Invest or make extra payments on mortgage?

[Duck12]

Hi,

My wife and I are building a house, which will be done around June. We are putting 20% down on a conventional loan to get rid of PMI and decrease our monthly mortgage payment. Our 30-year fixed mortgage rate is going to be ~3.6% on a $205,000 loan.

Is it financially better to make extra mortgage payments of about $250-500 each month to pay off the house quicker or should we invest those extra payments in the stock market?

Here is some of our info:
Both 29 years old - no kids at this time, but are hoping to start a family in the near future.
Gross income combined of 115k-120k per year with a 1-3% raise each year.

Roth IRA Vanguard Target Retirement Fund - both contributing max each year (I started ~5 years ago and she started this year)
Roth 403B - we are both contributing 4% of our income to get the 50% company match ~$6,000 (Not vested yet)
Checking - ~$11,000
Savings - ~68,000 ($51,000 will go do house down payment at closing; currently we are putting $4,000 into savings every month)
Car loan- $3,000 left
Student loan - $3,000 left
Credit card debt -$0 (pay cards in full every month)

I was thinking about putting a $250 extra mortgage payment each month and investing the extra $250 per month in the Vanguard Total Stock Market Index Fund. I have never invested in the stock market besides our retirement funds.

Is this too risky with the new house purchase? I am planning to purchase a SUV in 1-2 years since my current car is ~18 years old.

Any tips or recommendations?

Thanks,
Duck12

[disneysteve]

I was thinking about putting a $250 extra mortgage payment each month and investing the extra $250 per month in the Vanguard Total Stock Market Index Fund.

I wouldn't do either of those things.

Once you buy the house, what have you estimated your monthly expenses will be? You want to make sure you maintain at least a 6 month EF. You will have about 36K in savings in June after paying the down payment. Is that enough?

You anticipate needing a car in 1-2 years. You need money saved for that purchase so that you don't need to go into debt to get the car.

You still have 6K in other debt. You should pay that off before thinking about prepaying the mortgage.

Assuming you and your wife each earn 50% of the total household income, you are currently contributing about 13.5% to retirement. That's really good but bumping it up a bit to 15% would be even better.

You are planning to start a family. That increases expenses and potentially decreases income, at least temporarily, so you need to be prepared for that.

So right now, I'd be socking away cash for an EF, a car purchase, and anticipated expenses from having a baby. I wouldn't be doing extra investing quite yet and I definitely wouldn't be prepaying a low interest rate mortgage.

[PSF]

Exactly! what disneysteve said.

Also investing is not some little thing, I suggest that before you put any money into the stock market (or any other speculative investment) that you spend at least a year learning about it. The market is particularly tricky these days as well, because they are not driven by as many fundamentals anymore but more so by governments and the central banks. Look at what is happening in Japan at the moment.

Learn about the technicals of the market, types of orders, ETF's, exchanges, margin, derivatives, etc. But also the impact local, national and global policies and conditions that could have an impact on any investments you make.

Investing is not a set and forget thing, you must monitor it constantly and stay in touch with anything that could affect it.

[bjl584]

I agree with Steve.

One thing to ad,
If you find that after all is said and done, that you still have extra money to throw at the mortgage, then I would look at refining to a 15 year loan.