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This eternal question has been discussed several times, but with the
recent turn in events of the stock market, I'm confused.
I'm 32 years old and have around 30K of money that I could use to
either invest or pay off my principle of ~230K. I'm not savvy with
stocks and have limited experience with mutual funds. I consider
myself to be low-risk taking, fiscally conservative person.
I have a 7 year interest only loan at 6.375%. I have 5 more years
remaining before my current rate will change unless I refinance. I
chose interest only because I am a first time home buyer wanted to
keep my commitment low, while paying off $600-1000 every month towards
the principle which I have done diligently. In hindsight I'm not sure
if that was the right decision.
After our mortgage payments and living expenses, we end up saving
around $2000 every month but that is only while we can hold on to our
jobs with this current economy. I have set aside about 6 months of
mortgage payments + escrow + living expenses for emergencies.
I am debating between 3 options.
1. Investing in stocks/mutual funds
2. Refinancing the home to a 15/30 yr fixed
3. Paying towards my principal.
Any advice will be highly appreciated.
Thanks for helping out this newbie!
sprash wrote:
> I have a 7 year interest only loan at 6.375%. I have 5 more years
> remaining before my current rate will change unless I refinance. I
> chose interest only because I am a first time home buyer wanted to
> keep my commitment low, while paying off $600-1000 every month towards
> the principle which I have done diligently. In hindsight I'm not sure
> if that was the right decision.
>
> I am debating between 3 options.
> 1. Investing in stocks/mutual funds
> 2. Refinancing the home to a 15/30 yr fixed
> 3. Paying towards my principal.
>
> Any advice will be highly appreciated.
> Thanks for helping out this newbie!
You should always have your eyes open for a better deal in a refi.
Preferably a no-point, no closing deal. No one knows where rates will go
and you'd be better off aiming to get a fixed. On the other hand, 7
years of hitting the principal as you've been doing and you'll have paid
off at least $50K. $180K amortized over the remaining 23 years even at
8% will only have a $1428/mo payment. You are already sending over
$1800/mo including those extra payments. Right now you are in good shape
so long as you both remain employed.
The choice to hack away at the mortgage more aggressively is yours
alone. Some sleep better knowing their house is paid for. I'd prefer
topping off my retirement savings and investing extra funds.
Joe
"sprash" <s...@g...com> wrote in message
news:2a115b22-8568-4a26-a1f7-93a442395a2d@p35g2000pr
m.googlegroups.com...
>
> I have a 7 year interest only loan at 6.375%. I have 5 more years
> remaining before my current rate will change unless I refinance. I
> chose interest only because I am a first time home buyer wanted to
> keep my commitment low, while paying off $600-1000 every month towards
> the principle which I have done diligently. In hindsight I'm not sure
> if that was the right decision.
>
I've always been in the pay-off-your-mortgage camp in combination with
making sure my retirement was well-funded. In your situation, I would be
researching current fixed interest rates. I haven't looked at these for some
time now, but it seems to me a 15-year fixed may well have a lower interest
rate than your current interest only loan. Perhaps you are well-positioned
to do more than you think.
Elizabeth Richardson
On Nov 14, 4:51 pm, sprash <s...@g...com> wrote:
>
> I am debating between 3 options.
> 1. Investing in stocks/mutual funds
> 2. Refinancing the home to a 15/30 yr fixed
> 3. Paying towards my principal.
>
How long you plan to live in your home would seem to be a key factor.
If 7 to 15 years, then do as Elizabeth recommends. If more than 15
years, then find a 30 year fixed. Just guessing, I think mortgage
rates are currently high relative to traditional measures such as T-
Bills. When you have the term, then you can pay down principal.
Personally, I like low monthly payments just because it makes me feel
better.
Pick up a $40 book "Security Analysis" by Benjamin Graham and learn
about stocks (and investing). When you understand companies, then
start off small with one or two well-selected stocks ($2,000 maybe).
On Nov 14, 4:59 pm, dapperdobbs <G...@h...com> wrote:
> On Nov 14, 4:51 pm, sprash <s...@g...com> wrote:
>
>
>
> > I am debating between 3 options.
> > 1. Investing in stocks/mutual funds
> > 2. Refinancing the home to a 15/30 yr fixed
> > 3. Paying towards my principal.
>
> How long you plan to live in your home would seem to be a key factor.
> If 7 to 15 years, then do as Elizabeth recommends. If more than 15
> years, then find a 30 year fixed. Just guessing, I think mortgage
> rates are currently high relative to traditional measures such as T-
> Bills. When you have the term, then you can pay down principal.
> Personally, I like low monthly payments just because it makes me feel
> better.
>
> Pick up a $40 book "Security Analysis" by Benjamin Graham and learn
> about stocks (and investing). When you understand companies, then
> start off small with one or two well-selected stocks ($2,000 maybe).
Thanks everyone. Looks like in general it sounds like I should be
looking for a good refinancing deal.
I think I will be looking at making 2-3 extra payments at the end of
this year. At this moment, I think I'll chip away at my debt because
with the rough market out there I don't feel too comfortable
investing.
And yes, I am maxing out my 401k this year.
On Nov 15, 4:33 am, sprash <s...@g...com> wrote:
> And yes, I am maxing out my 401k this year.
And, are you maxing out your Roth and your spouse's Roth?
--
Ron
> I've always been in the pay-off-your-mortgage camp in combination with
> making sure my retirement was well-funded. In your situation, I would be
> researching current fixed interest rates. I haven't looked at these for some
> time now, but it seems to me a 15-year fixed may well have a lower interest
> rate than your current interest only loan. Perhaps you are well-positioned
> to do more than you think.
>
> Elizabeth Richardson
OP states his current principal is $230K.
Latest average rates show 30yr @ 6.08% = $1391 payment, or 15yr @ 5.76 =
$1911.
I'm more concerned about where he'll find himself at the end of the 7 yr
period than in the decision of 15 vs 30.
In another thread someone remarks how rates were higher than they should
be compared to one yr. T-bill. Fixed rates are tied more closely to the
10yr bond, and right now the spread is too high. In the last cycle, I
caught a 15yr no cost refi to 5.24%. The current mortgage rates are at
least 1/2% too high.
I suggest he more to a fixed now, but prepare for another refinance as
things get back in line. I agree with you, Elizabeth, there's nothing
wrong with being 47 and having a paid off house.
Joe
www.blog.joetaxpayer.com
>
> After our mortgage payments and living expenses, we end up saving
> around $2000 every month but that is only while we can hold on to our
> jobs with this current economy. I have set aside about 6 months of
> mortgage payments + escrow + living expenses for emergencies.
>
> I am debating between 3 options.
> 1. Investing in stocks/mutual funds
> 2. Refinancing the home to a 15/30 yr fixed
> 3. Paying towards my principal.
>
You are two years into current loan (Five years to go). I would look
at this from 4 points of view
1) you started a repayment plan 2 years ago, any solution should
consider a max of 30 years of mortgage payments. If you refinance,
continue with a 2036 payment end year (if you refi to a 30 year fixed,
make sure to compare the 28 year payoff plan to current mortgage.
2) continue paying some principal to current loan regardless- I would
error on paying towards a fifteen year fixed principal payment
3) If losing jobs is a concern, increase cash to 24 months expenses
before getting more aggressive on debt payment or investing
4) Generally speaking, after 24 months is in cash, I would think
investing if market is low beats paying down mortgage when market is
low, when market turns upward, it makes more sense to pay off mortgage
and stop investing extra cash.
sprash <s...@g...com> writes:
> > On Nov 14, 4:51 pm, sprash <s...@g...com> wrote:
> > > I am debating between 3 options.
> > > 1. Investing in stocks/mutual funds
> > > 2. Refinancing the home to a 15/30 yr fixed
> > > 3. Paying towards my principal.
> Thanks everyone. Looks like in general it sounds like I should be
> looking for a good refinancing deal.
>
> I think I will be looking at making 2-3 extra payments at the end of
> this year. At this moment, I think I'll chip away at my debt because
> with the rough market out there I don't feel too comfortable
> investing.
I'm a little concerned about your lack of concern about
*liquidity*.
Unless you have enough to pay off the house completely,
your payments will continue. If you take that wad of
cash and pay down some of your mortgage, when your rate
adjusts, your payments go up and you have no cash with
which to pay them.
Yes, paying off the mortgage may be a great investment
right now - with a higher effective rate of return than,
say, dumping that money into a money-market fund. But
in a few years when your payments go up, having that
money available in the money market fund makes it easy
to keep making your mortgage payments.
A partially prepaid mortgage is highly illiquid - you
cannot get at that money easily.
Perhaps a better compromise is a much more conservative
but still liquid investment, like a short-term bond fund.
And, yes, unless you are pretty certain you're going to
sell the house and move before the rate adjustments hit,
you should be actively keeping an eye out on a good
refinancing deal.
--
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