Should i pay off my mortgage with lump sum payments?

Hellowhosthat said:
If you can get a better investment rate than the interest rate you're paying you're better off doing that then paying the sum when it goes up or remortgage at that point.
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that is a major IF, the loan rate is indeed very low, and if it were fixed, then I'd keep the debt, but it's not fixed. it can balloon to 10+ and you would be royally screwed, and I dont know the details of the loan.... the exact strategy would be to pay low debt until the balloon happens, but then you can forget...... investments can go down, it's not exactly foolproof.

I would start maxing out roth 401K's for the next two years, max out IRA, max out HSA to avoid taxation, and see how far that money goes, can you sustain, probably, and then invest a good portion to see if you can get returns to pay off the mortgage right before it blows up.
 
DC23 said:
Jesus wept, starts off by moaning about interest rates and then goes on to say he’s got 120k saved with a 1.7 interest rate until 2026.

Cry me a fucking river.
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I'm on a fixed rate that I got in on before it shot through the roof, but only have a couple years left on it. That's why I'm unsure whether to get rid of as much debt as possible by burning through my savings before it gets to the through the roof rates or just accept the high rates and pay more but have a healthy living situation should emergencies occur.

I'm very grateful to be in this position to consider everything, but still find it to be a predicament regardless.
 
I'd put 100k in a term deposit for two years. You could probably get 5% interest rates on that. 35k should be enough of an emergency fund? Continue saving over the two years and if possible add more to your term deposit. In March 2026 I'd pay the whole mortgage off. Low risk strategy.
 
When you say your rate will shoot up. How high are we talking? Is there a cap on it too? Is it an ARM or balloon (or something else) mortgage?

You are in no rush to pay anything down at the moment so personally I would focus on organizing your finances and budgeting. There are many apps you can use or just go old school with excel. After doing so create some financial goals. We have no idea what your personal finance situation looks like so it's hard to give any advice. We also don't know what interest rates will look like near 2026. It's very possible rates could start slowly coming down later this year. If so refinancing may be a feasible choice.
 
At 1.7% and low property taxes, just chill and try to invest the surpluss. I think doubling your payment is still a good idea though. Making an extra payment a year will take 7-8 years off a 30 year mortgage.
 
If you can you should. The entire financial system is built on a house of cards and we are heading to an inevitable collapse.
 
It is mostly a good idea to pay down your mortgage but it does depend somewhat on your personal circumstances.

1) You are only going to pay the maximum amount allowed without penalty each year. That means you won't be left without funds in an emergency because only a portion of your savings will go into paying the mortgage. Also, you can open a HELOC and essentially take back any of the money you put in as equity if you need to suddenly pay for something big.

2) The people comparing against investment gains are neglecting risk premium and taxes most of the time IMO. That is, when you pay down the mortgage, you keep the entire interest savings and the savings is guaranteed. When you make investment gains in the market, you are taking the risk of losing money or making less than expected, and even the money you do make is taxed at your income bracket. Admittedly in the current climate, you could make money on guaranteed interest certificates and the like, but that has the disadvantage of locking up your cash.
 
val_lixembeau said:
2) The people comparing against investment gains are neglecting risk premium and taxes most of the time IMO. That is, when you pay down the mortgage, you keep the entire interest savings and the savings is guaranteed. When you make investment gains in the market, you are taking the risk of losing money or making less than expected, and even the money you do make is taxed at your income bracket. Admittedly in the current climate, you could make money on guaranteed interest certificates and the like, but that has the disadvantage of locking up your cash.
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You're right about taxes and they will take out a fifth or a quarter of the extra earnings you've received if you opt to throw you money in a CD over mortgage principal but with a 1.7% mortgage rate vs. nearly 5% CD rates, you're still coming out ahead.

He said he has 135k in disposable savings. Lets just say he puts 100k of that into a 2 year CD at 4.8%, he would get $9,600 in interest over the course of 2 years. 24% tax rate (if he's in that bracket) and he pays $2,304 in taxes. That's $7,296 of extra cash he could dump toward his mortgage principal once the 2 year CD expires.

It seems like a no brainer to me but am I missing some math somewhere or some other variable where it would financially be better in the long run to not go this route while he still has a low interest rate?
 
Goon Dog said:
That's such a low rate, you may be better off taking the money you plan to pay extra and invest it. When the balloon comes due you'll have a bit more to pay it down with.
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This is the best advice, TS.

You could get a money market account or high yield savings account, or even bonds or something super safe and earn an easy 4% interest. You can get more if you're willing to accept a little bit of risk.

Throw your 28k per year into that investment, whatever it is, and in 2 years when your mortgage payment balloons, take all that money and throw it at your mortgage. You'll probably have an extra 3-4k going towards your mortgage this way as opposed to throwing extra money at it now.
 
RoastBeast said:
It seems like a no brainer to me but am I missing some math somewhere or some other variable where it would financially be better in the long run to not go this route while he still has a low interest rate?
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It depends on his exact mortgage, but most have yearly limits on how much can be paid directly to principle. If you have more cash than the limit there is no point in paying down any further because of the penalties, so if you made investment gains you'd have to invest them elsewhere and you would have lost the opportunity to pay down two years or however long you lock up your cash.

Second, I only wish my marginal tax rate was as low as 25% hahaha. I imagine that anyone who can build up over $100k of cash must have significant income? I was thinking something in the 50% range.

But you are right that the differential right now between CDs or whatever and his current mortgage rate is quite high. We here can only give generalizations since we don't know the personal details.
 
It sounds like TS mortgage has a variable rate. But it’s low til 2026.

I’d invest that cash in retirement funds. Maybe $40k if you’re conservative. Leave the rest for emergency fund. Stock market averages about 10% percent return. Way higher than the 1.8% mortgage.

When you get to 2026, maybe refi for a fixed rate?
 
Blunderbuss said:
So as you all are aware, interest rates are fucked right now. They may start to lower a bit in the near future, but who knows by what amount or when.

So my mortgage right now is down to only $122k. Not too bad, payments are only $254 a week including the property tax. We've managed to set aside about $135k in disposable savings. We just had a baby girl and really wanted to make sure we would be set. So now baby is 2 months old, things are going great and we are still accumulating wealth, so my question is: do I start just paying down my mortgage? I can pay up to $28k a year in lump sums, so with my regular payments, I could have it paid off in 4 years. Of course disaster could strike at any time, I could lose my job, car could break, house could flood (it flooded a couple years ago after all). I've been grappling with this for a few months, and my wife keeps asking me what I'm thinking about it. Should I just stay the course for the remaining 13 years of my mortgage? Make smaller lump sums but keep enough just in case? Burn the house down and start a new life?
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I find it strange to see the mortgage "down to only $122k". When I built my house in 1978, I took out a mortgage for $24k when I was making $25/year. The monthly payment was $210. Back then, just adding $5/month to the payment would cut 5 years off the 20 year mortgage. I could out any amount toward the principle at any time. I paid it off in seven years. I made certain that I set aside money for property tax as well as for repairs and updates. Money builds up fast when you don't have home or vehicle payments. When you need something you can have the cash to buy it instead of financing. If you lose your job you don't have a mortgage payment to make.

I your case, I would pay the entire loan off. You would gain the portion of the $254 weekly payment back and set aside money for property tax. Is there something in the loan that limits the lump sum to $28k/year?
 
val_lixembeau said:
It depends on his exact mortgage, but most have yearly limits on how much can be paid directly to principle. If you have more cash than the limit there is no point in paying down any further because of the penalties, so if you made investment gains you'd have to invest them elsewhere and you would have lost the opportunity to pay down two years or however long you lock up your cash.

Second, I only wish my marginal tax rate was as low as 25% hahaha. I imagine that anyone who can build up over $100k of cash must have significant income? I was thinking something in the 50% range.

But you are right that the differential right now between CDs or whatever and his current mortgage rate is quite high. We here can only give generalizations since we don't know the personal details.
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I didn't know there were yearly limits on how much can be paid directly to principal. That's concerning. Means they can lock people into paying interest when they don't necessarily need to.

Married and filing jointly you pay 24% if you make somewhere between like $190-365k combined. I'm assuming he's either in that bracket or the next one down which is taxed at 22% I believe. One bracket up and you're at 32% but you can make up to 450k or so. He probably wouldn't be asking for financial advice on a karate forum if he was in that tax bracket lol. Those are federal tax brackets but they apply to short term capital gains taxes as well.

50% sounds insane! Are you not in the US?
 
I read that as "Should I Pay Off My Mortgage With Supplements?"

Yes.

Yes you should.
 
I paid off my mortgage a long time ago. You should pay yours off, but only after paying all your other debts if you have any. And having a 3 month emergency fund.

Then pretend you still have a mortgage, but putting that money instead into something like a 401k or Roth IRA.

Watch that money grow, and just remember that 4% of your total investments will be what your annual salary when you decide to retire.

For example, if you have a million dollars when you turn 60, your annual salary you give yourself would be $40k a year. Which is not even close to enough money to retiring comfortably.

You'll need to raise your goal to having $2 million or more.
 
Flex on em and pay that off. Then humble brag about how you have no mortage

I plan to do the same then remodel the shit out of my house in 45 months.
 
This doesnt constintue financial advice but if I was in your shoes I wouldnt pay until march/April 26 before the interest rate goes back up again and keep the money for now. The situation maybe very different in two years time. It is however worth discussing with your bank as to the effect a lump sum payment would have on your loan either for the repayments or the term. if it shaves off a decent chunk of the term then consider the savings from reduced term vs what you maybe willing to pay now (lump sum). Take into account any early repayment penalties if any. I made svereal lump sum payments and reduced my mortgage duration as well as moving the mortage from one provider to another that was offering an offset mortgage where the interest from your savings gets applied to the loan so you clear more capital.
 
A house for $1000/month is pretty ridiculous when people are struggling to get a studio apartment for that rate
 
I'd say pay extra while the % is small. I don't got experience with these things like flood risk or job loss or health care not being public. Imagine having 130 k and feeling vulnerable. But a flood would suck. So I guess invest part of it into it.
 
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