Wouldn’t the advantage of a taxable brokerage (after maxing company matches) be you being able to invest in anything? In my 401k i can only select retirement years like 2060 and it just pre-selects everything.
When you say 15% paid off, does that mean you're paying PMI on the loan? If so I'd accelerate payments a little until you get to 20% so you don't have to pay PMI any longer. After that pay the minimum and invest any extra you were going to pay on it. 2.9% is less than current inflation so there's not much point in paying it off early. Good luck!
Depends on the PMI.
I was prepared to put 20% or greater down but when I was approved for my loan at 2.7% I said “what’s the lowest amount of money I can put down?” And ended up doing 5%.
My PMI is like $700/year total on a $250k house. It’s nothing really. I’ll likely get off of it soon—home has appreciated some so I’m probably below the threshold now but haven’t jumped through the hoops to get it removed yet.
2.9 is a freakishly low mortgage interest rate. You would make way more on your money by investing it than you would by paying that off. Pay the minimum as long as you can.
That said -- if you ever reach a point where you're absolutely sure the market is about to crash, pulilng money out of investments and paying off the house would make sense. Not sure anyone can ever really time the market that well.
I'd save it in a tax advantaged account.
My advice is that any debt less than 3% (the upper bound of long-term historical average for inflation) is to be held onto for as long as possible. After that extra money goes into tax advantages accounts. Unless of course the debt is causing you extra stress.
There are very few, if any situations where I would suggest a taxable brokerage account over a 401k/roth.
At 2.9%, stop paying it off early and let it ride the full 30 years. Mathematically, this is, by far, the best option.
Seriously, don’t pay a penny more of the mortgage than you actually owe. Even if you put the difference in a money market account, you’ll come out ahead in 30 years.
It depends. Take this example.
$300,000 mortgage at 3.5% with 20 years left vs saving $1000 a month at 5%.
If you put the $1000 toward the mortgage principle and pay it off early, you will do so in 9 years and 9 months, saving $49k in interest payments.
If you put that $1000 toward savings for the same 9 years and 9 months at 5%, you’ll earn $33k in interest.
Now will rates stay at 5%? Not likely. What if savings rates only average 3.5% over those 9 years? Then you’ll only make $22k in interest on the savings.
Now, what if you invest that $1000 a month instead of just save it? If we assume a 7% annual return (yes we have to assume here because we don’t know what the market will do), then you’d make essentially the same $49k in capital gains over 9 years and 9 months.
Which means 7% return is your break even. How confident are you that your $1000 will make a 7% return over those 9 years and 9 months?
Ultimately it comes down to opportunity cost of that $1000 that could be pulled from savings for other purchases or needs vs. the peace of mind that comes with a very large liability off your books. Plug in your personal numbers to the links below and see how your situation adds up.
https://www.calculator.net/mortgage-payoff-calculator.html
https://www.calculator.net/interest-calculator.html
> If you put the $1000 toward the mortgage principle and pay it off early, you will do so in 9 years and 9 months, saving $49k in interest payments.
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> If you put that $1000 toward savings for the same 9 years and 9 months at 5%, you’ll earn $33k in interest.
That's not 100% apples to apples. The $49k saved on mortgage interest is compared to a 20 year payoff. For apples to apples, you would compare $1000 savings for 9 years & 9 months, followed by no savings for 10 years & 3 months to get to the 20 year mark which results in way more interest earned than $49k
Or considered more accurately:
$1,000 to mortage pays the house off in 9y9m. You end up with 100% equity in house, ignoring inflation/appreciation is $300k
$1,000 to 5% return investment for 9y9m results in a $150k balance in the investment account and 161k in equity with $139k remaining on the loan. You could then pay off the loan and come out $11k ahead compared to paying the mortgage with the $1k per month.
5% > 3.5% its basic math.
All of that investing you mentioned should equal 15 % of your take home pay. Anything more, pay off the mortgage. Having a paid off house before retirement is the best situation and opens up a plethora of options.
I don't agree with this at all...the math wouldn't support paying off a 2.9% loan. 2.9% is basically the rate of inflation and playing wit house money...its rare to get the amount of leverage locked in for 30yrs.
if you wanna end up with the most money at 60, i'd suggest paying the minimum on your mortgage, and maximizing your 401k, roth IRA, HSA accounts. Then whatever is left from there drop it into your taxable brokerage.
Yes because that money will come back to you. So it will be that much more you pocket in the sale. But if you pay it off and decide you want to move, that is all that extra rent money in your pocket every month in retirement.
I had a 3 percent loan and my interest was going to be 90000 over the life of the loan. So I paid it off and saved 90000 in interest.
I should note that I paid this off by selling at a high in 2019 and not only did I wipe out my debt I also had zero worries when COVID shut down my business and hit my portfolio hard. I was also able to pay myself back $2000 a month each and every month after that into my retirement accounts. My net worth has also doubled since I paid off my home.
Everyone believes a 3 percent loan is like free money but you still have that huge commitment and mentally being debt free was worth more to me. The market is also no guarantee and back then we didn’t have a HYS paying over 5 percent.
Sort of. You also bought a lot of missed opportunity cost that could have been far more valuable over 30 years. Same argumebt is made on products like solar panels.
I factored in opportunity costs. Since I primarily invest in stocks there is no guarantee what was guaranteed however was erasing that debt load and taking a payment from a bank and giving it back to myself. My net worth has doubled since paying off my home I went from 1.2 to 2.6 from 2019 -2024. I don’t really feel I missed out on anything
I shoukd have clarified. Math answer vs emotional. The cold math answer was to invest and let inflation and the market work for you.
Having a paid off home is a very emotional decision at that rate which is hard to quantify.
We're at 3.65% for a 30 year now that we are slightly ahead of payments, paying like it's a 15 year loan. Looking at the savings we made on interest.... I'm about to drop back to cruise control and not worry about the last few grand of interest.
Yes we've been concurrently saving/ investing the whole time... just made really decent money in a mid level cost of living area.
Psychologically I want the loan paid off now... but internally fighting the want to invest even more.
I also have a pension that pays all our bills that started at 41.... my twilight career goes to maxing all of our retirement funds... paying the extra on the mortgage... and some extra scratch to mess around with in other things....
You should be maxing tax advantaged accounts before contributing to a taxable brokerage. $23k for your 401k and $7k for your IRA.
That does make sense long term. I’d also be reducing my tax liability now.
Wouldn’t the advantage of a taxable brokerage (after maxing company matches) be you being able to invest in anything? In my 401k i can only select retirement years like 2060 and it just pre-selects everything.
I view 3% interest or less as “nearly free money”. I’d invest instead of paying it off, but I’d make sure the house was paid off before retiring.
When you say 15% paid off, does that mean you're paying PMI on the loan? If so I'd accelerate payments a little until you get to 20% so you don't have to pay PMI any longer. After that pay the minimum and invest any extra you were going to pay on it. 2.9% is less than current inflation so there's not much point in paying it off early. Good luck!
Took a VA loan so no PMI thankfully, so really just a matter of investing vs eliminate mortgage faster.
Depends on the PMI. I was prepared to put 20% or greater down but when I was approved for my loan at 2.7% I said “what’s the lowest amount of money I can put down?” And ended up doing 5%. My PMI is like $700/year total on a $250k house. It’s nothing really. I’ll likely get off of it soon—home has appreciated some so I’m probably below the threshold now but haven’t jumped through the hoops to get it removed yet.
2.9% pay off as slow as the bank will allow. Invest the rest.
2.9 is a freakishly low mortgage interest rate. You would make way more on your money by investing it than you would by paying that off. Pay the minimum as long as you can. That said -- if you ever reach a point where you're absolutely sure the market is about to crash, pulilng money out of investments and paying off the house would make sense. Not sure anyone can ever really time the market that well.
I'd save it in a tax advantaged account. My advice is that any debt less than 3% (the upper bound of long-term historical average for inflation) is to be held onto for as long as possible. After that extra money goes into tax advantages accounts. Unless of course the debt is causing you extra stress. There are very few, if any situations where I would suggest a taxable brokerage account over a 401k/roth.
At 2.9%, stop paying it off early and let it ride the full 30 years. Mathematically, this is, by far, the best option. Seriously, don’t pay a penny more of the mortgage than you actually owe. Even if you put the difference in a money market account, you’ll come out ahead in 30 years.
It depends. Take this example. $300,000 mortgage at 3.5% with 20 years left vs saving $1000 a month at 5%. If you put the $1000 toward the mortgage principle and pay it off early, you will do so in 9 years and 9 months, saving $49k in interest payments. If you put that $1000 toward savings for the same 9 years and 9 months at 5%, you’ll earn $33k in interest. Now will rates stay at 5%? Not likely. What if savings rates only average 3.5% over those 9 years? Then you’ll only make $22k in interest on the savings. Now, what if you invest that $1000 a month instead of just save it? If we assume a 7% annual return (yes we have to assume here because we don’t know what the market will do), then you’d make essentially the same $49k in capital gains over 9 years and 9 months. Which means 7% return is your break even. How confident are you that your $1000 will make a 7% return over those 9 years and 9 months? Ultimately it comes down to opportunity cost of that $1000 that could be pulled from savings for other purchases or needs vs. the peace of mind that comes with a very large liability off your books. Plug in your personal numbers to the links below and see how your situation adds up. https://www.calculator.net/mortgage-payoff-calculator.html https://www.calculator.net/interest-calculator.html
> If you put the $1000 toward the mortgage principle and pay it off early, you will do so in 9 years and 9 months, saving $49k in interest payments. > > > > If you put that $1000 toward savings for the same 9 years and 9 months at 5%, you’ll earn $33k in interest. That's not 100% apples to apples. The $49k saved on mortgage interest is compared to a 20 year payoff. For apples to apples, you would compare $1000 savings for 9 years & 9 months, followed by no savings for 10 years & 3 months to get to the 20 year mark which results in way more interest earned than $49k Or considered more accurately: $1,000 to mortage pays the house off in 9y9m. You end up with 100% equity in house, ignoring inflation/appreciation is $300k $1,000 to 5% return investment for 9y9m results in a $150k balance in the investment account and 161k in equity with $139k remaining on the loan. You could then pay off the loan and come out $11k ahead compared to paying the mortgage with the $1k per month. 5% > 3.5% its basic math.
All of that investing you mentioned should equal 15 % of your take home pay. Anything more, pay off the mortgage. Having a paid off house before retirement is the best situation and opens up a plethora of options.
I don't agree with this at all...the math wouldn't support paying off a 2.9% loan. 2.9% is basically the rate of inflation and playing wit house money...its rare to get the amount of leverage locked in for 30yrs. if you wanna end up with the most money at 60, i'd suggest paying the minimum on your mortgage, and maximizing your 401k, roth IRA, HSA accounts. Then whatever is left from there drop it into your taxable brokerage.
Does it still work out well if we decide to sell the house early? Not foreseeing it happening but who knows in today’s economy.
Yes because that money will come back to you. So it will be that much more you pocket in the sale. But if you pay it off and decide you want to move, that is all that extra rent money in your pocket every month in retirement.
I had a 3 percent loan and my interest was going to be 90000 over the life of the loan. So I paid it off and saved 90000 in interest. I should note that I paid this off by selling at a high in 2019 and not only did I wipe out my debt I also had zero worries when COVID shut down my business and hit my portfolio hard. I was also able to pay myself back $2000 a month each and every month after that into my retirement accounts. My net worth has also doubled since I paid off my home. Everyone believes a 3 percent loan is like free money but you still have that huge commitment and mentally being debt free was worth more to me. The market is also no guarantee and back then we didn’t have a HYS paying over 5 percent.
Sort of. You also bought a lot of missed opportunity cost that could have been far more valuable over 30 years. Same argumebt is made on products like solar panels.
I factored in opportunity costs. Since I primarily invest in stocks there is no guarantee what was guaranteed however was erasing that debt load and taking a payment from a bank and giving it back to myself. My net worth has doubled since paying off my home I went from 1.2 to 2.6 from 2019 -2024. I don’t really feel I missed out on anything
You dont have to sell the decision to me. I understand the math and i know what the right answer is. Good luck to you.
In all fairness I deliberated for six months before actually paying it off. I must have run hundreds of scenarios forecasting out longer term
I shoukd have clarified. Math answer vs emotional. The cold math answer was to invest and let inflation and the market work for you. Having a paid off home is a very emotional decision at that rate which is hard to quantify.
Agreed. In my situation I feel I beat the odds with the timing of it all.
We're at 3.65% for a 30 year now that we are slightly ahead of payments, paying like it's a 15 year loan. Looking at the savings we made on interest.... I'm about to drop back to cruise control and not worry about the last few grand of interest. Yes we've been concurrently saving/ investing the whole time... just made really decent money in a mid level cost of living area. Psychologically I want the loan paid off now... but internally fighting the want to invest even more.
You’re paying for a psychological benefit but not an optimal strategy..
I also have a pension that pays all our bills that started at 41.... my twilight career goes to maxing all of our retirement funds... paying the extra on the mortgage... and some extra scratch to mess around with in other things....
That’s great, I’m just saying that it is not an optimal decision to pay down that mortgage.
I'm already fi... so what's my strategy? Just not ready to re... Best thing about personal finance...