Extra Money

[SuperTal]

My only debt is a mortage around 180k.

Would you guys recommend putting an extra $500 against principle on the mortgage or stash it in savings or investments?

[Contrary Housewife]

How much are you paying in interest on that mortgage vs. how much interest you'd get in a savings account?

Chances are you are paying 10x the rate in mortgage interest than you'd receive if you had it in savings.

[Frugal_Scott]

Hard to say without knowing your whole picture--for example, do you have a ready cash reserve? If your overall financial situation is solid, I'd suggest paying off the house.

[Greebo]

My only debt is a mortage around 180k.

Would you guys recommend putting an extra $500 against principle on the mortgage or stash it in savings or investments?

If you truly have no car, credit card or other debt but mortgage debt, then I would:

1) Accumulate a cash reserve of at least 3 preferably 6 months of Expenses which you KEEP LIQUID and never touch except in an emergency.
2) Review your retirement planning and ensure you're on track for your future, making adjustments as appropriate.
3) Only after #1 and #2 were done would I put extra on the mortgage.

[pammy]

Agree with Greebo, that's what I would do. How nice to be where you are figuring out where to put extra dough.

[Russ]

If you truly have no car, credit card or other debt but mortgage debt, then I would:

1) Accumulate a cash reserve of at least 3 preferably 6 months of Expenses which you KEEP LIQUID and never touch except in an emergency.
2) Review your retirement planning and ensure you're on track for your future, making adjustments as appropriate.
3) Only after #1 and #2 were done would I put extra on the mortgage.

Assuming an interest rate of 5% wouldn't paying the extra on the mortgage save that much money? Short term, you can't make 5% in the market.

Would you do the above steps if you had less than 5 years to pay on your mortgage? Or does the amount of time left on your mortgage even matter?

[Greebo]

Assuming an interest rate of 5% wouldn't paying the extra on the mortgage save that much money? Short term, you can't make 5% in the market.

Short term you should not be in the market.

Period.

<5 year investing isn't investing, it's speculating.

Would you do the above steps if you had less than 5 years to pay on your mortgage? Or does the amount of time left on your mortgage even matter?

I don't care how much time is left on the mortgage. Equity isn't liquid and is subject to ups and downs in the market, and long term you don't want a paid for house and no money.

Emergency fund first - have liquid savings on hand.

Retirement second - don't have a house and be broke.

Mortgage third - paying down the interest is good - but not as good as being prepared to weather a storm.

[krbshappy71]

Short term you should not be in the market.

Period.

<5 year investing isn't investing, it's speculating.


I don't care how much time is left on the mortgage. Equity isn't liquid and is subject to ups and downs in the market, and long term you don't want a paid for house and no money.

Emergency fund first - have liquid savings on hand.

Retirement second - don't have a house and be broke.

Mortgage third - paying down the interest is good - but not as good as being prepared to weather a storm.

Interesting. My brain and heart says Having a house and being broke would be better than not having a house. But then, I'm always broke so maybe in my mind its just not that bad but the thought of not having my house is scary to me.

I am always interested in your views on stuff, Greebo.

[Russ]

Short term you should not be in the market.

Period.

<5 year investing isn't investing, it's speculating.

That is sort of my point. I am guaranteed to save 5% (it's really 4.74%) by paying down early In the relatively short term left on my mortgage.

I don't care how much time is left on the mortgage. Equity isn't liquid and is subject to ups and downs in the market, and long term you don't want a paid for house and no money.

Emergency fund first - have liquid savings on hand.

Retirement second - don't have a house and be broke.

Mortgage third - paying down the interest is good - but not as good as being prepared to weather a storm.

We both have pensions, although no longer being contributed to, and we both are dumping 6% (matched) into our 401Ks.

However, on further thought, 6 months of an Efund, without any debt besides the mortgage, could be quickly accomplished.

[Greebo]

Interesting. My brain and heart says Having a house and being broke would be better than not having a house. But then, I'm always broke so maybe in my mind its just not that bad but the thought of not having my house is scary to me.

I am always interested in your views on stuff, Greebo.

Paid For House + No Money + Emergency = No House

House w/ Mortgage + Money + Emergency = No Money, keep house

Generally speaking, there are obviously exceptions (which if I didn't say, someone would point out trying to prove me wrong)

[peanut]

I agree with Greebo. We're close to retirement and I wish we'd started saving for it earlier. Our pensions are not going to be enough on their own. You really need to start putting aside for retirement early. Yes, we own the house free and clear, but we can't afford to live in it when we retire. So we will have to downsize eventually...whether we want to or not...to free up cash to live.

FWIW, any Canadians out there, I was talking to a bunch of older women the other day and they claim RRSPs are the biggest lie ever told Canadians. The idea is the amount builds tax free until you retire, and then you remove it and get taxed, supposedly at a lower rate because you're earning less money. What they don't take into account is that all those years you're putting money aside you have deductions for children etc., effectively meaning you pay less tax if you take the money and put it straight into an investment of some sort outside the RRSP right then and there. And no extra taxes in retirement. DH and I are no longer using an RRSP for retirement funds.

[dancemommy]

I agree too- We are a little different in our mindset though- I'm not into paying off a house at this point. Our mortgage is at like 3% interest- I'd rather have cash and a low monthly payment right now especially with the ups and downs in real estate these days. If I had paid off my $300,000 house entirely and then it depreciated to be a $250,000 house I'd have "wasted" $50,000. Maybe that is kind of simplified, but that is our viewpoint at this point in our lives. I can see the bonuses of a paid off house as an older person. But then again, my own grandmother has a HUGE paid off house that she needs to sell because the taxes are around $8000 a year and combine that with needed upkeep and burden of having a huge house is just too much for her. All of her money is tied up in the house or needed to fix something on the house. We feel that at this point she'd be better off selling her house and taking the $300,000 cash she gets for it and renting for the rest of her days (She is in her 90s). But again, that's just us. We have a nice, affordable home and are fine with our monthly payments.

[Greebo]

I agree too- We are a little different in our mindset though- I'm not into paying off a house at this point. Our mortgage is at like 3% interest- I'd rather have cash and a low monthly payment right now especially with the ups and downs in real estate these days. If I had paid off my $300,000 house entirely and then it depreciated to be a $250,000 house I'd have "wasted" $50,000. Maybe that is kind of simplified, but that is our viewpoint at this point in our lives.

Its not simplified, its just wrong.

You "paid" (ie: borrowed) $300,000 to buy the house. If it depreciates it depreciates whether you have a loan or not. You can't sell it for $300,000 if it's value is $250,000, loan or not. The money is lost either way.

But if you continue carrying the loan for $300,000 rather than pay it off, then every month you raise the COST of your home even more.

A 3% 30 year fixed rate mortgage on $300,000, if paid at minimum payments, will cost you a total of closer to $460,000 when you include interest. REGARDLESS OF THE VALUE OF YOUR HOME.

Every extra cent you pay towards principal TODAY reduces the extra interest costs - which in turn increases the rate at which your principal is paid down in the following months - which means you save even more interest later.

Not paying extra to be safe in an emergency is smart.

Not paying extra because your home lost value is not.

[dancemommy]

I guess I should add that we aren't planning to live in our home forever AND we can make more than 3% interest investing so to us it really makes no sense to pay off our home at this point. I'd rather have liquid money than have it all tied up in a house. But again, that is just us. My parents are the same way so maybe it is just what I know- they are extremely wealthy, own several homes, some are paid off and some are not- it isn't a priority. They make more investing and would rather have cash to invest than pay off their home. Also, we aren't upside down- we don't owe more than the house is worth.

[Greebo]

I guess I should add that we aren't planning to live in our home forever

That's not a good reason not to pay down. Once again, if you intend to sell, you have still lost the $50k - either you pay it down now and pay less interest until you sell, or you pay more interest and have to bring $50k to the table.

AND we can make more than 3% interest investing

In what and over what time period? If you can guarantee >3% the entire time until you sell, great, now you've got a good mathematical reason. However, I'd like to know what you're investing in short term that pays more than 3%, cause I want in on it.

so to us it really makes no sense to pay off our home at this point. I'd rather have liquid money than have it all tied up in a house.

And having liquid funds IS a good reason not to pay down the house - up to a point at least.

But again, that is just us. My parents are the same way so maybe it is just what I know- they are extremely wealthy, own several homes, some are paid off and some are not- it isn't a priority.

I don't see how that forms any kind of point other than your parents are wealthy and comfortable with the risk... mathematically it demonstrates nothing.

They make more investing and would rather have cash to invest than pay off their home.

I'm not opposed to investing - as I said in my first response to this thread - I simply think it should be a good balance. If you can guarantee making >3% constantly before you sell then yes, investing over selling (assuming you can then sell your investments should you need to bring cash to the table later) is mathematically more sound.

Also, we aren't upside down- we don't owe more than the house is worth.

As I said before - this is entirely irrelevant to the math. If your house value is up its up no matter what you owe and if its down its down no matter what you owe.