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Old 03-04-2015, 11:09 PM
 
18 posts, read 17,856 times
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Hello! So anyways I just wanted to know what you guys think. So next month I'll be married and me and my husband to be were thinking about things in the future. I'll be 32 and he is 27. So anways the only debt that we have is our mortgage for the house. We still have 30 years on for the house. Well we wanted to start having kids in the next couple years. So I like to plan for the future and so when our kids grow up they will most likely get married and go to college. Is is better to save up for their college/wedding fund(we wanted to help pay for some of it) or to actually pay more on the mortgage to pay it off faster. We are going to open a IRA here soon to so that will help with the kids funds. I know a lot of factors go into this but if anyone have ideas of what would be better I'm all ears. I don't know if one way would be better or if would equal up in the end.
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Old 03-05-2015, 06:28 AM
 
Location: NNJ
9,515 posts, read 5,358,962 times
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Probably more related to personal finance sub-forum than economics.

A good place to start is to weigh the interest portion of the mortgage against the investment vehicle being considered to grow the savings.

Soapbox / rant: I hate to say this but what the hell is wrong with people in the US spending enough cash on a wedding one must "save up for"? Parents... what type of financial lesson are we sending when its ok to blow huge cash on a party? That's about the fastest depreciating asset you can put money on. No family should pressure any newly wedded couple to begin their lives together making such a bad financial decision. My wife and I did it on $6k (circa 2001) with zero help... still had a decent ceremony and reception for 80 people. Looking back, I would have rather invested more and spent even less. The vast majority of our savings went into buying our first house (still live in it) a few months after college graduation. It was about the best financial decision we made as the housing market grew like crazy afterwards (and now cheaper than rent). We even had savings left over to furnish, replace our dying car, and invest.

Last edited by usayit; 03-05-2015 at 06:41 AM..
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Old 03-05-2015, 08:08 AM
 
12,705 posts, read 9,964,692 times
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Quote:
Originally Posted by Tiffins2001 View Post
Hello! So anyways I just wanted to know what you guys think. So next month I'll be married and me and my husband to be were thinking about things in the future. I'll be 32 and he is 27. So anways the only debt that we have is our mortgage for the house. We still have 30 years on for the house. Well we wanted to start having kids in the next couple years. So I like to plan for the future and so when our kids grow up they will most likely get married and go to college. Is is better to save up for their college/wedding fund(we wanted to help pay for some of it) or to actually pay more on the mortgage to pay it off faster. We are going to open a IRA here soon to so that will help with the kids funds. I know a lot of factors go into this but if anyone have ideas of what would be better I'm all ears. I don't know if one way would be better or if would equal up in the end.
What is your rate on the mortgage, and could you afford to pay it even if one of you quit work?

I generally think it is wise to avoid needing two incomes to qualify for the mortgage if you plan on having kids. If your mortgage needed both incomes to qualify, I'd definitely consider paying it down and refinancing or reamortizing the loan. The thing is, most people tend to assume things will work out perfectly....until they don't.

There is always a risk of having a special needs child that requires one of you to take off work, or even just illnesses that require a lot of attention. For this reason, you need to be able to pay the mortgage, and other bills, on ONE income, NOT on both. And of course all kids, even "normal" ones can get very costly with daycare and other bills when both adults work, and mortgage lenders are very lax and don't take daycare costs into account.

If your mortgage is already small enough to be managed on one income, AND you are on track for emergencies and retirement, AND have paid off high interest debt, then go ahead and do a college fund.
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Old 03-05-2015, 08:11 AM
 
Location: East of Seattle since 1992, originally from SF Bay Area
29,772 posts, read 54,408,375 times
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Your mortgage, especially in first few years, is going to provide you with a significant tax deduction, along with the property tax. For us that's still close to $20,000/year. If you stay there long enough it will also build equity that you can take advantage of when you sell. Even with the recession, we are now at a value of over 3 times what we paid. Look online for a mortgage payment calculator and you will find that a small extra amount on the principal is not going to result in paying it off much sooner unless you get up to about 15% additional on the payments. You will save on the interest over the term of the loan. Ideally you would do both.
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Old 03-05-2015, 08:14 AM
 
12,705 posts, read 9,964,692 times
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Quote:
Originally Posted by Hemlock140 View Post
Your mortgage, especially in first few years, is going to provide you with a significant tax deduction, along with the property tax.
You are assuming that their itemized deductions exceed the std deduction.

Quote:
Originally Posted by Hemlock140 View Post

For us that's still close to $20,000/year. If you stay there long enough it will also build equity that you can take advantage of when you sell. Even with the recession, we are now at a value of over 3 times what we paid.
Housing markets are unpredictable in the longer term in many cases though.

Quote:
Originally Posted by Hemlock140 View Post

Look online for a mortgage payment calculator and you will find that a small extra amount on the principal is not going to result in paying it off much sooner unless you get up to about 15% additional on the payments. You will save on the interest over the term of the loan. Ideally you would do both.
Another trick is to increase your payments with inflation, as if you were paying rent. A typical 30-year mortgage would then be paid off in 18-20 years, with 3% inflation.
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Old 03-05-2015, 08:07 PM
 
18 posts, read 17,856 times
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Yes we are hoping in the next couple of years he could get a better job and we can live on one income for when we have kids. We are so close of paying everything with one income now. But yes we are going to work on emergency savings first and then once that is all set then we could go from there. I just thought to figure this out early on so it would be easier to save up for things much later on.
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Old 03-05-2015, 08:28 PM
 
983 posts, read 1,354,758 times
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Our goal was to pay off the house before the child went to college. That way the money we were pouring into the mortgage could help with tuition. We ended up pretty lucky in that she received many scholarships and there was very little left to help with. So, we took that money and remodeled the kitchen in our 30 year old home. Then my husband retired early (he has a pension), I continued to work full time for benefits, he works part time for spending money, We are now padding our 401k because we didn't do a good job with that, and saving for a few more remodel projects around the house. But basically, with no mortgage (if it weren't for medical insurance) we could afford to live off his pension.

In the beginning we added $100-200 per month to the mortgage payment. As we received raises and tax returns, we put it all in the mortgage after building a good emergency fund. There were times when it didn't work out that way...kids get sick, we got laid off from jobs, my husband went back to school full time for a few years (but we saved on daycare...he went to school days, I worked nights), things happen. But by the time she was 20 we had it paid off. In the meanwhile, we continued to contribute 10% to our 401k's at our jobs. And we never cashed out 401k's when we changed jobs, we rolled them over. We don't feel that we are financially ready for retirement yet. I have 12 more years before qualifying for full retirement age, my husband will qualify next year. But we need to pad a few more years into the retirement fund and get the house maintenance done so that we don't have those expenses on a fixed income.
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Old 03-06-2015, 10:29 PM
 
Location: Paranoid State
13,047 posts, read 10,431,986 times
Reputation: 15678
Quote:
Originally Posted by Hemlock140 View Post
Your mortgage, especially in first few years, is going to provide you with a significant tax deduction, along with the property tax. For us that's still close to $20,000/year. If you stay there long enough it will also build equity that you can take advantage of when you sell. Even with the recession, we are now at a value of over 3 times what we paid. Look online for a mortgage payment calculator and you will find that a small extra amount on the principal is not going to result in paying it off much sooner unless you get up to about 15% additional on the payments. You will save on the interest over the term of the loan. Ideally you would do both.
Quote:
Originally Posted by ncole1 View Post
You are assuming that their itemized deductions exceed the std deduction....
... and also assuming that their income isn't high enough to incur the dreaded deduction phase-out, and that they don't have sufficient preference income to toss them into AMT.
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Old 03-06-2015, 10:38 PM
 
Location: Paranoid State
13,047 posts, read 10,431,986 times
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The short answer to the question is: pay off the mortgage first. One easy tactic to help with this is not to pay the full monthly amount each month; rather, pay half the full monthly amount every 2 weeks. This way, instead of 12 monthly payments in a year, you'll have 26 half-monthly == 13 monthly payments in the year. Moreover, you'll pay less in interest - based on reasonable assumptions, as much as $25,000 less in interest over the life of the mortgage.

About financing college: the entire financial aid system is not stable right now. If your yet-to-be-born kids were ready to apply to college right now with zero college savings, the financial aid system might very well provide them much of what they would need. Who knows what the financial aid system will look like far into the future; so pay off that mortgage.
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Old 03-11-2015, 10:48 AM
 
Location: Myrtle Creek, Oregon
12,233 posts, read 12,491,644 times
Reputation: 19379
You might look into a refi on the mortgage to take advantage of the lower interest rate on a 15 year. That way when your first kid hit college age you wouldn't have a mortgage payment to deal with, and could help more.
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