Invest or pay off mortgage?

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dairyman
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Joined: Thu Feb 23, 2017 9:08 pm

Invest or pay off mortgage?

Post by dairyman » Thu Feb 23, 2017 9:14 pm

Plain and simple... does it make sense to pay off my mortgage or invest?

mortgage rate 3.1%
30 year fixed


for example purposes
mortgage 100k
20k down
80k remaining debt
no other debt other than mortgage

100k in free cash to invest
+20k additional in emergency fund
+20k additional invested in market currently

:sharebeer

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StevieG72
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Re: Invest or pay off mortgage?

Post by StevieG72 » Thu Feb 23, 2017 11:28 pm

Invest
Fools think their own way is right, but the wise listen to others.

letsgobobby
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Re: Invest or pay off mortgage?

Post by letsgobobby » Thu Feb 23, 2017 11:30 pm

dairyman wrote:Plain and simple... does it make sense to pay off my mortgage or invest?

mortgage rate 3.1%
30 year fixed


for example purposes
mortgage 100k
20k down
80k remaining debt
no other debt other than mortgage

100k in free cash to invest
+20k additional in emergency fund
+20k additional invested in market currently

:sharebeer
please post in the suggested format for helpful responses.

Also, there are scores of similar threads. Have you read them? You may find an answer to your question there.

Grt2bOutdoors
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Location: New York

Re: Invest or pay off mortgage?

Post by Grt2bOutdoors » Thu Feb 23, 2017 11:35 pm

Plain and simple - what is your Federal Tax Bracket? Do you pay state taxes? Does the state you reside in permit you to deduct mortgage interest? if yes, then please list your state tax bracket as well.
How old are you? Any plans for early retirement? How many years left on original mortgage - ie. took out a 30 year mortgage, have X number of years left today.

Do you have a retirement account? Are you currently saving for retirement?

Can't provide an answer without the above information.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Waban2000
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Joined: Mon Feb 20, 2017 12:07 pm

Re: Invest or pay off mortgage?

Post by Waban2000 » Fri Feb 24, 2017 12:00 am

I have a similar situation. A 3% mortgage is typically a great deal.
I put the mortgage extra payoff money in a balanced fund starting 3 years ago, and enjoy having a cushion and watching The balance grow.

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Watty
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Re: Invest or pay off mortgage?

Post by Watty » Fri Feb 24, 2017 12:07 am

Invest or pay off mortgage?
There is a wiki on this;

https://www.bogleheads.org/wiki/Paying_ ... _investing

Don't underestimate the sequence of returns risk if you don't pay it off. Your investments could earn much more than 3% on average over the next ten+ years but if you get unlucky and have a few bad years early on you will be hurt so bad you won't ever catch up.

Here is the example of this that I have posted before;
 If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To break even the next year you would need to gain back the $16K and another $6,000 for the next years mortgage payments which is $22K. That would take a 25.6% return on the remaining $84K just to break even.

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OthalaFehu
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Re: Invest or pay off mortgage?

Post by OthalaFehu » Fri Feb 24, 2017 9:12 am

in general, pay off the debt. A dead debt is always dead, but a thriving investment is only thriving as long as the markets cooperate. One is a guaranteed gain, the other is a calculated risk. I had the same issue and the overwhelming advice on that other forum was 'pay off the debt'

Bud
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Re: Invest or pay off mortgage?

Post by Bud » Fri Feb 24, 2017 9:48 am

My recommendation...

Pay off a portion - like $20k - $30K, then double or even triple pay your payments. Invest the other portion conservatively.

Don't lose liquidity to pay off all the debt, unless you have trouble controlling your spending.

Admiral
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Re: Invest or pay off mortgage?

Post by Admiral » Fri Feb 24, 2017 10:13 am

As others have said, please post your ACTUAL #s so we can help you.

If one were to look at your "example" numbers, if you paid off your mortgage with the 100k, then your portfolio would look like this:

60% real estate
20% Emergency Fund
20% Market investments

That strikes me as a very non-diversified portfolio...especially since this is not investment property that throws off income.

But, of course, the answer is different if we're talking about millions.

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grabiner
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Re: Invest or pay off mortgage?

Post by grabiner » Fri Feb 24, 2017 7:54 pm

Welcome to the forum!
dairyman wrote:Plain and simple... does it make sense to pay off my mortgage or invest?

mortgage rate 3.1%
30 year fixed
If you are deducting this interest in a 25% or higher bracket, it doesn't make financial sense to pay it down. See Paying down loans versus investing on the wiki.

The reason not to pay down this loan is that you have locked in the right to borrow money at a low rate for a very long time. You can earn more on low-risk investments. For example, if you are in a 28% tax bracket, you are paying 2.23% after tax on that mortgage, and you can earn 2.80% on Admiral shares of Vanguard Long-Term Tax-Exempt.

And by investing, you retain the option to pay off the mortgage later, or not to pay it off, depending on what happens to rates. In five years, you might have a 3.1% mortgage and be able to earn 4% on low-risk bonds. Or you might only earn 2%, and decide then to sell your bond portfolio to pay off the mortgage. If you pay off the mortgage and rates rise, you can't re-borrow the money.
Wiki David Grabiner

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