I'm new at this, hope I give all required to provide me some input to share with Judy. She thinks we should pay more. Doubt we live long enough to pay off mortage.Mortage rate: 8.375%Principal 71180.34monthly payment: 771.32Loan is a 30year loan, paid on it for two yearsWe could probably pay 300 more a month.I think we will be better off to invest the 300 per month in the mkt.We are 60 years old. I'm retired with Social security and pension of about 3K per month which I spend most of, especially when I travel in a given month for pleasure. Judy still works, take home pay about 1600/mth. Her retirment will be about 700 a month.I have about 400k in savings, half in 401k, other half in mutual funds. I am studying how to reinvest this money using the internet resources including your site.Retired last may, I know more now but have a ways to go yet before doing anything.Do we invest in mkt or pay more on house.
First, two observations. 1) Unless you are disabled, you cannot be collecting Social Security yet since you are not 62. 2) Your monthly payment cannot be correct unless it includes taxes.If you pay down an extra $300 a month, you will pay off the mortgage in another 10+ years.From what you say, it sounds as though your cash flow situation is going to stay about the same over the next 5 years, what with your wife's retirement, and Social Security kicking in.Therefore, it seems to me you are really talking about a comfort (or "sleep at night") issue rather than an investment one. The return is pretty much a wash -- 8.375% guaranteed vs. who knows what, but likely more if you are astute enough, at some undefined risk.I'm not married, but if I were, and if my current situation were comfortable enough financially, I'd vote for domestic tranquillity and do what kept my wife happier.
I was not clear in my discription of the circumstances. I am 64 and Judy is 58. I am retired and drawing Social Security. We are not married, but plan to spend the rest of our life together. Does your reply mean the house would be paid off 10 years early, i.e., pay for 20 more years or 10 more years. The described income is essentially fixed. I don't plan to work for compensation. None of the income is comming from my investments/savings.Thanks for your quick response.
Suppose your original mortgage principal was $72,500 and you pay that off over 30 years at 8.375%. Then, your monthly principal & interest (but not taxes) payment is $551.05. (Shameless plug -- to see how the formula that gets this number is developed, visit the Math board. Start at the beginning.)If now you pay $851.05 a month instead, you pay off in approximately 130 months. So yes, I'm talking about 10 years total to be completely paid off, given where you are starting from.From the financial point of view, I guess the question is whether you can do something now to offset the reduction in Judy's income once she retires. As I see it, paying down the mortgage doesn't help your cash flow for quite a while. It sort of sticks in my craw to say that, because I hate paying interest, and paying down the mortgage has always been a big part of my investment policy, but each individual's situation is, well, individual.So, to repeat, I think it comes down to comfort.If you want specific calculations with details, e-mail me privately and I'll see what I can do. (No guarantees, and no legal responsibility taken, of course.) What you do is click the "Reply to Author" box at the bottom, and unclick the "Post to Boards" box.
In June 1996 my husband and I purchased our first home. The experience was nerve wracking. I watched the interest rates everyday. There was a blip in the market and interest rates shot up. Not listening to my dad's advice to wait it out (he works in the market) I locked in at 8 1/4 paying 2 points. Of course 1 1/2 months later when I went to close they were back down to under 8%. I was sick. Three years later January 1999 we refinanced our mortgage to a 15 year mortgage at 5 7/8 (I timed it right now)! Our payment increased approx. $110. If we had refinced to 30 years we would have pocketed approx $170. My husband did not want to extend ourselves another $110 a month and was talking about how he could spend the extra money (new car) but when I showed him the numbers he changed his mind. At the old mortgage rate at the end of 30yrs we would have paid approx.. $381,000 for our home. On the new mortagage at the end of 15 yrs. we will pay approx. $190,000 for our home in addition to having our home paid off just when our son hits college and long before we retire (we will be in our late 40's). My dad was also impressed that I chose the 15 yr route and not the new car. The reason I went into this is because it depends at what rate you have your present mortgage. I am a firm believer in paying as little interest as possible. I am already paying towards principle on this new mortgage and hope to have it paid off in 12 years. Perhaps you should compromise give your mortgage $150 and your investments $150. But again, if you can figure out how much interest you will save by paying your mortgage off early it might make your decision easier. P.S. Two months after we refinanced he got a promotion and we were able to buy a car and pay the additional money. He was very glad he listened to his wife this time!
> 15 year mortgage at 5 7/8 > Our payment increased approx. $110.> If we had refinced to 30 years we would have pocketed approx $170.Congrats on the interest rate. However, I'm not a big fan of 15 year mortgages, especially if you can get that kind of interest rate.Personally, I'd take the 30-year at 5 7/8, enjoy the low interest rate, and plunk the $280 difference ($110 + $170) into investments. Instead of saving 5 7/8% on the extra payment, I'd earn market rate on it, especially if it's in a tax-free investment, while taking the deduction for the interest paid.JMFO,Mark
You probably have received much advice on this question, however here's my 2cents.You are in good shape whether you put the extra $300 on your payment or not. It comes down to what makes you feel secure. Adding $300 a month to your payment will pay off the mortgage in about 10 years. Some people feel more secure living in a home without debt. At 70 years old then, this might be a good thing.The extra $300 invested in the market will no doubt do as well as the rate on the mortgage for the next 10 years, but there are no guarantees. You could lose this money and still have a big mortgage.It is your choice.Good luck.
You are guarenteed to make money by paying on your mortage but certainly not in the stock market. I am the same age you are and I find the stock market fasinating. If you pick good stocks and stay with them, you may beat the amount of money you save by paying down your mortage. Trying to jump in and out of stocks is not the way to go for the average investor. Be careful listening to a stock broker, there are some good ones but there is more that give bad advise than the good ones. Unless you are a big investor the brokers have a tendency to forget about after you have giver them your money. I bought my first computer this year and have found out that I can research as well if not better than my broker. I gues it all boils down to how safe you want your investments to be and how long you plan to keep your money in the market. You have a tough choice. Good luck
We (early 30's) purchased our first home this past May . Having past credit issues, we had to buy on terms from the owner, putting 10% down, leaving us $117K in debt @ 8.5%. Hubbies income is up for now (self employed) so we chose to put $10K into mutuals (not yet up after the loads but almost even), $15K in his stocks (he's up 33%), $5K in mine (up 20%) as well as paying down the mortgage at $20K/month (making us house and investment poor). So...what's the ratio of success in these past 6 months since investing? Well we now owe $69K on mortgage...saving about $120/mo on interest, but the stocks seem the choice to me. Even if we had followed the Foolish Four, we would save more than the mortgage. We figure that since the income may not always be there...we have to do what we can, while we can. But if we were in our 60's and in your situation, we'd probably put it all in stocks...investing wisely (which I myself am just learning...revising my strategy since I may not always be so lucky on my "hunches" as i have been in the last few months.) At least then, we could have a chance to enjoy learning, strategizing, watching it grow, etc.After all, realistically, you have enough in savings to pay off the house should you not before your last days...though I do hope you will.) Good luck in what you decide, you've probably worked hard for a long time and deserve some enjoyment.
The question, in my mind, boils down to whether you want to be cash-rich and house-poor or house-rich and cash-poor. Putting the money into the house is a sound thing to do, but it's very difficult to get that money back out should you need it later. Might you (and your wife) feel more comfortable if you built up a good savings buffer to take care of unexpected expenses? Perhaps you could split the $300/month with some going to invesments and some going to savings. In either case, if it were my money I'd rather have ready access to it than putting it into the house.Hope this gives you something else to think about.Craig
Invest in the market!Although it depends on the real estate market and how quickly it's rising... you will gain much more value in your home from time-equity than paid in principal. A mortgage broker recently helped me understand this principal, in the six years that I have owned my home I have paid in approx. $12,000 dollars, however, in these same six years it has doubled in value... hence, my equity has grown considerably over time, not pain in principal.Invest in the market... I suggest QCOM, PHCM and NTRO, all for the long-term.Good luck.
You didn't say anything about having a cash reserve. I think you should have one for those unexpected expenses that happen. If/after this is in place then I guess that paying off the mortgage would be a good idea.
Two Good reasons to pay more on your mortgage1) Domestic peace2) Home ownership can pay off 12% tax free, and is less risky, given today's high valuations in todays market.See a great article from Scott Burns, financial columnist, discussing the options and considerations you face, at www.scottburns.com/9907115u.htm
Oops -Correct link to Scott burns iswww.scottburns.com/990711su.htm
It seems strange to be 60 and have a 28 year mortgage. One important point is that your house is not an investment. Given your penchant for traving why do you own a home? One concern for a person your age would be health care cost but I assume that you have this taken care of. You can sell the house and pay no taxes on the capital gain and invest all the money. If you rent then you have no expenses relating to maintenance. If you look at the house as an investment you will lose signicantly unless you live in a "special" neighborhood where values are increasing significantly faster than average. I didnt answer your question the way you ask but consider this idea.
You wrote:****My dad was also impressed that I chose the 15 yr route and not the new car. The reason I went into this is because it depends at what rate you have your present mortgage. I am a firm believer in paying as little interest as possible. I am already paying towards principle on this new mortgage and hope to have it paid off in 12 years. Perhaps you should compromise give your mortgage $150 and your investments $150. But again, if you can figure out how much interest you will save by paying your mortgage off early it might make your decision easier. ******Paying as little interest as possible in a relative sense is a good thing: i.e. it's better to pay 7% interest than 10% interest.However, the very reason that financing exists is so that we don't have to be so cash strapped in the present. The price we pay is interest. The benefit we receive is free cash flow to do other things: a new car, an addition to your house, new furniture, investments in the market, etc.So in the absolute sense, paying as little interest as possible may not always be a good thing if it keeps you from doing other things that you want to do. In your case that means you didn't get the new car (maybe you didn't really "need" it, but maybe you did!) so that you could pay off your mortgage in 15 years instead of 30. Depending on your situation, paying that extra $110 a month might have been too much--although in the end your husband's promotion made this all a moot point.
My wife and I, a little younger than you, are in about the same situation as you and Judy. We have elected to invest rather than pay down the mortgage. Our thinking has been that we were getting a much lower interest rate loan by virtue of saving on income tax. We'd guess your tax bracket at 28%. With your loan, you would be earning only 0.72x8.375 or 6% on your money should you pay off early. You can do 11% on average per year investing in a S&P500 index fund. In fact, you might consider a reverse mortgage on your home 10 years or so down the road. This would be the recommendation of the "Die Broke" philosophers. The caveat would be to have enough equity to make it worth while for your mortgage holder to give you this service.Good Luck
My first thought after reading the original note was what a high interest rate. I would look into refinancing the mortgage. There are plenty of lending institutions out there at 7 1/4% with NO CLOSING COSTS! You could take that additional savings into the market or look into a 15 yr mortgage rate at an even lower %.
Well take this for waht it's worth:If you could invest, RISK FREE, and earn 8.375% annually would you consider that an acceptable return? If your answer is yes then you should pay off your mortgatge with the extra cash because that is in fact what you will be doing.
I would go for mortgage. I am of the same age and my savings are more or less similar and it is all in IRA. I keep all my IRA money in a very agressive Tech mutual fund, fearlessly or foolishly, whatever. At the same time I am in the process of selling my rental property and all the money of that transaction I will use for paying off all of my debts, vjrgage, equity loan, car loan.. Am I right?
Do you take into account the fact that during your first years of your mortgage, that is when you pay the most interest. This interest is tax deductible, so it is actually saving you some tax dollars. This should also be taken into consideration when trying to figure out what to do with the extra cash. If I were you,considering your age, I'd refinance every 5 years, as long as the rates were about the same or better, and let my executor worry about selling my home to settle the estate.
jsitzer: "******Paying as little interest as possible in a relative sense is a good thing: i.e. it's better to pay 7% interest than 10% interest.However, the very reason that financing exists is so that we don't have to be so cash strapped in the present. The price we pay is interest. The benefit we receive is free [emphasis added] cash flow to do other things: a new car, an addition to your house, new furniture, investments in the market, etc."It is not really "free," you do pay interest, as you also point out. I beleive that you also want to look at otal expense over time, including interest, so that if waiting to satisfy a want avoids 7% interest altogether, then that is also a good thing. The 7% that is saved can be used elsewhere. Think "opportunity cost."""So in the absolute sense, paying as little interest as possible may not always be a good thing if it keeps you from doing other things that you want to do. In your case that means you didn't get the new car (maybe you didn't really "need" it, but maybe you did!) so that you could pay off your mortgage in 15 years instead of 30. Depending on your situation, paying that extra $110 a month might have been too much--although in the end your husband's promotion made this all a moot point."Many things we "want" to do we do not "need" to do and can also be injurious to our financial well-being. You did distinguish somewhat between want and need, but I believe that the distinction should be much more sharply drawn.Just my $0.02. Reards, JAFO
This is an interesting discussion and a rather tricky decision I have contemplated often. I have not read this whole thread but I have not seen anyone suggest the following:My situation is quite different than yours (I am a lot farther from retirement age, I have young children etc), but here is what I have done and suggest:My mortgage company allows me to, at any time, make lump sum payments towards my principal and they will recalculate my monthly P&I payment to reflect it (for me the lump sum needs to be greater than $10K). If you can not do this, then I suggest you refinance and pay down some principle (if you can part with it) when you refinance. This is a better alternative because you realize the savings in your monthly payment immediately instead of paying down $300 additional per month and realizing the savings by shortening the term. Refinancing would probably be a good idea anyway considering your current rate, I just closed last week on a refinance for my house with 7% on a 7 year ARM. The rates may be a little higher now but I think you could still save some, by my calculation you could save about $68/mo due to a better rate.For example, if you paid an additional $35K (taken from some of your mutual funds) down on the principal when you refinance you would have $300/mo, when combined with the savings from the new rate, to put back into investments immediately.My mortgage has the best method: I can pay down principal at any time without cost and see the monthly payment reduce right away.Just another way to look at it.Good Luck.
I have my own theories, but for your own peace of mind, go to the calculator page established by Hugh Chou (you can do an internet search with the key words of "Hugh Chou calculators". There is a calculator on there that will let you figure out whether it is better to prepay your mortgage or invest the extra $300 (at various pecentage points.) Other calculators on his page will let you see how much you have to withdraw from your 401 k at the 70.5 age--or earlier if you choose. A great resource for money-minded people!!
(This is really one of those "How long is a piece of string?" type questions!)If I were on a lowish income with no prospects for changing my situation then I'd overpay the mortgage. My reason for doing so is that I can live in a house for very little, so if my income dropped then I could still continue to have somewhere to live.If I had an adequate income which was reasonably secure then I'd probably not overpay unless the housing market was really bouyant and likely to stay so. Extra money paid as principal is 'lost', unavailable for emergencies, unless you can raise a loan against the house (often a miserable deal if you're financially stressed).If I had a big income I'd be looking for ways to increase the mortgage, not reduce it.Ultimately its a matter of preference. I've experienced relative wealth and serious poverty. Being poor taught me the value of having somewhere to live so I personally will always go for that first even if the computer tells me that I'll make out a lot better by investing instead.
#1. People are living longer these day's........#2. I wouldn't want any chance of (my-Home) taken-away, by the repo-man......#3. Principle-Debt is: $71,180.34.... & You say you have: $200,000.00 (just) in mutual-fund's!!....***Here's a Question, what was your % gain's in these mutual-funds???...."My guess is (not so hot).....So, sell enough mutual funds to pay your Home off & Relax......MY OPINION is: That the general market is over inflated. Chart readers would say these past few weeks are classic topping action's!.....And the last place i want to be in a bear market, is a ho-hum, mutual-fund. ......*****Alternative's are: Get a (Reverse Mortgage)........Or, my favorate: a (Bi-Weekly Mortgage), i assume, you have a reliable CHECK coming every 2-weeks....So, why not pay: the same ***(( OR )) a little more, Bi-Weekly, on the (New) mortgage plan/aggreement??.....The interest saved, is increadable!!....It's the same principle as: Going-Long or Boring or Buy & Hold. *Only in reverse; instead of compounding interest, your compounding SAVING's. *(Locked-In) guaranteed-saving's!!!......Or you can be greedy, and play the most over blown market in history. On the EVE of Y2K.
IMHO, depends on the rest of your overall portfolio. If the 401K and mutual funds are themselves pretty conservative, then you don't need to add yet another conservative investment (although there are very few alternatives paying a GUARANTEED 8.375%....).But the general Foolish philosophy also suggests that you ought to be able to beat most if not all of your mutual funds' performance. So perhaps you should pay the extra $300 in mortgage payments, and begin shifting some part of the funds (and any part of the 401K that is moveable) into one of the Foolish portfolios instead.GVK
According to my "quick & dirty" calculations, you could have your mortgage paid off by Feb, '06 by putting $300 extra against the principle every month. If you are only 60 now, you'd only be 66 by then. And you'd, presumably, be out of debt with over $1000 extra per month. What kind of investments could you make with all of that, brother?In the interest of "full disclosure", I am biased on the subject. I would recommend to anybody to pay off debt to get away from interest compounding against you. Good Luck,
consider taking as much equity out of the house as you're comfortable with in terms of monthly payment. I am new to Fooldom much like yourself; however, with the historical numbers on the S & P, The Foolish Four, etc, you can make a pretty nice spread between paying approximately 8% on a home mortgage and earning 17% - 20%+ on your Fool Based Investments. Just so I am compliant with disclosure, I am the owner of a mortgage company. I discuss your exact question, or similar questions with my clients all the time.
If you payoff loan you also loose tax deduction, kepp loan - invest - and go spend!!!
So in the absolute sense, paying as little interest as possible may not always be a good thing if it keeps you from doing other things that you want to do. In your case that means you didn't get the new car (maybe you didn't really "need" it, but maybe you did!) so that you could pay off your mortgage in 15 years instead of 30. Depending on your situation, paying that extra $110 a month might have been too much--although in the end your husband's promotion made this all a moot point.This is true. Everyone's "needs" are different. I am a conservative spender. I hate debt. The only debt I now have is the mortgage and the new car loan (3.9%). I rarely buy anything that is not on sale and I pay off credit cards every month. People my age seem to be into instant gratification without thinking about the future. To be honest I didn't really think of using the extra money every month for investing. I really just looked at the saving on the interest on the life of the loan and having it paid off by time my husband and I are in our mid to late 40's.
I would take the 300/month and invest it in a noload mutual fund. Check CBS.com for fund selection
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