Ok, so, spoke with my banker and they have locked me in for an FHA refinance program, 15 years at 2.875%. The amount refinanced would be ~$97k. (Rolling the closing costs in)
Original loan is for $99k at 5.675%
At that low of an interest rate, are we better off taking the extra money each month we could put on principal into an investment fund? Savings?
High dollar scotch and blow?
z31maniac wrote: High dollar scotch and blow?
I see you've read my investment book.
You could probably do way better than 2.875 investing, but that takes discipline. If you can commit to rolling the money into investments, then totally do it. If not, principal reduction is probably the way to go.
Finding an investment that pays anything today is challenging. The standard interest rate the banks give you is somewhere around zero. As in "Woohoo! My 10K paid me a whole dollar last quarter!! I can almost buy a tomato!!" So, pay off the debt and pay yourself 2.875%.
What's your time horizon? Have any 401k's, etc?
One of the keys to a decent retirement is to cut your costs. One way to do that is to have a paid for house. At that point, you now only have maintenance and the usual utility bills. That can easily be less than ~$1k a month, usually a LOT less. Now your retirement dollars stretch a lot further.
So if your time horizon is like mine: too friggin' short 
, do your best to pay it off early. OTOH, if you have, say, 30 years to go then the house would be paid off long before retirement anyway and in that case I say invest it.
Right now I am moving my 401k stuff into a Vanguard fund that averages in the high 4's each year, it has done this steadily since about 1978. That is probably about as good as you will do at this time.
Hookers, don't forget the hookers.
I hate debt, and the only thing potentially paying more than 3% these days has an equal chance of losing 30%.
Pay off the house.
Disclaimer: I will never be rich. Take any financial advice from me with a grain of salt.
I'm 29.
Plan is to try to pay off the house in under 10 years.
I put 4% gross into my 401k (company matches so I get 8%) and I'm currently putting about 13% net into savings. I'd like to eventually be putting another 10% into a post-tax investment or IRA.
Then you have a nice long horizon. I think I'd jack up the 401k even if the company doesn't raise to match it and keep on truckin'. Post tax investments: you still pay tax on the interest you make so that's not necessarily a great idea.
The good thing about starting an IRA now along with the 401 is that you now have an easy rollover. If the IRA performs steadily that means you know what you have and if for whatever reason you lose your job, you can roll the vested amount into an IRA with no tax penalty. Why is that important?
In many cases, a 401 will have a limited number of fund choices and if they all suck you are in a bit of a jam, you have to stay there while you are employed with that company. That's where one of mine is right now even though I no longer work there.
It rollercoasters like hell and never goes above a certain amount BUT the managers get a cut every quarter. That means they are making money but I am not. So once it hits a target figure I will roll it over into my self directed IRA. A self directed IRA can have nearly unlimited fund choices.
Not only that, but if you switch jobs and have an IRA there is no 'waiting period'. Lots of companies say it's 1 year before you can enroll in their plan. If you have an IRA, you can put the same amount you would put into the 401 into your IRA while you are waiting for that year to be up, meaning you keep steadily building for the future.
If you're investing that sort of money each month (congrats by the way) already, I'd just throw the spare money at the mortgage.
Paid for houses rock.
You know what Dave says: Would you borrow on your house to invest in ____ (fill in the blank)? By not paying off your house, that's what you're doing.
Dr. Hess wrote: You know what Dave says: Would you borrow on your house to invest in ____ (fill in the blank)? By not paying off your house, that's what you're doing.
Word. There's some parts of Dave's philosophy I tend to disagree with a little but that one sure ain't one of them.
Curmudgeon wrote: Then you have a nice long horizon. I think I'd jack up the 401k even if the company doesn't raise to match it and keep on truckin'. Post tax investments: you still pay tax on the interest you make so that's not necessarily a great idea.
I thought the advantage of post-tax contribution was no more taxes, or are you speaking capital gains tax?
Pay off the house. As some one who has sent that last mortgage payment in it is an amazing feeling. We are just now switching our focus to investing (non 401k type). I wouldn't feel as secure if I had a 125k investment earning 5% while I still had a 125k mortgage. Bar none pay off the house. Pay early and pay often (follow the ramsey steps and do it when the time is right but still). His plan isn't perfect and might not be the greatest ever but if you follow it you will succeed.
If you contribute to a post tax interest bearing account, the principal is not taxable. But any interest you earn from it is considered income and is thus taxable. Wunnerful, ain't it?
Ramsey has a lot of good ideas but here's the deal: if I could pay off my house and put 100% of the freed up money into something interest bearing which paid back better than the interest on the loan, that would be great. BUT: if you are like most people (me) that's not real likely, or you would not be borrowing the money in the first place. So face facts, you will be paying interest for a while.
So since you are already planning to pay it off in 10 years, it makes no real sense to me NOT to open some sort of IRA or ?? which pays better than the interest on the mortgage and park money in it every month. That way you are coming out ahead. No, it's not perfect but better than if you crammed every dime into the mortgage, didn't invest and lost that time that your money could be working for you. Once the crib is paid for, stuff the money you would be paying on the mortgage into the account.
As has been said, right now interest and investment income is abysmal. Pay it off early, then put that mortgage payment into long-term savings once the loan is closed.
I used to have no mortgage.
I have one now.
Pay it off. Life is better.
Pay it off. Life is better with a roof over your head, whether or not things get better..or worse.
Pay off house as quick as possible. Save money buy a company or two. Its what I did.
+1 for early payoff.
It's not the spreadsheet answer, but spreadsheets do a E36 M3ty job of valuing inner peace.
<--- about to refi into a 10 year @ 2.875, with plans to pay it off in 7 or so. I'm $2k away from eliminating all non-mortgage debt. Also putting 10% plus a E36 M3ty company match into the 401k.
z31maniac wrote: Ok, so, spoke with my banker and they have locked me in for an FHA refinance program, 15 years at 2.875%. The amount refinanced would be ~$97k. (Rolling the closing costs in)
OK, great. Believe it and act on it when you actually see it and sign the documents.
At that low of an interest rate, are we better off taking the extra money each month we could put on principal into an investment fund? Savings?
How much risk can you stand? Does gambling make your tummy gurgle and keep you up at night?
On the other hand, do you have an investment that actually will earn you more money than you are going to lose by paying down the loan? I.e., a real and solid reason to borrow against your house?
Most investments are smoke and mirrors. So do pay off, many do not. The game is rigged for the dealer to win, not the players.
Lastly, it's not fun having no cash available when an emergency happens. Don't set yourself up to wreck by trying to pay a loan off early too hard.
Glad to see everyone recommending to pay off the mortgage. I've been teaching debt-elimination for 14 years now at churches and colleges. Here is another way to look at this. Using z31maniac's numbers: 15 year mortgage @ 2.875% with a balance of $97,000. The payment calculates to $664.05/month. These payments include principal and interest. A payment of $664.05 breaks out to $431.65 towards principal and $232.40 taken as interest. Now what percentage of this payment is interest? $232.40 / $ 664.05 = 34.99%. Paying down your mortgage is a guaranteed investment. Pay it off early and you pay less interest. You goal is to find a 'guaranteed' investment that will yeild 35% or better. Good luck! You cannot relate APR (annual percentage rate) between a loan and an investment. The APR is designed to compare loans OR compare investments. Now go pay off that mortgage!
Great post, thanks for the explanation!
Pay it off. Mine will be paid off on April 10th, and I get giddy as hell just thinking about it.
BoxheadTim wrote: Paid for houses rock.
QFT and Im a mortgage broker
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