Deciding to pay off house with retirement savings...

[huntnful]

You been doing very well - keep it up. 30 yrs old and worth over $500K. Well done - very well indeed.

IMO - I don't see paying the house off as being the best solution, but it's what you want to do.

In order to reduce the house stress - stop investing the $ for a bit and put a year or two worth of mortgage payments into an account. That's your cushion/emergency house fund. Then go back to investing for retirement.

The stress of the current situation is gonna pass. If you pay off the house now in the moment, I fear that you ultimately have to work longer to get the same results.

I feel like this is best solution as well. This taxable account is going to be my bridge to my pension at 55, enough money to get me from 45 to 55 for example, then my pension will be my bridge to my 401k at 59 1/2. My 401k should be quite large at 59 1/2, especially is I have another 10-15 years of max and some matched contributions in addition to the growth.

 

[ryjack70ss]

My advice is free and worth as much lol. I paid off my home at age 40. Basically what I would suggest to the OP is to refinance the home to a 7 or 10 year note drastically reducing his interest owed. Put down something like $60,000 to $100,000 of his current savings to get the payments reduced. Leave the balance in the market and throw any extra income on paying down the mortgage and rebuilding savings.

I like this. I agree my advice is worth whatever you value it on a hunting forum. That said, I am a surgeon and make a decent salary. That said, my wife doesn’t make much and kids are expensive. Also, in my specialty, I didn’t earn a real paycheck until I was 34ish. That means >300k in debt from student loans also. There is a vast wealth of knowledge out there on finance strategies. I do feel we have similar goals: not working for the man forever and having some freedom with a few bucks to enjoy said freedom. The strategy I like is:

1. Get spending under control.
2. Pay off high interest consumer debt first. ie credit cards.
3. Balance paying off medium debts (student loans) with saving for retirement. That means maxing out 401k, Roth, employer match etc. I use index funds, not individual stocks for what it’s worth. I’m in the long game, not the short.
4. Then worry about the rest. This is where the mortgage comes in. I would never take out money from the market at your age to pay off a mortgage I could refinance today for 2.5% over 15 years. That’s basically a free loan when you take into account inflation and the ability to put your money into retirement. History would show that it is likely the market will beat that mortgage over the 15 years, but who knows.

This is exactly what I did. Refinanced my 20 year 4.5% mortgage into a 2.5% 15 year mortgage. At 4.5% I could see an argument to chip away faster, but at 2.5% it’s harder to justify other than just knowing you are debt free.

Good luck. Sounds like you are well on your way to financial freedom.


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[wind gypsy]

OP - definitely shop around on the ReFi. I know I left a bunch of $ on the table with my mortgage this summer by using the same lender I already had one mortgage with just so I had a letter to back up my spur of the moment offer. I'm no expert on this but from talking with a handful of friends who have purchased homes this year, it seems the mortgage brokers in general are not able to get you the same deals as a bank or credit union.

 

[ryjack70ss]

OP - definitely shop around on the ReFi. I know I left a bunch of $ on the table with my mortgage this summer by using the same lender I already had one mortgage with just so I had a letter to back up my spur of the moment offer. I'm no expert on this but from talking with a handful of friends who have purchased homes this year, it seems the mortgage brokers in general are not able to get you the same deals as a bank or credit union.

That is my experience too. My major bank/lender could not even come close to what a local bank was offering. They told me they would be losing money by loaning me money at 2.5%. So, I left and went to a much small bank with a much better offer. Process was seamless and saved me not only each mortgage payment, but shortened it by 5 years. Chaching.

 

[Whisky]

OP - definitely shop around on the ReFi. I know I left a bunch of $ on the table with my mortgage this summer by using the same lender I already had one mortgage with just so I had a letter to back up my spur of the moment offer. I'm no expert on this but from talking with a handful of friends who have purchased homes this year, it seems the mortgage brokers in general are not able to get you the same deals as a bank or credit union.

I did the same thing. Hit the easy button and ReFi with my local bank at 3.15 for 20.
But you know what, I don't really care too much at this point. The little I've dealt with the bigger lending companies/banks, the more I despise working with them. At least with a small, local bank you get to talk to a human when you call.

 

[KU_Geo]

Thank you for the clarification! It was in a taxable brokerage account. That’s a bummer, I was only aware of how the 401k system worked. But I do already have the money set aside to pay the taxes on the gains. So I guess my money will just go back into the market already taxed now, and I learned a valuable lesson. I’ll have another 20 years to make better decisions haha.

Another clarification. If any of those funds/stocks were held less than 1 year, you will actually be taxed on that portion at your marginal income as rate, ie 24%, 32%, 35% etc...wherever you are in the scale.

 

[texag10]

Agreed on the index fund investing! But paying off the house by selling investments is a little odd. The market returns 7-10 percent depending on the number you use as average. More profitable investing in that than paying off a lower interest mortgage.
And whatever you do, I would strongly recommend against using a financial advisor. Even the best advisor will not help you outperform an index fund. Not only can they not predict the best funds, but their expenses on top of their suggested funds likely higher expense ratios will magnify the negative opportunity cost. A financial advisor has its time and place, but not for a 30ish year old who can stuff money in an index fund and build up retirement dough without any assistance.

Often true for tax deferred accounts, but assuming OP has the money in a brokerage account, many firms offer equity SMAs that have historically outperformed the S&P500 on an after tax, after fee basis.I haven't run across many investors that understand concepts like phantom income and tax loss harvesting.

@huntnful : You have been given a lot of great advice from a pure dollars perspective in this thread. I have run multiple time value of money (straightline return) and Monte Carlo (variable return) simulations of this exact scenario. With your timeframe, assuming disciplined investing (aka don't react to swings in the market) you will almost certainly come out ahead by leaving your money invested and continuing to pay your mortgage. Don't shoot yourself in the foot listening to fools who abhor paying interest to a lender so much they're willing to hamstring themselves out of spite.

EDIT: I'll add some qualifications here: BBA Finance from Texas A&M, CERTIFIED FINANCIAL PLANNER tm, 10 years in the industry, 5 client facing and 5 coaching advisors to make them better planners. Personally, have the same decision as the OP, I could pay off my mortgage today with non-retirement savings, but won't.

 

[Throwin Darts]

I didn't actually withdraw it. I just transferred it (which does mean I sold it) into a non growth account (their version of a savings account) once I had enough to pay off my house. I don't believe I get taxed on it unless i've fully withdrawn it? I could definitely be mistaken. I hadn't looked into the refi at all up until this point, because I frankly wasn't interested in restarting my loan, or switching to a 15 year. But maintaining my same loan at a cheaper monthly, less interest and more going toward principle makes good sense. I've been consistently investing for 4 years, no matter what the market has done and no finger on the sell button lol. I would just prefer not to buy back in at the absolute peak, knowing it was down 15% just last month.

You absolutely triggered capital gains tax. You’re most likely not going to save any money doing the refi since the cost of the refi exercise you just went through should now include the taxes you owe to Uncle Sam.

At the very least I wouldn’t be considering refinancing a 23 year remaining term loan for another one of the same length. Why don’t you get into a 10 or 15 year loan and put down whatever cash you need to to keep your payments the same?

You went down this route with the intent of paying off your mortgage so if you aren’t going to stroke the check to pay it off why not structure it so it’s paid off sooner?

 

[tdhanses]

Is anyone else wondering how in the fu$# a 30 year old has saved 500k for retirement? lol

Good on you man, I thought I was doing good having 1x my salary before 30 married with 2 kids and a house.

Haha, he doesn’t have kids or a wife

 

[gbflyer]

Been my experience that folks who are truly successful in investments don’t give advice other than to consult a professional.

 

[NDGuy]

Haha, he doesn’t have kids or a wife

That helps, but still maxing 401k/IRA contribution since 19 is incredible few people have that kind of willpower/experience. If I was as financially savvy as I am now I would have at least been doing $500/month after graduating high school..oh well wouldn't trade my current life for it.

 

[J5Hunt]

Don’t quote me, but I believe Ramsey would say don’t take from your future to pay for your now. Let the nest egg build. Sell a few things or get a cheaper truck all in the name of putting more money at your house payment each month to pay it off faster in that way. There are many years of income-less life that need supported. Again not an expert just another thought.


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[sasquatch]

You are absolutely spot on. I've thought about this A LOT! It would mean my full investments are now technically only in real estate. However, I did get a screaming deal on my home and its value has risen extensively in the last 6 years. It's also on 2 acres just outside of some big towns here in California and these properties are really getting more sought after and harder to come by. I'm really trying not to view it as an investment, because it quite honestly doesn't make sense as an "investment". I'm trying to justify it in my mind as just a purchase, that would make any future income catastrophes much more manageable without HAVING to make a payment. Like say I were to lose my job AND the market takes a shit. Now I need to withdraw money at a huge loss in order to make my mortgage, while looking for a job. If that makes sense?

If you lost the job then pay the mortgage off with the money you would use now. Same thing ain’t it? That way you also have the potential for growth

Once house is paid off that potential is gone.

If you worried about losing it put it in something very safe with a simple 2-4% average growth. That way you very I likely to lose it and at same time grow it at the rate of your interest on mortgage


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[sasquatch]

I like the idea just for the fact that you now are debt free as a 30yo. How many 30 year old guys can say they own their house. Keep working like crazy and saving and then you will really be getting ahead. Good on ya man.

I’m in the same boat. 33 and own my house and two rental

However I can tell you from a dollar perspective, I wish I would’ve bought with mortgages and either invested the money or just spread it out more.

I could have like my house and 4 rental if I did that

That way you get the full appreciation value of each house while only being invested into it at 20% down payment

 

[sasquatch]

Yeah my APR is 4.5%. I'm currently paying $12k in interest per year. After writing it off, its costing me $9k annually. Which is less than what I made in the stock market for sure. I also hate throwing $9k in the trash every year too hahaha.

Refi or try to modify your mortgage to get that down to under 3%


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[Malcolm31]

Super good info. I’ve been thinking about my own mortgage debt and how I could pay it off.
I’ve been weighing the “all eggs in one basket” argument as well. I’m just not a fan of debt and the mortgage is it.

 

[cusecat04]

You absolutely triggered capital gains tax. You’re most likely not going to save any money doing the refi since the cost of the refi exercise you just went through should now include the taxes you owe to Uncle Sam.

At the very least I wouldn’t be considering refinancing a 23 year remaining term loan for another one of the same length. Why don’t you get into a 10 or 15 year loan and put down whatever cash you need to to keep your payments the same?

You went down this route with the intent of paying off your mortgage so if you aren’t going to stroke the check to pay it off why not structure it so it’s paid off sooner?

I'd agree with this approach, you are paying the taxes, might as well use some of the proceeds to refi into a lower rate, pay the fees without rolling into the balance.

I'd also agree with another's response earlier in this thread that the mindest you have is what's going to make you successful.

We took a more varied/balanced approach, investing in 403s/Roth IRAs and paying some extra on the house, once the balance got low enough paid for house, growing investments through that time.
Now at 40 not sure I'd change that approach.

 

[txhunter581]

First thing I would do is apply to refinance your home. You should be able to get it down to 3.5% at least. That saves $2600/year right there! Then I would leave your money where it is, but start paying off your mortgage faster by adding extra each month. Think of it this way, your investments are currently earning more than your mortgage interest, and you can ALLWAYS pay off the house at any time if that stops happening.

If you decide you want to pay off your house, be sure and keep some cash in cash of emergencies. Don't use it all for that.

 

[mtnbiker208]

one thing that was taught to me is:
pay $100 extra towards principle on your house the first year, every month.
the 2nd year pay $200 extra towards principle each month,
3rd year $300 each month ect, ect.
You can get your house paid off early and not miss much in disposable income..
Theoretically you should be making more as time goes on, so the extra each month is not really missed.

this has worked for me, and i could pay my house off very easy right now, the 2.47 interest rate i am paying is keeping me from paying it off. The house will be paid off in the next 3 years. so i am getting the advantage of no house payment soon, without loosing the liquidity of cash.

 

[fwafwow]

You just need to find a fee only financial planner. You pay only for the formation of your plan and are responsible for all implementation.

Many CFPs charge clients a rate for all services rolled into one. Planning, trading, monitoring, etc. that’s what you see on commercials about aligning your interests with the clients. They make more money you make more money, they lose money you lose money.

Many people think they don’t need help, but cause themselves sometime irreparable damage when things go sideways and make emotional vs rational decisions. Part of my job is def being a therapist and talking people out of bad decisions.


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+1 to what @VenaticOppidan said. Great job saving your money, and I applaud you for doing research and asking questions.

I also understand the concerns over and questions about fees. But although I hate cliches, "you get what you pay for" is sometimes true (in this case, provided you find a trustworthy fiduciary with whom you can get along). No one wants to pay more than is needed, especially when it comes to something unfamiliar. I was very focused on price when I bought my first rifle, bow, bag, scope, boots, etc. But over time I became more understanding that sometimes paying more gets you more (I'm not referencing returns). It's not a perfect analogy when you are talking about services vs. a product, but if you have paid for a guided hunt, maybe that's a more fair comparison.