Investing v/s paying off mortgage

You should always have your eyes open for a better deal in a refi. Preferably a no-point, no closing deal. No one knows where rates will go and you'd be better off aiming to get a fixed. On the other hand, 7 years of hitting the principal as you've been doing and you'll have paid off at least $50K. $180K amortized over the remaining 23 years even at

8% will only have a $1428/mo payment. You are already sending over $1800/mo including those extra payments. Right now you are in good shape so long as you both remain employed.

The choice to hack away at the mortgage more aggressively is yours alone. Some sleep better knowing their house is paid for. I'd prefer topping off my retirement savings and investing extra funds.

Joe

I've always been in the pay-off-your-mortgage camp in combination with making sure my retirement was well-funded. In your situation, I would be researching current fixed interest rates. I haven't looked at these for some time now, but it seems to me a 15-year fixed may well have a lower interest rate than your current interest only loan. Perhaps you are well-positioned to do more than you think.

Elizabeth Richardson

How long you plan to live in your home would seem to be a key factor. If 7 to 15 years, then do as Elizabeth recommends. If more than 15 years, then find a 30 year fixed. Just guessing, I think mortgage rates are currently high relative to traditional measures such as T- Bills. When you have the term, then you can pay down principal. Personally, I like low monthly payments just because it makes me feel better.

Pick up a $40 book "Security Analysis" by Benjamin Graham and learn about stocks (and investing). When you understand companies, then start off small with one or two well-selected stocks ($2,000 maybe).

Thanks everyone. Looks like in general it sounds like I should be looking for a good refinancing deal.

I think I will be looking at making 2-3 extra payments at the end of this year. At this moment, I think I'll chip away at my debt because with the rough market out there I don't feel too comfortable investing.

And yes, I am maxing out my 401k this year.

And, are you maxing out your Roth and your spouse's Roth?

-- Ron

OP states his current principal is $230K. Latest average rates show 30yr @ 6.08% = $1391 payment, or 15yr @ 5.76 $1911. I'm more concerned about where he'll find himself at the end of the 7 yr period than in the decision of 15 vs 30. In another thread someone remarks how rates were higher than they should be compared to one yr. T-bill. Fixed rates are tied more closely to the

10yr bond, and right now the spread is too high. In the last cycle, I caught a 15yr no cost refi to 5.24%. The current mortgage rates are at least 1/2% too high. I suggest he more to a fixed now, but prepare for another refinance as things get back in line. I agree with you, Elizabeth, there's nothing wrong with being 47 and having a paid off house. Joe

You are two years into current loan (Five years to go). I would look at this from 4 points of view

1) you started a repayment plan 2 years ago, any solution should consider a max of 30 years of mortgage payments. If you refinance, continue with a 2036 payment end year (if you refi to a 30 year fixed, make sure to compare the 28 year payoff plan to current mortgage. 2) continue paying some principal to current loan regardless- I would error on paying towards a fifteen year fixed principal payment 3) If losing jobs is a concern, increase cash to 24 months expenses before getting more aggressive on debt payment or investing 4) Generally speaking, after 24 months is in cash, I would think investing if market is low beats paying down mortgage when market is low, when market turns upward, it makes more sense to pay off mortgage and stop investing extra cash.

I'm a little concerned about your lack of concern about

*liquidity*.

Unless you have enough to pay off the house completely, your payments will continue. If you take that wad of cash and pay down some of your mortgage, when your rate adjusts, your payments go up and you have no cash with which to pay them.

Yes, paying off the mortgage may be a great investment right now - with a higher effective rate of return than, say, dumping that money into a money-market fund. But in a few years when your payments go up, having that money available in the money market fund makes it easy to keep making your mortgage payments.

A partially prepaid mortgage is highly illiquid - you cannot get at that money easily.

Perhaps a better compromise is a much more conservative but still liquid investment, like a short-term bond fund.

And, yes, unless you are pretty certain you're going to sell the house and move before the rate adjustments hit, you should be actively keeping an eye out on a good refinancing deal.