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Old 11-12-2018, 02:58 PM
 
916 posts, read 182,716 times
Reputation: 654

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I was wondering what are your thoughts on a dilemma.

My new mortgage is currently $200.000, 30 year loan with variable interest, currently 2.6%.
Now, the interests will fluctuate, and I have NO idea what it will be in 3-9-15 years etc..
If I pay it of as planned, I will have paid $90.000 in interest, IF the interests keeps stable at 2.6%.. I bet it will be more, but say, at least $100.000 in interest over the next 30 years.*


Now, I have a lump sum of $200.000 invested.. And I am wondering if I should pay of my debt, and dollar cost my way forward the next 30 years.


If I donīt pay of my debt in one go, most of my income will go to pay of the debt, with little to invest. If I pay of the debt, I will have roughly $1000 a month to invest.


So,

1. Pay mortgage as planned, keep $200K invested and dont invest anything the next 30 years.
2. Pay of mortgage, invest $1000 a month the next 30 years.

*Remember I will save $100.000 in interest by paying it of early.
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Old 11-12-2018, 03:07 PM
 
Location: Denver, CO
1,669 posts, read 4,044,117 times
Reputation: 1220
You account for $100k saved in interest but you don't account for how much you earn with $200k invested over 30 years?
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Old 11-12-2018, 03:18 PM
 
2,395 posts, read 3,630,457 times
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Quote:
Originally Posted by Moonwalkr View Post
You account for $100k saved in interest but you don't account for how much you earn with $200k invested over 30 years?
^^ Agreed.

Keep the $200K invested conservatively. Pay off the mortgage if/when the adjustable interest rate closely approaches/matches/exceeds the return you are earning on the invested money.
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Old 11-12-2018, 03:31 PM
 
916 posts, read 182,716 times
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Quote:
Originally Posted by Moonwalkr View Post
You account for $100k saved in interest but you don't account for how much you earn with $200k invested over 30 years?

I have either not taken account for how much the $12000 invested each year will be in 30 years.


What I wanted to show by the interests number.. is IF keeping the $200.000 invested for 30 years, is worth $900.000 at the end.
And by investing $12000 for 30 years results in f.ex $700.000.

I will not have "lost" $200.000 by Dollar Cost vs Lump Sum, but $100.000, because I would have to pay $100.000 in interest payments over those 30 years.



Not sure if this is correct.. and I wonder how much I would "lose" by Dollar Cost over Lump summing..
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Old 11-12-2018, 03:34 PM
 
3,669 posts, read 4,915,522 times
Reputation: 2422
Pay off the debt!! You'll sleep much easier at night. Itll make your tolerance for risk greater and as a result, you'll likely invest in more risky/rewarding investments going forward. That's what worked for me.
That said, I'd do half and half.....100k in low interest debt is ok.....then pay that off in 5 or 10 years.
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Old 11-12-2018, 03:47 PM
 
12,672 posts, read 9,909,380 times
Reputation: 9451
Quote:
Originally Posted by Northman83 View Post
I was wondering what are your thoughts on a dilemma.

My new mortgage is currently $200.000, 30 year loan with variable interest, currently 2.6%.
Now, the interests will fluctuate, and I have NO idea what it will be in 3-9-15 years etc..
If I pay it of as planned, I will have paid $90.000 in interest, IF the interests keeps stable at 2.6%.. I bet it will be more, but say, at least $100.000 in interest over the next 30 years.*


Now, I have a lump sum of $200.000 invested.. And I am wondering if I should pay of my debt, and dollar cost my way forward the next 30 years.


If I donīt pay of my debt in one go, most of my income will go to pay of the debt, with little to invest. If I pay of the debt, I will have roughly $1000 a month to invest.


So,

1. Pay mortgage as planned, keep $200K invested and dont invest anything the next 30 years.
2. Pay of mortgage, invest $1000 a month the next 30 years.

*Remember I will save $100.000 in interest by paying it of early.
What is the tax basis of your $200k invested?
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Old 11-12-2018, 03:52 PM
 
5,371 posts, read 2,241,923 times
Reputation: 16143
Quote:
Originally Posted by Northman83 View Post
I was wondering what are your thoughts on a dilemma.

My new mortgage is currently $200.000, 30 year loan with variable interest, currently 2.6%.
Now, the interests will fluctuate, and I have NO idea what it will be in 3-9-15 years etc..
If I pay it of as planned, I will have paid $90.000 in interest, IF the interests keeps stable at 2.6%.. I bet it will be more, but say, at least $100.000 in interest over the next 30 years.*


Now, I have a lump sum of $200.000 invested.. And I am wondering if I should pay of my debt, and dollar cost my way forward the next 30 years.


If I donīt pay of my debt in one go, most of my income will go to pay of the debt, with little to invest. If I pay of the debt, I will have roughly $1000 a month to invest.


So,

1. Pay mortgage as planned, keep $200K invested and dont invest anything the next 30 years.
2. Pay of mortgage, invest $1000 a month the next 30 years.

*Remember I will save $100.000 in interest by paying it of early.

I'd rather have locked in at a point or two higher than go with a variable rate mortgage.
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Old 11-12-2018, 03:58 PM
 
4,417 posts, read 2,574,723 times
Reputation: 10261
Quote:
Originally Posted by Thinking-man View Post
Pay off the debt!! You'll sleep much easier at night. Itll make your tolerance for risk greater and as a result, you'll likely invest in more risky/rewarding investments going forward. That's what worked for me.
That said, I'd do half and half.....100k in low interest debt is ok.....then pay that off in 5 or 10 years.
I agree kind of.

All to often we get stuck in "All or Nothing " thinking.

Pay down half, when the mortgage interest rate exceeds your income return % on the investments , then pay off the balance.

That way youll half pay your balance, then add more to investments then you pay down balance when the mortgage rate exceeds investment income. And meantime you will have continued adding to investments.

Best of luck in your decision (s).

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Old 11-12-2018, 04:01 PM
 
4,417 posts, read 2,574,723 times
Reputation: 10261
Quote:
Originally Posted by MinivanDriver View Post
I'd rather have locked in at a point or two higher than go with a variable rate mortgage.
That too, but its too late unless refi is on the horizon and all that entails.

Thats wgat we did. And the way rates are going, were no longer in such a hurry to pay it down, but still working on it. Well stick with our 3.78%.

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Old 11-12-2018, 04:01 PM
 
Location: Central IL
15,049 posts, read 8,401,067 times
Reputation: 35236
Quote:
Originally Posted by MinivanDriver View Post
I'd rather have locked in at a point or two higher than go with a variable rate mortgage.
Right...OP kind of loaded the deck in favor of paying off the debt sooner if that rate ends up going up substantially - perhaps that's what he had in mind from the start?

Otherwise OP, I'd say you overspent on your mortgage if you say you'll have very little to invest for retirement until you get rid of the mortgage. Ideally you'd be able to do both because you need long-term gains on retirement money, too.
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