Help, pay off house or invest?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Help, pay off house or invest?

Postby Payoffhouse » Tue May 16, 2017 6:12 pm

Hi,

My first post.

Background info: all the amounts have been reduced and are proportional to each other.

1.House owe/ total balance @5.25% 15yrs left: $50
2.Car payments @3.00% 4yrs left: $15
2a.No other debt, all CC are paid in full at end of month.
3.401k/ IRA balance: $24
4.Checking/ savings account: $34
5.Household yearly income: $48
6.Our jobs do not offer 401k
7.Have not invested in 2017 IRA
8. My wife is 7 months pregnant with our first kid. We bought disability insurance that pays 50-75 percent of her salary ( I am not sure) while she is on maternity leave. She plans to take about 3 months off. We are comfortable with her bringing in 50-75 percent of her salary.

Therefore, my questions is pay-off the house at a faster rate or invest in stocks?

One of our my main goals is to pay off house ASAP (due to my wife's credit score refinancing might not be an option). By nature, we are very risk tolerant. So I was thinking why not invest in the stock market (thinking of buying Apple stock and sp500 index fund) to help pay off house faster instead of having $34 in savings/checking account. I want to do something with the $34 instead of letting sit in the bank earning nothing, I want the $34 to go to work for me.

Or what would you guys do if you were in my shoes?

Thank you.

TheJoker
Posts: 44
Joined: Mon Apr 17, 2017 12:21 pm
Location: Bellingham, Wa

Re: Help, pay off house or invest?

Postby TheJoker » Tue May 16, 2017 6:47 pm

INVEST. In the last 15 years of your loan, you are substantially paying down the principal every month. Investing early will compound over the years and make that loan insignificant. the payment will not increase. I know I am in the minority here because most focus on the interest being paid. But overall growth of net worth is critical. Start early and invest often. I love cheap mortgage money.

TheJoker

John Laurens
Posts: 85
Joined: Mon Nov 14, 2016 7:31 pm

Re: Help, pay off house or invest?

Postby John Laurens » Tue May 16, 2017 6:59 pm

1. Pay car off
2. Build emergency fund of 3-6 months expenses
3. Do nothing else until you determine that mom/baby are healthy (3 months after baby is born)
4. Fund a ROTH IRA/pay extra on the house whichever you prefer.
5. Find ways to increase your income.

Regards,

John

ThankYouJack
Posts: 1678
Joined: Wed Oct 08, 2014 7:27 pm

Re: Help, pay off house or invest?

Postby ThankYouJack » Tue May 16, 2017 7:01 pm

I vote for neither, at least for a couple months until after your baby is born and everything is going smoothly.

Payoffhouse wrote: By nature, we are very risk tolerant. So I was thinking why not invest in the stock market (thinking of buying Apple stock and sp500 index fund) to help pay off house faster instead of having $34 in savings/checking account. I want to do something with the $34 instead of letting sit in the bank earning nothing, I want the $34 to go to work for me.

Or what would you guys do if you were in my shoes?


How long has the $34 been there? I'm wondering why all of the sudden the desire to have the money work for you. I personally would make sure I had adequate insurance and emergency funds with a baby on the way, then max tax advantage accounts, then pay off the highest interest debt. In the long run though, it's not going to make a big difference, so I wouldn't sweat it much.

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Tue May 16, 2017 7:15 pm

TheJoker wrote:INVEST. In the last 15 years of your loan, you are substantially paying down the principal every month. Investing early will compound over the years and make that loan insignificant. the payment will not increase. I know I am in the minority here because most focus on the interest being paid. But overall growth of net worth is critical. Start early and invest often. I love cheap mortgage money.

TheJoker


In what would you invest? Keep in mind that I will be using a taxable account.

User avatar
willthrill81
Posts: 1538
Joined: Thu Jan 26, 2017 3:17 pm
Location: USA

Re: Help, pay off house or invest?

Postby willthrill81 » Tue May 16, 2017 7:15 pm

ThankYouJack wrote:I vote for neither, at least for a couple months until after your baby is born and everything is going smoothly.


Amen bro. :beer
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Tue May 16, 2017 7:20 pm

John Laurens wrote:1. Pay car off
2. Build emergency fund of 3-6 months expenses
3. Do nothing else until you determine that mom/baby are healthy (3 months after baby is born)
4. Fund a ROTH IRA/pay extra on the house whichever you prefer.
5. Find ways to increase your income.

Regards,

John


1. Really payoff car eventhough rates are low?
2. I have more than 3-6 months
3. Good point
4. Why pay off car before house? Eventhough car interest rates are lower?
5. Always looking for multiple sources of income

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Tue May 16, 2017 7:28 pm

ThankYouJack wrote:I vote for neither, at least for a couple months until after your baby is born and everything is going smoothly.

Payoffhouse wrote: By nature, we are very risk tolerant. So I was thinking why not invest in the stock market (thinking of buying Apple stock and sp500 index fund) to help pay off house faster instead of having $34 in savings/checking account. I want to do something with the $34 instead of letting sit in the bank earning nothing, I want the $34 to go to work for me.

Or what would you guys do if you were in my shoes?


How long has the $34 been there? I'm wondering why all of the sudden the desire to have the money work for you. I personally would make sure I had adequate insurance and emergency funds with a baby on the way, then max tax advantage accounts, then pay off the highest interest debt. In the long run though, it's not going to make a big difference, so I wouldn't sweat it much.


1. The $34 been sitting there for a couple years.
2. My desire is due to the $34 is just sitting there in my checking /savings account earning nothing plus I want to use gains to pay off house.
3. We both have adequate health insurance and more than 3-6 months in emergency funds.

If you wanted to invest the $34 or part of it on a taxable account, what would you invest in?

John Laurens
Posts: 85
Joined: Mon Nov 14, 2016 7:31 pm

Re: Help, pay off house or invest?

Postby John Laurens » Tue May 16, 2017 7:56 pm

Payoffhouse wrote:
John Laurens wrote:1. Pay car off
2. Build emergency fund of 3-6 months expenses
3. Do nothing else until you determine that mom/baby are healthy (3 months after baby is born)
4. Fund a ROTH IRA/pay extra on the house whichever you prefer.
5. Find ways to increase your income.

Regards,

John


1. Really payoff car eventhough rates are low?
2. I have more than 3-6 months
3. Good point
4. Why pay off car before house? Eventhough car interest rates are lower?
5. Always looking for multiple sources of income



1. I don't borrow money for depreciating assets.
2. You still will have an EF after paying off the car.
3.
4. See#1
5. Awesome

Regards,
John

Welcome to the forum. You will get differing opinions here.

User avatar
tainted-meat
Posts: 657
Joined: Tue Dec 20, 2011 9:35 pm
Location: Kentucky

Re: Help, pay off house or invest?

Postby tainted-meat » Tue May 16, 2017 7:56 pm

Deleted
Last edited by tainted-meat on Tue May 16, 2017 8:19 pm, edited 1 time in total.

CppCoder
Posts: 374
Joined: Sat Jan 23, 2016 9:16 pm

Re: Help, pay off house or invest?

Postby CppCoder » Tue May 16, 2017 8:01 pm

I know you said that you might not be able to refinance due to your wife's credit score, but have you tried? If you rolled your balance into a new 15 year loan, you could probably lower your interest rate by about 2%, which adds up over 15 years (if you keep the mortgage through full term). That could generate additional cash flow now that you could use to either pay down debt or invest.

As to your original question, you need to ask yourself how much liquidity (or lack thereof) are you comfortable with? If you are comfortable reducing your liquidity, in the absence of a refinance, I would first max your IRA, and then pay down debt. If you want to keep yourself liquid, I would probably go with a mixture of investment and loan repayment.

Mathematically, paying the house down first is a better investment because it is a higher interest loan. However, you don't have enough liquidity to pay off the whole house, so if you pay down the house with your full $34, you'll still be making payments. Unless you recast your mortgage, paying down this debt will not increase your monthly cash flow. You do have enough liquidity to pay off the car loan entirely. This will increase your monthly cash flow since you will have discharged the entire debt. From that standpoint, if you want to pay off the debt rather than invest, I would pay off the car first. You will appreciate monthly cash flow with a new baby.

ThankYouJack
Posts: 1678
Joined: Wed Oct 08, 2014 7:27 pm

Re: Help, pay off house or invest?

Postby ThankYouJack » Tue May 16, 2017 8:28 pm

Payoffhouse wrote:
ThankYouJack wrote:I vote for neither, at least for a couple months until after your baby is born and everything is going smoothly.


3. We both have adequate health insurance and more than 3-6 months in emergency funds.

If you wanted to invest the $34 or part of it on a taxable account, what would you invest in?


I wouldn't in your situation for a number of reasons (you have a 7 month pregnant wife, you have tax-advantage space available, you have debt, you're unsure about where to invest - I would read more in general and not just from single responders to this thread) . Seems like all the sudden you're getting antsy for a single answer to try to make the slightest bit advantage and IMO now is the wrong time to do so.

I would assume things go well with the birth but:

I have some friends where the Mom developed an undetected condition during pregnancy and wasn't able to walk after the birth -- not just bedridden, but wheelchair bound -- dad had to take care of both mom and baby. 6 month recovery if things go smoothly. The husband had to take additional time off work and they also needed to hire a nanny (even though the mom doesn't work).

Other friends who's baby was premature had a $99,000 hospital bill (not even including all the physician bill and medical procedures). Luckily they had insurance, but still I'm not sure what they're OOP max was.

Best of luck with everything - it is a major life changer and cliche but is a miracle.

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Tue May 16, 2017 9:26 pm

John Laurens wrote:
Payoffhouse wrote:
John Laurens wrote:1. Pay car off
2. Build emergency fund of 3-6 months expenses
3. Do nothing else until you determine that mom/baby are healthy (3 months after baby is born)
4. Fund a ROTH IRA/pay extra on the house whichever you prefer.
5. Find ways to increase your income.

Regards,

John


1. Really payoff car eventhough rates are low?
2. I have more than 3-6 months
3. Good point
4. Why pay off car before house? Eventhough car interest rates are lower?
5. Always looking for multiple sources of income



1. I don't borrow money for depreciating assets.
2. You still will have an EF after paying off the car.
3.
4. See#1
5. Awesome

Regards,
John

Welcome to the forum. You will get differing opinions here.


Thanks for the welcome John.
1. Interesting.
2. Yes
3.
4.
5.

Grt2bOutdoors
Posts: 16038
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Help, pay off house or invest?

Postby Grt2bOutdoors » Tue May 16, 2017 9:28 pm

Your main goal is to relax and get your sleep "now". Paying off the house is not going to let you get sleep, having money in the bank will let you sleep like a baby, at least for the next two months, after that all bets are off! :wink: Re-evaluate after your wife goes back to work, not before. Stop thinking about playing the lottery with individual stocks and stop thinking about needing to do anything.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Tue May 16, 2017 9:36 pm

CppCoder wrote:I know you said that you might not be able to refinance due to your wife's credit score, but have you tried? If you rolled your balance into a new 15 year loan, you could probably lower your interest rate by about 2%, which adds up over 15 years (if you keep the mortgage through full term). That could generate additional cash flow now that you could use to either pay down debt or invest.

As to your original question, you need to ask yourself how much liquidity (or lack thereof) are you comfortable with? If you are comfortable reducing your liquidity, in the absence of a refinance, I would first max your IRA, and then pay down debt. If you want to keep yourself liquid, I would probably go with a mixture of investment and loan repayment.

Mathematically, paying the house down first is a better investment because it is a higher interest loan. However, you don't have enough liquidity to pay off the whole house, so if you pay down the house with your full $34, you'll still be making payments. Unless you recast your mortgage, paying down this debt will not increase your monthly cash flow. You do have enough liquidity to pay off the car loan entirely. This will increase your monthly cash flow since you will have discharged the entire debt. From that standpoint, if you want to pay off the debt rather than invest, I would pay off the car first. You will appreciate monthly cash flow with a new baby.


No I have not tried, but yea I am pretty sure she will not qualify. I am comfortable reducing my liquidity up to 6 months of EF. I like the mixture idea of investments and paying down debt.

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Tue May 16, 2017 9:42 pm

ThankYouJack wrote:
Payoffhouse wrote:
ThankYouJack wrote:I vote for neither, at least for a couple months until after your baby is born and everything is going smoothly.


3. We both have adequate health insurance and more than 3-6 months in emergency funds.

If you wanted to invest the $34 or part of it on a taxable account, what would you invest in?


I wouldn't in your situation for a number of reasons (you have a 7 month pregnant wife, you have tax-advantage space available, you have debt, you're unsure about where to invest - I would read more in general and not just from single responders to this thread) . Seems like all the sudden you're getting antsy for a single answer to try to make the slightest bit advantage and IMO now is the wrong time to do so.

I would assume things go well with the birth but:

I have some friends where the Mom developed an undetected condition during pregnancy and wasn't able to walk after the birth -- not just bedridden, but wheelchair bound -- dad had to take care of both mom and baby. 6 month recovery if things go smoothly. The husband had to take additional time off work and they also needed to hire a nanny (even though the mom doesn't work).

Other friends who's baby was premature had a $99,000 hospital bill (not even including all the physician bill and medical procedures). Luckily they had insurance, but still I'm not sure what they're OOP max was.

Best of luck with everything - it is a major life changer and cliche but is a miracle.


Yes, you are right I am feeling really antsy to do something with the $34. I want to buy some more Apple stock, I have some on my IRA. I just feel like I am going to miss out on all the gains of the stock market.

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Tue May 16, 2017 9:47 pm

Grt2bOutdoors wrote:Your main goal is to relax and get your sleep "now". Paying off the house is not going to let you get sleep, having money in the bank will let you sleep like a baby, at least for the next two months, after that all bets are off! :wink: Re-evaluate after your wife goes back to work, not before. Stop thinking about playing the lottery with individual stocks and stop thinking about needing to do anything.


Good points all across the board. But would you invest or pay off debt if you have more than 6 months of EF?

venkman
Posts: 82
Joined: Tue Mar 14, 2017 10:33 pm

Re: Help, pay off house or invest?

Postby venkman » Tue May 16, 2017 10:12 pm

Payoffhouse wrote:Good points all across the board. But would you invest or pay off debt if you have more than 6 months of EF?


Pretend you're starting at zero, with no money to invest and no debt.

Would you borrow $[amount of money you have] at [current interest rate on your debt]% in order to invest that money?

That's essentially the choice you have now.

Personally, I think a guaranteed return of 5%+ from paying down debt is too good to pass up, particularly in the current market environment.

ThankYouJack
Posts: 1678
Joined: Wed Oct 08, 2014 7:27 pm

Re: Help, pay off house or invest?

Postby ThankYouJack » Tue May 16, 2017 10:17 pm

Payoffhouse wrote:
Yes, you are right I am feeling really antsy to do something with the $34. I want to buy some more Apple stock, I have some on my IRA. I just feel like I am going to miss out on all the gains of the stock market.



Seems like you're falling into the trap of buying high and selling low. You've been sitting on the $34 for years but after seeing the gains you now get the feeling that you don't want to miss out. It would help to develop a solid plan after your child is born so you're not investing on feelings based on most recent performance.

IMO
Posts: 77
Joined: Fri May 05, 2017 6:01 pm

Re: Help, pay off house or invest?

Postby IMO » Tue May 16, 2017 10:40 pm

Payoffhouse wrote:Hi,

My first post.

Background info: all the amounts have been reduced and are proportional to each other.

1.House owe/ total balance @5.25% 15yrs left: $50
2.Car payments @3.00% 4yrs left: $15
2a.No other debt, all CC are paid in full at end of month.
3.401k/ IRA balance: $24
4.Checking/ savings account: $34
5.Household yearly income: $48
6.Our jobs do not offer 401k
7.Have not invested in 2017 IRA
8. My wife is 7 months pregnant with our first kid. We bought disability insurance that pays 50-75 percent of her salary ( I am not sure) while she is on maternity leave. She plans to take about 3 months off. We are comfortable with her bringing in 50-75 percent of her salary.

Therefore, my questions is pay-off the house at a faster rate or invest in stocks?

One of our my main goals is to pay off house ASAP (due to my wife's credit score refinancing might not be an option). By nature, we are very risk tolerant. So I was thinking why not invest in the stock market (thinking of buying Apple stock and sp500 index fund) to help pay off house faster instead of having $34 in savings/checking account. I want to do something with the $34 instead of letting sit in the bank earning nothing, I want the $34 to go to work for me.

Or what would you guys do if you were in my shoes?

Thank you.


So your household income is $48K now, you're wife's income will drop 25-50%, and you'll have a new baby (congrats by the way).

I do agree with others have said, have the baby in 2 months, make sure all's well on that (i.e. more medical costs/deductibles could come up) and then decide. Child care expenses?

I personally don't think gambling on a single stock is a great ideal (tried that before and doesn't always turn out so good).

With your current household income of $48K, I don't know, while it doesn't make "sense" on the various interest rates of your loans you have compared with the "no risk S&P 500 future but unknown return", I think with that level household income, you really should eliminate all consumer and car debt 1st. I could even see the argument to get rid of the mortgage. I doubt you even deduct more in itemized deductions than your Standard Deduction, and you'd probably pay even less taxes going with the SD vs. itemizing.

This obviously doesn't make sense on the maximize your potential future returns based on the interest rates of your car and your mortgage. This is more in line with the controversial Dave Ramsey approach. But the thing I don't like is your income level, and personally I'd want to be debt free (at least on the car), then start investing the payments right away into future retirement.

Do you have term life insurance on yourself and your spouse?

I'm sure I'll get eaten alive on boglehead feedback on my thoughts. I'd respond differently if you had significantly more income than you do.

User avatar
BL
Posts: 6811
Joined: Sun Mar 01, 2009 2:28 pm

Re: Help, pay off house or invest?

Postby BL » Tue May 16, 2017 11:16 pm

You may be eligible for 10% or more Saver's tax Credit on $2k/year each in an IRA.

There are other credits when you have a child:
Child Tax Credit
Additional Child Tax Credit
Dependent Care Credit
Earned Income Credit

A trad IRA lowers your AGI so might help but 401k would have lowered wages as well. Not sure which credits look at which.

Playing "what if" with a 2016 tax program might help. There are separate forms for some of the credits.

Agree to paying off car after IRA, at least after baby comes. When gone, use that money for IRAs, extra mortgage, investing or other saving.

Flex health accounts and dependent care accounts might lower wage income and help pay for out of pocket health expenses not covered by insurance and costs for child care while both spouses work. As I understand it, you also don't pay SS which saves you taxes now, but may reduce SS benefits.

Here is a good 16-page booklet pdf written by an expert just for new investors:
https://www.etf.com/docs/IfYouCan.pdf

It could be a little late to jump on the Apple wagon just when everyone else also has that urge. No one knows, but single funds have a greater risk. Total Stock Market has a lot of Apple in it as well as many other stocks, so it is much more diversified.

shess
Posts: 1
Joined: Wed May 17, 2017 12:02 am

Re: Help, pay off house or invest?

Postby shess » Wed May 17, 2017 12:12 am

Payoffhouse wrote:Yes, you are right I am feeling really antsy to do something with the $34. I want to buy some more Apple stock, I have some on my IRA. I just feel like I am going to miss out on all the gains of the stock market.


IMHO, that's a really good reason to just stand pat for a bit. The successful investor invests for objective reasons, not because they have a gut feeling or are fearful that they're going to miss out. There's nothing wrong with having gut feelings and being fearful, mind you, it is just important to not let that drive you. [When I see too many posts saying things like this, I take some money out of the market, because it indicates that we're partying like it's 1999.]

WRT having a pregnant spouse - OMG, total agreement that instead of worrying about paying off the house or investing in AAPL, you should probably just bank it and worry about this later. You have bigger fish to fry.

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Wed May 17, 2017 7:17 am

IMO wrote:
Payoffhouse wrote:Hi,

My first post.

Background info: all the amounts have been reduced and are proportional to each other.

1.House owe/ total balance @5.25% 15yrs left: $50
2.Car payments @3.00% 4yrs left: $15
2a.No other debt, all CC are paid in full at end of month.
3.401k/ IRA balance: $24
4.Checking/ savings account: $34
5.Household yearly income: $48
6.Our jobs do not offer 401k
7.Have not invested in 2017 IRA
8. My wife is 7 months pregnant with our first kid. We bought disability insurance that pays 50-75 percent of her salary ( I am not sure) while she is on maternity leave. She plans to take about 3 months off. We are comfortable with her bringing in 50-75 percent of her salary.

Therefore, my questions is pay-off the house at a faster rate or invest in stocks?

One of our my main goals is to pay off house ASAP (due to my wife's credit score refinancing might not be an option). By nature, we are very risk tolerant. So I was thinking why not invest in the stock market (thinking of buying Apple stock and sp500 index fund) to help pay off house faster instead of having $34 in savings/checking account. I want to do something with the $34 instead of letting sit in the bank earning nothing, I want the $34 to go to work for me.

Or what would you guys do if you were in my shoes?

Thank you.


So your household income is $48K now, you're wife's income will drop 25-50%, and you'll have a new baby (congrats by the way).

I do agree with others have said, have the baby in 2 months, make sure all's well on that (i.e. more medical costs/deductibles could come up) and then decide. Child care expenses?

I personally don't think gambling on a single stock is a great ideal (tried that before and doesn't always turn out so good).



With your current household income of $48K, I don't know, while it doesn't make "sense" on the various interest rates of your loans you have compared with the "no risk S&P 500 future but unknown return", I think with that level household income, you really should eliminate all consumer and car debt 1st. I could even see the argument to get rid of the mortgage. I doubt you even deduct more in itemized deductions than your Standard Deduction, and you'd probably pay even less taxes going with the SD vs. itemizing.

This obviously doesn't make sense on the maximize your potential future returns based on the interest rates of your car and your mortgage. This is more in line with the controversial Dave Ramsey approach. But the thing I don't like is your income level, and personally I'd want to be debt free (at least on the car), then start investing the payments right away into future retirement.

Do you have term life insurance on yourself and your spouse?

I'm sure I'll get eaten alive on boglehead feedback on my thoughts. I'd respond differently if you had significantly more income than you do.


Thank you for the congrats. My household income is not 48k, all the amounts listed are proportional to each other. At this time we do not have term life insurance.

mortfree
Posts: 343
Joined: Mon Sep 12, 2016 7:06 pm

Re: Help, pay off house or invest?

Postby mortfree » Wed May 17, 2017 7:53 am

I'm going to guess your multiplier is 2... this is based on assuming a 30k car loan.

am I right?? It's like me saying my net worth is $7; figure out the real multiplier. you should have used real numbers.

I wouldn't pay off the car...

I wouldn't chase Apple stock right now.

You're just seeing your finances differently because you are becoming a father for the first time.

Get Term Life Insurance for yourself and await the arrival...

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Wed May 17, 2017 9:49 am

mortfree wrote:I'm going to guess your multiplier is 2... this is based on assuming a 30k car loan.

am I right?? It's like me saying my net worth is $7; figure out the real multiplier. you should have used real numbers.

I wouldn't pay off the car...

I wouldn't chase Apple stock right now.

You're just seeing your finances differently because you are becoming a father for the first time.

Get Term Life Insurance for yourself and await the arrival...


No multiplier is not 2 that would have been to easy to figure out lol.

Jack FFR1846
Posts: 4833
Joined: Tue Dec 31, 2013 7:05 am

Re: Help, pay off house or invest?

Postby Jack FFR1846 » Wed May 17, 2017 9:56 am

To your original question: Neither.

Your car rate is NOT low. Refinance it at a credit union. If you're in an area that has DCU, they're below 2% for a refinance of a used car. Do this and you save money, even though I'd pay off the car.
Bogle: Smart Beta is stupid

hulburt1
Posts: 180
Joined: Tue Jul 15, 2014 9:17 pm

Re: Help, pay off house or invest?

Postby hulburt1 » Wed May 17, 2017 10:17 am

I had paid off my house in 7 years. I was still investing but once house gone was able to put a lot more in funds. 10 years ago I got hurt, wife lost her job after 30 years as a rn. But we had a home and was able to make it. We would have lost everything if we had a house payment. Now 10 years later. Wife working house paid for and have 2m. 30 years of no house payment was really nice. Plan on dying here. ashes next to my 3 dogs and 4 cats.

rzk96
Posts: 42
Joined: Sat Apr 15, 2017 9:59 pm

Re: Help, pay off house or invest?

Postby rzk96 » Wed May 17, 2017 10:37 am

hulburt1 wrote:I had paid off my house in 7 years. I was still investing but once house gone was able to put a lot more in funds. 10 years ago I got hurt, wife lost her job after 30 years as a rn. But we had a home and was able to make it. We would have lost everything if we had a house payment. Now 10 years later. Wife working house paid for and have 2m. 30 years of no house payment was really nice. Plan on dying here. ashes next to my 3 dogs and 4 cats.


LOL. That's my plan too... but w my condo and no kids!

mortfree
Posts: 343
Joined: Mon Sep 12, 2016 7:06 pm

Re: Help, pay off house or invest?

Postby mortfree » Wed May 17, 2017 10:43 am

Payoffhouse wrote:4. Why pay off car before house? Eventhough car interest rates are lower?


Paying off the car is the easy thing to do... depreciating asset argument prevails; it's money you could be investing instead of having a monthly payment. Legit, but....

I paid off my house 1 year ago and still had a car loan. I'm still here and in good shape and I still have the same car loan with no more than 14 months to go.

You just have to be VERY calculated if you choose to pay off the house first. Leave ample cash. Don't ignore upkeep of the home (roof, HVAC, flooring, appliances, etc). It can be done, it's just not the "normal" thing to do or BH thing to do.

I can pretty much guarantee that I will have another car loan some time in the future, but I may never have another mortgage... I am 40.

harvestbook
Posts: 209
Joined: Sat Mar 18, 2017 7:12 pm

Re: Help, pay off house or invest?

Postby harvestbook » Wed May 17, 2017 12:57 pm

Why bulk spend on one thing all of a sudden?
Why not immediately max out both you and your wife's IRAs for 2017 in a broad index fund if you feel a pressing need to invest? That's an easy, practical step that you would likely take this year anyway. Then see how you "feel."

With the rest, you can extend the emergency fund until you see how the birth and following months go, pay additional against the car and mortgage, keep trucking. I always paid extra against my mortgage even when things were tight. When I got a chance to wipe it off the boards with big payments, I did so as fast as I could. With no debt, I can now afford to invest aggressively and have a good bit of security against income decline, injury, etc.

The important thing is to not lose the long term because of the short term. Good luck.

User avatar
grabiner
Advisory Board
Posts: 19915
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Help, pay off house or invest?

Postby grabiner » Wed May 17, 2017 10:21 pm

Payoffhouse wrote:1.House owe/ total balance @5.25% 15yrs left: $50
2.Car payments @3.00% 4yrs left: $15


If you itemize deductions, I would pay off the car in preference to the house, even if you can't refinance. The car loan is non-deductible, so the after-tax rate is almost as high. In addition, the car loan can be paid off completely and has a shorter term, so it gives you an immediate benefit; paying down the mortgage is a longer-term return.

You might be able to refinance the mortgage in your own name if your wife's credit is the problem. In particular, if you pay off the car loan, this will reduce your debt-to-income ratio, which will help you qualify for a mortgage based on your own income. If you refinance, the mortgage rate will be low enough that it probably isn't worth paying down if you itemize deductions.

If you can't refinance, then paying it off is a risk-free 5.25% return, which is a good deal, but...

8. My wife is 7 months pregnant with our first kid. We bought disability insurance that pays 50-75 percent of her salary ( I am not sure) while she is on maternity leave. She plans to take about 3 months off. We are comfortable with her bringing in 50-75 percent of her salary.


I would wait until the baby is born to pay off the mortgage; babies sometimes come with major financial effects, and you may want to keep more money liquid. Paying off the car may still be a reasonable idea; while this uses half your cash, the cash will come back in improved cash flow over the next four years.

You should contribute to Roth IRAs for yourself and your wife if you are eligible; you can take your contributions out with no penalty. Putting $11,000 in a bond fund will give you higher returns than on the cash in the bank, with little risk.
David Grabiner

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Wed May 17, 2017 11:01 pm

Jack FFR1846 wrote:To your original question: Neither.

Your car rate is NOT low. Refinance it at a credit union. If you're in an area that has DCU, they're below 2% for a refinance of a used car. Do this and you save money, even though I'd pay off the car.


I'll run the math to see how much savings it will be per month. I wonder at what dollar amount savings is it not worth getting a "hard pull" on my credit. BTW it would be 2 credit pulls on my credit score.

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Wed May 17, 2017 11:09 pm

harvestbook wrote:Why bulk spend on one thing all of a sudden?
Why not immediately max out both you and your wife's IRAs for 2017 in a broad index fund if you feel a pressing need to invest? That's an easy, practical step that you would likely take this year anyway. Then see how you "feel."

With the rest, you can extend the emergency fund until you see how the birth and following months go, pay additional against the car and mortgage, keep trucking. I always paid extra against my mortgage even when things were tight. When I got a chance to wipe it off the boards with big payments, I did so as fast as I could. With no debt, I can now afford to invest aggressively and have a good bit of security against income decline, injury, etc.

The important thing is to not lose the long term because of the short term. Good luck.


I guess I got the invest itch all of sudden with the $$ sitting in the checking / savings account. Just got tired of earning nothing while my Apple stock (in my IRA) has returned around 60% in 1 year. Thanks, good luck to you too.

Payoffhouse
Posts: 19
Joined: Tue May 16, 2017 1:31 pm

Re: Help, pay off house or invest?

Postby Payoffhouse » Wed May 17, 2017 11:22 pm

grabiner wrote:
Payoffhouse wrote:1.House owe/ total balance @5.25% 15yrs left: $50
2.Car payments @3.00% 4yrs left: $15


If you itemize deductions, I would pay off the car in preference to the house, even if you can't refinance. The car loan is non-deductible, so the after-tax rate is almost as high. In addition, the car loan can be paid off completely and has a shorter term, so it gives you an immediate benefit; paying down the mortgage is a longer-term return.

You might be able to refinance the mortgage in your own name if your wife's credit is the problem. In particular, if you pay off the car loan, this will reduce your debt-to-income ratio, which will help you qualify for a mortgage based on your own income. If you refinance, the mortgage rate will be low enough that it probably isn't worth paying down if you itemize deductions.

If you can't refinance, then paying it off is a risk-free 5.25% return, which is a good deal, but...

8. My wife is 7 months pregnant with our first kid. We bought disability insurance that pays 50-75 percent of her salary ( I am not sure) while she is on maternity leave. She plans to take about 3 months off. We are comfortable with her bringing in 50-75 percent of her salary.


I would wait until the baby is born to pay off the mortgage; babies sometimes come with major financial effects, and you may want to keep more money liquid. Paying off the car may still be a reasonable idea; while this uses half your cash, the cash will come back in improved cash flow over the next four years.

You should contribute to Roth IRAs for yourself and your wife if you are eligible; you can take your contributions out with no penalty. Putting $11,000 in a bond fund will give you higher returns than on the cash in the bank, with little risk.


Good points, you gave me some ideas to think about. What do you think about putting a huge chunk to pay down house principal so instead of having 15 yrs left on mortgage, I would now have 8 years left? Btw right now my monthly mortgage payment is paying almost evenly between principal and interest.

User avatar
grabiner
Advisory Board
Posts: 19915
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Help, pay off house or invest?

Postby grabiner » Thu May 18, 2017 10:20 pm

Payoffhouse wrote:Good points, you gave me some ideas to think about. What do you think about putting a huge chunk to pay down house principal so instead of having 15 yrs left on mortgage, I would now have 8 years left? Btw right now my monthly mortgage payment is paying almost evenly between principal and interest.


If you can't refinance, this might be a good idea, but it would probably be better off to pay the whole car in preference, then throw extra money at the mortgage.

However, if you need to pay down the mortgage in order to refinance it, then the preference is clear: pay down the mortgage enough to refinance, pay off the car, and then it may not even be worth paying down the mortgage. In particular, if you get the mortgage down to a market rate, it's better to max out your Roth IRAs before paying it down, since the Roth IRA gives you a permanent tax benefit.
David Grabiner


Return to “Investing - Help with Personal Investments”

Who is online

Users browsing this forum: Emilyjane, EZ James, Majestic-12 [Bot], Yahoo [Bot] and 46 guests