payoff' button and be completely free+clear of mortgage if wanted.

                            We keep largely because we live in fire/earthquake prone area and want to make sure our banker fights for us hard with insurance when disaster strikes.  If the bank has 50% risk, they will help fight.  If they have 5% or none?  Self vs large insurance company with lawyers?  Probably not so much.

                            We may balance out a little more as we near time for retirement to level out variables further, but we're a bit far (I think) from hanging it up.

                             

                             

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                            • #15
                              No real wrong answer here, just unpredictable differences in net worth building. All good advice so far.

                              I’m partial to 50/50.

                              I also second paying down mortgage to below the conforming loan threshold in your county and refinancing to a 15 year mortgage next time rates dip. Wouldn’t worry about tax bill unless you own a 2nd home. Looks like they’re settling on 750k for deductible mortgage interest threahold.

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