Looking to payoff mortgage

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noco-hawkeye
Posts: 154
Joined: Sat Aug 16, 2014 8:20 am

Looking to payoff mortgage

Postby noco-hawkeye » Thu Apr 20, 2017 4:07 pm

I am posting this partly looking for feedback, but also I am fairly sure on what steps I will take next. Maybe someone has a point of view or an idea that I have not thought of yet - but here goes....

Background info:
Married couple, two kids (14 and 10). Both parents are working, in their early 40s. We have somewhere between 15-20X our annual expenses in retirement accounts. We have about 50% of the expected cost of a basic 4yr public university saved in each of our kids 529s currently. We max out 401ks and roths each year, but 529 contributions are very infrequent.

The interesting part:
I have a windfall where I could pay off my mortgage. My mortgage is a 4yr old 15yr product at 2.75%. If I make the bare min payment, I could be done in about 7-8 yrs (I have pre-payed a bit, am ahead of schedule). The other thing I could do is take that same amount, and get both 529s to be pretty much 100% funded (if college costs don't go too crazy).

This doesn't make a lot of mathematical sense, but I think I want to pay off the mortgage and redirect the monthly payments into the 529s. I know this return of about 2% is pretty low, but I also think investing in a high schoolers 529 will have a low return as well. Also, I want to retire first and foremost. I do not have a problem if my kids take on some debt in school - within a healthy range. The other part of getting rid of the mortgage is that we could also use monthly cash flow to cover college (at least when we have 1 kid in school). My biggest fear placing this windfall in the market (be that 529 or anything else) is that I would regret having passed up this option to dump the mortgage. The 529 in my state does offer a tax break of about 4%.

I have read the threads on how happy dumping the mortgage makes everyone, but I am posting this just in case there are some other ideas / angles to consider.

Thanks in advance :sharebeer

bloom2708
Posts: 1756
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Looking to payoff mortgage

Postby bloom2708 » Thu Apr 20, 2017 4:42 pm

I'm a big fan of being debt/mortgage free. You do have a nice low rate so you will get some feedback suggesting you shouldn't pay it off.

A couple things to consider. The 14 year old and 10 year old do not have to have the same 529/college funds at this point. Will the amount just cover your mortgage or any left over to pad the oldest's 529 a bit?

Another topic to think about, we saved 50% of expected college expenses in the 529 and 50% in a Vanguard taxable account. Quite conservative 30% Total US Stock, 70% Int-Term Tax-Exempt Bond index. Moving to all bonds as college approaches. Then to more of a Limited-Term.

The thinking is that a kid might get scholarships, might only attend a 2 year school, might attend no college. If you fully load up a 529, you can move from one kid to the next. We fell in the middle and funded both ways. If there is extra taxable left over, that can be a wedding fund or car or start of an investment account. Or, we can keep it if a kid doesn't live up to our paying for college. I hope that doesn't happen, but who knows.

Paying off the mortgage, you can move the payment to the 529/taxable strategy and work toward fully funding. With 4 years left for the oldest, not sure if you have time on your side, but you could put a good dent and cashflow some during the first years. Lots of options.

My vote would be to pay off the mortgage. We paid ours off in 2007. No regrets. Oldest is 17, college is close. 14 and 9 to follow. :wink:
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead | | Want to buy something? Watch this first: https://vimeo.com/41152287

sport
Posts: 5476
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: Looking to payoff mortgage

Postby sport » Thu Apr 20, 2017 4:46 pm

A mortgage with a rate that low is costing you very little, especially after taxes. Almost certainly you have better places to put that money rather than paying it off any earlier than necessary.

noco-hawkeye
Posts: 154
Joined: Sat Aug 16, 2014 8:20 am

Re: Looking to payoff mortgage

Postby noco-hawkeye » Thu Apr 20, 2017 5:24 pm

bloom2708 wrote: The 14 year old and 10 year old do not have to have the same 529/college funds at this point. Will the amount just cover your mortgage or any left over to pad the oldest's 529 a bit?


We have a bit more in the 14yr old's account, but they are pretty similar. Yes, we could load up one or the others and have them weighted in a certain way. With the flexibility of the 529s, I don't worry too much who has what amounts, if they are reasonably close or we contribute the same amounts in each.

sport wrote:A mortgage with a rate that low is costing you very little, especially after taxes. Almost certainly you have better places to put that money rather than paying it off any earlier than necessary.


This is not lost on me, that it costs so little - you have a point. My feeling is that "why keep on playing the game if you have already won?" It's not that we have "won", but we are pretty far along in covering retirement costs and getting to financial independence. Would it make more sense to place this money in an investment for another 25 years? Probably - but we could also live those 25 years with a bit more flexibility in our budget too. This is the part where it doesn't make sense math-wise, but more emotionally for our well being.

mortfree
Posts: 271
Joined: Mon Sep 12, 2016 7:06 pm

Re: Looking to payoff mortgage

Postby mortfree » Thu Apr 20, 2017 5:53 pm

If it's under 100k pay it off.

Any more than that and I would probably not pay it off.


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