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I am in search of opinions. We have a mortgage with a rate in the 4's. We have zero other debt and we have 18 months of reserves in cash accounts. We have 2 IRA's and we have 2 401k's which we are funding at 15%.
Should we pay down our mortgage with extra monthly payments or should we focus on building up more cash reserves for the impending double dip recession next year.
I can't make heads or tails of the stock market anymore.
I'm in a similar position to you. I have a mortgage at 4.625% with about $60K remaining, and about 2 years of living expenses liquid.
I previously resisted paying down my mortgage substantially, and I never took from savings/investments to do it, though I did make some extra payments as money came in. I thought I could get better returns investing the money, as all the 'experts' said.
With the money I lost on those investments in the last 2 years, I could have paid off the mortgage a couple of times over. At this point, my mortgage balance is low, and my investments really aren't performing, to put it charitably, so I've decided to make a push to pay off the mortgage by the end of the year.
People keep talking about inflation, but another danger is deflation. With the large-scale destruction of wealth that we've had in the past few years, and the prospect of more to come, deflation is a real possibility. We could even have price inflation with asset deflation under certain scenarios. In that case, you're better off without your mortgage, IMO. At least that's how I'm looking at it.
I'm in a similar position to you. I have a mortgage at 4.625% with about $60K remaining, and about 2 years of living expenses liquid.
I previously resisted paying down my mortgage substantially, and I never took from savings/investments to do it, though I did make some extra payments as money came in. I thought I could get better returns investing the money, as all the 'experts' said.
With the money I lost on those investments in the last 2 years, I could have paid off the mortgage a couple of times over. At this point, my mortgage balance is low, and my investments really aren't performing, to put it charitably, so I've decided to make a push to pay off the mortgage by the end of the year.
People keep talking about inflation, but another danger is deflation. With the large-scale destruction of wealth that we've had in the past few years, and the prospect of more to come, deflation is a real possibility. We could even have price inflation with asset deflation under certain scenarios. In that case, you're better off without your mortgage, IMO. At least that's how I'm looking at it.
And it's a fine line trying to prepare for either or both.
I do see asset deflation along with price inflation in commodities.
Food is more expensive and going up. The smaller packages at the same price is inflation.
I too have built my rainy day liquid fund up to 2 years of living expenses. IMHO the recommended 6 months is just not enough in today's world.
I used to put a good chunk of extra money into my mortgage payment each month towards principal but that is now second to having a reserve in case I get tapped on the shoulder at work. And that fear is there with my peers at work; we are all putting more away in savings..just in case.
The unemployment rate and lack of jobs and the long turnaround time to find a new one has heavily influenced where I'm putting my extra money for now.
Thanks for the opinions. I did a lot of research on the web and opinions are all over the place. The best I can come up with is don't put any extra or very little extra on the mortgage. Invest the rest that is above and beyond my existing investments into bond funds.
Liquidity is king is what I am being told most.
Prior Post by Gandarala also Makes a Very Good Point to consider....
"I would be very careful with Bond Funds". They are interest rate sensitive.
Rates are at an extreme low right now.
Where do you think they will go from here ???????
With Bond Funds, when Interest rates go up...Principle goes down.
I still say "Follow what I outlined Earlier" and forget the investments until we see a Genuine turn around in the Economy, Jobs, and the Markets.
I would rather see you even Bump your reserve acct. to 30 months rather than invest in a Bond Fund at this time.
That will help allow you to re-invest when the markets are "Ripe" because you will have some extra cash.
When the Time is Right, the Stock Markets will Look Good Again and the Meager Returns on a Bond Fund will look PEUNY compared to future Stock returns.
Save and be Patient.
Also .. Congrats on a World Class Mortage Rate.
I always tell my wife ...When in Doubt ...Throw it in Neutral !!!!!
Last edited by silverfox; 07-02-2010 at 10:25 AM..
I'm in a similar position to you. I have a mortgage at 4.625% with about $60K remaining, and about 2 years of living expenses liquid.
I previously resisted paying down my mortgage substantially, and I never took from savings/investments to do it, though I did make some extra payments as money came in. I thought I could get better returns investing the money, as all the 'experts' said.
With the money I lost on those investments in the last 2 years, I could have paid off the mortgage a couple of times over. At this point, my mortgage balance is low, and my investments really aren't performing, to put it charitably, so I've decided to make a push to pay off the mortgage by the end of the year.
People keep talking about inflation, but another danger is deflation. With the large-scale destruction of wealth that we've had in the past few years, and the prospect of more to come, deflation is a real possibility. We could even have price inflation with asset deflation under certain scenarios. In that case, you're better off without your mortgage, IMO. At least that's how I'm looking at it.
Quote:
Originally Posted by Gandalara
Pay it down, pay it off as soon as you can.
If you have no mortgage, your present reserve/emergency fund will carry you for a much longer time.
BINGO! and you will always have a place to live - assuming you are not living large in NY, NJ, or CT - tax crazy places where mortgage payments are small compared to the taxes.
Quote:
Originally Posted by silverfox
Save and be Patient.
Also .. Congrats on a World Class Mortage Rate.
I always tell my wife ...When in Doubt ...Throw it in Neutral !!!!!
You never mentioned your age? How many years do you have to work? How much write off do you have on your house-payments? It is always a good idea to be debt free, especially if you are retired.
Crunch the numbers.
If you have no mortgage, your present reserve/emergency fund will carry you for a much longer time.
Great advise!!
I payed mine off 3 years ago and continue to "pay myself" the same as if I was paying the bank. Now I have a very nice nest egg and no debt and add to it every chance I get. This economy isn't getting better any time soon, so the more you can save now the better off you'll be in the long run and catch the upswing.....
I am in search of opinions. We have a mortgage with a rate in the 4's. We have zero other debt and we have 18 months of reserves in cash accounts. We have 2 IRA's and we have 2 401k's which we are funding at 15%.
Should we pay down our mortgage with extra monthly payments or should we focus on building up more cash reserves for the impending double dip recession next year.
I can't make heads or tails of the stock market anymore.
I'm 64 and as old school as they get so my .02 is to pump up your emergency fund then.......after the fund is funded to allow you to live for 6 mo with no income( now this is untouchable money!) .....start slugging that mortgage with extra payments 'till it's gone as long as you can. If there is a slight interruption in the mortgage for extra ......clear whatever is soaking up money away...then go right back to slugging that mortgage 'till it's GONE!
Now it's understood that any extra money that is left from paid off bills etc is for slugging the mortgage NOT FOR MORE SPENDING! Live below your means until done is also VERY critical or this plan will fail.
I would pay down the mortgage, regardless of what your interest rate is on your mortgage or whether you think we are heading into another recession or even if you think your house will be worth less in 20 years. It's impossible to predict what will happen and it's way beyond the math... Owning your home free and clear and then taking your house payment and then some to save and invest is the way to go. Your primary residence is the one thing you don't want to risk losing... Pay it off ASAP.
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