Financial Picture

[corn18]

I felt the same way after paying off all my 0% car loans and depleting my savings (but still had an OK EF). Took a few months and then the realization that I had no consumer debt sank in and I have been smiling broadly ever since. I would love to pay off my mortgage even if it's not the smartest financial move by the numbers. That freedom would be something I have only dreamed of.

Congrats to you. Enjoy the day.

Tom

[Jluke]

this is the breakdown of the mortgages I held throughout the years. I (over)paid for the house in 2006 at $218k. original loan was around $165k.

mortgages.... int paid.... Years.... int expected
int from 30Y.... $17,811.00.... 2006 to 2008.... $224,272.00
int from 15Y.... $34,368.00.... 2008 to 2013.... $48,406.00
int from 10Y.... $6,446.38.... 2013 to 2016.... $14,270.00

TOTAL $58,625.38

Exaggerated Savings of $165,646.62 in Interest (Total interest vs 30 year expected interest).

No looking back now, but I'd be interested if someone could explain IF investing would have been better. might help others who are debating this.

[autoxer]

No looking back now, but I'd be interested if someone could explain IF investing would have been better. might help others who are debating this.

That depends on what you are investing in and if your risk tolerance allows you to stay the course. You can certainly earn more than the rate you are paying in mortgage interest, but it isn't going to be a smooth gradual ride. If you are the type that would panic and sell in 2008 to prevent further losses, then you are better off paying down the mortgage. If your risk tolerance can handle that volatility and you maintain a long term outlook, then you can come out ahead by investing. It's going to look different for every time range that you pick and I'm sure you could find some 10 year time spans, where paying down the mortgage was a better bet, but more often than not, investing in the markets will come out ahead.

Looking at the S&P 500 from April 2006 to now, it has increased in value by 53%, which is about 4.4% annualized. Money invested in 2007 has not performed as well (approximately 3% annualized over 9 years), while money invested in 2009 has done well (approximately 11% annualized over 7 years). There are also 10 year periods that look extremely glum, if I cherry pick Jan-1999 to Jan-2009, then the s&p would show an annualized loss of 4.5%. The biggest 10 year upside that I see is from Jan-1990 to Jan-2000, where the s&p showed an annualized gain of 16%. My long term withdrawal strategy doesn't have me cashing out at one time, it will be more of a gradual payout, so there will certainly be times where I'm withdrawing in a down market, but it should only be a small portion of my holdings.

[Goldy]

Awesome work Jluke!
Have you calculated what your EF needs to be once your mortgage is paid off?

[Jluke]

Awesome work Jluke!
Have you calculated what your EF needs to be once your mortgage is paid off?

thanks - good question about EF.

Currently EF is at $31k in liquid cash; I think after the mortgage is done this year, 3000/month would be good approximation so I'll have 8-10 months EF.

When the car and HVAC are paid off that would decrease to 2300/month.

30-40k will probably be my target for cash.

Looking forward to adding to my taxable investment account without fear. That is always an extreme emergency EF, if needed. As well as the ROTH contributions.

Sidenote: I found myself in a mortgage conversation today with coworkers but didn't share my current situation. I am thinking it might be best to keep this to myself - not just at work but in general. I really found myself holding back on contributing to the conversation. That's why I like having this forum where I can get good info and suggestions from all that take the time to read my posts.

[Jluke]

JLUKE--If you been following me here, I follow Dave Ramsey principle.

There is no doubt in my mind that the Ramsey approach is a solid way to attack debt.

I only deviated b/c my mortgage balance was so low at 46k. I assume that Ramsey wants people to feel like winners by attacking consumer debt first b/c there's a good chance that is a smaller balance than the mortgage. If he directed people to the mortgage first they would probably get easily discouraged (think mortgage amounts 150k+).

I basically cut my debt in half and by paying the higher interest/higher balance loan I am able to see further savings from the years of extra payments on the mortgage.

[LivingAlmostLarge]

If you aren't maximizing your tax break for 401k which say is 15% and Roth IRA retirement savings so $18k 401k and $5500 IRA then i'd say paying of your 5% mortgage is much more expensive than taking a tax break now and investing for retirement.

After you've maxed out those accounts it becomes a lot more about risk tolerance. But otherwise why pass up an extra 15% of free money? When it's time to draw it's possible you might be able to somehow pass 0% or less on that 401k. So why not save the 15% and pay off the 5% later? In my book a guaranteed 15% is much sweeter than 5% mortgage.

Personally we were looking at 25-28% + 6% state income tax over prepaying our mortgage which was 2.5%. Plus like this year we might be able to roll our 401k to Roth IRA conversion with minimal tax hit. Sooo....I'd say we're about to come out way ahead. We might not be back in this bracket again for a long time.

And there you have why investing for retirement alone can put you ahead of the 5% mortgage.

[Goldy]

thanks - good question about EF.

Currently EF is at $31k in liquid cash; I think after the mortgage is done this year, 3000/month would be good approximation so I'll have 8-10 months EF.

When the car and HVAC are paid off that would decrease to 2300/month.

30-40k will probably be my target for cash.

Looking forward to adding to my taxable investment account without fear. That is always an extreme emergency EF, if needed. As well as the ROTH contributions.

Sidenote: I found myself in a mortgage conversation today with coworkers but didn't share my current situation. I am thinking it might be best to keep this to myself - not just at work but in general. I really found myself holding back on contributing to the conversation. That's why I like having this forum where I can get good info and suggestions from all that take the time to read my posts.

I would be personally tempted to cut a check for 13k in May to pay off the mortgage and drop my EF down to 6mo levels then start building it up to a long term 30-40k level. But since you are planning to pay it off this year I wouldn't have s big problem with just letting it ride either. Awesome job!

[Jluke]

If you aren't maximizing your tax break for 401k which say is 15% and Roth IRA retirement savings so $18k 401k and $5500 IRA then i'd say paying of your 5% mortgage is much more expensive than taking a tax break now and investing for retirement.

After you've maxed out those accounts it becomes a lot more about risk tolerance. But otherwise why pass up an extra 15% of free money? When it's time to draw it's possible you might be able to somehow pass 0% or less on that 401k. So why not save the 15% and pay off the 5% later? In my book a guaranteed 15% is much sweeter than 5% mortgage.

Personally we were looking at 25-28% + 6% state income tax over prepaying our mortgage which was 2.5%. Plus like this year we might be able to roll our 401k to Roth IRA conversion with minimal tax hit. Sooo....I'd say we're about to come out way ahead. We might not be back in this bracket again for a long time.

And there you have why investing for retirement alone can put you ahead of the 5% mortgage.

I wish I could think in percentage terms. As soon as I hear percentages I need to equate to a real number.

My brain goes right to 5% interest on a 160k 30Y mortgage vs just starting out investing with say $1000. I would think the 5% interest is a lot compared to my investment returns. Over time, I will eventually hit the point where I am equal weighted mortgage vs investments, but that is where my brain craps out in analyzing things this way b/c I still have to pay that mortgage debt.

The one thing that always stood out to me was, is it acceptable to give the bank $10,000 in interest, then the IRS gives you back $2500 at tax time. Not for me.

[Jluke]

I would be personally tempted to cut a check for 13k in May to pay off the mortgage and drop my EF down to 6mo levels then start building it up to a long term 30-40k level. But since you are planning to pay it off this year I wouldn't have s big problem with just letting it ride either. Awesome job!

Yeah, I will struggle to pace myself these last few months.

Paying off 94k in 3.5 years is good enough.

Plus, as soon as I'm done I want to start investing and not have to worry about increasing my cash EF first.

Thanks for the suggestion!

[LivingAlmostLarge]

No, I'm not talking about the mortgage break, I'm talking about the income tax break on investing in say a 401k.

This year our income currently $0. Last year 28% bracket plus 6% state income taxes. This year who knows where we'll end up but it might make sense to roll DH 401k into a Roth IRA and pay taxes on it and then let it grow for 30 years.

But that's the flexibility we chose to have over prepaying our mortgage. I'm not even looking at the tax break of the mortgage which since we itemize we did capture.

Basically we chose to not pay 30 cents on $1 to prepaying our mortgage with 70 cents leftover which was 2.5%. Instead we choose to save $1 and delaying paying 30 cents now for a potential to pay 0 or 10 cents or 15 cents in the future when we choose too. KWIM?

[Jluke]

No, I'm not talking about the mortgage break, I'm talking about the income tax break on investing in say a 401k.

This year our income currently $0. Last year 28% bracket plus 6% state income taxes.

ok, thanks for that detail. I assumed I was already getting close to the maximum income tax break on the 401k (18,000 limit) and maxing the ROTH.

Is there more I can do to lower my income to get a tax break?

[Goldy]

You can put something like 6,650 in an HSA I'd you have a high deductible health plan.

[LivingAlmostLarge]

Maybe the HSA is an option. Or if you have kids look into stuff for them.

[Jluke]

Stock Options - Seeking Input

When would you sell? All shares can be exercised...

Options Expire
600 28-Feb-2018
300 23-Apr-2019


Appx Net Value at:
Current Price... 5100 and 6500
+$2/share... 5900 and 6900
+$7/share... 7800 and 7800

Of course the price can go down too... +$7/share would be a new 52-week high for the stock. +$2/share is the current 52-week high

I don't need the money now.

All thoughts are appreciated