Invest vs. Pay Down

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bstewie
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Invest vs. Pay Down

Post by bstewie » Sun Feb 24, 2019 3:37 pm

Been a while since I've posted, looking for input from others.

Currently maxing out all tax advantaged space available to me. Have the following debt driven obligations:
- PMI (~$160/mo)
- Car (~$450/mo @ 0.9%)
- Furniture (~$180/mo @ 0%)

EF is currently at 8mo expenses.

I've been a little cash heavy lately due to some life changes that resulted in unplanned short term spending. I think I am finally out of the weeds on that front. I have a large cash position (for me) to do something with. I am considering the following:
- Invest 100% of available cash according to my AA
- Use cash to remove PMI, invest remainder
- Use cash to pay off car, invest remainder
- Use cash to pay off PMI, pay off furniture, and make a large dent in car, continue routine monthly taxable investments moving forward

FWIW the monthly obligations are currently not a stressor to carry. I will be retaining <10% of this cash position for fun/personal spending as I've robbed myself of some of this due to the life changes that resulted in unplanned short term spending.

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Clever_Username
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Re: Invest vs. Pay Down

Post by Clever_Username » Sun Feb 24, 2019 4:04 pm

If it were me, I'd pay down the mortgage to get rid of PMI, provided your arrangement allows you to do so.

I wouldn't pay a dime more on the car than I need to.

For the furniture: when is the loan due? Some of these loans have a deal where if you don't pay it off by the end, it becomes an interest-based loan... retroactive to when you started. If that's the case, be sure to pay it off before you owe interest.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

Topic Author
bstewie
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Re: Invest vs. Pay Down

Post by bstewie » Sun Feb 24, 2019 4:09 pm

Clever_Username wrote:
Sun Feb 24, 2019 4:04 pm
If it were me, I'd pay down the mortgage to get rid of PMI, provided your arrangement allows you to do so.

I wouldn't pay a dime more on the car than I need to.

For the furniture: when is the loan due? Some of these loans have a deal where if you don't pay it off by the end, it becomes an interest-based loan... retroactive to when you started. If that's the case, be sure to pay it off before you owe interest.
Furniture loan is exactly as you describe, on track to pay it off early.

wetgear
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Re: Invest vs. Pay Down

Post by wetgear » Sun Feb 24, 2019 6:37 pm

I agree with Clever_Username pay down to get rid of the PMI first, as long as you stay ahead of the furniture loan deadline I wouldn't be in a hurry to pay it off any faster than that and no need to rush the car payments. What is the interest rate of the mortgage that they PMI is attached to?

Topic Author
bstewie
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Re: Invest vs. Pay Down

Post by bstewie » Sun Feb 24, 2019 6:45 pm

wetgear wrote:
Sun Feb 24, 2019 6:37 pm
I agree with Clever_Username pay down to get rid of the PMI first, as long as you stay ahead of the furniture loan deadline I wouldn't be in a hurry to pay it off any faster than that and no need to rush the car payments. What is the interest rate of the mortgage that they PMI is attached to?
4.625%

Olemiss540
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Re: Invest vs. Pay Down

Post by Olemiss540 » Sun Feb 24, 2019 6:49 pm

We really need a good idea of balance remaining on your loans as well as cash account balance to provide useful feedback.

My initial input would be to knock out ALL THREE. Then get you EF built to 3-6 mo of expenses and start investing every spare dollar into your AA.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

wetgear
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Re: Invest vs. Pay Down

Post by wetgear » Sun Feb 24, 2019 6:55 pm

[/quote]

4.625%
[/quote]

Yeah get rid of the PMI, I think that's the obvious part. After that investing the rest and/or paying down mortgage further are probably your 2 best options. Any chance you can refi to a lower rate? Use some of the cash after getting rid of the PMI to switch to a 15 year at a lower interest rate?

Topic Author
bstewie
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Re: Invest vs. Pay Down

Post by bstewie » Sun Feb 24, 2019 7:03 pm

Olemiss540 wrote:
Sun Feb 24, 2019 6:49 pm
We really need a good idea of balance remaining on your loans as well as cash account balance to provide useful feedback.

My initial input would be to knock out ALL THREE. Then get you EF built to 3-6 mo of expenses and start investing every spare dollar into your AA.
- EF is already @8-9mo expenses (40k in Vanguard Prime Money Market)
- Home loan is ~385k remaining @ 4.625%
- Car loan is ~20k remaining @ 0.9%
- Furniture is ~3.5k remaining @ 0%

Additional cash is ~40k

All up, this would require around ~45k. Arguably, I could knock them all out very quickly, just having an internal battle with paying off low interest loans vs. throwing it all into my taxable account based on current AA.

Topic Author
bstewie
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Re: Invest vs. Pay Down

Post by bstewie » Sun Feb 24, 2019 7:08 pm

wetgear wrote:
Sun Feb 24, 2019 6:55 pm
Yeah get rid of the PMI, I think that's the obvious part. After that investing the rest and/or paying down mortgage further are probably your 2 best options. Any chance you can refi to a lower rate? Use some of the cash after getting rid of the PMI to switch to a 15 year at a lower interest rate?
I bought the house last year, haven't considered this, maybe something to look into. Quick quote on the internet indicates I would be in the 3.5-3.6% range on a 15y, and the monthly payment increase would be $800 which is effectively equivalent to the outflow I'm currently carrying with the other three items (e.g., pmi, car, furniture).

dmk395
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Re: Invest vs. Pay Down

Post by dmk395 » Mon Feb 25, 2019 7:25 am

Get rid of PMI asap

be217
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Re: Invest vs. Pay Down

Post by be217 » Mon Feb 25, 2019 8:51 am

The math on PMI:

Your effective interest rate on the amount required to eliminate PMI is your mortgage rate + (annual PMI cost / amount required to eliminate PMI). So while your mortgage rate is 4.6%, the effective interest on PMI bit might be close to 10% (and continually gets higher until the PMI is gone). I would pay that off. Stay on track with furniture to make sure you don't pay a penny of interest.

The math would say to keep the car loan, and mathematically I'm sure that's right. I would still pay it off next.

Living Free
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Re: Invest vs. Pay Down

Post by Living Free » Mon Feb 25, 2019 9:09 am

Get rid of the PMI if you can. After that given the amount of cash that you have I'd just get rid of the furniture loan next. I know the rate is 0% but you can just be done with it.

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abuss368
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Re: Invest vs. Pay Down

Post by abuss368 » Mon Feb 25, 2019 1:23 pm

bstewie wrote:
Sun Feb 24, 2019 7:03 pm
- EF is already @8-9mo expenses (40k in Vanguard Prime Money Market)
- Home loan is ~385k remaining @ 4.625%
- Car loan is ~20k remaining @ 0.9%
- Furniture is ~3.5k remaining @ 0%

Additional cash is ~40k

All up, this would require around ~45k. Arguably, I could knock them all out very quickly, just having an internal battle with paying off low interest loans vs. throwing it all into my taxable account based on current AA.
1) Pay off furniture as it is only $3,500 and not moving the needle. It will however free up cash flows each month to redeploy elsewhere.
2) Put $35,000 + on the mortgage.
John C. Bogle - Two Fund Portfolio: Total Stock & Total Bond. "Simplicity is the master key to financial success."

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