Finance specialists (retirement plan, debt, payments, foreclosure)

[Bo$ton]

Are there any finance guru's out there? I have a few questions:

1. I have a 6% rate on my 30 year mortgage, and am lucky enough to have expendable income. Am I better off paying down my mortgage (as quickly as possible), or investing that money into long-term investments (IRA, agressive growth mutual funds, etc...). Now I know that overtime the market averages an annual gain of about 11.5, but paying off my mortgage is a sure thing... All suggestions are greatly appreciated.

2. My work offers and unmatched tax deferred 457b. Am I better off investing that money on my own, with the help of a trusted advisor, or putting the money in the 457b even though the service provided wont be as good (or profitable). Just the tax benefit will. I have asked my advisor (whom I do like) its just that I figure that the more opnions the better.

[jhlcomp]

I would suggest paying off your mortage since you have enough expendable income. Just go to an on-line mortgage calculator to see what you will be saving.

Then take the money you have been using on the mortgage and begin investing that on your own.

Both my husband and I have our retirement plans from work or elsewhere and we have gone on "our own" to add additional funds towards retirement. We are paying off our mortgage in Aug. This will give us a $100,000 savings on the life of the mortgage. We will be investing the monthly mortgage payments into several funds. Hope this was helpful.

[AZMonsoon]

I agree... it is better to payoff your mortgage....but use an amoritization calculator to figure out what the best way to go about it. Usually...1 or 2 extra mortgage payments a year...or a certain dollar amount on top of your mortgage payment can knock off 10 to 15 yrs...

You can go on bankrate.com to get an accurate calculator

[mrsengle]

I agree - pay off the mortgage first if you have no other debt (especially unsecured debt), and if you have a nice chunk of change in a saving account for emergencies.

As for the 457b, this depends. First, there is no matching - and that's not good. OTOH, there are some tax benefits to doing this. Second, if you have a combined income of 85+K, you will NOT get the deduction if you contribute that money to a traditional IRA instead of the 457b. Here's the IRS link: http://www.irs.gov/publications/p590/ch01.html#d0e1874

Please read the section Limit If Covered By Employee Plan. Give this entire publication a thorough reading. I couldn't make a contribution to an IRA to get our taxes down this year because of this. The government will penalize you if you decide not to participate in the 457b. This really made me mad, and we were going on the advice of a CPA who missed this.

The Roth IRA (after-tax contributions) is really your best option, but you do need to diversify and consider the tax benefits of each. Your marital status, gross yearly income, how much you can comfortably contribute to these accounts each year, and retirement goals are big factors to be considered on how you set up your retirement portfolio. I definitely suggest you sit down with a financial advisor to discuss this - they'll have a better profile of you than we do (income, marital status, financial standing, etc.).

[cdelena]

I invest. Have averaged well over 11% long term rather than pay down a 6% mortgage which has a lower effective rate being fully deductable.

[LarryMorris]

It's not as simple as this. If you pay down your mortgage you have more equity tied up in your home. This is great unless you need to tap into it. If you have a job loss or major disability your ability to tap into the equity is greatly reduced. You could find your self owing $100,000 on a $500,000 home and going into foreclosure.

Investing the difference into a safe investment vehicle gives you liquidity. You will still be paying off your mortgage, just not by paying the lender on a monthly basis to do it.

The flip side is that if your interest rate is 6% you will want to earn at least that amount.

If you really want to pay your mortgage down I would suggest adding a HELOC now and having access to at least $50k-$100k should you need it. Don't take the draw, but have the ability to access it.

This isn't just my opinion, it's my advice.

[mrsengle]

Investing the difference into a safe investment vehicle gives you liquidity. You will still be paying off your mortgage, just not by paying the lender on a monthly basis to do it.

The flip side is that if your interest rate is 6% you will want to earn at least that amount.

What vehicle would you recommend?

[callsnap]

Originally Posted by Bo$ton

Are there any finance guru's out there? I have a few questions:
1. I have a 6% rate on my 30 year mortgage, ...Now I know that overtime the market averages an annual gain of about 11.5, but paying off my mortgage is a sure thing... All suggestions are greatly appreciated.

If you're getting an 11.5 yield and in the 25% tax bracket that takes your after tax yield to 8.625, long term inflation drag of 3% brings your yield to 5.625. That still gives you more purchasing power than sinking all of your money into a mortgage now and playing catch up on your investments later. Do both - hedge. Make the one extra payment a year to cut that 30 years closer to 18, enjoy the interest deduction on your taxes, and invest the bulk of your disposible income in a diversified portfolio.

Originally Posted by Bo$ton

2. My work offers and unmatched tax deferred 457b. Am I better off investing that money on my own, with the help of a trusted advisor, or putting the money in the 457b.

The 457b earnings grow tax deferred. As in the quick back of the envelope calculation above: make sure your anticipated after tax yield (include the drag of advisor commissions) are going to outperform the rate of return on the 457. The 457 is likely to win out.

[LarryMorris]

I'm not a financial adviser and unable to make investment vehicle recommendations. Callsnap seems to have a handle on it. I would advise seeking a savvy financial planner and seek their advice.

[Bo$ton]

I understand the answer to the housing question, but wouldn't maxing out a roth ira be more benefical than investing in the 457b... Now, if I still have expendable income after the roth then I would invest in the 457b (not matched). Agree????? Disagree???