Pay extra on mortgage or ???

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
Kurvertp
Posts: 2
Joined: Tue May 04, 2021 4:32 pm

Pay extra on mortgage or ???

Post by Kurvertp »

First time writing

here is my question

Married couple retired both in late 50’s

Mortgage @2.35% for 15 years in April 2021 $201,000
home value $350,000 mortgage balance $197,000
Pension income for both $6500 a month
Both have small part time jobs total income from both $1000 a month
No credit card debt
Car payment $360 for 24 more months
No saving to speak of like $5,000

Should we pay a extra $1000 a month on mortgage and cut the 15 years in half or do something else with that money
bloom2708
Posts: 9859
Joined: Wed Apr 02, 2014 2:08 pm

Re: Pay extra on mortgage or ???

Post by bloom2708 »

It is kind of a lifestyle choice.

Do you have a bunch of bonds earning 1%? 2.35% is a good rate but it is more than 0%.

Are you OK with the mortgage or do you want it gone?

You have nice pensions and the payment is not straining, so it is really what you want to do. Do you envision having no mortgage at some point?

I'm not helping, but likely either decision is just fine.
adestefan
Posts: 581
Joined: Fri Jan 06, 2017 7:22 pm

Re: Pay extra on mortgage or ???

Post by adestefan »

What’s the rate on the car loan? If it’s not 0% I’d pay that off first.
lazynovice
Posts: 3369
Joined: Mon Apr 16, 2012 10:48 pm
Location: Denver area. Former Texan.

Re: Pay extra on mortgage or ???

Post by lazynovice »

No savings or investments at all besides the $5,000?

I think I would beef up that to have more of an emergency fund. I’d probably pay the car off before paying down the mortgage. Then I would either invest in Roth or taxable or pay off the mortgage.
User avatar
gr7070
Posts: 1928
Joined: Fri Oct 28, 2011 10:39 am

Re: Pay extra on mortgage or ???

Post by gr7070 »

lazynovice wrote: Tue May 04, 2021 8:09 pm No savings or investments at all besides the $5,000?

I think I would beef up that to have more of an emergency fund. I’d probably pay the car off before paying down the mortgage. Then I would either invest in Roth or taxable or pay off the mortgage.
Based on the term of the mortgage you might be better to pay extra on it than the car.

With no savings and plenty of access to Roth IRAs at low income tax rate I'd save in Roths.

I'm a big fan of paying extra on a mortgage, but you're already doing that with a 15 year and you're doing no investing.
User avatar
JoeRetire
Posts: 15381
Joined: Tue Jan 16, 2018 1:44 pm

Re: Pay extra on mortgage or ???

Post by JoeRetire »

Kurvertp wrote: Tue May 04, 2021 4:52 pmShould we pay a extra $1000 a month on mortgage and cut the 15 years in half
No.
This isn't just my wallet. It's an organizer, a memory and an old friend.
furiouschads
Posts: 184
Joined: Tue Jun 04, 2019 9:01 pm

Re: Pay extra on mortgage or ???

Post by furiouschads »

Your mortgage rate is low, and lower still after taxes.
What would you earn (after taxes) if you invested the extra money? 6%?

Do some spreadsheet work to estimate what will be your net worth in 5 years if you:
1) stay the course (i wonder where the $1k is going now)
2) add the extra into the mortgage
3) pay off the car loan first and then invest in a low cost total stock market ETF or something that fits your risk appetite.

If you want to get rid of something, pay off the car loan first, unless it has an even lower after-tax rate.

Think about what you would need an emergency fund for and set a target. What happens to cash flow if one of you dies?
Normal is an illusion. What is normal for the spider is chaos for the fly. --Charles Addams. #613 in 2022 BH prediction contest. #42 in 2023. Not that I am keeping track.
Monsterflockster
Posts: 980
Joined: Wed Nov 20, 2019 11:03 pm

Re: Pay extra on mortgage or ???

Post by Monsterflockster »

Kurvertp wrote: Tue May 04, 2021 4:52 pm First time writing

here is my question

Married couple retired both in late 50’s

Mortgage @2.35% for 15 years in April 2021 $201,000
home value $350,000 mortgage balance $197,000
Pension income for both $6500 a month
Both have small part time jobs total income from both $1000 a month
No credit card debt
Car payment $360 for 24 more months
No saving to speak of like $5,000

Should we pay a extra $1000 a month on mortgage and cut the 15 years in half or do something else with that money
If you were asking what to do with 200k, invest or payoff mortgage I’d always pay it off. Considering you have no savings, a car payment and are retired I’d say that’s a definite no.
Hyperchicken
Posts: 2006
Joined: Mon Mar 02, 2020 4:33 pm

Re: Pay extra on mortgage or ???

Post by Hyperchicken »

Kurvertp wrote: Tue May 04, 2021 4:52 pm Should we pay a extra $1000 a month on mortgage and cut the 15 years in half or do something else with that money
The answer entirely depends on what this "something else" is.
Topic Author
Kurvertp
Posts: 2
Joined: Tue May 04, 2021 4:32 pm

Re: Pay extra on mortgage or ???

Post by Kurvertp »

I am questioning should I save the extra $1000 in cash fund? Invest in Roth? Or pay off mortgage?
User avatar
Brianmcg321
Posts: 1875
Joined: Mon Jul 15, 2019 8:23 am

Re: Pay extra on mortgage or ???

Post by Brianmcg321 »

I would put an extra $1,000 in VTSAX every month. Then when you have more money than your mortgage is worth just pay it off. It will happen quicker than you think.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
gclancer
Posts: 808
Joined: Sat Apr 27, 2013 10:34 am

Re: Pay extra on mortgage or ???

Post by gclancer »

adestefan wrote: Tue May 04, 2021 8:07 pm What’s the rate on the car loan? If it’s not 0% I’d pay that off first.
+1
User avatar
RickBoglehead
Posts: 7877
Joined: Wed Feb 14, 2018 8:10 am
Location: In a house

Re: Pay extra on mortgage or ???

Post by RickBoglehead »

Kurvertp wrote: Thu May 06, 2021 5:29 am I am questioning should I save the extra $1000 in cash fund? Invest in Roth? Or pay off mortgage?
Investing in a "cash fund" is not investing.

Have you read the Wiki?

You have very low savings. You should have at least 6 months of emergency funds, i.e. the ability to pay every bill you have if you both lost your jobs and things were tough.

You should NOT pay off a 2.35% mortgage, because you are likely paying more than that on the car, AND you COULD earn a lot more than that in the market.

However, given that you have no savings, and very little income, I wouldn't be taking much risk with the little you can save.

If you decide to invest, Roth IRAs are your best choice - because it has very beneficial rules:

- You can always withdraw contributions penalty-free
- At age 59 1/2, you can also withdraw earnings penalty free, provided the Roth has been open for at least 5 tax years.
- Before 59 1/2, you can withdraw earnings penalty free under certain conditions.

https://www.schwab.com/ira/roth-ira/withdrawal-rules
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
LongRoad
Posts: 261
Joined: Mon Dec 31, 2018 1:00 pm

Re: Pay extra on mortgage or ???

Post by LongRoad »

Usually I'd tend to be a 'pay off the mortgage' type -- and with a steady pension covering your regular expenses, I'm not sure you need a full 6 month emergency fund in cash, but. . .

In your place, I'd use the extra funds over the next, say 12 months, to pay off the car loan and build up the liquid savings account. Savings accounts (Ally, CapOne, Marcus, etc.) don't pay a lot today but just take what you can get on your liquid savings. Consider expected 'lumpy' expenses over the next couple of years (need a new HVAC or roof, etc.) and plan to budget these in cash. You can probably double your savings and pay off the car in a year.

At that point, revisit and holistically consider your position to see if paying down the mortgage makes sense.

Best wishes in your retirement! :sharebeer
Post Reply