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should I pay off mortgage

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  • Avatar lmk1966 
    Participant
    Status: Physician
    Posts: 40
    Joined: 02/18/2017

    After the death of physician husband (died last year) I left with condo mortgage 155k and house mortgage 293k. Both have 2.875% for 15 years (I refinanced ) and I am able to pay both. Beside this: car payment but no other debt.  403B -80k, saving account 1% interest -240k. Nothing else.

    I am a physician with adult son.  Selling any property out of question . I am 50 yo

    Question: should I pay off condo and money from that mortgage put toward house or investment? Or should I leave mortgages alone?

    lmk1966

    #37114 Reply
    abds abds 
    Participant
    Status: Physician
    Posts: 181
    Joined: 01/16/2017

    Sorry about husband’s death. How would you pay off the mortgage? Do you have money you haven’t mentioned above? What is your income? What are your expenses?

    #37117 Reply
    Avatar lmk1966 
    Participant
    Status: Physician
    Posts: 40
    Joined: 02/18/2017

    Savings 240k, soon can get to  255k (picked up additional weekends) + I am med director. If I pay 153k for condo I still will have 100k in emergency fund. After that, will start saving/investing. By the way condo currently rented and I am getting 4.6k/month from rent

    lmk1966

    #37122 Reply
    Avatar hightower 
    Participant
    Status: Physician
    Posts: 1381
    Joined: 12/07/2016

    If you only have 240k in a savings account and 80k in a 403B and that’s your entire portfolio, then no you should not pay off that mortgage.  You should invest that 240k and start aggressively saving more towards retirement.  Those interest rates on your mortgages are extremely low, especially since your condo is rented each month.  No reason to pay them off quickly.

    #37125 Reply
    Avatar lmk1966 
    Participant
    Status: Physician
    Posts: 40
    Joined: 02/18/2017

    It is interesting that I talked to FA from WCI ( Utah Medical Association, one of recommended by book) and he suggested to have emergency fund, then pay condo and then invest future money. Problem that investing require ( in my case) help of FA so I am somewhat lost, especially that I am not willing to pay thousands $ per year for FA. Any suggestions how to proceed?

    lmk1966

    #37129 Reply
    RadMoneyMD RadMoneyMD 
    Participant
    Status: Physician
    Posts: 33
    Joined: 07/07/2016

    Investing in a Vanguard target retirement fund would probably be a good option for you.

    #37131 Reply
    DMFA DMFA 
    Moderator
    Status: Physician
    Posts: 2126
    Joined: 06/24/2016
    Disability Insurance

    First of all, condolences on the loss of your husband.  I just lost my mother last month, but we expect to bury our parents.  That’s an awful loss to overcome.  I hope you’re able to find peace and strength through this.

    I do find it a bit odd to have so much in a savings account bearing 1% while having far less in a 403b.  Any other accounts, IRAs, taxables?  You will lose more to interest on those mortgages than you will gain at 1%.

    Letting mortgage debt sit, given its tax deductibility and a hedge against inflation, and leveraging it against higher gains in equities in a taxable account is a good tactic.  I can’t say the same about savings accounts.  The “real” interest rate of a 2.875% mortgage debt assuming you’re in the 33% tax bracket and 1% inflation is 0.92% non-compounding, whereas the savings account’s rate of gain is probably zero or less.  A balanced taxable portfolio earning 6% a year (conservative) using the same numbers would gain you 3.5% compounding after taxes and inflation.

    Given that, I’m usually not in a rush to pay off mortgage debt in favor of investing.  You’re never actually *wrong* to pay off a mortgage, imo, especially if you’re particularly debt-averse; just recognize that over the long-term, the math supports investing over eliminating mortgage.

    So I’d raid the savings account down either to eliminate debt and leave enough for the emergency fund -or- invest in a taxable brokerage account.  I actually favor a “hybrid” emergency fund; part (like 1 month’s worth) immediately available as cash in a savings account and the remainder easily liquidatable in a taxable account in a municipal bond fund or a tax-advantaged allocation fund like VTMFX.

    "I like money." - Frito Pendejo (Idiocracy)

    [Not a financial professional (yet), lawyer, or employee of The White Coat Investor]

    #37134 Reply
    Liked by hatton1, Zaphod
    Zaphod Zaphod 
    Participant
    Status: Physician, Small Business Owner
    Posts: 5645
    Joined: 01/12/2016

    Sorry for your loss. Agree with above. You need some savings for retirement. There is no need to pay off mortgage for all the reasons above especially since you can easily pay it down using the renter. Move some of your money to taxable asap, you can even use some of it to make up for contributions to the 403b. Start learning and maximizing tax deferred account.

    #37139 Reply
    Avatar lmk1966 
    Participant
    Status: Physician
    Posts: 40
    Joined: 02/18/2017

    My 403b maxed. Do you think I can open Vanguard account my self just but talking to their advisor or I need FA? Did any one did it themselves?

    lmk1966

    #37148 Reply
    DMFA DMFA 
    Moderator
    Status: Physician
    Posts: 2126
    Joined: 06/24/2016

    My 403b maxed. Do you think I can open Vanguard account my self just but talking to their advisor or I need FA? Did any one did it themselves?

    Click to expand…

    Opening brokerage accounts is very easy, like maybe 5 minutes.  I can’t imagine your needing an advisor to do that.

    As to how to manage it, e.g. what money to invest in what, it depends on how you want to use your funds.  Many people who use a taxable want to use some for retirement (after maximizing tax-advantaged accounts like 403b, 401k, IRA, HSA) and some as an easily-liquefied reserve.

    How would you want to use that money in the taxable account?

    "I like money." - Frito Pendejo (Idiocracy)

    [Not a financial professional (yet), lawyer, or employee of The White Coat Investor]

    #37152 Reply
    Avatar TheAbacus 
    Participant
    Status: Physician
    Posts: 88
    Joined: 11/30/2016

    If you are overwhelmed with these decisions, there is no shame in starting off with a flat fee advisor, provided you get comfortable with some basics regarding retirement accounts and investing.

    Otherwise, just have faith in what has been said above. It is truly easy to start a brokerage account with Vanguard on your own.

    I’d raid the savings account down either to eliminate debt and leave enough for the emergency fund -or- invest in a taxable brokerage account.  I actually favor a “hybrid” emergency fund; part (like 1 month’s worth) immediately available as cash in a savings account and the remainder easily liquidatable in a taxable account in a municipal bond fund or a tax-advantaged allocation fund like VTMFX.

    Click to expand…

    Simple and effective advice for the buy and hold investor, who doesn’t like to tinker much.

    O what is the purpose of the heart... but to supply blood to the kidneys!

    #37162 Reply

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