What would you do if you were me?

[Scanner]

I guess my opinion gets skewed because I'm a business owner, as are you, DisneySteve.

I'm going to venture a guess that your office, even if it is on the small side takes about $15,000/month in operational overhead. My office is a small operation and it takes maybe 5K/month.

Have you ever had $90,000 sitting around in cash if you have a disability? Sure, you can cut overhead. . .roll some heads should something happen. ..but you still have a lease, some minimal utilities, , ,you'd have to pay a locum tenens doc. . .maybe you would still come out ahead but maybe not. . .I have a LOC that I keep on hand for such an emergency.

I guess I tend to think of my household as a "mini-business" that way.

I am not saying having 100% of emegency funds be from a LOC but at least some it. Even with a devasating job loss and minimal disability, you should be able to sell your house and liquidate in a years time.

It does depend on how much equity you have though, I'll admit. With about 60% equity in the house, I think it's not too risky to just keep some cash on hand and invest the rest. They definitely should have the open line of credit BEFORE any emergency happens or they may not be able to open one.

[MoneyTard]

What do you think of putting the monthly payment we used to make on the car towards the house?

[disneysteve]

I guess my opinion gets skewed because I'm a business owner, as are you, DisneySteve.

Actually, no, I'm currently an employee of my practice. I don't have an ownership interest at this time.

Have you ever had $90,000 sitting around in cash if you have a disability?

Since I don't own the business, I'm not concerned about that. Personally, I have disability income insurance to cover me if I become disabled and unable to work.

I am not saying having 100% of emegency funds be from a LOC but at least some it.

It does depend on how much equity you have though, I'll admit. With about 60% equity in the house, I think it's not too risky to just keep some cash on hand and invest the rest. They definitely should have the open line of credit BEFORE any emergency happens or they may not be able to open one.

Agreed. After the emergency happens, you may not qualify for the LOC. Better to have it in place already just in case you need it.

It also depends on your other investments. Personally, I've got substantial assets in taxable accounts holding individual stocks and stock mutual funds. In an extended period of income loss, I could liquidate some of those holdings as needed to cover my living expenses, so I can manage with a smaller cash EF than someone without those resources to tap. OP, however, doesn't have any other accounts so would need a larger cash EF.

[disneysteve]

What do you think of putting the monthly payment we used to make on the car towards the house?

I'd vote no on this (I almost always do). But you will get strong opinions on both sides of this issue. There are far better investments, in my opinion, than prepaying your mortgage. The after-tax rate on your mortgage is 4.575%. So you only need a taxable investment return of greater than 6.1% to outperfom prepaying the mortgage. That's not too tough to achieve. The S&P 500 was up over 15% last year as was the Vanguard Total Stock Market Index.

As Scanner suggested, your current portfolio is overly conservative given your age. Using spare cash to pay down low-interest debt makes it even more conservative. I think you need to be boosting your equity exposure and, in turn, boosting your returns.

Another point - don't forget that cars don't last forever. You should be setting aside money each month toward your next car purchase so that you either don't have to finance at all or can finance a smaller amount with a shorter term.

[MoneyTard]

So you only need a taxable investment return of greater than 6.1% to outperfom prepaying the mortgage.

But to outperform prepaying a 145k mortgage, wouldn't I need a return greater than 6.1% ..on 145k? which I dont' have ?

We bought our house in 2002 and after 5 years of mortgage payments, we have only paid about ~8k principal of the original 154k mortgage.

Unless we attack the mortgage, it's going to continue to feel like a no-win battle.

[PrincessPerky]

But to outperform prepaying a 145k mortgage, wouldn't I need a return greater than 6.1% ..on 145k? which I dont' have ?

We bought our house in 2002 and after 5 years of mortgage payments, we have only paid about ~8k principal of the original 154k mortgage.

Unless we attack the mortgage, it's going to continue to feel like a no-win battle.

For exactly that reason...the no win battle. I vote to pay off at least some to the house, but I do think some aside for next car/car repairs is also good.

A house is not actually an investment to me, it is a roof over my head, and I see no point in saving for retirement if I will need to save extra to cover a house not paid for!

But then I am anti debt all the way, I would rather never borrow. Never owe. Own what I have, save for what I want.

Though I also have a car loan and house loan! So it isn't like I have avoided debt! But Our plan is pay off the car super fast, then pay down the house, almost fast..well faster than 30 years anyway.

[MonkeyMama]

I am with Steve on the mortgage. I used to think that like you, but if I put all the money into retirement and none to the mortgage I should have enough to pay it off in just about 7 years. When you think at it in those terms it may change your mind. I have put too much to my mortgage in the past and am rather illiquid right now - regret it a bit. So have made a conscious decision to put all my money to tax-deferred retirement. Retirement is safe from bankruptcy, lawsuit, etc. Not your home. Doesn't mean my house won't be paid off long before I retire.

If you can max out all your retirement vehicles and have money to spare you may consider putting 1/2 the remainder to mortgage and 1/2 to investments. Kind of the best of both worlds. What I am aiming for now.

I am as anti-debt as they come but I have gone on and on why the mortgage is different and the only debt I would ever consider.

But this has been debated heatedly here.

The reason I really wanted to reply was to say yes, you can open a 529 plan for 1 child and you can use the money for both kids (or even their cousins, other relatives). My MIL has a huge college fund started for my older son when we intend he will go to public school (most likely) and shoulder some of the costs himself. So I asked her to please not open another 529 plan for my 2nd child. They will share the first, and if there is too much it is likely their cousins will go to private school and we can arrange a deal to give them the money for college, maybe reimburse my MIL if my kids don't use it. Just FYI. It has to be in 1 kid's name but is transferable to certain relatives.

[disneysteve]

But to outperform prepaying a 145k mortgage, wouldn't I need a return greater than 6.1% ..on 145k? which I dont' have ?.

That's the beauty of compound interest.

Here's an example.

$154,000 mortgage at 6.1% for 30 years. Monthly principal and interest is $933.23. Total interest paid over life of loan is $181,963.51.

Add $100/month as an extra principal payment and you will pay the loan in 23 years. Total interest paid will drop to $134,829.77. You will have saved $47,133.74 in interest payments.

Sounds pretty good, right?

HOWEVER, if instead of paying an extra $100/month to the mortgage, you put that $100/month into your 401K or Roth and earn 8%/year, after 23 years (when the mortgage would have been paid off) your money will have grown to $79,498.93. You will be ahead by $32,365.19 by investing rather than prepaying the mortgage!