Extra $180/Month after Refinance. Where does it go?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
coupleofcents
Posts: 262
Joined: Wed May 24, 2017 7:55 am

Extra $180/Month after Refinance. Where does it go?

Post by coupleofcents »

Just refinanced for a 30 year at 3% leaving me an extra $180 per month from previous 30 year at 3.875% with 26 years left. Loan is for $196,000.

So I currently max work retirement plan, and my Roth IRA and wife's Trad IRA each year. Save another $500 per month that I'm putting into online savings with no specific purpose. We have a fully funded 6 month emergency fund and a brokerage account with about 100K in Total Stock and Total Int'l.

I'm thinking to just add the extra $180 to the principal even though the loan is only 3% interest. My thinking is since I refinanced I reset the clock to 30 years on the mortgage so it would be nice to pay the loan down a bit earlier. The extra $180 per month would cut the loan time by 7 years if held to maturity.

Details: MFJ, wife is stay at home with 2 kids 4 and 2 years old. 22% tax bracket.

Any thoughts, comments, suggestions.
Hiker-Biker
Posts: 205
Joined: Mon Sep 09, 2013 2:45 pm

Re: Extra $180/Month after Refinance. Where does it go?

Post by Hiker-Biker »

Start funding your kids 529 college savings plans?
TropikThunder
Posts: 2602
Joined: Sun Apr 03, 2016 5:41 pm

Re: Extra $180/Month after Refinance. Where does it go?

Post by TropikThunder »

I would just keep making the same payment precisely because you reset the clock. It obviously fit your budget pre-refi and you’ll shave considerable time off the back end.
Last edited by TropikThunder on Fri Sep 18, 2020 3:03 pm, edited 2 times in total.
hnd
Posts: 244
Joined: Mon Jun 22, 2020 11:43 am

Re: Extra $180/Month after Refinance. Where does it go?

Post by hnd »

coupleofcents wrote: Fri Sep 18, 2020 2:53 pm Just refinanced for a 30 year at 3% leaving me an extra $180 per month from previous 30 year at 3.875% with 26 years left. Loan is for $196,000.

So I currently max work retirement plan, and my Roth IRA and wife's Trad IRA each year. Save another $500 per month that I'm putting into online savings with no specific purpose. We have a fully funded 6 month emergency fund and a brokerage account with about 100K in Total Stock and Total Int'l.

I'm thinking to just add the extra $180 to the principal even though the loan is only 3% interest. My thinking is since I refinanced I reset the clock to 30 years on the mortgage so it would be nice to pay the loan down a bit earlier. The extra $180 per month would cut the loan time by 7 years if held to maturity.

Details: MFJ, wife is stay at home with 2 kids 4 and 2 years old. 22% tax bracket.

Any thoughts, comments, suggestions.
open a new account and double the amount or take it to what a 15 year would be and autoinvest it each month. revisit in 10 years. I'm currently doing this with the diffference between 15% and a 30% using fidelity and FFNOX.
User avatar
cheese_breath
Posts: 9942
Joined: Wed Sep 14, 2011 7:08 pm

Re: Extra $180/Month after Refinance. Where does it go?

Post by cheese_breath »

Invest it so you can retire earlier?
The surest way to know the future is when it becomes the past.
KlangFool
Posts: 18240
Joined: Sat Oct 11, 2008 12:35 pm

Re: Extra $180/Month after Refinance. Where does it go?

Post by KlangFool »

OP,

If you believe your portfolio can beat 3% per year, invest the money into your portfolio.


KlangFool
softwaregeek
Posts: 568
Joined: Wed May 08, 2019 8:59 pm

Re: Extra $180/Month after Refinance. Where does it go?

Post by softwaregeek »

Invest in taxable.
manatee2005
Posts: 1080
Joined: Wed Dec 18, 2019 9:17 pm

Re: Extra $180/Month after Refinance. Where does it go?

Post by manatee2005 »

Where would you invest if you got an $180 raise?
User avatar
CyclingDuo
Posts: 3744
Joined: Fri Jan 06, 2017 9:07 am

Re: Extra $180/Month after Refinance. Where does it go?

Post by CyclingDuo »

coupleofcents wrote: Fri Sep 18, 2020 2:53 pm ...currently max work retirement plan, and my Roth IRA and wife's Trad IRA each year. Save another $500 per month that I'm putting into online savings with no specific purpose. We have a fully funded 6 month emergency fund and a brokerage account with about 100K in Total Stock and Total Int'l.

Details: MFJ, wife is stay at home with 2 kids 4 and 2 years old. 22% tax bracket.

Any thoughts, comments, suggestions.
The underlined red would be our choice. Send the money every month to college education funds via a 529 for each child. $90 into each one if you were just using the $180 that is no longer going to the mortgage. Truth be told, if it were us in your situation, we would be ramping up the 529 plans pretty heavily right now with more than that each month. College costs will double over the next 10 years - and your kids are not even entering until 14 and 16 years from now. Stuff those 529 plans.

https://www.hermoney.com/borrow/student ... s-college/

https://www.fidelity.com/learning-cente ... calculator

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
User avatar
JoeRetire
Posts: 6034
Joined: Tue Jan 16, 2018 2:44 pm

Re: Extra $180/Month after Refinance. Where does it go?

Post by JoeRetire »

coupleofcents wrote: Fri Sep 18, 2020 2:53 pm Just refinanced for a 30 year at 3% leaving me an extra $180 per month from previous 30 year at 3.875% with 26 years left. Loan is for $196,000.

So I currently max work retirement plan, and my Roth IRA and wife's Trad IRA each year. Save another $500 per month that I'm putting into online savings with no specific purpose. We have a fully funded 6 month emergency fund and a brokerage account with about 100K in Total Stock and Total Int'l.

I'm thinking to just add the extra $180 to the principal even though the loan is only 3% interest. My thinking is since I refinanced I reset the clock to 30 years on the mortgage so it would be nice to pay the loan down a bit earlier. The extra $180 per month would cut the loan time by 7 years if held to maturity.

Details: MFJ, wife is stay at home with 2 kids 4 and 2 years old. 22% tax bracket.

Any thoughts, comments, suggestions.
If you haven't already done so, you should consider funding 529 accounts for your children.
Otherwise, add the $180 to your $500 being put into online savings. Then figure out the purpose for those savings and alter your process accordingly, perhaps moving most of it to your brokerage account.

You haven't provided enough information for a better answer. Think about coming up with some longer-term goals, then adjusting your finances to meet those goals.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
Topic Author
coupleofcents
Posts: 262
Joined: Wed May 24, 2017 7:55 am

Re: Extra $180/Month after Refinance. Where does it go?

Post by coupleofcents »

CyclingDuo wrote: Sat Sep 19, 2020 1:01 am
coupleofcents wrote: Fri Sep 18, 2020 2:53 pm ...currently max work retirement plan, and my Roth IRA and wife's Trad IRA each year. Save another $500 per month that I'm putting into online savings with no specific purpose. We have a fully funded 6 month emergency fund and a brokerage account with about 100K in Total Stock and Total Int'l.

Details: MFJ, wife is stay at home with 2 kids 4 and 2 years old. 22% tax bracket.

Any thoughts, comments, suggestions.
The underlined red would be our choice. Send the money every month to college education funds via a 529 for each child. $90 into each one if you were just using the $180 that is no longer going to the mortgage. Truth be told, if it were us in your situation, we would be ramping up the 529 plans pretty heavily right now with more than that each month. College costs will double over the next 10 years - and your kids are not even entering until 14 and 16 years from now. Stuff those 529 plans.

https://www.hermoney.com/borrow/student ... s-college/

https://www.fidelity.com/learning-cente ... calculator

CyclingDuo
Lots of recommendations for 529 plans. My reasons for not doing anything have been:

- I'm in a lower tax bracket and don't anticipate being in a higher bracket later in life. I'm thinking about doing a second career in teaching when my kids will be entering college.
- My parents didn't have a 529 plan but helped a bit for my college, and I worked summers, and got scholarships etc
- I'm willing to help my kids some during college but don't want to tie up monies that I'm not sure they will use yet... I think college may not look the same in 15 years from now

What do you think? What are you reasons for doing a 529 plan?
Topic Author
coupleofcents
Posts: 262
Joined: Wed May 24, 2017 7:55 am

Re: Extra $180/Month after Refinance. Where does it go?

Post by coupleofcents »

JoeRetire wrote: Sat Sep 19, 2020 6:47 am
coupleofcents wrote: Fri Sep 18, 2020 2:53 pm Just refinanced for a 30 year at 3% leaving me an extra $180 per month from previous 30 year at 3.875% with 26 years left. Loan is for $196,000.

So I currently max work retirement plan, and my Roth IRA and wife's Trad IRA each year. Save another $500 per month that I'm putting into online savings with no specific purpose. We have a fully funded 6 month emergency fund and a brokerage account with about 100K in Total Stock and Total Int'l.

I'm thinking to just add the extra $180 to the principal even though the loan is only 3% interest. My thinking is since I refinanced I reset the clock to 30 years on the mortgage so it would be nice to pay the loan down a bit earlier. The extra $180 per month would cut the loan time by 7 years if held to maturity.

Details: MFJ, wife is stay at home with 2 kids 4 and 2 years old. 22% tax bracket.

Any thoughts, comments, suggestions.
If you haven't already done so, you should consider funding 529 accounts for your children.
Otherwise, add the $180 to your $500 being put into online savings. Then figure out the purpose for those savings and alter your process accordingly, perhaps moving most of it to your brokerage account.

You haven't provided enough information for a better answer. Think about coming up with some longer-term goals, then adjusting your finances to meet those goals.
I wrote a note about 529 right above this but I'm considering it again after many of you have suggested 529s.

In terms of my savings, we were originally saving toward a down payment for a house. We were planning to move in a few years and sell our current house but now we are thinking to stay put, so I invested that money into my taxable brokerage. But you're right, we need to figure out the 500 per month that is on auto draft right now.
ddurrett896
Posts: 1387
Joined: Wed Nov 05, 2014 3:23 pm

Re: Extra $180/Month after Refinance. Where does it go?

Post by ddurrett896 »

Are you able to contribute to a HSA?

If not, I'd stick it in the bank.
User avatar
CyclingDuo
Posts: 3744
Joined: Fri Jan 06, 2017 9:07 am

Re: Extra $180/Month after Refinance. Where does it go?

Post by CyclingDuo »

coupleofcents wrote: Mon Sep 21, 2020 8:10 am
CyclingDuo wrote: Sat Sep 19, 2020 1:01 am
coupleofcents wrote: Fri Sep 18, 2020 2:53 pm ...currently max work retirement plan, and my Roth IRA and wife's Trad IRA each year. Save another $500 per month that I'm putting into online savings with no specific purpose. We have a fully funded 6 month emergency fund and a brokerage account with about 100K in Total Stock and Total Int'l.

Details: MFJ, wife is stay at home with 2 kids 4 and 2 years old. 22% tax bracket.

Any thoughts, comments, suggestions.
The underlined red would be our choice. Send the money every month to college education funds via a 529 for each child. $90 into each one if you were just using the $180 that is no longer going to the mortgage. Truth be told, if it were us in your situation, we would be ramping up the 529 plans pretty heavily right now with more than that each month. College costs will double over the next 10 years - and your kids are not even entering until 14 and 16 years from now. Stuff those 529 plans.

https://www.hermoney.com/borrow/student ... s-college/

https://www.fidelity.com/learning-cente ... calculator

CyclingDuo
Lots of recommendations for 529 plans. My reasons for not doing anything have been:

- I'm in a lower tax bracket and don't anticipate being in a higher bracket later in life. I'm thinking about doing a second career in teaching when my kids will be entering college.
- My parents didn't have a 529 plan but helped a bit for my college, and I worked summers, and got scholarships etc
- I'm willing to help my kids some during college but don't want to tie up monies that I'm not sure they will use yet... I think college may not look the same in 15 years from now

What do you think? What are you reasons for doing a 529 plan?
We didn't have 529 plans when we started as they came along later as our kids got older. By then, we had established UTMA's for each child and were contributing college money into those. We did start 529's when they became available later, but didn't contribute too much to those as the UTMA's were already fully funded.

Working as a college professor over the past 17.x years as my second career, I would be curious what your thoughts are regarding college not looking the same 15 years from now. What do think it will look like?

Obviously, each parent has to decide the level of help they are going to provide for their children to receive a college education to prepare them for a career. Your original post pointed out that up to this point, you have been fully funding your needs as a couple to prepare for your retirement nest egg, emergency fund, contributing to a taxable account, and did a smart re-finance of your home mortgage to save another $180 per month due to the lowered cost of interest. Just viewing all of that in your OP, my recommendation was for the children's education funds as you have everything else in great order and on auto pilot to keep growing for your needs.

Obviously, you wouldn't want to save for your children's eduction to the detriment of not funding your own needs, but in your case I don't see that. One can also just help pay for their college educations out of the taxable account as well as cash flow from salary at the time. Doing so would mean you lose all the tax advantages of the 529. Either way, even though their schooling is years away and it is easy to have plenty of thoughts of the unknown (they may not go to college, college will look different then, they may get scholarships, they will work to help pay for it all, etc...) - now is the time to start planning for the distant goal of their education as it is tough to play catch up later. If you also have the goal or plan of entering teacher education for yourself at the same time as they enter college, you could also have a 529 for yourself to use to cover the costs.

We all face those unknowns as parents when we have babies or toddlers in the household. In our case, my wife and I made the decision that our children would indeed be going to college 18 years later and started stacking up the funds on a monthly basis the entire time. We had no idea those funds would go through the dot-com bust, and the Great Financial Crisis, or if our kids would turn against us and actually refuse to go to college (they didn't :mrgreen: ) . In spite of all those unknowns we had right at the time when parents should start saving for their children's college educations, we powered through with our plan of saving which resulted in each child having enough to fully fund their educations to graduate debt free. I would probably give a different answer if your household was in a different financial picture (consumer debt, auto debt, student loan debt, etc.. that all needed to be addressed). Since you are not in that situation, it just appears you have the ability to start building funds for their education if that is a goal of yours. Hence my recommendation as what stood out to me in your OP.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
softwaregeek
Posts: 568
Joined: Wed May 08, 2019 8:59 pm

Re: Extra $180/Month after Refinance. Where does it go?

Post by softwaregeek »

529 is not the right answer for many. It counts against financial aid and may just be throwing money away in some cases.

It falls into the trap of "College is X Dollars" and not "College costs are negotiable". Few people pay full price.
BogleDan
Posts: 28
Joined: Sun Jun 03, 2018 5:49 pm

Re: Extra $180/Month after Refinance. Where does it go?

Post by BogleDan »

softwaregeek wrote: Tue Sep 22, 2020 5:27 pm 529 is not the right answer for many. It counts against financial aid and may just be throwing money away in some cases.

It falls into the trap of "College is X Dollars" and not "College costs are negotiable". Few people pay full price.
Though I would say a greater proportion of Boglehead forum posters will be paying full price than the general populace.
User avatar
grabiner
Advisory Board
Posts: 28280
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Extra $180/Month after Refinance. Where does it go?

Post by grabiner »

softwaregeek wrote: Tue Sep 22, 2020 5:27 pm 529 is not the right answer for many. It counts against financial aid and may just be throwing money away in some cases.

It falls into the trap of "College is X Dollars" and not "College costs are negotiable". Few people pay full price.
The 529 costs no more than a taxable account for financial aid. (Most colleges will not count money in a 401(k), which is thus a better deal, but the OP is maxing out the 401(k)).
Wiki David Grabiner
Topic Author
coupleofcents
Posts: 262
Joined: Wed May 24, 2017 7:55 am

Re: Extra $180/Month after Refinance. Where does it go?

Post by coupleofcents »

grabiner wrote: Tue Sep 22, 2020 7:55 pm
softwaregeek wrote: Tue Sep 22, 2020 5:27 pm 529 is not the right answer for many. It counts against financial aid and may just be throwing money away in some cases.

It falls into the trap of "College is X Dollars" and not "College costs are negotiable". Few people pay full price.
The 529 costs no more than a taxable account for financial aid. (Most colleges will not count money in a 401(k), which is thus a better deal, but the OP is maxing out the 401(k)).
Thanks for the clarification, and yes we are maxing out retirement accounts so it will go either savings, mortgage pay down, or taxable brokerage.
Topic Author
coupleofcents
Posts: 262
Joined: Wed May 24, 2017 7:55 am

Re: Extra $180/Month after Refinance. Where does it go?

Post by coupleofcents »

Thanks Everyone. After some more research and feedback from you, I've decided to go with the 529 Plan. Just opened an account for both and set up $100/month for each.
Topic Author
coupleofcents
Posts: 262
Joined: Wed May 24, 2017 7:55 am

Re: Extra $180/Month after Refinance. Where does it go?

Post by coupleofcents »

CyclingDuo wrote: Mon Sep 21, 2020 8:59 am
coupleofcents wrote: Mon Sep 21, 2020 8:10 am
CyclingDuo wrote: Sat Sep 19, 2020 1:01 am
coupleofcents wrote: Fri Sep 18, 2020 2:53 pm ...currently max work retirement plan, and my Roth IRA and wife's Trad IRA each year. Save another $500 per month that I'm putting into online savings with no specific purpose. We have a fully funded 6 month emergency fund and a brokerage account with about 100K in Total Stock and Total Int'l.

Details: MFJ, wife is stay at home with 2 kids 4 and 2 years old. 22% tax bracket.

Any thoughts, comments, suggestions.
The underlined red would be our choice. Send the money every month to college education funds via a 529 for each child. $90 into each one if you were just using the $180 that is no longer going to the mortgage. Truth be told, if it were us in your situation, we would be ramping up the 529 plans pretty heavily right now with more than that each month. College costs will double over the next 10 years - and your kids are not even entering until 14 and 16 years from now. Stuff those 529 plans.

https://www.hermoney.com/borrow/student ... s-college/

https://www.fidelity.com/learning-cente ... calculator

CyclingDuo
Lots of recommendations for 529 plans. My reasons for not doing anything have been:

- I'm in a lower tax bracket and don't anticipate being in a higher bracket later in life. I'm thinking about doing a second career in teaching when my kids will be entering college.
- My parents didn't have a 529 plan but helped a bit for my college, and I worked summers, and got scholarships etc
- I'm willing to help my kids some during college but don't want to tie up monies that I'm not sure they will use yet... I think college may not look the same in 15 years from now

What do you think? What are you reasons for doing a 529 plan?
We didn't have 529 plans when we started as they came along later as our kids got older. By then, we had established UTMA's for each child and were contributing college money into those. We did start 529's when they became available later, but didn't contribute too much to those as the UTMA's were already fully funded.

Working as a college professor over the past 17.x years as my second career, I would be curious what your thoughts are regarding college not looking the same 15 years from now. What do think it will look like?

Obviously, each parent has to decide the level of help they are going to provide for their children to receive a college education to prepare them for a career. Your original post pointed out that up to this point, you have been fully funding your needs as a couple to prepare for your retirement nest egg, emergency fund, contributing to a taxable account, and did a smart re-finance of your home mortgage to save another $180 per month due to the lowered cost of interest. Just viewing all of that in your OP, my recommendation was for the children's education funds as you have everything else in great order and on auto pilot to keep growing for your needs.

Obviously, you wouldn't want to save for your children's eduction to the detriment of not funding your own needs, but in your case I don't see that. One can also just help pay for their college educations out of the taxable account as well as cash flow from salary at the time. Doing so would mean you lose all the tax advantages of the 529. Either way, even though their schooling is years away and it is easy to have plenty of thoughts of the unknown (they may not go to college, college will look different then, they may get scholarships, they will work to help pay for it all, etc...) - now is the time to start planning for the distant goal of their education as it is tough to play catch up later. If you also have the goal or plan of entering teacher education for yourself at the same time as they enter college, you could also have a 529 for yourself to use to cover the costs.

We all face those unknowns as parents when we have babies or toddlers in the household. In our case, my wife and I made the decision that our children would indeed be going to college 18 years later and started stacking up the funds on a monthly basis the entire time. We had no idea those funds would go through the dot-com bust, and the Great Financial Crisis, or if our kids would turn against us and actually refuse to go to college (they didn't :mrgreen: ) . In spite of all those unknowns we had right at the time when parents should start saving for their children's college educations, we powered through with our plan of saving which resulted in each child having enough to fully fund their educations to graduate debt free. I would probably give a different answer if your household was in a different financial picture (consumer debt, auto debt, student loan debt, etc.. that all needed to be addressed). Since you are not in that situation, it just appears you have the ability to start building funds for their education if that is a goal of yours. Hence my recommendation as what stood out to me in your OP.

CyclingDuo
Thanks for your thoughtful response. After talking with my wife, we have decided to start 529s. My thinking on the future of education was that so many universities are starting to offer online and even free classes. The skills of tomorrow, coding etc can probably be obtained outside of a college setting. But I'm sure there still will be great benefit in a standard college education even 15-20 years from now.

We are going to start small at $100 per month for each. I want my kids to have some skin in the game though once college does roll around.
shess
Posts: 737
Joined: Wed May 17, 2017 12:02 am

Re: Extra $180/Month after Refinance. Where does it go?

Post by shess »

coupleofcents wrote: Fri Sep 18, 2020 2:53 pm So I currently max work retirement plan, and my Roth IRA and wife's Trad IRA each year. Save another $500 per month that I'm putting into online savings with no specific purpose. We have a fully funded 6 month emergency fund and a brokerage account with about 100K in Total Stock and Total Int'l.
If you changed the wife's IRA to Roth, the additional taxes would eat up the $180 and the $500. At the 22% tax bracket, I think the choice between traditional and Roth is somewhat of a toss-up, though your situation could provide a clear argument for or against. That said, IMHO if you're happy investing in a taxable account, doing it in Roth seems like a no-brainer to me.

That said, I doubt that $2500/year/kid into a 529 will cause any long-term problems. Even if post-secondary schooling works out really well for your family, you're unlikely to not use all of that up.
Grt2bOutdoors
Posts: 23151
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Extra $180/Month after Refinance. Where does it go?

Post by Grt2bOutdoors »

softwaregeek wrote: Tue Sep 22, 2020 5:27 pm 529 is not the right answer for many. It counts against financial aid and may just be throwing money away in some cases.

It falls into the trap of "College is X Dollars" and not "College costs are negotiable". Few people pay full price.
Counts against financial aid?
College: we can give you a loan if you have no 529 plan or other assets available.

Parent: Where can I mail my check?

Student: But Dad it’s only 120 payments of $259 for each year of school!

Parent: You aren’t going to that college since $259 times 4 years of school is over $1,000 per month. You’d need to earn $75,000 plus out of college to pay that, after rent, 15 percent for retirement and $500 a month in your 3 Fund Boglehead approved portfolio!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
User avatar
CyclingDuo
Posts: 3744
Joined: Fri Jan 06, 2017 9:07 am

Re: Extra $180/Month after Refinance. Where does it go?

Post by CyclingDuo »

coupleofcents wrote: Thu Sep 24, 2020 1:37 pm
Thanks for your thoughtful response. After talking with my wife, we have decided to start 529s. My thinking on the future of education was that so many universities are starting to offer online and even free classes. The skills of tomorrow, coding etc can probably be obtained outside of a college setting. But I'm sure there still will be great benefit in a standard college education even 15-20 years from now.

We are going to start small at $100 per month for each. I want my kids to have some skin in the game though once college does roll around.
I think that is very wise.

None of us have any idea what college will look like 12-16 years from now, let alone 20, 30, 40, 50 years. Nor do we know what degrees will be "hot" and needed at the time. All we know is trends come and go over the decades and generations.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
Post Reply