Should I work on paying off my mortgage? Or put more into a taxable account?

[HLM]

I know that some of this comes down to personal preference but I'm curious what others think or have done.

i finished residency 13 years ago and am in one of the lower paying medical specialties.

The only current debt I have is our mortgage ($300K) but I have not accumulated much in savings at this point (175K between a 403b, an employer funded retirement account, an HSA, a savings account and a back door Roth I opened this year).

I have seen the errors of my previously over spending ways. I've maxed out my 403b for the year, will open a spousal IRA and convert that to a Roth, and will max out my HSA for the year. I do not live in a state with state taxes so I do not plan on saving in a 529.

With that done, I'll have another 48K this year to do something with.

Do I pay down the mortgage? I have an ARM that is currently at 2.75. Or do I open a taxable account at Vanguard where I have my Roth with that money?

Any thoughts would be greatly appreciated.

[Zaphod]

Invest. Lots of threads on this here, I'd search through them.

[TheGipper]

I've always liked the split the difference method with enough extra monthly principle to the mortgage to ensure paying off the house before retirement.  Nice to go into retirement without any debt even if you do plan on downsizing the house anyway.  Also nice to have a nice taxable account going into retirement to pay for Roth conversions.  In the grand scheme, lower hanging fruit to be had in cutting wasteful spending then in deciding between two nearly good net worth building options.

[jfoxcpacfp]

Don't rush into a decision just because you feel as if you need to catch up quickly. You're still far ahead of most people. Put a financial plan in place to serve as your guiding light before you take the next step. If you prefer to DIY, read The One Page Financial Plan by Carl Richards.

[jfoxcpacfp]

[YYjames]

Invest. Duh.

[TheGipper]

For the "invest duh" crowd, how many of you are taking out additional low interest or home equity loans to invest even more.  Why not?  Doesn't seem as attractive from that side of the coin does it.

[YYjames]

I have buddy. It's fine. I came off too black and white. Here is a better answer: I would invest. Zaphod is in the same camp of you think me as n=1. Also why am I wasting time on these boards? Doesn't seem as attractive from this side.

[Zaphod]

TheGipper wrote:

For the “invest duh” crowd, how many of you are taking out additional low interest or home equity loans to invest even more.  Why not?  Doesn’t seem as attractive from that side of the coin does it.

Click to expand...

Yes, that also seems attractive from a risk/reward, carry, and tax trade. I went over the math in a separate thread showing why making an effort to make a mortgage go away makes little financial sense, as you basically pay twice as much today as you would in the future and lose the opportunity to increase it to 21 times (median) on the term of a mortgage.

[G]

I typically say pay off the mortgage or split between that and investing.  But you have a pretty small financial cushion.  If something goes wrong (e.g. you can't work anymore), I'd rather see you have some money in the bank than a paid-off house with no money to pay the property taxes and electric bill.  So, invest (skewing towards equities).  Maybe throw an extra mortgage payment once per year for psychological benefit?

[HLM]

I suppose these responses are pretty much what I expected. I guess I was interested if anyone would make a compelling argument for putting the bulk of the money into paying down the mortgage.

There is something satisfying about the idea of being debt free which is why I think I keep coming back to the idea. But I do also realize that if I am trying to make my savings grow, investing is going to be my best shot at doing that and the small return of paying off a low interest rate mortgage can't really compete with investing.

Johanna, I think you hit the nail on the head. I do feel a bit panicked about having to DO something as quickly as possible to make up for financially irresponsible decisions I made earlier on. But you are absolutely right, I don't have to rush into a decision quickly. I enjoyed Carl Richard's The Behavior Gap book. I actually flipped through The One Page Financial Plan when it first came out but wasn't quite ready to get my financial house in order. Now that I'm more serious about it, I should take another look for sure. Thanks!

[Hatton]

I will join in with the invest it duh crowd.  Quit beating yourself up and start making good decisions.  It is easy to over spend when you see people you went to medical school with buying x. The pressure to live a certain way is enormous and very hard to resist. You have realized the problem when you are young enough to get on track.

[Zaphod]

HLM wrote:

I suppose these responses are pretty much what I expected. I guess I was interested if anyone would make a compelling argument for putting the bulk of the money into paying down the mortgage.

There is something satisfying about the idea of being debt free which is why I think I keep coming back to the idea. But I do also realize that if I am trying to make my savings grow, investing is going to be my best shot at doing that and the small return of paying off a low interest rate mortgage can’t really compete with investing.

Johanna, I think you hit the nail on the head. I do feel a bit panicked about having to DO something as quickly as possible to make up for financially irresponsible decisions I made earlier on. But you are absolutely right, I don’t have to rush into a decision quickly. I enjoyed Carl Richard’s The Behavior Gap book. I actually flipped through The One Page Financial Plan when it first came out but wasn’t quite ready to get my financial house in order. Now that I’m more serious about it, I should take another look for sure. Thanks!

Click to expand...

I went through the same thing. You make mistakes and put yourself in a hole, and now feel immense pressure to "right the ship". Slow down, take a breather and just go over your overall plan and then check the math and see what completes that the best.

Being debt free is a satisfying idea, but not always the best way to accomplish your goals. Easiest thing to see this is that most of us wouldnt be doctors if we couldnt have accessed debt. In the end you would be better served by thinking more broadly, that is growing your net worth overall and not focusing on the small stuff. You could either pay down your bills or grow your assets. Either way you get positive net worth in the end, its just a matter of how much and what you have at the end.

Do you think you'll value that piece of paper that says 0$ owed, or will you be more happy watching your growing asset base. Check the other threads for the math on this though you'll be shocked.

[rmecc001]

I like the idea of investing the money. Think of it as a payoff the mortgage fund. That way you have access to the money should you ever need it. Once the fund is equal to your mortgage balance you can decide whether to pay off the mortgage or continue to let it grow.

[GXA]

I just refinanced at a 2.875 rate fixed for 15 years.  At this rate, I do not plan on paying off early and will invest.