Mortgage is paid off... Now What?

[Milly]

I have been putting 35% of my take home money into additional mortgage principle payoff. We’ve had the house for almost 5 years and only have 2 years before it is paid off!

I am so excited to complete my big goal. The only problem is I will lose my guaranteed 4.625% return and have to find my next option. I’m kind of dreading that. What opportunity should I be researching so that when the time comes, I can be excited for something else?

More info: We don't have any other debt. We are about 30 and put the max $18,000 into our 401K, plus 5% match from his employer. We think the stock market is due for a large crash in the next 5 years and don’t want to go crazy there until those low prices hit. We have around $15,000/year dedicated to investment, but soon we will reach our savings goal and can put more of that towards investment too.

[Singuy]

First of all, congrats on your effort in paying off that mortgage so soon! I was in the same boat as you.

Second, it's really hard to say where to put your money after 2 years time. We don't really know what will happen in the next 2 years. Will we see an interest rate increase which makes CDs/bonds/treasury notes a viable option? Will the stock market crash making investment in the market the better choice?

Currently, there are very little alternatives. The market is the best bet for any type of returns...holding cash in hoping for a market crash is another option. Peer to peer lending is new, risky, but another route for investors seeking for returns. You can also look at high yield municipal bonds in taxable accounts.

So perhaps it's more useful to visit this question again after 2 years to see where we stand.

[StormRichards]

Trying to predict and time the market is a bad idea in my opinion.

I think it would be helpful if you were to provide more details about your long term goals. Do you qualify and have Roth IRAs?

My recommendation would be to continue maxing out your 401k and also start maxing out Roth IRAs. If you have the cash available, you can still make contributions for 2016.

[rennigade]

Make sure you have an emergency fund. Preferably 1 year of expenses to be really safe.

Open Roth iras. Both of you can contribute $5,500 each.

Like others said...you cant predict the market. Multi hundred billion dollar investment goliath companies cannot predict what the market will do. Invest often and stick to a plan...no matter what the market does. You're around my age...just keep investing. I would also look into the vanguard 3 fund portfolio...just google it.

[~bs]

Default Mortgage is paid off... Now What?

Home equity loan?

[disneysteve]

What % of income are you saving for retirement? The general recommendation is at least 15%. It's great that you are maxing the 401k. If that represents less than 15%, are you eligible for a Roth? If not, you can put the difference into a taxable investment account and just earmark it for retirement. You won't get the tax shelter but if you choose tax efficient funds, you'll still do well.

As for market timing, just don't do it. Don't worry about what the market is doing today, tomorrow, next month, or next year. You are 30. You won't be touching that money for decades. There will be 3 or 4 or 5 market corrections between now and retirement. You can't time them so don't even try. Just keep investing steadily over time.

How about outside of retirement? Do you have at least a 6-month emergency fund? Any other debt? Any short or longer term needs anticipated like your next car purchase, home renovations, etc? Do you have children? If so, have you started college savings? If no kids, are you planning to have them at some point?

You're going to be in great shape with a paid for house in your mid-30s and maxing your 401ks. Good for you!

[Jluke]

What's your mortgage balance and how much are you being charged in interest now?

How much is your mortgage payment (just principal and interest)?

You'll still have to set aside the amount for taxes and insurance.

Have you been keeping up with home renovations and maintenance?

I paid mine off almost year ago now when it was down to 50k.

The reason I ask all of the above is that if you are putting a lot of liquid cash into an illiquid asset you may want to curb the accelerated mortgage payments and coast to the end.

No sense having a paid off house and not much in liquid savings. Speaking in general terms because it may not reflect your situation but for others reading it might help them.

[disneysteve]

No sense having a paid off house and not much in liquid savings. Speaking in general terms because it may not reflect your situation but for others reading it might help them.

Also not relevant here since this has already occurred, but by focusing on prepaying a relatively low interest debt (especially when you look at the actual effective rate after the deduction), you missed out on one of the longest bull markets in history. Of course, you had no way to know in advance that that was going to happen. We only know it in hindsight.

I actually did something similar years ago when I greatly accelerated repaying my student loans. I could have made far more money investing but I didn't know that until it had already occurred.

[Jluke]

Also not relevant here since this has already occurred, but by focusing on prepaying a relatively low interest debt

OP said two years to go till it is paid off. That was my perspective on the comment to be sure everything else is in check before knocking out the mortgage.

I might be missing something though

[disneysteve]

OP said two years to go till it is paid off. That was my perspective on the comment to be sure everything else is in check before knocking out the mortgage.

I might be missing something though

No, you're right. OP said it isn't paid off yet. I was just referring to the time that has already passed.

[Milly]

Thank you everyone!

I'm surprised by the support for the market, even over being aggressive on my loan. Mathematically, you are absolutely correct. It is just hard for me to let go.

It is true you can never predict the market and it is true that I missed an incredibly bull market. My problem is the control freak. I hate the idea of giving away the control of my future. I'm even thrown off not knowing how I'll invest years down the road.

People say over time 8%, and even lower is okay. I don't think the old models fit. The world is getting faster and faster. Who knows what the new formulas are. That is a completely different thread though... I will jump in with full force next time we have a major correction though.

Additional information:
Our house is just over 10 years old, so very little maintenance should be needed in the near future.
We have 3 toddlers, so eventually it will be very expensive but we have separate savings for them.
My required payment is only $550/month + $190 escrow.
I have $48,000 left to go.
I've been paying $1,500, but will pay it off in a lump fund out of savings when I can.

The long term goal is to retire to Idaho in 30 years or fewer. I will probably keep working if I get an online business going.

[StormRichards]

Thank you everyone!

I'm surprised by the support for the market, even over being aggressive on my loan. Mathematically, you are absolutely correct. It is just hard for me to let go.

It is true you can never predict the market and it is true that I missed an incredibly bull market. My problem is the control freak. I hate the idea of giving away the control of my future. I'm even thrown off not knowing how I'll invest years down the road.

People say over time 8%, and even lower is okay. I don't think the old models fit. The world is getting faster and faster. Who knows what the new formulas are. That is a completely different thread though... I will jump in with full force next time we have a major correction though.

Additional information:
Our house is just over 10 years old, so very little maintenance should be needed in the near future.
We have 3 toddlers, so eventually it will be very expensive but we have separate savings for them.
My required payment is only $550/month + $190 escrow.
I have $48,000 left to go.
I've been paying $1,500, but will pay it off in a lump fund out of savings when I can.

The long term goal is to retire to Idaho in 30 years or fewer. I will probably keep working if I get an online business going.

I am certainly not against an accelerated payoff. We are paying extra as well. But we are doing so while putting money into the market every month. I understand not being confident in achieving the 8% return, but the market will likely outpace any other investment vehicle you might consider.

In 30 years, you are going to need a sizable nest egg to draw from. The sooner you start, the better. If you invest using dollar cost averaging, you won't have to worry about whether you are getting in at the right time.

[StormRichards]

Also, you didn't mention if you have an Emergency Fund?

[feh]

Taxable investment account. Read this page: https://www.bogleheads.org/wiki/Bogl...g_start-up_kit

[disneysteve]

Our house is just over 10 years old, so very little maintenance should be needed in the near future.

You might want to rethink that point. You're approaching the period when stuff will start failing and need replacing. Things like the refrigerator, dishwasher, washer and dryer, hot water heater, central air, furnace, etc. tend to have about a 15-year lifespan. Make sure you are setting money aside so that you are prepared when all of those things start dying off.