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We have been in our home for almost nine years. We just refinanced from a 30 year 4.625% mortgage to another 30 year 3.5% mortgage. Our payment dropped about $300 per month. However, I have this goal of paying the house off in 15-20 years so I have been paying an extra $450 toward the principle. I didn't go with the 15 or 20 year term loan because I like that flexibility of being able to make that low minimum payment plus we have plans of possibly renting it in the next few years and would like to have positive cash flow. My wife has an IRA and I have a Roth IRA that we do not max out at this point. We both max out our 401k plans so we are saving a minimum of $34,000 per year combined. I believe we contributed roughly $2,000 combined to our IRA's last year so there is room to contribute more. Is it really that stupid to be paying extra on the principle vs. investing that $455 a month? I would feel like we would be starting over if we were to make that minimum mortgage payment. Thoughts?
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I think middle ground is best. To be successful, most people are going to do a little of both.
Likewise, with these low interest rates, it's less likely you are putting significant resources to your mortgage, even with an extra $450/month.
How stupid/wise this decision is, just depends how old you are, what percentage of income you are saving, how much you already have saved, etc.
Too many people believe in all or nothing. Putting all your resources to your mortgage, or the flip side of just re-setting and starting all over, is going to carry more risks than a more balanced approach.
Of course, if you are a stock market whiz, you may be better off investing. If you have a huge mortgage or no equity, it might make more sense to whittle down the mortgage. It just depend on the overall financial picture. -
Only one question to ask if you should pay additional or invest:
Are you confident to make more than 3.5% per year by investing the money?
If answer is yes, then you should invest in the money and if answer is no, then you should pay additional principal.
Personally, I would invest in whole $455 a month since I am pretty much confident that I can beat 3.5% per year.
I hope this will help.Comment
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Why not at least max out the IRAs at $5k each instead of just $2k? Pay off the mortgage with the rest.Comment
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