payoff mortgage

[rockrv22]

I was wondering if it is stupid to pay off my mortgage early. My wife and I have well over our 6 month emergency fund and max out Roth Ira and both give around 7% to 401k. We owe about $48000 at 3.25% which is about 7 years left. We can't write anything off anymore. Only other debt is a truck loan at 2%. I just wish I could write a check and be done with mortgage. But my money in investments are making really good rite now.

[snafu]

Can you verify you and DW continue to maintain an emergency fund, have stable jobs, both agree with focus, fully fund ROTH and collect any retirement matching funds from employers?

Since your outstanding mortgage really seems to annoy, nothing stops you from making extra payments directly to principal. Verify with lender to ensure the procedure goes smoothly. It helps to have a plan like 'X' % of uncommitted or new money [pay increase, bonus, side hustle, inheritance etc] goes to principal. Extra payments to principal can be intermittent should life throw other challenges.

my .02 cents

[rockrv22]

Yes we both have stable jobs. She is game with paying off mortgage and we have been putting more to principal

[Jluke]

What is 7% to the 401k dollar wise?

How much is your mortgage payment (not including taxes and insurance)? Divide 48000 by that amount and that is how long it will take to you save that amount again.

Do you save on your own for taxes or do you escrow? After it is paid off you will still need to save that amount.

If you aren’t maxing your 401k to 18000 (plus catch up if over 50) now will you max it after the mortgage is paid off?

I paid off my mortgage May 2016. It’s not that big of a deal because now I am putting that extra to my 401k to max it. I also hope to move end of November now so I will have a mortgage again.

[kork13]

Stupid? No. It's almost never stupid to pay off your debts. Can you do better by letting it ride with your mortgage? perhaps.

You say that you can't write anything off anymore -- does that mean you're not paying enough in interest & taxes & other deductible expenses that you're not able to itemize expenses above the standard deduction? What are your investments earning recently? The market as a whole has earned around 15% this year, and averages around 7-9%.

So if the money you would pay off the house with is invested, you might do better to stick it out and let your investments continue to grow, while the mortgage charges a lower interest rate. Keep in mind you'd also have to pay capital gains taxes on whatever you sell. However, if the money is sitting in a savings account earning 1% or less, and it's not intended as your emergency fund or needed for other immediate expenses, then perhaps it would make sense to use it to pay off the mortgage (or invest it).

As snafu suggested, a good middle option could be to make extra principle payments. It'll help you get your mortgage paid off sooner, but doesn't lead you to selling off investments to do so.

[rockrv22]

No I can't itemize anymore. Not paying enough interest. Alot of my investments paid around 18% this year!

[sblatner]

How old are you both

[rockrv22]

She is 32 and I am 34

[LivingAlmostLarge]

Whatever makes you happy!

[Nutria]

I was wondering if it is stupid to pay off my mortgage early. My wife and I have well over our 6 month emergency fund and max out Roth Ira and both give around 7% to 401k. We owe about $48000 at 3.25% which is about 7 years left. We can't write anything off anymore. Only other debt is a truck loan at 2%. I just wish I could write a check and be done with mortgage. But my money in investments are making really good rite now.

I understand your urge, really I do.

Which investments would you liquidate to get the cash?

[sblatner]

I say do it but make sure you know the tax implications of selling any investments to create the cash to pay the mortgage.

We paid ours off when it got to be around $50k. We had the cash though so didn't have to worry about any capital gains.

I have to tell you, there is a great deal of satisfaction knowing that the only bills you have to pay for your house are the insurance and property taxes. We paid off our house just a few years before our oldest went to college and have been cash flowing college ever since.

Also, we are self employed and are dealing with outrageous health insurance premiums. We could not afford our health insurance and mortgage at the same time.

Congratulations on being young and being in this position!

[rockrv22]

I could get some $ out of my Roth Ira with no penalty or taxes.

[disneysteve]

I could get some $ out of my Roth Ira with no penalty or taxes.

Absolutely not! You should not raid your retirement account to pay off your mortgage early. That is a nuclear option that should be the very last resort of dealing with a catastrophe. You would be sacrificing 30+ years of growth on that money just to save a relative few dollars in interest now. Don't even think about it.

[amarowsky]

Absolutely not! You should not raid your retirement account to pay off your mortgage early. That is a nuclear option that should be the very last resort of dealing with a catastrophe. You would be sacrificing 30+ years of growth on that money just to save a relative few dollars in interest now. Don't even think about it.

I completely agree w/ Steve.

Don't waste the growth potential of retirement, or give back ground from the savings you made within the retirement accounts.

Maybe take a 50/50 approach, so you can satisfy both want's.
50% goes to investments
50% goes to principle payments.
That way you will still advance paydown and still capture some of your "~18%" style returns.

If you are concerned that an emergency fund is getting too large, then I could recommend, investing the balance. You could also consider establishing a Home equity line of credit "HELOC" to be used as a supplemental emergency fund. And then consider keeping a smaller cash balance.
-Idea would be, if a true emergency happens, you could write a check out of your HELOC to pay for it (it being new roof, plumber fix, electrical fix, deductible, etc...) with very low interest rate. Then pay off immediately after as soon as your emergency fund + income +(or stock liquidation) will allow.

*This does involve much more risk than a cash emergency fund, and is contingent on your equity in your home, debt/income ratio, and credit score.

My 2 cents that could be options to pursue.

[amarowsky]

not quite as sexy as a pay off, but it's safe and effective...