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that is a myth about interest on a mortgage. if you look at the amortization table the rate stays the same through the life of the loan. they are not front end loaded as folks believe.
Yup it's only up front if you are basing current interest expense to original loan amount instead of current balance owed
Unless you plan to retire before age 58, your mortgage will be paid in full before you retire, without doing a thing (well, other than making your monthly payment).
Increase your 401k contributions. Also, spend some time to determine if you are investing those dollars as well as you can.
Do you have a pension, or other source of income you expect to receive in retirement? If not, it is strictly SS benefits and withdrawals from your own savings. You could be contributing to your 401k now and saving taxes. Later, you will withdraw with no taxes (assuming no pension, etc.). You don't have a lot of time left to get prepared, so use every advantage available to you.
I disagree. The decision should just come down to rate of return. As people get closer to retirement, their 401(k) allocation should be shifting towards more conservative investments trading stability for returns, simply because they can't afford to weather the same volitity someone in their 20's/30's could.
A conservative 401(k) blend probably won't beat 5.75% guaranteed. If the interest rate were a bit lower, I might agree with you, but that's a pretty high guaranteed return.
I disagree. The decision should just come down to rate of return. As people get closer to retirement, their 401(k) allocation should be shifting towards more conservative investments trading stability for returns, simply because they can't afford to weather the same volitity someone in their 20's/30's could.
A conservative 401(k) blend probably won't beat 5.75% guaranteed. If the interest rate were a bit lower, I might agree with you, but that's a pretty high guaranteed return.
Is 15% more than 5.75%? It seems to me that it is.
I missed something, where is the 15% coming from? 15% certainly can't be guaranteed from investing in the stock market.
Jasper Hobbs
Agreed. I am referring to the fact that if OP retires with nothing but SS benefits and 10k in his 401k, his 0% tax bracket will go unused. (And we don't know that, OP has not said if there is other expected income or not).
Edit: Just to expand a bit, a single person in 2014 can have 10,150 of taxable income and owe zero income tax. (Personal exemption + standard deduction). A bit more if that single person has reached age 65. At that income level, SS benefits are not taxed. So using a 4% withdrawal rate, a nest egg of 250k could be withdrawn over time from a traditional 401k tax-free. Currently, OP is not on track to have 250k, unless he bumps up his contributions, saving 15% (a reasonable guess) federal income tax right now, possibly a bit of state income tax too.
Since OP is on track to have his mortgage paid off at age 58, I'd take the guaranteed 15% tax savings over the guaranteed 5.75% interest savings.
Last edited by Petunia 100; 10-06-2014 at 03:04 PM..
that is a myth about interest on a mortgage. if you look at the amortization table the rate stays the same through the life of the loan. they are not front end loaded as folks believe.
In the first payment the interest was $750 of the $1013,37 payment, in the last payment the interest was $3.79. I understand that the interest is based on the outstanding balance but being the OP only has a few years left, a bulk of the interest has already been paid and the costs to refi the loan will surely be substantial compared to the outstanding interest due.
its all the same percentage. but your point is really becareful refinancing because what you are really doing is extending out your mortage and increasing its length although it is at a lower rate and a smaller balance .
that can add a ton of interest to your totaL cost of the house if you only have a few years left..
if you refinance at least go 30 year to 15 year, rarely would a 30 to 30 year be worth it.
Last edited by mathjak107; 10-06-2014 at 05:26 PM..
Can you please give me your suggestion for a question I have? I am 51 years old. We currently have a mortgage with a balance of 120k and 7 years left on the mortgage at 5.75% interest. I currently have 10k in a non matched 401k . I would like to know should I consider doubling mortgage payments and have the mortgage paid off in 3 and a half years or should I start contributing more to my 401k? I appreciate your comments and suggestions.
Unless your 401K investment consistently yields 5.75% or higher, I would suggest that you pay down your mortgage and shave off a few years of the loan term. You can always contribute more to your 401K with a "make-up" provision soon after your loan is paid off. It will be a great feeling when you paid it off.
Thank you for th ehelpful advice to everyone! I have ben leaning toward EPKS and mathjak advice though. The feeling of a paid off mortgage must be awesome! I can not wait to experience that feeling !
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