Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I'm in the process of buying my first place. I have 10% down on a 30 year fixed rate 4.35% mortgage.
When all is said and done with closing costs, etc, I have a stash of money that I want to invest.
Do you think it would be better to use the $5000 to fully fund my RothIRA for the 2011 year or take that $5000 and put it as a prepayment on my mortgage?
Do you think it would be better to use the $5000 to fully fund my RothIRA for the 2011 year
or take that $5000 and put it as a prepayment on my mortgage?
It's not an either/or question... not least of which being the merit of having a prudent homeowners loose cash slush fund available.
Paying down the mortgage *principle* is almost always the best investment...
especially with today's mediocre returns.
I would say the opposite... you are already likely to have paid the lion's share of the interest on your mortgage and one extra 5k payment isn't really going to do much unless you keep doing which is also unlikely... if you lose your job and lose the house, then the money is also wasted... the stock market if volatile right now and the returns are small right now but later 10 years down the road, that won't be true at all... take the money and put it in a Roth IRA...
I should have also mentioned I am 40 so there are a few decades for the tax free returns on the Roth IRA to build. Also the house is actually a condo so having a slush fund is important, but on average I'll have a smaller one than if I were a SFH homeowner.
I'm leaning toward the Roth IRA at least right now. If I were a decade older, say 50, I might feel different.
Well, as someone who put down 18% on my house in 2008 and would be lucky to break even today...I would put it on the mortgage. Also if you haven't closed yet an extra 5K can reduce your PMI (if you're paying it) to a smaller amount every month.
I see...I should see about the 5K and it reducing my PMI.
If I sink it into the house I loose the opportunity to max my 2011 Roth IRA investment. And not sure the gains from paying ahead on the mortgage outweights the Roth earnings over the next 20-25 years.
I'm pretty sure I will be in the same exact situation as you are in the short term with my new place as the word is house prices are still in a downward trend in most locations for at least the next few years. And that makes putting that extra 5K into the house investment look even yuckier to me.
I'm still wondering, if I put that 5K in a Roth in 20-25 years, will I have made a wiser investment than what I gain from the prepayment on the mortgage (and PMI payments)?
I see...I should see about the 5K and it reducing my PMI.
If I sink it into the house I loose the opportunity to max my 2011 Roth IRA investment. And not sure the gains from paying ahead on the mortgage outweights the Roth earnings over the next 20-25 years.
I'm pretty sure I will be in the same exact situation as you are in the short term with my new place as the word is house prices are still in a downward trend in most locations for at least the next few years. And that makes putting that extra 5K into the house investment look even yuckier to me.
I'm still wondering, if I put that 5K in a Roth in 20-25 years, will I have made a wiser investment than what I gain from the prepayment on the mortgage (and PMI payments)?
Its a toss up really. You would have to make more on your Roth than you pay in interest on your house, minus your interest deduction and taking into account your income tax rate. And there's risk reduction on both sides too, a safe income in retirement is more important than a paid off house but we're only talking about 5K that will affect the entire length of your loan.
I comment on this because we have been debating whether to pay off our house or save for the kids college. Both are legitimate, we've decided to pay off the house to reduce our risk of having an underwater mortgage. We're still saving for retirement though.
I guess I just don't believe in a "secure job" and I feel like plans always change. I realize that isn't always the case but I like the security of knowing that if everything went to hell tomorrow I could sell the house and be ok.
Roth. You'll make more money on it by the time you retire than you will benefit by putting an extra $5K on your home, especially since homes continue to lose value.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
