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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5068  
Subject: Re: Pay off Mortgage or Max 401 / IRA Date: 7/19/2007 1:13 AM
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Does it makes sense to pay down or even pay off my mortgage instead of maxing my 401k and IRA the following scenario:

My take on your situation:

(1) Max out deductible and fully-qualifying contributions to your IRA(s) and 401K. In particular, max out any employer matching on the 401K. However, money that isn't fully qualifying, you have a better place for.

(2) DON'T pay down your mortgage NOW; instead put the money in non-tax-sheltered investment accounts and invest them in such a manner that you are pretty confident of getting more than 4.5% CAGR pretax (or equivalent, probably 3%, on tax-exempt investments) until the interest rate bump. At the moment 3-month Treasuries qualify (CAGR 4.94% per Bloomberg), so this doesn't look difficult.

(3) In 2010 when you see what the interest rate on your mortgage bumps up to, reconsider #2. It may make sense to pay off the mortgage faster, or even to take a wad of cash out of non-sheltered investments and pay down/off your mortgage.
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