Student loans, Home Mortgage and/or investments

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newDDS
Posts: 47
Joined: Sun Jun 25, 2017 6:52 pm

Student loans, Home Mortgage and/or investments

Post by newDDS » Tue Feb 13, 2018 7:49 am

Hey all, still new to the forum but have already learned so much and getting everything sorted out. My question today revolves around the topic of handling debts and investments.

Quick background, I am 18 months out of dental school, recently married, just bought our first home and just dive into the deep end of working through our financial future.

Combined income: 300k
Student loan debt: 18k @7% 12k @5% (special subsidized loan that cannot be refinanced), 110k @4.25% (refinanced from apx 8% to 10 year plan)
Mortgage: 400k @4.25% 30 yr fixed (higher than we would like but due to the area/timing options were limited)
Emergency Fund: About 4 months in credit Union @2%
Investments: apx 70k, in taxable accts (link to portfolio viewtopic.php?f=1&t=241188)
-currently maxing out His and her 401ks/backdoor Roth IRA and HSA

My current strategy revolves around eliminating the 30k of high interest student loans as fast as possible. As it stands now I am paying the minimums on everything, while contributing an additional $1500-2000/month to the 7% account. By the end of the year that excess will then go to the 5% account.

Following which I will face the option of applying the excess payments to the 4.25 student loans (which could be further refinanced to save about half a percent), the mortgage at the same rate, and or start contributing to a taxable account.

Income limits have made it so I cannot deduct interest on my student loans. Currently and with the new tax laws I will be able to with the home mortgage. I can see this fact being a benefit for each side to the argument.

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Pajamas
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Joined: Sun Jun 03, 2012 6:32 pm

Re: Student loans, Home Mortgage and/or investments

Post by Pajamas » Tue Feb 13, 2018 8:45 am

So go ahead refinance the the student loan and then decide which one it will be better to pay extra towards considering taxes.

You could repay extra on the loans instead of buying bonds and weight your new investments more heavily towards stocks.

RRAAYY3
Posts: 926
Joined: Thu Jan 17, 2013 12:32 pm

Re: Student loans, Home Mortgage and/or investments

Post by RRAAYY3 » Tue Feb 13, 2018 9:02 am

Pay off that 18K ASAP

View your debt payments as a “guaranteed return investment” and with your income you should be able to pay off all debts rather quickly (student loans anyway)

Get rid of student loans ASAP. You’ll be amazed at how much more monthly cash flow you give yourself afterwords

I wouldn’t bother with a taxable account until those loans are all gone. Again, take the 4-7% guaranteed returns and be debt free

* Disclaimer: I despise debt/owing money *

gotester2000
Posts: 383
Joined: Sun Nov 12, 2017 1:59 am

Re: Student loans, Home Mortgage and/or investments

Post by gotester2000 » Tue Feb 13, 2018 9:32 am

1. Payoff the 30k loan without even blinking first.
2. Payoff the 110k loan .
3. Payoff mortgage.

With an income of $300k why cant you strike off 1 and 2 in 24 months? Think of putting in taxable only after these are paid off.

newDDS
Posts: 47
Joined: Sun Jun 25, 2017 6:52 pm

Re: Student loans, Home Mortgage and/or investments

Post by newDDS » Tue Feb 13, 2018 9:36 am

Pajamas wrote:
Tue Feb 13, 2018 8:45 am
So go ahead refinance the the student loan and then decide which one it will be better to pay extra towards considering taxes.

You could repay extra on the loans instead of buying bonds and weight your new investments more heavily towards stocks.
Thanks for your quick reply. A few follow up questions: first, the higher loans cannot be refinanced but lets say I can get the 4.25% higher principle loans down to 3.5/3.275%. Any which way about it tax deductions will only come into play with the mortgage, because income limits are set at 160k for couples to deduct anything from student loans. In that scenario would you say it'd be best to refinance to a shorter term, thus increasing monthly payments to some extent, but sink the rest into the home mortgage?

I am a little confused as to this last part. Are you saying to essentially treat the loan payments of reducing the 4% the same as contributing to additional bonds yielding low returns? It does make sense that investing $100 in bonds that hope to gain a few percent a year while stabilizing other investments would at best match the guarantee that $100 towards a 4% loan would offer. Not sure if that is the intended thought process though.

Thanks again!

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Pajamas
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Joined: Sun Jun 03, 2012 6:32 pm

Re: Student loans, Home Mortgage and/or investments

Post by Pajamas » Tue Feb 13, 2018 9:45 am

newDDS wrote:
Tue Feb 13, 2018 9:36 am
Pajamas wrote:
Tue Feb 13, 2018 8:45 am
So go ahead refinance the the student loan and then decide which one it will be better to pay extra towards considering taxes.

You could repay extra on the loans instead of buying bonds and weight your new investments more heavily towards stocks.
Thanks for your quick reply. A few follow up questions: first, the higher loans cannot be refinanced but lets say I can get the 4.25% higher principle loans down to 3.5/3.275%. Any which way about it tax deductions will only come into play with the mortgage, because income limits are set at 160k for couples to deduct anything from student loans. In that scenario would you say it'd be best to refinance to a shorter term, thus increasing monthly payments to some extent, but sink the rest into the home mortgage?
I'm saying that you should pay off the high interest loan and then make a decision about whether to put extra money into the second student loan vs. the mortgage after you actually know what they cost you on an after-tax basis. Until you actually refinance the student loan, you're just guessing. If you can get a better interest rate by doing so, then you could shorten the term of the loan. Seems like you should be able to pay off the loans pretty quickly and can easily manage a shorter term. That would affect your decision about paying loans vs. investing as it would shift money towards the loans by increasing the required monthly payment.

I am a little confused as to this last part. Are you saying to essentially treat the loan payments of reducing the 4% the same as contributing to additional bonds yielding low returns? It does make sense that investing $100 in bonds that hope to gain a few percent a year while stabilizing other investments would at best match the guarantee that $100 towards a 4% loan would offer. Not sure if that is the intended thought process though.

Thanks again!
Basically yes, paying off the loans give you a guaranteed, risk-free return roughly comparable to the stability and return of a bond fund. You might still want some bonds so you can rebalance.

A lot of what you do simply has to do with how you feel about carrying debt. I personally don't have a problem with it if I know I can afford to pay the loan off and the money is cheap enough so that expected returns from investing are higher. Your combined income and debt are both fairly high, though the ratio is not bad at all considering that you don't have $500k in student loans between the two of you.

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CyclingDuo
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Joined: Fri Jan 06, 2017 9:07 am

Re: Student loans, Home Mortgage and/or investments

Post by CyclingDuo » Tue Feb 13, 2018 9:55 am

newDDS wrote:
Tue Feb 13, 2018 7:49 am
Quick background, I am 18 months out of dental school, recently married, just bought our first home and just dive into the deep end of working through our financial future.

Combined income: 300k
Student loan debt: 18k @7% 12k @5% (special subsidized loan that cannot be refinanced), 110k @4.25% (refinanced from apx 8% to 10 year plan)
Mortgage: 400k @4.25% 30 yr fixed (higher than we would like but due to the area/timing options were limited)
Emergency Fund: About 4 months in credit Union @2%
Investments: apx 70k, in taxable accts (link to portfolio viewtopic.php?f=1&t=241188)
-currently maxing out His and her 401ks/backdoor Roth IRA and HSA
Congrats on finishing dental school, your recent marriage, and your start on your investing with the 401k's/Roth IRA's, and HSA. Well done!

This is a perfect time to attack those student loans with any additional money you have after funding your retirement plans, and meeting your basic needs (mortgage, food, utilities, expenses). Attack the $18K at 7% first, then the $12K at 5%. Once those are wiped out, move on to the $110K. With your $300K household income, you should be able to attack those loans fairly aggressively this year, and the coming few years to get them off your back.

Once those student loans are all paid off, you will be free and clear with your saving for potential education accounts for any children you may have 8-) , back to saving in your already established taxable portfolio, upgrades/maintenance on the house, transportation, and building your nest egg.

You are in good shape.

newDDS
Posts: 47
Joined: Sun Jun 25, 2017 6:52 pm

Re: Student loans, Home Mortgage and/or investments

Post by newDDS » Tue Feb 13, 2018 10:32 am

gotester2000 wrote:
Tue Feb 13, 2018 9:32 am
1. Payoff the 30k loan without even blinking first.
2. Payoff the 110k loan .
3. Payoff mortgage.

With an income of $300k why cant you strike off 1 and 2 in 24 months? Think of putting in taxable only after these are paid off.
Thanks for your help and that is the thought process I have had and am glad I am not alone there. I hope to continue to contribute more and more each month to the loans. I would love to hit the 24 month timeline, it would put my at $6250/month. I am working towards adding all additional funds into a separate account devoted to the loans all while getting back on track with our monthly budgeting.

Thanks for your help and upping the goal for me!

Nate79
Posts: 2353
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Student loans, Home Mortgage and/or investments

Post by Nate79 » Tue Feb 13, 2018 10:49 am

Debt free in 2 years (excluding mortgage). You can do it!

newDDS
Posts: 47
Joined: Sun Jun 25, 2017 6:52 pm

Re: Student loans, Home Mortgage and/or investments

Post by newDDS » Tue Feb 13, 2018 11:10 am

CyclingDuo wrote:
Tue Feb 13, 2018 9:55 am
newDDS wrote:
Tue Feb 13, 2018 7:49 am
Quick background, I am 18 months out of dental school, recently married, just bought our first home and just dive into the deep end of working through our financial future.

Combined income: 300k
Student loan debt: 18k @7% 12k @5% (special subsidized loan that cannot be refinanced), 110k @4.25% (refinanced from apx 8% to 10 year plan)
Mortgage: 400k @4.25% 30 yr fixed (higher than we would like but due to the area/timing options were limited)
Emergency Fund: About 4 months in credit Union @2%
Investments: apx 70k, in taxable accts (link to portfolio viewtopic.php?f=1&t=241188)
-currently maxing out His and her 401ks/backdoor Roth IRA and HSA
Congrats on finishing dental school, your recent marriage, and your start on your investing with the 401k's/Roth IRA's, and HSA. Well done!

This is a perfect time to attack those student loans with any additional money you have after funding your retirement plans, and meeting your basic needs (mortgage, food, utilities, expenses). Attack the $18K at 7% first, then the $12K at 5%. Once those are wiped out, move on to the $110K. With your $300K household income, you should be able to attack those loans fairly aggressively this year, and the coming few years to get them off your back.

Once those student loans are all paid off, you will be free and clear with your saving for potential education accounts for any children you may have 8-) , back to saving in your already established taxable portfolio, upgrades/maintenance on the house, transportation, and building your nest egg.

You are in good shape.

Thanks for your insight and positive words of encouragement. It has been a whirlwind the past couple years but finally feeling like the plan is in place and can get to grinding it all out. My Goal is to have the first 30 paid off by the end of the year then, refinance the 110 to a lesser term and go after that.

newDDS
Posts: 47
Joined: Sun Jun 25, 2017 6:52 pm

Re: Student loans, Home Mortgage and/or investments

Post by newDDS » Tue Feb 13, 2018 4:51 pm

Nate79 wrote:
Tue Feb 13, 2018 10:49 am
Debt free in 2 years (excluding mortgage). You can do it!
2 years, the gauntlet has been thrown down. Reworking our budget and balances now to make it work!

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