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Subject:  Re: Balancing debt vs Investing Date:  12/29/2012  2:34 PM
Author:  aj485 Number:  306557 of 312189

I am finally at a point where my only debt is my mortgage at 5.25% a second at below prime and $10,000 left on a massive student loan at 7%.


Should I pay down my mortgage to refinance it at 3.25% (the value of my home is what I owe because of the market values.)

Given that you have apparently managed to save up some money so that you can ask about investing or paying down debt, it appears that cash flow isn't an issue for you. In that case, you need to look at how much will the refi really save you? i.e., for every $100k in current mortgage balance, the refi will save you less than $2k the first year, and the savings diminishes from there, as the principal decreases.

Also, have you looked into whether you are eligible for a HARP refi? If you are eligible, then you wouldn't have to pay down your mortgage at all. Even if you aren't eligible, you may want to wait a bit to see what happens with the talk of expanding HARP to everyone:

If you aren't able to refi without paying down the mortgage, then you need run the numbers to see if the savings justify it vs the cost of the refi, plus the capital you will have to invest in the paydown that you could be investing.

Should I ... pay off my student loan. (I am not able to deduct the interest because of my income.)

Definitely! At 7% this is not 'good' debt, and you will be hard pressed to beat this return without significant risk, while the student loan payoff would expose you to little risk, assuming you have adequate emergency funds after paying it off.

I hope to retire in 15 years.

Do you have any retirement savings now? Or are you eligible for a pension? If not, that's a very ambitious hope.

Second question would be on buying a rental property. This would put me back into debt but would allow me to fulfill a dream of owning a beach home.

Only if it would be cash-flow positive from Day 1, after considering all of the costs (mortgage, property taxes, homeowner's insurance, flood insurance, repairs, maintenance, months when it's not fully rented, costs for you to get to the property if it's not close to your home, etc.) An investment that requires ongoing cash flow isn't an investment, it's an expense.

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