Pay down mortgage debt or save more for retirement?

a reply to: DanDanDat

I would say that you should consider your home as part of your retirement package. I don't know your reasoning behind getting a second mortgage but you need to pay it down and get rid of it ASAP. After the second mortgage is paid off you can then take the money that previously had gone toward that payment and put it into your portfolio each month.

originally posted by: Waterglass
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.

Mortgage debt isn't "bad debt" because the rates on them are typically low. In addition, housing is generally an appreciating or stable asset.

Most rich people have mortgages because they understand debt leverage. If someone is going to give you say $500,000 at 4% to buy a house. Why would you pay cash? You can take that $500,000 and put it in the markets earning 10-20% returns. The same applies to prepaying the mortgage.

Mark Zuckerberg took a mortgage for $6 million when he bought a property a few years ago. Why? Because the rate was only like 2% for an ARM. You best believe he is getting more than 2% on his $6 million that he invested somewhere else.

a reply to: Edumakated

housing is generally an appreciating or stable asset.

Sorry I chuckled at this a bit. Knowing you are from Illinois. I guess that totally depends where you are at.

All of my houses in Illinois are worth less than what I bought them for 10, 15 even 20+ years ago.
One of them surprises me the most. It was such a nice house. It was the taxes that killed it, taxes are over 13K right now
for an average sized house!

a reply to: DanDanDat

Sell all and move to one cheap country in South America.

originally posted by: JAGStorm

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.

So my wife surprised me with a 30k in revolving debt about two years ago. She had lost her job two years earlier and took money out of her 401k rather than rolling it over. She did not tell me she was doing it and she was not aware of the tax implications. I actually filed our taxes wrong that year because i was not aware of the width drawl. When the tax man came knocking she again took care if it with out me knowing by putting the balance on a credit card. After that in a failed attempt to pay off the debt in secret, and because she is inherently financially responsible, she took out several mail order loans and never really paid anything down. I didn't find out until I looked at her credit report on a whim.

After this incident came close too but didn't end our marriage I forced her to follow David's methods. And it actually did work out for her over this one incident. Before I found out that she was struggling to keep up with the several cards and loans she had; barely making a dent in any one of them; I told her to consecrate on one at a time and paying off the debt did small ball as Dave would advocate.

I did modify Dave's method a little; I did take a more structured approach to choosing which debt to tackle first. Using a combination of Size and Rate to determine which where higher priority.

originally posted by: Trueman
a reply to: DanDanDat

Sell all and move to one cheap country in South America.

.

That may very well be do able; I have family living in one cheap country in South America; so the transition would be that shocking.

originally posted by: JAGStorm

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.

Snowball method works because it helps you see progress toward a goal. You get rid of the small debt and feel good about it and then can focus on larger ones. If you start with larger debts, you often times won't see/feel the progress for a long time and thus get discouraged.

a reply to: DanDanDat

Wow!! You must be a saint. Sounds like your wife had a shopping addiction.

I had a friend like that, you know what's funny. When my friend ran out of money she wanted to spend
money through me, urging me to buy stuff. Seriously peer pressuring into buying stuff, luckily I have never caved into peer pressure. The sad sad thing,
she had tons of clothing in her closet with tags still attached, nails always done, hair always done, massages, etc.. but her own kids did not have clothes or shoes that fit. A lot of her issues stemmed from not feeling loved by her husband (not saying that is the case with your wife)

I have another family member, very well off. Only one person does the finances. They are now getting a divorce and one party has probably been hiding money for a long time. The other party is going to hire forensic accounting firm (not sure the actual name, but they can unearth some pretty hidden stuff). It will be interesting to see what transpires. I know what they are going to find will probably be shocking. One person has been scrimping and saving, and the other spending money on..... my guess, gambling, hookers, and also hoarding some.

Money and relationships are always a funny thing.. I thank God that my husband and I have always been on the same page.

I see this "mortgage" versus "investment" as a bit of a gamble.

If you do a mortgage you end up with an asset with worth and save the rent. If you don't then you pay rent (to live in a house) and then hope the difference to make up a sum which will exceed the value of the asset you would have got had you taken a mortage.

Most pundits would suggest a mortgage. Certainly that is my position in the UK. Renting is a mug's game. I have just worked it out and if you factor in renting a house, you have to have been exceptionally lucky to create a pot which will exceed the value of owning a house at the end of a 25 year mortgage term.

originally posted by: DanDanDat
So my wife surprised me with a 30k in revolving debt about two years ago.

Are you me?

Everything you say sounds very familiar. Maybe I am your Fight Club alter-ego?

originally posted by: JAGStorm
a reply to: Edumakated

housing is generally an appreciating or stable asset.

Sorry I chuckled at this a bit. Knowing you are from Illinois. I guess that totally depends where you are at.

All of my houses in Illinois are worth less than what I bought them for 10, 15 even 20+ years ago.
One of them surprises me the most. It was such a nice house. It was the taxes that killed it, taxes are over 13K right now
for an average sized house!

Yeah, that is why I said "generally". However, as a rule, housing usually treads with inflation, but some markets can see some huge swings in value.

I made $80k on my first house after only two years of ownership. Bought my second house in 2005 and I'd be surprised if I could sell it for what we paid...

Home values in IL haven't done well outside of a few areas within the city. A big issue is the property taxes are pulling down values.

a reply to: Edumakated

Yeah, that is why I said "generally". However, as a rule, housing usually treads with inflation, but some markets can see some huge swings in value. I made $80k on my first house after only two years of ownership. Bought my second house in 2005 and I'd be surprised if I could sell it for what we paid... Home values in IL haven't done well outside of a few areas within the city. A big issue is the property taxes are pulling down values.

How much more do you think people there can take? I know that for some people their taxes are already more than their mortgage. From what I see the politicians are wanting to hike property taxes again, it's insane!

Something the OP should think about is taxes and housing trends in the area. I've seen many cases where people thought they were going to retire in a place and then got taxed out.

originally posted by: JAGStorm
a reply to: Edumakated

Yeah, that is why I said "generally". However, as a rule, housing usually treads with inflation, but some markets can see some huge swings in value. I made $80k on my first house after only two years of ownership. Bought my second house in 2005 and I'd be surprised if I could sell it for what we paid... Home values in IL haven't done well outside of a few areas within the city. A big issue is the property taxes are pulling down values.

How much more do you think people there can take. I know that for some people their taxes are already more than their mortgage. From what I see the politicians are wanting to hike property taxes again, it's insane!

I don't know. I know property taxes are what made us decide not to upgrade our house more than anything. The taxes on some houses where I live are pushing $30,000/yr or more. A lot of people have tax bills higher than their mortgages.

We have a expanded Chicago style bungalow... my tax bill is about $14k/yr now. On a good day, the house might be worth $500k and that is what we paid for it back in 2005. Tax bill was about $6000/yr when we bought house originally...

We've looked a $1 million houses in other cities and they have tax bills less than half of what we pay now.... at worst the same.

We like where we live so just working to payoff mortgage. Maybe we will move out of state once kids are out of the house. Call it 15 years.

a reply to: DanDanDat

Option 2. pay down the mortgage
then - refinance that second mortgage to something better than 7%.
I think in the long run, your money will grow more and it will be hard to f it up and buy a boat or something, with it being safely tucked away in a mortgage

a reply to: Edumakated

yep. That's why I moved from NYC to the backwoods of Tennessee.
30 acres with a nice house = $1,600 a year in property taxes. oh yeah!
Compared to NY, it would be about $20,000 a year

a reply to: DanDanDat

As a regular saver I had a smallish amount in the bank when my yearly

mortgage account came in I saw how little in relation to time I had paid

off my mortgage as the first half of the time you have a mortgage is

only interest payments The balance of my mortgage was the same

amount as my savings. So I paid down my mortgage, and became a house

owner. Then I continued to pay what I had been in mortgage payments into

a savings account and it wasn't that long before I managed to accumulate

my savings back!

For me It was the best thing I had done ............remember investments

are not always garanteed to give a good return and taxes can go up or

down,

What I did was good for me, Good luck with whatever you decide to do!

originally posted by: drewlander

originally posted by: DanDanDat
So my wife surprised me with a 30k in revolving debt about two years ago.

Are you me?

Everything you say sounds very familiar. Maybe I am your Fight Club alter-ego?

Misery loves company; glad to see I'm not alone

originally posted by: eletheia

a reply to: DanDanDat

As a regular saver I had a smallish amount in the bank when my yearly

mortgage account came in I saw how little in relation to time I had paid

off my mortgage as the first half of the time you have a mortgage is

only interest payments The balance of my mortgage was the same

amount as my savings. So I paid down my mortgage, and became a house

owner. Then I continued to pay what I had been in mortgage payments into

a savings account and it wasn't that long before I managed to accumulate

my savings back!

For me It was the best thing I had done ............remember investments

are not always garanteed to give a good return and taxes can go up or

down,

What I did was good for me, Good luck with whatever you decide to do!

About 80% of your monthly mortgage payment is interest with a 30 year fixed mortgage. Most 30 year loans take around 10-12 years or so before 50% of your payment is principle. Even doing a 20 year mortgage will cut down on interest paid dramatically. A 15 year is even better.

The issue is that most people buy based on payment. The payment on a 30 year is far cheaper than a 15 year loan. So you can buy a bigger house with a 30 year loan than with a 15 year.

a reply to: Edumakated

May I pick your brains too pretty please?

My son and his wife are looking to buy their first home. We have advised them to buy the biggest home they can comfortably afford, where they feel they can be happy indefinitely, as opposed to buying a smaller home with the intention of moving up in a couple or few years. Others have advised them to get a starter home, then sell in a few years using the equity to move up to something bigger. That makes no sense to me. Especially because my daughter-in-law is anxious to start their family, and my son won't start a family until he's settled in a home. My concern is that the market won't go up, and they'll be stuck in a small home. But even if the market does rise, it will be even more expensive to buy that bigger home, plus the closing costs that will come with it. Are we missing something?

Also, when they do buy a home, we plan on giving them one month's mortgage payment to pay towards principle immediately, thus reducing the interest over the life of the loan. It seems to us that in the grand scheme of things, they will benefit more from paying down the principle/reducing interest/increasing equity, than if we gave them the same amount for their down payment. Plus, we already gave them some cash when they got married for their down payment. Are we figuring correctly?

These may be stupid questions... and if so, I apologize... but it is what it is!

a reply to: DanDanDat

I'd love to help but.........just don't have enough information. I had read through your post and all the replies earlier so that helped a bit.

To keep it brief, I'd seriously consider paying off that second. Even if its a small loan amount, at 7% you're basically going to pay back principle plus 50% of the principle over 20 years. Since you're young, 40?, you can take the amount that was being paid to pay off that loan and pop it into a 401K over 20 years and you're definitely better off.

Also I disagree with the idea poping a big chunk of money into this stock market; better to dollar cost average. Seriously, this market's damn near topped out with S&P having crossed 3,000. Plus the long over due recession/correction is, literally speaking, just around the corner; I'd guess January 2021. Just in time to tune-up whatever ass-wipe is elected Potus.

In closing, I wanted to offer a hint of advice you'll doubtless disagree with, but its born of my lifelong experience. Unless you already are buying a home valued at over $500.000.00 or in the top 10% of your market area in terms of price and in a gated community AND if you already have well over $1,000,000.00 in stocks and bonds, you can forget about retiring in the home you live in now. If you're in the typical suburban area in/near/adjacent to a major metro area, your neighborhood will be a rental hell within the next 10 years. Your property values will decrease by 50% and you'll have to install steel plates in your bedroom walls to deflect the bullets. Only the top 10% of the wealth class gets to buy property that has any value over a 20 year span.

The other hint is that a 40 year old has absolutely no business of thinking of retirement within the US. Unless you can fade the idea of retiring to some really remote and depopulated county somewhere, you'll never be able to afford the taxes you'll pay to retire in a US suburb. And those taxes rise far faster than the doctored inflation rate. Its already the case that the back-end, late born Boomers are retiring to places like Panama and Costa Rica. There's simply no place for middle class retirees in the US in 25 years except maybe a trailer in the remote Appalachian area. Either way your going to have to learn a foreign language.

Hope that helps.