what to do with extra income??

[GrowingTheGreen]

I'm not against paying extra towards the mortgage, but I don't think its a good idea to refinance to a 15 year loan if I plan on selling within 10 years. And I think it would be irresponsible on my part to get a 15 year mortgage where I could only afford it with that 2nd job. I'm not counting on that 2nd job for anything, I'm just trying to take advantage of it while I have it. If I were to lose it, I would not be able to make the payments on a 15 year mortgage. but like I said, if throwing extra money towards the mortgage makes sense and will save me in the long run, I'm not against doing that. just looking to make the best decision. thank you

How far out are you in retirement? I'm not necessarily disagreeing with the people that are advocating for paying down your mortgage, but if you're 15 years out from retirement, a wiser decision would be to invest your extra income. Preferably in a tax-advantaged account like a 401k, Roth IRA, or Traditional IRA. Invest that account in an asset allocation that is appropriate for your time horizon.

Dave Ramsey is pretty famous for advocating to pay off your mortgage. Does it feel good? Yes. Does it save you money? Yes. Is it the most effective use of your money when mortgage rates hover around 4% and you've got 15+ years to wait for stocks to increase in value? I'm going to say no. There is a very high likelihood that you'll be better off financially by investing when you've got a long time until you need the money.

If you're close to retirement, then by all means pay off your mortgage. But if not, hit the retirement account.

[Jluke]

Perhaps your approach should be something along the lines of taking your 2nd job income and dividing it up.

For instance 50-30-20. or some other breakdown. You decide which percent goes where: savings, retirement, mortgage or other categories.

You'll be paying quite a bit in interest on your current mortgage, so hopefully when you downsize you can pay cash for the next house or have a very small mortgage loan.

Capital One has 12-month CDs paying 1.3%, online savings paying 0.75%.

[autoxer]

So I could add a bit more to the 401k's I guess, but I don't think it would be enough to get me to a lower tax bracket.

It doesn't have to move you into a different bracket for you to get a tax benefit. Every extra dollar you contribute will reduce your current years tax bill.

[tripods68]

You don't have to do a REFI, just add extra towards mortgage while adding $$ to savings, and some to 401K as other mention--break it into 3 category as a percentage. It isn't a bad idea. That's probably the best advice here.

Its seems you like the idea of investing more in the stock market but you say it doest lower your tax bracket enough. You still get the benefit of a lower tax bill.

[Jluke]

You're only "earning" 4% on money put towards your mortgage. The S&P500 has averaged an annualized 9% from 1/1990 to 1/2016 (with dividends).

Just a general question to the forum members, when someone says 4% return on the mortgage, is there a "breaking point" where you might actually do better paying more towards the mortgage than investing?

For instance, will 4% of 260k add up faster in interest charges than a person might be able to make by contributing to investments? Assuming the person isn't starting with a lot of money to invest. That mortgage interest over 12 years out of 30 years is pushing $120k.


disclosure: I am all for spreading money around to debt, savings, investments, retirement, etc.

[autoxer]

Just a general question to the forum members, when someone says 4% return on the mortgage, is there a "breaking point" where you might actually do better paying more towards the mortgage than investing?

The breaking point is just the investment return vs mortgage interest. The problem is that you have no idea what the investment return will be for any given year. If you are not comfortable with the risk and you are more likely to start tinkering with the investment account when the market fluctuates, then you are much better off just paying down the mortgage for a guaranteed 4% return. If you are confident with your investment approach and asset allocation and are willing to weather the down turns, then you could potentially come out ahead by investing.

disclosure: I am all for spreading money around to debt, savings, investments, retirement, etc.

Me too! With all of the unknowns, there is no clear direction, so it's best to cover all of your bases.

[LivingAlmostLarge]

Depends. Where are you in savings and retirement? What sort of % are you doing now? Also if you know you are moving do you need a bigger cash cushion?