Hello All, A] Our current financial situation: Salary - Combined household income - 238K$. If i get laid off, i will get paid less. Stock investments - 70K$ Primarily in high tech stocks. Retirement plans - 401K - 207K$ We only match what the company matches (6%). I.e. We dont max out our 401K Health savings account - 15K$ House - House was bought at - 491K$ Down payment – 98,200$ Mortgage pending – 364K$ 30 year convertible adjusted rate mortgage. 7 years lock-in with 3.25% After 7 years, the interest rate will be what the market rate is. We have paid mortgage for 1 year, 6 more years till the lock-in period expires. Since couple of months, every month we pay extra 5K$ towards principle. B] Queries: 1. Should I pay 100K to 150K $ towards my mortgage in-order to save on interest? Once onetime payment is done, should I continue paying 5 to 6K$ every month extra towards principle? Or 2. Should I invest most of my liquid cash in index bonds? And other low-risk instruments? 3. Are there glaring mistakes that we are doing W.r.t investments?
ETFs #2
This. Not only will you make more money than save, but you can easily liquidate if it need be. You cannot unpay money advanced on your house afaik.
People are so worried about the above ^ Only do this if you have built up good equity in your home. If you plan on being there forever then different story
If your not bringing home the serious bacon 🥓 don’t do anything silly. It seems like you are insecure about your job - make sure you get real money coming in and home is no issue.
How much is real money ?
Nah your interest rate is fine, think of it in terms of cash flows. Paying off your loan is like getting 3% return (at least for next 7 years). You can do much better just investing that money instead. Contrary to what a lot of people think, debt in general isn't particularly bad. High-interest debt is bad, and yours isn't high-interest.
So right now , majority of the monthly mortgage payment goes towards interest. If I pay off the mortgage , won’t I save off the compounding interest.
At least till next 6 years you can invest one time 150K plus 6K per month into some investment which gives you ROI greater than 3.25%. The difference will be your profit.
Heck no, 3.25%
After 7 years , the rate will change to what is current on the market. So that’s another variable
Re-evaluate after 7 years when you find out your new rate. If you don't like it, then liquidate what you invested in and put that (with all of its gains) towards your mortgage
Invest in index funds S&P and it will beat. If past performance is any sign, it could almost double. I remember seeing 3.25% on CD for 5 year. So, you don’t want to take this approach. By December I see this hitting 3.75% plus.
Invest in tax efficient low cost balanced fund like VBINX - statistically over 6 year period that fund has never returned less than 2% with upside of up to 8% return.
There are a lot of variables here and no one right answer. A good page to read is here: https://www.bogleheads.org/wiki/Paying_down_loans_versus_investing You’ll need to answer questions for yourself like how important paying off debt is for you (in a non financial sense), how important liquidity is to you, how risk averse are you, etc. What would you do with the 100-150k if you didn’t pay down the mortgage? If the answer is put it in a savings account, then you may want to consider paying down some of the mortgage. If the answer is invest in stocks, then you have to be honest with yourself about the possible outcomes. What happens when that 100k becomes 70k next year? Will you be able to leave it invested, or will you feel emotional and realize the 30k loss and then pay down (less of) your mortgage? If you keep it invested in the market for a decade or more then you’ve made the “financially correct” decision of using your debt to grow your wealth. It still has risk associated with it, but so does paying your mortgage. Read the article and think about it for your individual situation. I’ve had to do this a couple times myself and constantly reevaluate my decision.
Is there a reason why you don't max out your 401k? Instead of stock piling so much cash, I would do the following: 1. Max out 401k, tax savings + you can still invest in index funds in this account 2. 5k /month + 150k one-time lump sum into VTSAX. 3. Minimum payments on the house at that low rate. 4. If you feel compelled, at the end of each year the stock market yields more than 3.25%, sell some VTSAX and pay it towards the principal of your house. This way you get some of the benefits of the stock market (~10% average yearly return), and the safety of paying huge chunks of your house at a time. During down stock market years, you need to ride the wave out and do not sell anything.
how many beds? and single/multifam? what’s your age?
Single family house. 2 beds. Mid 30’s
that house is an expense, not an investment