Mortgage/Retirement question

[pfgemployee]

Here is the scenario

Late 40's

We have about 6x our salary's in retirement funds with about 1/3 of that being in post tax accounts.

Currently do 6% in 401k and 14% in Roth 401k + employer match of 6%. We also have 1/3 years salary in emergency fund. No other debt besides mortgage.

Mortgage has 9 years left at 2.875%

Should I take the 6% that I'm putting towards my 401k and apply it towards the mortgage, which would cut 27 months off the payoff date?

 

[sclotz]

https://www.bogleheads.org/forum/index.php

In addition to this website, bogleheads is a great resource.

 

[Gunnerclone]

Meh. Roughly 7 years or 9 years on that mortgage vs. missing out on compounding interest. I’ll take the 401k.

 

[pfgemployee]

Meh. Roughly 7 years or 9 years on that mortgage vs. missing out on compounding interest. I’ll take the 401k.

But compounding interest only on the new money I put in for the next 7 years vs. a guaranteed 2.875% right? Or do I take that money that I'm putting in my 401k, put it in something else for 7 years that earns a higher rate than 2.875% and then just pay it off in 7 years. Only problem is that I don't know anything that is guaranteeing that rate.

 

[intrepid27]

Should I take the 6% that I'm putting towards my 401k and apply it towards the mortgage, which would cut 27 months off the payoff date?

Yes, drop the 401K and use that to pay your mortgage. Then take the Mortgage money and run it through a Patroen account to Cyclone fanatic. That way the rest of us will have fewer ads to distract us and can better answer questions.

 

[Psyclone]

Here is the scenario

Late 40's

We have about 6x our salary's in retirement funds with about 1/3 of that being in post tax accounts.

Currently do 6% in 401k and 14% in Roth 401k + employer match of 6%. We also have 1/3 years salary in emergency fund. No other debt besides mortgage.

Mortgage has 9 years left at 2.875%

Should I take the 6% that I'm putting towards my 401k and apply it towards the mortgage, which would cut 27 months off the payoff date?

I would max out your 401K contribution to get that company match. Then if you can I would look to trim other expenses to pay ahead on your mortgage. Or not. That's a good rate right now and may look even better if inflation picks up. But I would not skimp on that retirement fund.

 

[oldman]

I'd pump the 401k; that mortgage rate is pretty cheap and the owner match is free money.

 

[khardbored]

Also remember your mortgage interest (though low) is tax deductible. (Though, I'm not sure if there is a cap with the new tax laws).

 

[JP4CY]

Here is the scenario

Late 40's

We have about 6x our salary's in retirement funds with about 1/3 of that being in post tax accounts.

Currently do 6% in 401k and 14% in Roth 401k + employer match of 6%. We also have 1/3 years salary in emergency fund. No other debt besides mortgage.

Mortgage has 9 years left at 2.875%

Should I take the 6% that I'm putting towards my 401k and apply it towards the mortgage, which would cut 27 months off the payoff date?

Man, I thought my 15 year at 3.25% was incredible.

 

[Gunnerclone]

But compounding interest only on the new money I put in for the next 7 years vs. a guaranteed 2.875% right? Or do I take that money that I'm putting in my 401k, put it in something else for 7 years that earns a higher rate than 2.875% and then just pay it off in 7 years. Only problem is that I don't know anything that is guaranteeing that rate.

There is nothing that is guaranteeing that rate right now. Maybe an internet bank 60 month cd or special cd and you’d probably have to drop 100k minimum in it to get there.

 

[IcSyU]

Also remember your mortgage interest (though low) is tax deductible. (Though, I'm not sure if there is a cap with the new tax laws).

It won't be for most people now. The number of people itemizing is going to fall significantly.

 

[cyco2000]

You've also likely already paid most of the interest in your mortgage if you only have 9 years left. Most of what you're paying is principal anyway, so I'd say pump the retirement (or any investment part of your portfolio). But, whatever--you're in a better position than most and do whichever will give you more peace of mind.

 

[BCClone]

I see both scenarios as being fine. Logical would be status quo. Im mid 40s and there have been loans that I have just been irritated by and paid off instead of just following course. The amount you will shave off your loan, a little over 2 years of a 9 nine year, would have me following down your current path. I would only pay if it got me very close to having it done.

 

[RealisticCy]

I wouldn't pay a dime extra in mortgage payments with an interest rate that low; that is about as close to free money as you can get. Use the money for retirement or increase your emergency fund.

 

[pfgemployee]

Sounds like it would be best to just stick with my current strategy. The only thing that concerns me is that probably 80% of my net worth is in retirement/savings accounts but I guess that's life.

 

[BCClone]

Sounds like it would be best to just stick with my current strategy. The only thing that concerns me is that probably 80% of my net worth is in retirement/savings accounts but I guess that's life.

You can look at other investments if that bothers you. Honestly, it drives me crazy when people talk about a net worth of X amount and 95% or so is their house. Most people will not sell their house, so it becomes a meaningless number. Also, if you are thinking to sell, you probably need to cut 10% off the value to pay for a realtor, lagging taxes and such.

 

[Cystheman]

It won't be for most people now. The number of people itemizing is going to fall significantly.

Not to mention the amount that is tax deductible is so low since the payments are mostly principal. I read that the amount of tax deduction for a mortgage is really truly beneficial during the first 7 years on a 30yr mortgage.

I hate debt and am working on being aggressive on my home which I know is unlike most. But it will be a great feeling to have the house paid off soon and then invest the typical payments after.

 

[Cyched]

Whar Personal Finance forum?

 

[Cychl82]

Here is the scenario

Late 40's

We have about 6x our salary's in retirement funds with about 1/3 of that being in post tax accounts.

Currently do 6% in 401k and 14% in Roth 401k + employer match of 6%. We also have 1/3 years salary in emergency fund. No other debt besides mortgage.

Mortgage has 9 years left at 2.875%

Should I take the 6% that I'm putting towards my 401k and apply it towards the mortgage, which would cut 27 months off the payoff date?

As a mortgage broker seeing this type of stuff constantly, I would say if you only have 9 years left regardless of the term originally then your point in the amortization just continue as is. I'd look at your interest per month as opposed to what that money would do elsewhere. Sounds like you're in good shape to leave this part as is though.

 

[Trice]

I haven't fully thought this through so take it with a grain of salt. But there seems to be a bit more chatter lately that the next bear market is not far off. Obviously that's unknowable, but given how long the bull market has gone on, it's not unreasonable to think things might change before too long.

While the market is at or near the top (like now), you could consider leaving the 401k alone so you keep getting that match, but diverting some/all of your Roth money toward your house. It is a little bit of market timing, which I know is a no-no, yet at the same time you aren't selling existing assets when the market is high - you're just lowering your new contributions to those assets.

Attack the mortgage for awhile, until the next recession when the market seems at or near the bottom. (Again, this is super-easy to figure out! /sarcasm font) Then, jump back into your retirement contributions while everything is cheap and reap the gains.

As others have pointed out, the extra tax benefit to keeping a mortgage around is now gone for most people. And if you crunched the numbers on this, I'm guessing it probably just makes more sense to keep doing what you're already doing - let alone the hassle/headache of constantly trying to figure out what the market will do next. Though I've considered a strategy like this myself, I wouldn't actually execute it unless that mortgage just gnawed at me so much I had to get rid of it.

I'm also not clear why it concerns you that so much of your net worth is in retirement accounts. Isn't that the way it's supposed to be for most people?