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Under 5 year Mortgage payoff – Savings??

Home Mortgages and Home Buying Under 5 year Mortgage payoff – Savings??

  • Avatar HealthyDoc 
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    Status: Physician
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    Joined: 03/17/2019

    I bought a home in a HCOLA 2 years ago – I love it and consider a consumer item.  Home is valued at $900k.

    After paying off $300+K in student loan debt I’ve caught some kind of debt-free bug and am now aggressively paying down my mortgage ($650k remaining w/ int 3.25%).  I know the arguments of invest rather than pay off mortgage, and I feel comfortable I can do both while psychologically loving the idea of being 100% debt free and never going back in the hole!! Also, including home equity in net worth, I’d be a multimillionaire in 2 years and be FIRE in early 40s.

    I’m maxing out retirement, while throwing $7k monthly at the mortgage and still having $15k to save monthly.  (annual income about $400k / $33k monthly).

    So my question is where do I put that $15k monthly savings?  I do have a taxable brokerage account and figured I’d just load that up in total stock low fee index fund, hope for some returns, and at the end of 2 years, I’ll have enough to cash out and pay off the remainder of my mortgage at that time plus have some extra to leave in the account and let grow.

    Wondering if that seems like a good strategy, or given the volatility of market and need to pay taxes on the withdrawal – would it be better to put the money in Ally or similar savings w/ guaranteed 2% return?

     

    Thanks for the input!!

    #212265 Reply
    Avatar adventure 
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    Wondering if that seems like a good strategy, or given the volatility of market and need to pay taxes on the withdrawal – would it be better to put the money in Ally or similar savings w/ guaranteed 2% return?

    Click to expand…

    When do you need the money? 2 years? Or 30?

    Also, including home equity in net worth, I’d be a multimillionaire in 2 years and be FIRE in early 40s.

    Click to expand…

    So, what are your life goals? If you are set by 45, then what?

    #212268 Reply
    Avatar jhwkr542 
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    Joined: 02/15/2016

    So you’re going to pay off your mortgage in 2 years, but as you save up the money to do so, you’re going to leverage it by putting it in the stock market?  The plan seems kind of odd, and you’re sort of conflicting 2 different strategies:  pay off debt or invest for the long term.

    It’s a little like gambling, but you become pot-committed if the market tanks, meaning you could lose a lot of money if you pull it out after 2 years of down markets.  You have the cash, so you can certainly do it.  Just be prepared to not pull the money out in 2 years.

    #212296 Reply
    Liked by ENT Doc
    Avatar Larry Ragman 
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    If you want these funds to pay off the mortgage then put the funds against the mortgage. No sense confusing the strategy with a quasi-accumulation strategy. After payoff keep putting the $15k away, but shift it to a stock index.

    That said, I am taking you at face value that you are maxing retirement and that mortgage payoff is your personal goal. So, you sure on retirement? Any mega Backdoor Roth possibilities? I would fund those first. And I would leverage that 3.25% mortgage to keep the cash out of the house in expectation of higher returns in the market over the long term. But that is just me.

    #212297 Reply
    Liked by Hank, DCdoc, MaxPower
    Avatar HealthyDoc 
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    Status: Physician
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    Okay, appreciate the comments.  This is very helpful.  I think I got a little overly excited about the prospects of being debt-free (which honestly just seems nice but likely worth taking more reasonable time with it).  Your comments gave me a lot to think about.  I think I’ll slow things down and just make the monthly payments that get home paid off within my 10 year ARM and keep building wealth outside that.

    Thanks so much!

    #212312 Reply
    fatlittlepig fatlittlepig 
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    So you’re going to pay off your mortgage in 2 years, but as you save up the money to do so, you’re going to leverage it by putting it in the stock market?  The plan seems kind of odd, and you’re sort of conflicting 2 different strategies:  pay off debt or invest for the long term.

    It’s a little like gambling, but you become pot-committed if the market tanks, meaning you could lose a lot of money if you pull it out after 2 years of down markets.  You have the cash, so you can certainly do it.  Just be prepared to not pull the money out in 2 years.

    Click to expand…

    No not strange at all. He’s aggressively paying off mortgage note and investing simultaneously. Good plan. fatpig approves. Dump money into index funds and hope market goes down, keep dumping.

    #212313 Reply
    White.Beard.Doc White.Beard.Doc 
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    Status: Physician
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    If you are currently investing 2/3 of your monthly free cash flow in the market, and paying down mortgage debt with the other 1/3, that is a very reasonable strategy. The 2/3 is statistically higher return but uncertain (higher risk and potentially higher reward). The 1/3 is lower return, but guaranteed (lower risk, lower return but guaranteed).

    I used a very similar strategy over the years and I am very pleased with the results so far.

    Like many other areas of life, balance and moderation tends to work out quite well….

    #212321 Reply
    Lordosis Lordosis 
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    Great job saving.
    I think you should just decide how fast you want to pay off the house and stick the rest in your brokerage. If you hope for some gain in 2years you might get it but cashing out would cost you more in taxes then rather than if you wait until when your income drops in retirement.
    You got this game won. You can afford mistakes

    “Never let your sense of morals prevent you from doing what is right.”

    #212323 Reply
    Avatar Tangler 
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    Status: Physician
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    Joined: 08/23/2018

    So you’re going to pay off your mortgage in 2 years, but as you save up the money to do so, you’re going to leverage it by putting it in the stock market?  The plan seems kind of odd, and you’re sort of conflicting 2 different strategies:  pay off debt or invest for the long term.

    It’s a little like gambling, but you become pot-committed if the market tanks, meaning you could lose a lot of money if you pull it out after 2 years of down markets.  You have the cash, so you can certainly do it.  Just be prepared to not pull the money out in 2 years.

    Click to expand…

    No not strange at all. He’s aggressively paying off mortgage note and investing simultaneously. Good plan. fatpig approves. Dump money into index funds and hope market goes down, keep dumping.

    Click to expand…

    Agree with the pig. Kill the debt and invest. Being debt free decreases your overall risk and allows you to take more risks (like buying stocks for the long run). You won. You are killing it. You are like the seahawks in the super bowl with 1st and goal and the best running back in the league…….oh wait, they threw a pass. Don’t throw the ball. Pay off the debt, keep investing in diversified index funds, win!

    #212336 Reply
    fatlittlepig fatlittlepig 
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    Splash Refinancing Bonus

    Great post. I’m giving you Fatlittlepig seal of approval.

    #212338 Reply
    Liked by Lordosis
    Avatar Tim 
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    Status: Accountant
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    Joined: 09/18/2018
    So my question is where do I put that $15k monthly savings?

    Click to expand…

    You obviously got bitten by the debt payoff bug pretty hard. Taxable of Mortgage?  Before one can answer you need to provide a little more. What is your retirement savings rate? Some of your taxable will be “retirement”. When you say “maxing out retirement”, that doesn’t really give alot of information. Are you at $80-$140k per year? Do not think you have completely paid yourself yet.

    $400
    20.00% $80
    35.00% $140

    Pay your retirement target % first, then your mortgage payment. Now your ready to ask payoff mortgage or save. Then my question is what are you saving for? One is wealth, one is future spending and one could be just “investments”. An additional taxable account is highly liquid, the mortgage payoff isn’t. Back to basics. The market isn’t a place to keep funds needed 5 years or less.

    You need a GPS more than 5 years. https://www.physicianonfire.com/a-tale-of-4-physicians-the-importance-of-lifestyle/

    The real question is what are you going to do when the house is paid off?

     

     

    #212339 Reply
    Avatar wideopenspaces 
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    Status: Physician
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    Joined: 01/12/2016

    I don’t know if this will help you but my plan is to get 1M invested and then pay off my mortgage. I want to be debt free but since I’m still young I know I should get enough invested to get the benefits of many years of compounding. So I set a somewhat arbitrary number and once I’ve hit it, I’m free to give in to my probably irrational desire to be totally debt free. Maybe something like that would work for you? Keep throwing the 15k in taxable until you hit a predetermined number, then throw it at the mortgage until it’s gone.

    #212358 Reply
    Avatar HealthyDoc 
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    Status: Physician
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    Joined: 03/17/2019

    Awesome!  Thank you!!

    #212364 Reply
    Avatar Eye3md 
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    Status: Physician
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    Joined: 12/01/2017

    I’m like you as I’ve also caught the “be debt free bug”. Unfortunately, my only debt is a “big dumb doctor house”.

     

    My home has around $800k left on the mortgage (similar rate as yours). Pulling up a quick mortgage calculator, it looks like I’d pay around $110,000 in interest if I keep paying the current monthly payment (payoff in 7 years) or $48,000 in interest if I double my monthly payment (payoff in 3.5 years).

     

    Someone else asked, “what will you do when you pay off the mortgage?”  Good question!  For me, it would be about freedom. I’m currently 50 years old, have a decent nest egg built up, and would certainly like to retire in the next 5-10 years. i don’t want any house debt when I retire. I don’t want any debt when I retire. The uncertainty of the market, and healthcare, both lead me to believe I’m going to face a significant drop in income sometime in the next 4-5 years (maybe sooner). If my income drops, I’d rather spend money on enjoying life (vacations) than a house. Right now, I make a huge income, so I can fund retirement, pay for a big dumb house, and take great vacations. The future may not allow this.

    #212424 Reply
    Liked by StateOfMyHead
    Avatar Tim 
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    Status: Accountant
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    Joined: 09/18/2018

    @eye3md ,
    “Someone else asked, “what will you do when you pay off the mortgage?” Good question! For me, it would be about freedom.”

    “I make a huge income, so I can fund retirement, pay for a big dumb house, and take great vacations. The future may not allow this.”

    Ones definition of FI seems to change when it comes to shifting life priorities. Why jump out of a perfectly good plane with a big dumb house that’s paid for? No recommendation intended. RE (retire early or not) has anxieties and strategies and choices as well.
    Good luck with your journey as well.

    #212429 Reply

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