WWYD? Cash in Investment to Pay Off Mortgage Question

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Eagle
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WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

WWYD? We are on Baby Steps 4 (Save at least 15% Retirement)/5 (Save for Kids College)/6(Early Mortgage Payoff) of Dave Ramsey’s program. We are saving about 17% of our gross income for retirement.

We are 35 and 34 years old. We have two young children and a baby on the way.

Income:
76.4k gross per year

Net Income: (I get paid on Fridays)
$3,827 (Months with 4 Fridays)
$4,783 (Months with 5 Fridays)

We generally budget about $3000 in expenses and the rest is budgeted towards savings or house payoff.

We have a net worth of about 332k.

Assets:
Cash – 13k
401k & – 118.2k
Roth IRA – 8.3K
Fidelity Investment – 87.9k
Vanguard Star 1 – 5.8k
Vanguard Star 2 – 5.9k
House – 160k
Car (Honda Civic 2007) – 8.5k
Van (Toyota Sienna 2004) – 6k

Debts:
89.2k principle at 4.625% Interest. Note: We paid 20% down so no PMI.

We currently can pay about $5500 extra towards the principle of the mortgage each year. At this rate it would take 16 years to pay off the house.

My next promotion at work should theoretically be within the next 18-24 months. This would likely be a pay raise of about 15-20k.

We currently have a non-retirement, Fidelity mutual investment with a balance of 87.9k. We owe 89.2k on our mortgage.

For perspective on the Fidelity Investment...
From memory, in 2008/2009 this investment was worth about 35-40k. In Jan 2013 it was worth 56.4k.
We have not added anything to the account since that time.
It was originally money set aside for my wife’s education but she ended up not needing it since she used getunbound.org .

The way I see it we have a least 3 options:

1. Cash in the entire investment and pay off the mortgage.
2. Leave account alone and don’t pay off the mortgage.
3. Cash in part of the investment and pay off a portion of the mortgage.

Would you cash out the Fidelity investment and pay down (or off) the mortgage?

As a follow up to this thread about housing rentals: viewtopic.php?f=2&t=221133
Last edited by Eagle on Tue Jun 20, 2017 1:14 pm, edited 1 time in total.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

Additionally to do:

A. Call Lender to find out monthly payment cost breakdown and payoff.
Done!
Principle – $205
Interest – $341
Extra Principle - $127
Tax – 270
Insurance - $111

Mortgage payoff if by July 5, 2017: $89,243.64

So we'd be freeing up $672 a month.

B. Call Fidelity – to see penalty if any for cashing out the investment.

Done. Taxable Gains $17,349. As I understand it all we would have to do is pay taxes on the gains.

C. Call CPA – to see tax implications.
Called and left a message. Need to set up appointment.
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JamesSFO
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by JamesSFO »

I'm a big fan of paying off mortgages early but would not recommend cashing out your investments to do so. Are 401Ks being maxxed out? Roth IRA space? If not, I would put more there first before paying even more on mortgage.

Dave Ramsey is great on getting out of debt and getting basics set up, but IMHO not good on what to invest in or his hatred of any type of debt.

Mortgage debt is cheap leverage if you've bought appropriately for your income and wiping out your $90K @ Fidelity to pay off will leave you with few options.
WhiteMaxima
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by WhiteMaxima »

Open a home equity line of credit. Pay down you mortgage. Use HELC as cash just in case you need it.
John Laurens
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by John Laurens »

I will be the minority opinion. I would pay the cap gain taxes and then pay off the mortgage. I can say that because I did it 2007. Got lucky with timing. Maybe you will as well. Maybe not. I would ask yourself this question.

If equities drop 20+% over the next couple of years, will you kick yourself for not paying mortgage?
If equities increase 20+%, will you kick yourself for selling them and paying mortgage?

Only you and especially your wife can answer those questions. People will come along behind me and talk about a few % points here and there. I attribute almost directly more than doubling my income by becoming completely debt free. I had so much relief that I was able to confidently take risks in my business. Intangible benefit of becoming debt free.

Regards,
John
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Grt2bOutdoors »

I am a fan of Dave and a fan of paying off mortgages. That said, why not compromise? Pay down enough of the mortgage so that principal payments and interest are equal - each month you'll pay more in principal by the inertia of making regular mortgage payments while leaving the rest of the investment to compound. Given your ages, you will have nearly 30 years to earn a return that will in most cases likely earn substantially more than the 3.5% after-tax you are paying assuming you itemize on your federal tax return. But, just in case it doesn't work out as planned and investments earn less, you will still pay off your mortgage on an accelerated basis, then as your income grows through raises/promotions you have added flexibility of where to allocate those dollars. Or perhaps, you just feel the urge to call up Dave and scream "I'm Debt FREE"!!!! :)
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Grt2bOutdoors »

WhiteMaxima wrote:Open a home equity line of credit. Pay down you mortgage. Use HELC as cash just in case you need it.
In a rising rate environment, that will be an expensive (less than a credit card though) form of borrowing your own money.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
ponyboy
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by ponyboy »

Guess the website savingsadvice didnt give enough info...imagine that.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by DL1111 »

Don't cash in your investments to pay off your mortgage. You should however start maxing out that Roth every year. With your income and being able to put away 15% for retirement that's a no brainier. Whatever you're planning on throwing at extra principal I would consider adjusting your 401k contributions by that much to lower your taxable income while still enjoying the mortgage interest tax deduction.

Dave is good for financial newbies or people that really don't understand money at all (most of the time that's why they're in the situation they're in, in the first place). Your mortgage payment/monthly income is easily manageable.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Watty »

There is a wiki on this choice.

https://www.bogleheads.org/wiki/Paying_ ... _investing
Eagle wrote:Income:
76.4k gross per year
It sound like you are in the 15% federal tax bracket where long term capital gains tax rates are 0% up to the top of the 15% tax bracket.

One option would be to sell enough just enough of the investments to get to the top of the 15% tax bracket and use that money to pay down your mortgage. Doing that might take two(or maybe three) years to free up enough to pay off the house.

If the dividends in the taxable account are automatically being reinvested then you may want to not have them automatically reinvested so that all of your gains will be long term gains. As I recall many mutual funds will pay dividends near the end of June so you might want to do that right away.

Even if you decide not to pay off the house you may want to "tax gain harvest" each December to the top of the 15% tax bracket to get a higher cost basis. It would be good to do a dummy tax return to see the total impact of doing this since things like state taxes or income phase outs could be a hidden cost.

https://www.bogleheads.org/wiki/Tax_gain_harvesting

You can also do things like "tax gain harvest" $5,000 and use that money to fund a deductible IRA. You may have to pay with the numbers to do several iterations to find the maximum amount that you can "tax gain harvest".

4.625% is not a good mortgage rate but the costs of refinancing might not be worthwhile since your loan is relatively small. If you had a lower interest rate loan it might be more tempting to not pay it off. Currently you are paying over $4,000 in interest a year and I would suspect that you are not getting much tax advantage from that.

If you decide to not pay it off right away then option to look at is the PenFed 5/5 ARM to see if the closing costs would be low enough to make refinancing a good choice. That loan would work best if would still get if paid off in ten years or so.

https://www.penfed.org/5_5-Adjustable-R ... tgage-ARM/

I was in a different situation but about five years before I retired I used this loan to get a lower interest rate while I paid down the rest of my mortgage before I retired.
WWYD?
In your situation I would wait until mid-December when I was pretty sure of my 2017 income numbers and sell enough stock to get up to the top of the 15% tax bracket and use that money to pay down the mortgage. I would then do that again in December of 2018 and future years if it still makes sense then. If you make a big payment in December of 2017 then you could sell enough stock in January of 2018 to finish paying off the mortgage.

That would give you a paid off house before you are 40 so you would be in a really good situation then.
JamesSFO wrote:Are 401Ks being maxxed out? Roth IRA space? If not, I would put more there first before paying even more on mortgage.
Being in a hurry to max out the retirement accounts may not be an urgent need for the OP since they have access to at least one 401k($18,500) and a two deductible IRA's ($5,500) each. Combined that is almost $30K a year in retirement account contributions which is not realistic with their income. Before I retired I had a somewhat similar income and I was never able to max out all my retirement space so the need to take advantage of all possible retirement saving space is a lot different than for higher income families.

That said, moving some their emergency money into a Roth each year might not be a bad idea.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund
JGoneRiding
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by JGoneRiding »

D. Call something like navy federal or penfed. Ask about either a first line heloc or a 10/1 arm or even 10 yr loan. See if refi makes sense and plan to havr it done by then. Set it and forget it.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

JamesSFO wrote:I'm a big fan of paying off mortgages early but would not recommend cashing out your investments to do so. Are 401Ks being maxxed out? Roth IRA space? If not, I would put more there first before paying even more on mortgage.

Dave Ramsey is great on getting out of debt and getting basics set up, but IMHO not good on what to invest in or his hatred of any type of debt.

Mortgage debt is cheap leverage if you've bought appropriately for your income and wiping out your $90K @ Fidelity to pay off will leave you with few options.
401ks and ROTH IRAs are not being maxed out. I'm the only one who works at the moment.

Baby was due June 18th. So that will delay DW (dear wife) going back to work.

1. Dave Ramsey had a bad experience with cc collections when he was in financial trouble so "no cc rule" or debt aversion would be a natural response to that. I believe Dave even went bankrupt at least once or twice.

2. Dave is helping people with debt issues - they already have a spending problem (or suffered a major life event crisis out of their control) there're cc or debt would just up the temptation to spend.

That's a good point about having few options. Lots to consider.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

WhiteMaxima wrote:Open a home equity line of credit. Pay down you mortgage. Use HELC as cash just in case you need it.
I don't think we need more credit. We can always do this as a last resort I suppose.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

John Laurens wrote:I will be the minority opinion. I would pay the cap gain taxes and then pay off the mortgage. I can say that because I did it 2007. Got lucky with timing. Maybe you will as well. Maybe not. I would ask yourself this question.

If equities drop 20+% over the next couple of years, will you kick yourself for not paying mortgage?
If equities increase 20+%, will you kick yourself for selling them and paying mortgage?


Only you and especially your wife can answer those questions. People will come along behind me and talk about a few % points here and there. I attribute almost directly more than doubling my income by becoming completely debt free. I had so much relief that I was able to confidently take risks in my business. Intangible benefit of becoming debt free.

Regards,
John
I was discussing this with my wife this weekend. I'll be a lot more upset if the equities drop in the next couple of years. If they go up that's fine. I get the feeling that we are coming up on something soon. This bull market can't last forever.

Yes, I'm thinking of the intangible benefits too. We both agreed we sure would sleep better at night without that mortgage hanging over our heads.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

Grt2bOutdoors wrote:I am a fan of Dave and a fan of paying off mortgages. That said, why not compromise? Pay down enough of the mortgage so that principal payments and interest are equal - each month you'll pay more in principal by the inertia of making regular mortgage payments while leaving the rest of the investment to compound. Given your ages, you will have nearly 30 years to earn a return that will in most cases likely earn substantially more than the 3.5% after-tax you are paying assuming you itemize on your federal tax return. But, just in case it doesn't work out as planned and investments earn less, you will still pay off your mortgage on an accelerated basis, then as your income grows through raises/promotions you have added flexibility of where to allocate those dollars. Or perhaps, you just feel the urge to call up Dave and scream "I'm Debt FREE"!!!! :)
That might be a good compromise. :happy

Maybe just cash in half the investment or as another poster suggested to just below the next tax bracket.

We do feel the urge to be done with debt. Don't think we'll be calling into the show though. We still have credit cards we pay off every month and enjoy cash back on. That's one of the big "No No's" and keeps you from being considered. Ah well. We're not doing this for Dave but for the satisfaction of having financial freedom. :sharebeer :thumbsup
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

Grt2bOutdoors wrote:
WhiteMaxima wrote:Open a home equity line of credit. Pay down you mortgage. Use HELC as cash just in case you need it.
In a rising rate environment, that will be an expensive (less than a credit card though) form of borrowing your own money.
True, it would be less expensive than a CC but we can build up our cash position or emergency fund without the mortgage hanging over our heads right?
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

ponyboy wrote:Guess the website savingsadvice didnt give enough info...imagine that.
Lol I came over from that website to join Bogleheads at a suggestion from an acquaintance there. There's like 15-30 people active over there. :oops:
simple man
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by simple man »

We used savings to pay off a large mortgage awhile back and it was GREAT! Do not underestimate the psychological benefits of having no debt. When the market fell last time, all the neighbors were freaking out - but with no debt, it was a big yawn for us. As long as you have enough cash or access to cash for emergencies, I would do it every time.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by jimb_fromATL »

Eagle wrote:
JamesSFO wrote:I'm a big fan of paying off mortgages early but would not recommend cashing out your investments to do so. Are 401Ks being maxxed out? Roth IRA space? If not, I would put more there first before paying even more on mortgage.

Dave Ramsey is great on getting out of debt and getting basics set up, but IMHO not good on what to invest in or his hatred of any type of debt.

Mortgage debt is cheap leverage if you've bought appropriately for your income and wiping out your $90K @ Fidelity to pay off will leave you with few options.
401ks and ROTH IRAs are not being maxed out. I'm the only one who works at the moment.

Baby was due June 18th. So that will delay DW (dear wife) going back to work.


Dave's baby steps are for debtaholics and spendaholics who are in debt up their eyeballs and have no idea what to do about it. That does not appear to be your case. So his advice about retirement and paying off additional debt does not apply.

If you want to put your money to its best use, you need to max all available tax-advantaged retirement investments before you pay off virtually any manageable debt, especially the mortgage (and any student loan) debts.

If you were --or are now-- following Dave's advice to reduce your contributions to any available tax deferred or tax-advantage retirement plans, you've probably already lost a lot of opportunity to earn a lot of compound interest for your future retirement in exchange for saving only a tiny fraction as much interest on the debt.

Don't put off contributions to retirement while you're building up a bigger emergency fund, either. Instead, as long as you have a thousand or two in liquid assets for emergencies, you'll come out better to contribute up to the max allows for Roth IRAs for you and your spouse -- even if she's not working. You can take out your contributions from your Roth(s) at any time without tax or penalty, so they can serve as a secondary source of emergency funds. If you weren't going to max them every year, you won't be losing anything if you have to take some of it back out in a dire emergency. But if you don't have to take any out, then you have not lost the once-per-year use-it-or-lose-it opportunity to invest $11K or your money in an account where it can earn compound interest for the rest of your life tax-free.

A good rule of thumb when your income is in the range to qualify for Roth IRAs is to contribute up to the max of any employer matching contributions for a 401(k) or other tax-deferred plan; then max your Roth IRAs. Then if you have any more money to spare, max the 401(k) - type plans. Then after you have at least 6 months to a year of living expenses saved in in liquid assets for emergency you can start using any extra income to pay off your mortgage or other manageable debts faster.

How are the funds invested in the taxable account?

With the amount of extra cash you have every month it does not sound like it would make any financial sense to cash out any existing investments and pay extra tax just to pay down the mortgage or any other debt either. While paying down the mortgage (or any other debt) faster does give you a guaranteed return with no risk to the principal, it ties up the money where you cannot easily get to it for any other purpose. If it's to pay off a car, your money is tied up in an asset that is probably not worth what you paid for it. If it's the mortgage, you can't get your money back out without selling the home or refinancing ... or perhaps putting your home back at more risk by borrowing with an equity loan.

And if the entire history of the stock market is any indicator, you will most likely be able to earn more in both retirement funds and the taxable account than you'll save on mortgage interest or on those other debts.

Here are some links to several threads where my posts show examples of how delaying retirement investing and paying taxes prematurely in order to pay down manageable debts too fast can --depending on your age, income and tax brackets -- literally cost anywhere from tens to hundreds of thousands to sometimes millions of dollars out of your future retirement income in exchange for saving only a tiny fraction as much interest on the relatively short term debts.
My post in THIS THREAD and a lot of posts on this forum by other folks point out that a Roth IRA can also serve as a secondary source of emergency funds.


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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Miriam2 »

jimb_fromATL wrote:If you want to put your money to its best use, you need to max all available tax-advantaged retirement investments before you pay off virtually any manageable debt, especially the mortgage (and any student loan) debts.
jimb - how do you define or what would you consider "manageable" (1) mortgage debt and (2) student loan debt?
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by jimb_fromATL »

Miriam2 wrote:
jimb_fromATL wrote:If you want to put your money to its best use, you need to max all available tax-advantaged retirement investments before you pay off virtually any manageable debt, especially the mortgage (and any student loan) debts.
jimb - how do you define or what would you consider "manageable" (1) mortgage debt and (2) student loan debt?
It depends on the circumstances, but in this case the debts are certainly manageable when the OP can make the payments and still have $5500 per year left over to pay extra on their debt ... or to invest instead.

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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

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Eagle wrote:89.2k principle at 4.625% Interest. Note: We paid 20% down so no PMI.

We currently can pay about $5500 extra towards the principle of the mortgage each year. At this rate it would take 16 years to pay off the house.
Since you are on track to pay it off in 16 years anyway, you should refinance to 15 years to get a much lower rate. This will cause you to pay a lot less interest while paying off the loan. You may then decide it is not worth paying off; it's likely to be better to max out a 401(k) in preference to making advance mortgage payments.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by knpstr »

jimb_fromATL wrote:
Miriam2 wrote:
jimb_fromATL wrote:If you want to put your money to its best use, you need to max all available tax-advantaged retirement investments before you pay off virtually any manageable debt, especially the mortgage (and any student loan) debts.
jimb - how do you define or what would you consider "manageable" (1) mortgage debt and (2) student loan debt?
It depends on the circumstances, but in this case the debts are certainly manageable when the OP can make the payments and still have $5500 per year left over to pay extra on their debt ... or to invest instead.

jimb
He already has the (basically)all the money "saved" in the taxable account.
He can do both: pay off his mortgage and max his retirement accounts this year.
They'd be in fantastic shape.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by mortfree »

Wait for the new baby to arrive before doing anything drastic.

Refinancing sounds like a good choice.

Personally, I would not give up my investments to pay off that mortgage.

If you are truly not sure about the market, etc that means your asset allocation may be inappropriate.

You do not have a mortgage/debt problem.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

DL1111 wrote:Don't cash in your investments to pay off your mortgage. You should however start maxing out that Roth every year. With your income and being able to put away 15% for retirement that's a no brainier. Whatever you're planning on throwing at extra principal I would consider adjusting your 401k contributions by that much to lower your taxable income while still enjoying the mortgage interest tax deduction.

Dave is good for financial newbies or people that really don't understand money at all (most of the time that's why they're in the situation they're in, in the first place). Your mortgage payment/monthly income is easily manageable.
Yes, that's one option. Instead of paying off the mortgage sooner we could contribute more towards retirement accounts.

Again, Dave Ramsey's teachings are based on his experience.

1. Dave Ramsey had a bad experience with cc collections when he was in financial trouble so "no cc rule" or debt aversion would be a natural response to that. I believe Dave even went bankrupt at least once or twice.

2. Dave is helping people with debt issues - they already have a spending problem (or suffered a major life event crisis out of their control) there're cc or debt would just up the temptation to spend.

I do feel like maybe it's time to "graduate" from Dave Ramsey's teachings. Methinks we've outgrown him. :P
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

Watty wrote:There is a wiki on this choice.

https://www.bogleheads.org/wiki/Paying_ ... _investing
Eagle wrote:Income:
76.4k gross per year
It sound like you are in the 15% federal tax bracket where long term capital gains tax rates are 0% up to the top of the 15% tax bracket.

One option would be to sell enough just enough of the investments to get to the top of the 15% tax bracket and use that money to pay down your mortgage. Doing that might take two(or maybe three) years to free up enough to pay off the house.

If the dividends in the taxable account are automatically being reinvested then you may want to not have them automatically reinvested so that all of your gains will be long term gains. As I recall many mutual funds will pay dividends near the end of June so you might want to do that right away.

Even if you decide not to pay off the house you may want to "tax gain harvest" each December to the top of the 15% tax bracket to get a higher cost basis. It would be good to do a dummy tax return to see the total impact of doing this since things like state taxes or income phase outs could be a hidden cost.

https://www.bogleheads.org/wiki/Tax_gain_harvesting

You can also do things like "tax gain harvest" $5,000 and use that money to fund a deductible IRA. You may have to pay with the numbers to do several iterations to find the maximum amount that you can "tax gain harvest".

4.625% is not a good mortgage rate but the costs of refinancing might not be worthwhile since your loan is relatively small. If you had a lower interest rate loan it might be more tempting to not pay it off. Currently you are paying over $4,000 in interest a year and I would suspect that you are not getting much tax advantage from that.

If you decide to not pay it off right away then option to look at is the PenFed 5/5 ARM to see if the closing costs would be low enough to make refinancing a good choice. That loan would work best if would still get if paid off in ten years or so.

https://www.penfed.org/5_5-Adjustable-R ... tgage-ARM/

I was in a different situation but about five years before I retired I used this loan to get a lower interest rate while I paid down the rest of my mortgage before I retired.
WWYD?
In your situation I would wait until mid-December when I was pretty sure of my 2017 income numbers and sell enough stock to get up to the top of the 15% tax bracket and use that money to pay down the mortgage. I would then do that again in December of 2018 and future years if it still makes sense then. If you make a big payment in December of 2017 then you could sell enough stock in January of 2018 to finish paying off the mortgage.

That would give you a paid off house before you are 40 so you would be in a really good situation then.
JamesSFO wrote:Are 401Ks being maxxed out? Roth IRA space? If not, I would put more there first before paying even more on mortgage.
Being in a hurry to max out the retirement accounts may not be an urgent need for the OP since they have access to at least one 401k($18,500) and a two deductible IRA's ($5,500) each. Combined that is almost $30K a year in retirement account contributions which is not realistic with their income. Before I retired I had a somewhat similar income and I was never able to max out all my retirement space so the need to take advantage of all possible retirement saving space is a lot different than for higher income families.

That said, moving some their emergency money into a Roth each year might not be a bad idea.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund
Thanks Watty for a very thorough post and helpful links. Looks like I have some reading to do. :D

I like the idea of tax gain harvesting each year.

I also like the option of harvesting enough for another Roth IRA for my wife or to max out my own.

If we don't pay off the mortgage a refinance may be a good idea. My credit score is 827 as of last week so we may be able to reduce our interest rate. If we're able to reduce it by 1% or 1.5% interest it may be worth it?

Interest suggestion that Roth IRA is a good idea for emergency fund? Yes, that might make sense. You can always withdraw the principle right?

Yes, maxing out our retirement accounts is not in the cards right now. We'd need to increase our income (wife go to work or me get the promotion early) or drastically reduce our expenses.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

JGoneRiding wrote:D. Call something like navy federal or penfed. Ask about either a first line heloc or a 10/1 arm or even 10 yr loan. See if refi makes sense and plan to havr it done by then. Set it and forget it.
I think we want to stay away from arm loans. I guess I don't know enough about them to understand what a 10/1 arm loan means? Refinancing to a 10 year or 15 year loan might make sense if we can reduce the interest rate.

I don't think we can forget the mortgage at this point. We are ready to be done with debt but want to do what's best. Not what feels good. That's why we need to weigh in on our options.

Currently, I estimate we'd still be paying another $30,000 in interest if we let the loan ride as is.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by LukeHeinz57 »

Just chiming in to say jimb_fromATL offered some excellent advice above. It expands upon what I would have said. I also "graduated" from Dave Ramsey several years ago. Was an FPU Coordinator and everything. Best of luck to you in the next stage of your journey. You will find a ton of helpful and informed advice on Bogleheads. I've learned a lot here from people way above and below me both income and net worth wise. Cheers! :beer
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by LukeHeinz57 »

One thing I meant to add Eagle, have you looked at how much of your mortgage payment is Taxes and insurance? Sometimes I think people in their excitement to be debt free make the mental assumption that when they "pay off" their mortgage they are done with it entirely. Only to find that 1/3 or even 1/2 of the bill is still there just paid separately to the county and insurance co. Just a thought to consider.

Those here advising making ROTH or other retirement contributions in lieu of paying down the mortgage faster are perhaps giving more thought to the gains and interest earned on tax-deferred investments than the relatively small amount paid on your very manageable mortgage. Whether or not to refinance is an entirely separate issue.

Just wanted to lend a voice from the other side as someone familiar with DR and that background. Had I "stayed the course" from my FPU days I would be mortgage free right now, but missing low six figures in investments in my 401k, ROTH and After tax account. I can honestly tell you I am very glad I did not continue to hammer on the mortgage and the investment returns have far outstripped the interest paid. Either way you decide to go you are doing smart things with money (not just spending it all!), it's just a question of optimization.
Last edited by LukeHeinz57 on Wed Jun 21, 2017 8:59 am, edited 1 time in total.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Frisco Kid »

Stay the course for now as you are doing quite well. Your mortgage is 1.2 times income and that will drop shortly, many folks would love to be in that situation! Invest using BH principles watching your AA and utilize tax advantaged space.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

jimb_fromATL wrote:
Eagle wrote:
JamesSFO wrote:I'm a big fan of paying off mortgages early but would not recommend cashing out your investments to do so. Are 401Ks being maxxed out? Roth IRA space? If not, I would put more there first before paying even more on mortgage.

Dave Ramsey is great on getting out of debt and getting basics set up, but IMHO not good on what to invest in or his hatred of any type of debt.

Mortgage debt is cheap leverage if you've bought appropriately for your income and wiping out your $90K @ Fidelity to pay off will leave you with few options.
401ks and ROTH IRAs are not being maxed out. I'm the only one who works at the moment.

Baby was due June 18th. So that will delay DW (dear wife) going back to work.


Dave's baby steps are for debtaholics and spendaholics who are in debt up their eyeballs and have no idea what to do about it. That does not appear to be your case. So his advice about retirement and paying off additional debt does not apply.

If you want to put your money to its best use, you need to max all available tax-advantaged retirement investments before you pay off virtually any manageable debt, especially the mortgage (and any student loan) debts.

If you were --or are now-- following Dave's advice to reduce your contributions to any available tax deferred or tax-advantage retirement plans, you've probably already lost a lot of opportunity to earn a lot of compound interest for your future retirement in exchange for saving only a tiny fraction as much interest on the debt.

Don't put off contributions to retirement while you're building up a bigger emergency fund, either. Instead, as long as you have a thousand or two in liquid assets for emergencies, you'll come out better to contribute up to the max allows for Roth IRAs for you and your spouse -- even if she's not working. You can take out your contributions from your Roth(s) at any time without tax or penalty, so they can serve as a secondary source of emergency funds. If you weren't going to max them every year, you won't be losing anything if you have to take some of it back out in a dire emergency. But if you don't have to take any out, then you have not lost the once-per-year use-it-or-lose-it opportunity to invest $11K or your money in an account where it can earn compound interest for the rest of your life tax-free.

A good rule of thumb when your income is in the range to qualify for Roth IRAs is to contribute up to the max of any employer matching contributions for a 401(k) or other tax-deferred plan; then max your Roth IRAs. Then if you have any more money to spare, max the 401(k) - type plans. Then after you have at least 6 months to a year of living expenses saved in in liquid assets for emergency you can start using any extra income to pay off your mortgage or other manageable debts faster.

How are the funds invested in the taxable account?

With the amount of extra cash you have every month it does not sound like it would make any financial sense to cash out any existing investments and pay extra tax just to pay down the mortgage or any other debt either. While paying down the mortgage (or any other debt) faster does give you a guaranteed return with no risk to the principal, it ties up the money where you cannot easily get to it for any other purpose. If it's to pay off a car, your money is tied up in an asset that is probably not worth what you paid for it. If it's the mortgage, you can't get your money back out without selling the home or refinancing ... or perhaps putting your home back at more risk by borrowing with an equity loan.

And if the entire history of the stock market is any indicator, you will most likely be able to earn more in both retirement funds and the taxable account than you'll save on mortgage interest or on those other debts.

Here are some links to several threads where my posts show examples of how delaying retirement investing and paying taxes prematurely in order to pay down manageable debts too fast can --depending on your age, income and tax brackets -- literally cost anywhere from tens to hundreds of thousands to sometimes millions of dollars out of your future retirement income in exchange for saving only a tiny fraction as much interest on the relatively short term debts.
My post in THIS THREAD and a lot of posts on this forum by other folks point out that a Roth IRA can also serve as a secondary source of emergency funds.


jimb
Wow a lot more reading to do! The last 3 links 129906, 180529, and 178566 especially would be applicable in this case. Thanks Jimb! :)

No student loans so that's not an issue.

We didn't stop 401k contributions while getting out of debt. We contributed at least to get the match.

Fidelity account breakdown is as follows:

Domestic stock 70%
Foreign Stock 5%
Bonds 23%
Short-Term 2%

We have about $8,000 in my Roth. So that's additional funds if we face an emergency greater than our current emergency fund.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by jimb_fromATL »

Eagle wrote: Debts:
89.2k principle at 4.625% Interest. Note: We paid 20% down so no PMI.

We currently can pay about $5500 extra towards the principle of the mortgage each year. At this rate it would take 16 years to pay off the house.
Your mortgage numbers don’t seem to match up for me.

You say you currently owe 89.2K on the mortgage.
How much was the original mortgage balance?
How much are the payments for P&I alone?
How long have you had the mortgage?

You said the $5500 extra per year would pay it off in about 16 years.

If it were a brand new mortgage for $89,200 at 4.625% with 360 months remaining the payment would be $458.61 per month for P&I. That alone is $5503 per year. Could just be coincidence?

It would only require a payment of $658.34 per month to pay off a current balance of $89,200 at 4.625% in 192 months (16 years). You'd pay 192 x 658.34 = $126,402. So the interest would be $37,202.

While I don't think it's the best financial plan, paying an extra $5500 at the end of each year would pay it off in 128 months (10.6 years). Or paying the extra $5500 with equal extra payments on the principal of $458.33 per month would pay it off in 110.2 months (9.2 years).

If the remaining time is less and the payments are higher now, then it will take even less time for the $5500 per year extra to pay it off.

Got more details?

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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by jimb_fromATL »

knpstr wrote: He already has the (basically)all the money "saved" in the taxable account.
He can do both: pay off his mortgage and max his retirement accounts this year.
They'd be in fantastic shape.
They're already in great shape. The best time to owe money is when you can afford not to. And cashing out the investment is not going to improve their long term wealth and gain.

The OP said:
Eagle wrote: Fidelity Investment – 87.9k
For perspective on the Fidelity Investment...
From memory, in 2008/2009 this investment was worth about 35-40k. In Jan 2013 it was worth 56.4k.
We have not added anything to the account since that time.
If the funds were worth about $35,000 at the lowest point in the market around 02/2009 and are worth $87,900 as of 06/2017 the annual growth rate has been around something like
=RATE(8.38, 0, 35000, -87900) = 11.61%.

Anywhere close to the numbers and dates is probably going to show well over 10% APY since the crash.

Assuming dividends have been reinvested --which add to the cost basis-- then at their current income in the 15% bracket it appears they could cash out the entire amount with no capital gains tax at all.

But even with no tax at all, I fail to see any advantage in cashing out an investment that has been earning more than double the mortgage rate just to feel good about eliminating the debt without regard to the long term loss of opportunity with the money ... and to tie the money up where they cannot have easy access to it in an emergency -- or for other investments either.

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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by jimb_fromATL »

Grt2bOutdoors wrote: ...will in most cases likely earn substantially more than the 3.5% after-tax you are paying assuming you itemize on your federal tax return...

A minor point, but with only about one in every three or four taxpayers exceeds the standard deduction and gets any savings for mortgage interest, and those are usually folks with very high income and much larger state income tax and property taxes that can be itemized.

It's hard to see how the OP could have enough itemized deductions to exceed the standard deduction and see any savings on their mortgage interest. Even if some of it does go over the standard deduction, their tax savings would only be 15% for the feds ... and a lot less for state if applicable.

However, they will be able to defer 15% on all extra contributions to their 401(k). And they'll earn compound interest on that for the rest of their life ... which is a lot longer than they'll be paying interest on the mortgage. Furthermore, they've been earning considerably more interest in their taxable investment account than they're paying in interest on the mortgage. And since it's long term cap gains and they're in the 15% bracket, they're not paying any taxes on the gains either.

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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by moshe »

Hi Eagle,
Eagle wrote:
We have about $8,000 in my Roth. So that's additional funds if we face an emergency greater than our current emergency fund.
Two thoughts for you:

1) note that currently AFAIK you can only withdraw w/o penalty from a ROTH up to your original principal investment. Thus, it is perhaps appropriate for your situation to keep some of these ROTH principal dollars invested in liquid securities, perhaps a ST government bond fund, to serve as part of your emergency fund.

2) in an emergency it is really hard to turn an illiquid asset, your home, into quick cash if you do not have any other sources of emergency cash. (idea credit: Rick Edelman and others).

I believe that you do but....no such thing (within reason of course!) as too much emergency cash or too many local/off-site data backups (off topic i know but i am an IT guy so forgive me!). If you are going to pay off the mortgage, a HELOC, may also be a good idea but note the bank can close this open line for any reason, for example in a 2008 type credit freeze.

Well done and best of luck with the growing family. May they be a blessing to you always!

~Moshe
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Meg77 »

Well done! You guys are on a wonderful track. I listen to Dave Ramsey and am very familiar with his baby steps.

Baby Step One - check!
Baby Step Two - check!
Baby Step Three - check! But realistically the EF is on the lower side of acceptable given a third child is on the way. I'd quit paying extra on the mortgage until this hits $20K
Baby Step Four - check! Keep putting 15% of your income toward 401k/Roth IRAs (into the cheapest stock index funds available)
Baby Step Five - I am assuming that your Vanguard Star funds are the two kids' college funds. Hopefully they are within 529 accounts...if not I would open 529 accounts and move the money into them.
Baby Step Six - You aren't quite here yet, but I agree that you should probably refinance to a 10 or 15 year fixed mortgage to cut the rate if you don't opt to just pay it off.
Baby Step Seven - Coming soon! Max all retirement accounts, upgrade house, give more, etc.

Option One
Technically you're not done with step 4. Given that, what you *could* do and what Dave might suggest is moving money from your Fidelity account to max out 529 plans for a year or so and checking kids' college off the list. This may feel good emotionally too, given that the original purpose of the funds was your wife's education.

Option Two
On the other hand, he might suggest and I also am tempted to tell you to just wipe out the mortgage today. Then you can use the cash you WERE paying each month toward the mortgage to fund 529s and boost retirement savings. The feeling of accomplishment and added motivation you'll get from fully knocking off such a big goal versus putting a little bit of money toward 4, 5 and 6 for many years without checking any more steps off is not to be underestimated. :) Besides, a guaranteed 4.65% rate of return is pretty darn good. You can hardly be promised you'll get that in your Fidelity account over the next 5-10 years. We haven't had a recession in nearly a decade, and eventually markets WILL correct. When they do, will you wish you'd paid off your mortgage or will you be content to watch that balance drop and know you're in it for the long haul? In addition, you may not be able to save much by refinancing. Mortgages under $100K will have higher interest rates and closing costs than average because there's less of a market to sell smaller mortgages (statistically they are riskier).

No matter which option you choose, I would aim to max out Roth IRAs for 2017 (you have until April 2018 to do so) and on an ongoing basis. You can do this by moving money from the Fidelity account to your Roths if you opt for Option One, or do it with free cash flow if you go for option 2.

Congrats on your third kiddo by the way!
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

simple man wrote:We used savings to pay off a large mortgage awhile back and it was GREAT! Do not underestimate the psychological benefits of having no debt. When the market fell last time, all the neighbors were freaking out - but with no debt, it was a big yawn for us. As long as you have enough cash or access to cash for emergencies, I would do it every time.
Yeah I have friends who bought prior to 2008 that mention the horrors of loosing tons of equity overnight in 2008. I'd like for it to be a big yawn for us too.

Something to consider for sure. :happy
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

grabiner wrote:
Eagle wrote:89.2k principle at 4.625% Interest. Note: We paid 20% down so no PMI.

We currently can pay about $5500 extra towards the principle of the mortgage each year. At this rate it would take 16 years to pay off the house.
Since you are on track to pay it off in 16 years anyway, you should refinance to 15 years to get a much lower rate. This will cause you to pay a lot less interest while paying off the loan. You may then decide it is not worth paying off; it's likely to be better to max out a 401(k) in preference to making advance mortgage payments.
Yes, something to look into about refinancing. However, in this case it has more to do with risk. We have a 30 year note. If I were to ever loose my job this lower payment of a 30 year note would be a cushion until I could find another job. I've never been without employment though for more than a month. Still, something to consider if we only decide to pay off a portion of the mortgage or none of it at all.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

mortfree wrote:Wait for the new baby to arrive before doing anything drastic.

Refinancing sounds like a good choice.

Personally, I would not give up my investments to pay off that mortgage.

If you are truly not sure about the market, etc that means your asset allocation may be inappropriate.

You do not have a mortgage/debt problem.
I think this is probably sound advice. With baby mode we are sleep deprived and stressed out. Maybe we should wait till things settle down in October or November to make a decision? It will depend on what the CPA says tomorrow at lunch.

Refinancing might be worth it. I've heard though that banks aren't really keen on refinancing any loan under 100k?

Fidelity account asset allocation breakdown is as follows:

Domestic stock 70%
Foreign Stock 5%
Bonds 23%
Short-Term 2%

Or do you mean our cash position, investments, etc.?

I guess from our perspective without a mortgage we'd feel a lot more free. I realize that mortgage debt is not all that bad as compared to other types of debt (CC, medical, personal loans, etc.) but it's still debt. Just tired of it.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by whodidntante »

Baby step zero: don't follow Dave Ramsey's advice. Seriously, it is not for you.

I would refi the mortgage and I would max my 401k, Roth IRA, and an HSA. Odds are that you'll be a lot happier with the results 25 years from now.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Earl Lemongrab »

simple man wrote:We used savings to pay off a large mortgage awhile back and it was GREAT! Do not underestimate the psychological benefits of having no debt.
I would say the opposite. I have been with and without mortgages at various times in my life. I never felt any different. I try keep emotion out of my financial life.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

LukeHeinz57 wrote:One thing I meant to add Eagle, have you looked at how much of your mortgage payment is Taxes and insurance? Sometimes I think people in their excitement to be debt free make the mental assumption that when they "pay off" their mortgage they are done with it entirely. Only to find that 1/3 or even 1/2 of the bill is still there just paid separately to the county and insurance co. Just a thought to consider.

Those here advising making ROTH or other retirement contributions in lieu of paying down the mortgage faster are perhaps giving more thought to the gains and interest earned on tax-deferred investments than the relatively small amount paid on your very manageable mortgage. Whether or not to refinance is an entirely separate issue.

Just wanted to lend a voice from the other side as someone familiar with DR and that background. Had I "stayed the course" from my FPU days I would be mortgage free right now, but missing low six figures in investments in my 401k, ROTH and After tax account. I can honestly tell you I am very glad I did not continue to hammer on the mortgage and the investment returns have far outstripped the interest paid. Either way you decide to go you are doing smart things with money (not just spending it all!), it's just a question of optimization.
Good point. I anticipated this question so I posted this information on the second post of the thread.

Principle – $205
Interest – $341
Extra Principle - $127
Tax – $270
Insurance - $111

So we'd be freeing up $672 a month. We currently pay about 1054 and change on the mortgage each month. $382 would still need to go towards taxes and insurance. Maybe more since the value of homes in our area has really gone up lately. This is evaluation is good long-term if we decide to sell but means paying more taxes.

I agree it's a question of optimization. Do we follow the math and take a risk that this Fidelity investment looses value? Or do we cash it out in anticipation of a market adjustment in the very near future?

Thanks for the perspective of someone familiar with Dave Ramsey and on the other side of all this. :happy
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by knpstr »

jimb_fromATL wrote:Cashing out the investment is not going to improve their long term wealth and gain.
Presumably it will be better to be invested in stocks, but after all Bogle "predicts" 4% returns in stocks over the next decade.

*Note: I don't think Bogle is necessarily correct with his prediction.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by knpstr »

Eagle wrote:I agree it's a question of optimization. Do we follow the math and take a risk that this Fidelity investment looses value? Or do we cash it out in anticipation of a market adjustment in the very near future?
I wouldn't attack the question as a means of market timing, read: cashing out and paying off mortgage because we are guessing the market will crash. Even if you are lucky enough to be right, it would be a bad habit to get into.

You will be in great shape either way, paying it off or not paying it off. It is preference of whether you prefer seeing a bigger investment account balance and a mortgage or a smaller investment account balance and being completely debt free.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by LukeHeinz57 »

Well said knpstr. The decision should be an unemotional one not based in fear of a market crash or in greed looking for a pop in the market.
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

Meg77 wrote:Well done! You guys are on a wonderful track. I listen to Dave Ramsey and am very familiar with his baby steps.

Baby Step One - check!
Baby Step Two - check!
Baby Step Three - check! But realistically the EF is on the lower side of acceptable given a third child is on the way. I'd quit paying extra on the mortgage until this hits $20K
Baby Step Four - check! Keep putting 15% of your income toward 401k/Roth IRAs (into the cheapest stock index funds available)
Baby Step Five - I am assuming that your Vanguard Star funds are the two kids' college funds. Hopefully they are within 529 accounts...if not I would open 529 accounts and move the money into them.
Baby Step Six - You aren't quite here yet, but I agree that you should probably refinance to a 10 or 15 year fixed mortgage to cut the rate if you don't opt to just pay it off.
Baby Step Seven - Coming soon! Max all retirement accounts, upgrade house, give more, etc.

Option One
Technically you're not done with step 4. Given that, what you *could* do and what Dave might suggest is moving money from your Fidelity account to max out 529 plans for a year or so and checking kids' college off the list. This may feel good emotionally too, given that the original purpose of the funds was your wife's education.

Option Two
On the other hand, he might suggest and I also am tempted to tell you to just wipe out the mortgage today. Then you can use the cash you WERE paying each month toward the mortgage to fund 529s and boost retirement savings. The feeling of accomplishment and added motivation you'll get from fully knocking off such a big goal versus putting a little bit of money toward 4, 5 and 6 for many years without checking any more steps off is not to be underestimated. :) Besides, a guaranteed 4.65% rate of return is pretty darn good. You can hardly be promised you'll get that in your Fidelity account over the next 5-10 years. We haven't had a recession in nearly a decade, and eventually markets WILL correct. When they do, will you wish you'd paid off your mortgage or will you be content to watch that balance drop and know you're in it for the long haul? In addition, you may not be able to save much by refinancing. Mortgages under $100K will have higher interest rates and closing costs than average because there's less of a market to sell smaller mortgages (statistically they are riskier).

No matter which option you choose, I would aim to max out Roth IRAs for 2017 (you have until April 2018 to do so) and on an ongoing basis. You can do this by moving money from the Fidelity account to your Roths if you opt for Option One, or do it with free cash flow if you go for option 2.

Congrats on your third kiddo by the way!
Re: Baby Step 4
Yes, I'd like to max out our Roth IRA accounts. That just seems to make sense. Only way to do that would be to cash out at least a portion of the fidelity investment.

Re: Baby Step 5
Yes the Vanguard accounts are for the two oldest education. They're not 529 accounts though as we don't want to limit those funds for education. There will also be some stipulations going along with that money. They will have to work part-item, live at home for the first 2 years, go to community college, transfer to a 4 year state school, etc. The account is in my name. It also gives us the freedom to help them with the first vehicle or other expenses along the way to college. Once we're done with the mortgage we will begin to add more is the goal.

Re: Baby Step 6
Yes, we are just shy of what we need. And if we pay off the mortgage we'll be house rich and cash poor. Refinancing may be an option.

Re: Option 1 sounds good perhaps. My wife also has a lot veneer teeth work she did in 2008. They're supposed to last about 10-15 years. She might also need gum surgery for recession in the near future. That's something to consider.

Re: Option 2 I agree a 4.65% guaranteed rate of return is really good. The burden of debt would be lifted off our shoulders. The total cost would be 89.3k to pay off the mortgage by July 5th.

Thanks for the baby wishes! She was due June 18th so we're hoping he comes really soon. :)
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Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

jimb_fromATL wrote:
Eagle wrote: Debts:
89.2k principle at 4.625% Interest. Note: We paid 20% down so no PMI.

We currently can pay about $5500 extra towards the principle of the mortgage each year. At this rate it would take 16 years to pay off the house.
Your mortgage numbers don’t seem to match up for me.

You say you currently owe 89.2K on the mortgage.
How much was the original mortgage balance?
How much are the payments for P&I alone?
How long have you had the mortgage?

You said the $5500 extra per year would pay it off in about 16 years.

If it were a brand new mortgage for $89,200 at 4.625% with 360 months remaining the payment would be $458.61 per month for P&I. That alone is $5503 per year. Could just be coincidence?

It would only require a payment of $658.34 per month to pay off a current balance of $89,200 at 4.625% in 192 months (16 years). You'd pay 192 x 658.34 = $126,402. So the interest would be $37,202.

While I don't think it's the best financial plan, paying an extra $5500 at the end of each year would pay it off in 128 months (10.6 years). Or paying the extra $5500 with equal extra payments on the principal of $458.33 per month would pay it off in 110.2 months (9.2 years).

If the remaining time is less and the payments are higher now, then it will take even less time for the $5500 per year extra to pay it off.

Got more details?

jimb
How much was the original mortgage balance?

I'd had to get the specifics but mortgage balance was about 118,000 and change. We also put 20% down payment to avoid PMI.

How much are the payments for P&I alone?

From the second post...
Principle – $205
Interest – $341
Extra Principle - $127
Tax – 270
Insurance - $111

So we'd be freeing up $672 a month.


How long have you had the mortgage?

Since October 2013.

Maybe my math is off? Lol Feel free to correct me if I'm wrong.
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Eagle
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Joined: Fri Jun 09, 2017 2:41 pm

Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by Eagle »

After discussing this with the CPA he sees no reason why not to withdraw this money with Fidelity. We could re-invest the money, keep some, or pay off the mortgage. Our adjusted income is less than 75k so we will be paying $0 in taxes unless the laws change since the account was opened in 2013.

Thanks everyone for all the feedback! My wife and I think we'll probably cash out the investment as a "tax gain harvest" as suggested by Watty and either A) pay off a portion or B) pay off the mortgage. Regardless we'll likely max out my ROTH IRA ($5500) and open her up a ROTH IRA ($5500). We just need to talk through this a bit more. We don't want to be house rich and cash poor either.

Baby was due June 18th so probably need to sit on the money for 20-30 days. It will take about 5-7 days to cash out the investment.
JGoneRiding
Posts: 1970
Joined: Tue Jul 15, 2014 3:26 pm

Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by JGoneRiding »

Eagle wrote:
JGoneRiding wrote:D. Call something like navy federal or penfed. Ask about either a first line heloc or a 10/1 arm or even 10 yr loan. See if refi makes sense and plan to havr it done by then. Set it and forget it.
I think we want to stay away from arm loans. I guess I don't know enough about them to understand what a 10/1 arm loan means? Refinancing to a 10 year or 15 year loan might make sense if we can reduce the interest rate.

I don't think we can forget the mortgage at this point. We are ready to be done with debt but want to do what's best. Not what feels good. That's why we need to weigh in on our options.

Currently, I estimate we'd still be paying another $30,000 in interest if we let the loan ride as is.
I couldn't tell if any one every ans the question of 10/1 and 5/5 loans.

Arm loans have the best rates (why i suggested it) and often the lowest closing costs, you HAVE the money the question is what is the best use so if you did an ARM you are NOT at the typical risk of a rising rate environment so you can afford to take the gamble and lock in a temp very low rate and if rates shoot up simply pay it off in the time frame

so a 10/1 would have a LOCKED rate for 10 years and then in year 11 it could go up a certain amount (there is a cap on this) but hopefully in 10 years you would actually have a paid if off and at a better rate than a 10 yr or 15 year locked loan.

a 5/5 is similar and might be even better it could only reset every 5 years and again there is generally a cap on how much the rate can go up in a single reset

The advantage is lower rates and cheaper closing costs generally but you would have to sit and compare. Also these loans are amorted as 30 year loans so you also have to commit to making the higher payment to them but they give you huge flexibility. And since you actually have the money very low risk (more risk to someone still coming up with the money so for me it would make poor sense.
JGoneRiding
Posts: 1970
Joined: Tue Jul 15, 2014 3:26 pm

Re: WWYD? Cash in Investment to Pay Off Mortgage Question

Post by JGoneRiding »

Eagle wrote:
Baby was due June 18th so probably need to sit on the money for 20-30 days. It will take about 5-7 days to cash out the investment.

Did the baby come? Ours came Sat, hence me being gone for several days :D but I am recovering well now so i hope your wife is too!!
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