Pay down mortgage debt or save more for retirement?

So I have a personal question for the people on ATS since you all come from different points of personal experience.

I have access to extra money and I am trying to decide what to do with it out of two options.

1) Put it away for retirement in retirement accounts where it can grow at the normal speed of the markets. Currently my portfolio is returning around 15% for the year.

2) Pay down a second mortgage that I have that is at 7%.

There are also tax benefits to option 1.

Mathematically it looks like opinion 1 would increase my personal wealth more quickly. But there are benefits to paying down debt that are harder to quantify.

I guess also a third opinion would be to use the money for home improvement projects.

I have very little in the way of other types to debt. No car payments and I pay off credit card debt in the month it was incurred unless I plan out a large purchase for something particular.


What would you do? What have you done in similar situations?

Thanks

a reply to: DanDanDat

7% mortgage?

That's way to high.
Refinancing to a lower rate would be my first step.

I read your op again and noticed that was a second mortgage..but I would still get rid of it.

I'm in the process of paying my mortgage off early. There is security in not having to worry about housing. Then there's the ability to save money and increase retirement contributions that would otherwise go to monthly payments on the mortgage.

a reply to: Bluntone22

I agree mine is 4% which is average I'd say. A quick calculation says if both our homes were a 100K and I had a 4% interest rate vs his 7% rate. I'd save about $70,000 over a 30-year mortgage.

a reply to: projectvxn

Just a side question, because I like to follow your thoughts on financial matters... Do you like and or kinda go in line with Dave Ramsey?

originally posted by: Bluntone22
a reply to: DanDanDat

7% mortgage?

That's way to high.
Refinancing to a lower rate would be my first step.

It a small second mortgage; the benefits to refinancing aren't that great after considering closing costs. Its also possible that I would not get approved for a reference. Unfortunately I bought my house right before the 2008. When I refinanced my first position mortgage a few years ago the banks did not want to touch the second mortgage due to equity to debt reasons.

originally posted by: DanDanDat
So I have a personal question for the people on ATS since you all come from different points of personal experience.

I have access to extra money and I am trying to decide what to do with it out of two options.

1) Put it away for retirement in retirement accounts where it can grow at the normal speed of the markets. Currently my portfolio is returning around 15% for the year.

2) Pay down a second mortgage that I have that is at 7%.

There are also tax benefits to option 1.

Mathematically it looks like opinion 1 would increase my personal wealth more quickly. But there are benefits to paying down debt that are harder to quantify.

I guess also a third opinion would be to use the money for home improvement projects.

I have very little in the way of other types to debt. No car payments and I pay off credit card debt in the month it was incurred unless I plan out a large purchase for something particular.


What would you do? What have you done in similar situations?

Thanks

I work in mortgage business.

The short answer is it depends on where you are in your life and future plans.

If you are older and the property is your 'forever home" then I'd recommend paying the mortgage down. The main reason is that if you are nearing retirement and will be on a fixed income, you don't want that mortgage debt over your head.

If you are younger, you are almost always better off by NOT pre-paying your mortgage. Financially, investing the money that would pay off the mortgage will most surely offer a higher return than paying the mortgage. When you prepay your mortgage, it is the equilvalent of essentially putting money in a savings account paying the interest rate on the mortgage. So if your second mortgage is at 7%, when you prepay it you are essentially payign yourself 7% interest.

You mentioned that your other investments are returning about 15% so you'd get a much higher return doing soemthing else with that money.

With all that said, the peace of mind you get by not having a mortgage over your head is hard to quantify. Even though I know for fact I can get a better return financially, I prefer to pay off my mortgage. I am in my late 40s and this home will likely be the home we retire in. Not having a mortgage will allow me to do other things so getting rid of the debt is my priority. I only have about 10 years left on our mortgage and hoping it will be done in 5 or 6 years.

The last point... the other thing to consider is that mortgage equity is not liquid. Once you put the money into the house, you cannot get it out easily. If you won't miss the money or have a future need for it, then prepay the mortgage. However, if you think you might need access to those funds, then you might be better off keeping it in a liquid investment.

a reply to: DanDanDat

What is rate on first mortgage and current balance?

You may be able to refinance the first and payoff the second. Was the second part of your purchase or did you add it later?

originally posted by: CriticalStinker
a reply to: projectvxn

Just a side question, because I like to follow your thoughts on financial matters... Do you like and or kinda go in line with Dave Ramsey?

Yes I like to listen to Dave; I think he would advocate for paying down the debt.

While I like to listen to Dave Ramsey I always find it difficult to directly apply his methods to my personal situation. 1) because I am normally responsible for the debt I choose to take on and 2) the financial problems I do have are born out of the spending habits of my spouse. I wish my spouse would followed Dave's methods, but you can lead a horse to water and all that.

a reply to: DanDanDat

If its that small you could get a personal loan for less than 7% to pay it off and have no closing costs. If you have enough to pay it off you have collateral so there is no reason to get denied and if you did i would switch banks. A credut union would almost certainly approve.

You should really speak to a financial planner instead of a conspiracy theorists forum.

The one point I forgot to mention is it also depends on your discipline.

If you are truly going to invest the proceeds instead of paying down the mortgage, then financially, you'd be better off. However, if you don't have the discipline to consistently invest the money then I'd advocate paying the mortgage.

a reply to: DanDanDat

1. Pay off the mortgage 1st to eliminate any any all monthly interest expenses and this applies to credit cards also.

2. Consider using the money saved on interest to dump into 401K or increase withholding more from paycheck.

Interest expense is #1 prevention of wealth accumulation in USA. Despite what you hear and read in the MSM, many of the illegals who come here and stay off the books that do not pay any taxes accumulate loads of cash over time and then head back home to Mexico. The same can be said for "legal" small business owners in the USA who can hide income.


3. Assuming that you do not have kids in school, and despite what you hear and read in the MSM, move to a low tax state like South Carolina. Property tax is extremely low along with utilities. If you have any ambition to work, either for a business or as a residential Trades worker or owner as a Plumber or Electrician or other you can become a Millionaire by your mid 40's in age, cash out and retire. Most I know make $100,000 annually and then go fishing daily. I had my floors re sanded and stained by a private guy who also did Oprah's home along the coast in Charlestown. He wasn't thew low bidder but right in the middle and had many positive references. Hes s still working because of a child and paying for two ex wives but he does $$$ well and has much time off. I have no idea as to his income. NY State will gobble up anything you earn.

a reply to: Edumakated

Thanks for the advice.

I just turned 40 this year so retirement unfortunately is just an abstract thaught right now for me .

It's increasingly looking like I am also in the home I will be retiring in. We bought the house in 2006 and unfortunately after the 2008 crash its only recently come back up to the value we perched it for. That lack of equity growth has limited our flexibility to move into a nicer house or area. I am glad that at the time I bought a house we could grow into as we planed our family rather than a smal stater home.

I have toyed with the idea of buying another home. But think it will be to difficult to time it all out right. Selling our country home and closing on a new one in the same time frame. I think I would need top dollar on my current home to make it worth while and that would take time.

originally posted by: DanDanDat
1) Put it away for retirement in retirement accounts where it can grow at the normal speed of the markets. Currently my portfolio is returning around 15% for the year.

That is a great return for passive money. If you are confident in the market, stick with that. If you are not (like me) sell it all and buy silver which has a history of tripling during a recession.

originally posted by: Edumakated
a reply to: DanDanDat

What is rate on first mortgage and current balance?

You may be able to refinance the first and payoff the second. Was the second part of your purchase or did you add it later?

My rate on the first is 4% and the balance is around 260,000.

The second was part of the original purchase.

A few years ago I refinanced the first mortgage and they would not let me add in the second. I actually almost didn't qualify for the first mortgage refinance because the equity to debt ratio. Fortunately for me the brooker I was working with removed all the closing costs which than qualified me.

originally posted by: scojak

originally posted by: DanDanDat
1) Put it away for retirement in retirement accounts where it can grow at the normal speed of the markets. Currently my portfolio is returning around 15% for the year.

That is a great return for passive money. If you are confident in the market, stick with that. If you are not (like me) sell it all and buy silver which has a history of tripling during a recession.

15% is my current rate 2019 year to date; it does go up and down with the market ofcourse.

I don't really like trying to time the market and I have time before I retire so I just let it ride. My portfolio is mildly aggressive; so it can take dips when the market drops.

originally posted by: DanDanDat
a reply to: Edumakated

Thanks for the advice.

I just turned 40 this year so retirement unfortunately is just an abstract thaught right now for me

.

It's increasingly looking like I am also in the home I will be retiring in. We bought the house in 2006 and unfortunately after the 2008 crash its only recently come back up to the value we perched it for. That lack of equity growth has limited our flexibility to move into a nicer house or area. I am glad that at the time I bought a house we could grow into as we planed our family rather than a smal stater home.

I have toyed with the idea of buying another home. But think it will be to difficult to time it all out right. Selling our country home and closing on a new one in the same time frame. I think I would need top dollar on my current home to make it worth while and that would take time.

Similar boat. We bought our house in 2005 and I'd be lucky to get what we paid for it (of course, that hasn't stopped property taxes from more than doubling in that time). The nice thing though is that the mortgage on it will soon be an after thought. We considered buying a bigger house but the numbers just aren't working for us and future goals.

Even though I can make a clear financial argument to invest the funds, I think the peace of mind of having no mortgage or a much smaller one is priceless.

Once you get rid of the mortgage it is freeing in that you don't have a huge expense over your head. You can make other decisions without the financial burden. This is one of the reasons we have not upgraded our house. We have friends with $1 million mortgages and they are just on a corporate hamster wheel trying to keep up with the Jones. Not having that commitment allows us to do other things... quit jobs, start businesses, and just not give a fudge.

originally posted by: drewlander
a reply to: DanDanDat

If its that small you could get a personal loan for less than 7% to pay it off and have no closing costs. If you have enough to pay it off you have collateral so there is no reason to get denied and if you did i would switch banks. A credut union would almost certainly approve.

You should really speak to a financial planner instead of a conspiracy theorists forum.

Haha; I agree about the financial planner. I've never talked to one; how do you find one that isn't trying to sell you life insurance?

a reply to: DanDanDat

Ah... so you got a split mortgage while it was hot. I personally would dump that second mortgage so long as my income is secure and didnt need thwt money for a rainy day fund. Interest rates are insanely low so I would think you stand to make more long term by not paying interest on 7% than earning 2% on savings.

Talk to a financial planner. Dont know how to find a good one. I would start by talking to fruends in the industry to get a referral.

originally posted by: DanDanDat

originally posted by: CriticalStinker
a reply to: projectvxn

Just a side question, because I like to follow your thoughts on financial matters... Do you like and or kinda go in line with Dave Ramsey?

Yes I like to listen to Dave; I think he would advocate for paying down the debt.

While I like to listen to Dave Ramsey I always find it difficult to directly apply his methods to my personal situation. 1) because I am normally responsible for the debt I choose to take on and 2) the financial problems I do have are born out of the spending habits of my spouse. I wish my spouse would followed Dave's methods, but you can lead a horse to water and all that.

Dave Ramsey is a good point for people to start but a lot of his advice is flawed.
For example he says to use the "snowball method" paying the lowest debt first. This is very silly when you think about it.
You should always pay the debt off with the highest interest. Over the long haul it could save you thousands.

He gives this advice because most people do not have the discipline to pay off a large debt before a small one.