Should i pay 100 to 150K towards my mortgage?

Aug 31, 2018 30 Comments

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?

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TOP 30 Comments
  • Yahoo Motoko
    ETFs #2
    Aug 31, 2018 3
    • Google TC = 215K
      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.
      Aug 31, 2018
    • Microsoft / Eng
      5’6

      Microsoft Eng

      PRE
      Amazon
      5’6more
      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
      Aug 31, 2018
    • OP
      Sorry , didn’t understand your message .

      Can you please clarify ?
      Aug 31, 2018
  • Google oh hello
    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.
    Sep 3, 2018 5
    • OP
      401k not maxing - simply because of. It understanding of how 401k works.
      Sep 3, 2018
    • OP
      Besides VTSAX , are there other funds where I should invest for diversification ?
      Sep 3, 2018
    • Google oh hello
      VTSAX is already 3700+ companies and a lot of them do business globally. I think it's pretty diverse :).

      But if you want to diversify further, I'd recommend more real estate. Respectfully, I don't think you have enough assets to diversify right now.
      Sep 3, 2018
    • OP
      Thank you for your honesty.

      When I have additional money , real estate would be buying a property and renting it out ?
      Sep 3, 2018
    • Google oh hello
      Yes. But real estate is much harder imo than buying low cost index funds. There's a chance to make more, but it's slim over a long period (e.g. 20 years).

      Personally, my net worth is 1.4M, but I haven't gotten into the real estate business yet because I haven't been able to convince myself it's more lucrative than stocks. Historically US stock market returns 10% annually and real estate returns 3.5% annually (if you adjust for sqft). You'll beat the stock market with real estate (even with leverage) if you bought during a time like 2011-2012 in the Bay, but otherwise it's very hard.

      But having a couple houses to rent out during economic recessions will be a great risk mitigator.
      Sep 3, 2018
  • Facebook public
    Heck no, 3.25%
    Aug 31, 2018 6
    • Microsoft qqxS28
      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
      Aug 31, 2018
    • Salesforce ynlE82
      What will happen in 6 years we will be in the middle of another correction or even recession with marked down 30-50%?
      Sep 1, 2018
    • OP
      You mean the market is down by 30 to 50 percent.
      Because of this my assets in stocks bonds etc are now down ?
      Sep 1, 2018
    • Salesforce ynlE82
      Yep,
      I know many people will call me an idiot, but my approach is to pay off mortgage first. The only money I have in market are the money I know I will not need until retirement. Any other short to mid term gambling will happen only after mortgage is gone and I know that I will have roof over my head regardless stock and job market shape
      Sep 2, 2018
    • Facebook public
      Yep, that's just leaving money on the table. Of course the market will drop 50% maybe even several times but assuming your mortgage is 15 to 30 years that time horizon is plenty long.
      Sep 2, 2018
  • Amazon becool&raw
    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.
    Aug 31, 2018 2
    • OP
      What low risk investment vehicle will fetch more than 3.25 percent ?
      Aug 31, 2018
    • Amazon becool&raw
      Either invest in index funds or target funds or buy real estate with cash on cash return > 3.25%.
      Aug 31, 2018
  • Chase / Eng Hustler🔥
    how many beds? and single/multifam?

    what’s your age?
    Aug 31, 2018 2
    • OP
      Single family house. 2 beds.

      Mid 30’s
      Aug 31, 2018
    • Chase #HustleBee
      that house is an expense, not an investment
      Aug 31, 2018
  • Microsoft qqxS28
    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.
    Aug 31, 2018 1
    • OP
      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.
      Aug 31, 2018
  • Salesforce 2438ez
    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.
    Sep 1, 2018 0
  • New / Eng Painkiller
    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.
    Aug 31, 2018 1
    • OP
      How much is real money ?
      Aug 31, 2018
  • Gilead Sciences Quicky101
    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.
    Aug 31, 2018 0
  • Amazon
    Time2Enjoy

    Amazon

    PRE
    Microsoft
    Time2Enjoymore
    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.
    Aug 31, 2018 0

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