[dinonz]

Originally Posted by RickFLM4

Obviously the analysis depends on alternative investment assumptions. Bear in mind, your analysis should contemplate a reduction in risk tolerance for a portion of the investment portfolio as you age. While long term returns are high, they are volatile over the short term.

You started the thread with a question about whether to invest $5K / mo. or use the cash to pay down a 30-yr. mortgage. A 15-year gets you a portion of both. Mortgage paid down sooner with lower interest rate while leaving plenty of the $5K to invest each month for 15 years (and then a lot more after 15 years + 100% equity in home). As others have indicated, it really is a personal choice depending on what you want to prioritize.

I just checked on a site, and if I simply increase my monthly home loan payments to that of a 15 year at the same rate - it's paid off in 15 years. Hardly surprising I guess. But then as mentioned elsewhere, I retain the flexibility to go back to the standard payment should things get tight - or perhaps do that after I retire and start living off my investments so I'm drawing less out per month.

[dinonz]

Originally Posted by gatorfast

What rate is your mortgage currently at? The potential interest savings obviously pay a big factor in determining if a refinance is best.

It's 3.5% currently - not exceptional, but not bad at all really. I would struggle to refi at a dramatically better rate without paying a lot in points.

[dinonz]

Originally Posted by vreihen16

Don't ask me about my business. Don't ever ask me about my business.

Oops, sorry. Wrong thread!

My $0.02 from the perspective of having 6 years left on my 2.75% 15-year mortgage and a serious health condition where I could wind up on permanent disability...or DEAD...overnight is that I am throwing every single free penny at the mortgage until it is paid off. Why? So that I can die knowing that my wife will always have a roof over her head, and it will only cost her about $450/month in taxes and utilities.....

Right now, I have no wife or kids to think of. The former is unlikely to change, the latter almost certainly wont, so I don't have those considerations.

But you never know. Met someone recently that I might have become rather fond of. And if we're together, no way will she let me sell the car collection - she's already got her eye on those!

[RickFLM4]

Originally Posted by dinonz

I just checked on a site, and if I simply increase my monthly home loan payments to that of a 15 year at the same rate - it's paid off in 15 years. Hardly surprising I guess. But then as mentioned elsewhere, I retain the flexibility to go back to the standard payment should things get tight - or perhaps do that after I retire and start living off my investments so I'm drawing less out per month.

Sounds like your mind is made up. If the extra 90 bps of interest (net of refi costs) are worth the flexibility then so be it.

Also, with respect to the interest deduction, the only portion that is relevant is the portion that gets your itemized deductions over the standard deduction. If, for example, you are itemizing just over the standard deduction, that isn’t much of a benefit vs. the standard deduction that you would get even with zero interest.

[dinonz]

Originally Posted by RickFLM4

Sounds like your mind is made up. If the extra 90 bps of interest (net of refi costs) are worth the flexibility then so be it.

Also, with respect to the interest deduction, the only portion that is relevant is the portion that gets your itemized deductions over the standard deduction. If, for example, you are itemizing just over the standard deduction, that isn’t much of a benefit vs. the standard deduction that you would get even with zero interest.

Not really - I'm not seeing a clear "this is the best thing to do" path, just lots of options that all have benefits/drawbacks. I could just let it accumulate over 6 months then drop a lump sum into the home loan or investment or half each or something - but then I think that for that 6 months the money was really doing nothing.

[andrewmr]

There really isn't one best option that applies to everyone the same. You have to determine what you are comfortable with.

As far as refinancing, if you currently have a fixed rate loan, the original lender still owns the loan, and you want no money back, then you can recast your loan instead of a refinance. Call your mortgage company to see if you qualify and what they charge. Last time I did it my fee was 500 bucks.

[wdb]

Originally Posted by dinonz

50
I'm not the type that has to be debt free. When my Amex card gets over $100K I do start to freak out a bit and pay it down early.

The very first thing you should use the money for is to pay off your credit card on time every month. AMEX interest rate is 15% to 26% for carried balances.

[BimmerDimmer6]

Originally Posted by dinonz

My home loan is 3.5% - but I agree. I don't think it's worth paying down, as I feel I can do better with the money elsewhere. Well, not me., Someone who knows what they're doing.

Weird part is I feel like I have a winning lottery ticket in my hand. In 5 years time, I could have 8 figures easily - or could have nothing. In the interim I want to try to make sure that if it swings the way of nothing rather than 8 figures then I will still have a very comfortable retirement.

You have $1.1 M in cars and are on track to have an 8 figure net worth in 5 years and are seeking financial advise on a car forum?

I think we should be the ones asking you for financial advise, not the other way around.

[dinonz]

Originally Posted by wdb

The very first thing you should use the money for is to pay off your credit card on time every month. AMEX interest rate is 15% to 26% for carried balances.

I never carry a balance. It's on auto-pay statement balance each month.

[Hawkeye]

Originally Posted by vreihen16

Don't ask me about my business. Don't ever ask me about my business.

Oops, sorry. Wrong thread!

My $0.02 from the perspective of having 6 years left on my 2.75% 15-year mortgage and a serious health condition where I could wind up on permanent disability...or DEAD...overnight is that I am throwing every single free penny at the mortgage until it is paid off. Why? So that I can die knowing that my wife will always have a roof over her head, and it will only cost her about $450/month in taxes and utilities.....

This is why it is recommended to get a term insurance policy when you have large debt... so you don't have to worry about throwing every penny at a loan and you can worry about other stuff.

Being 50 makes your expected investment horizon a little shorter than would be optimal for an all market portfolio (expecting you will want to retire in your early/mid 60s). I feel like my investments will beat out my interest rate on my loan, probably with just inflation alone.

[vreihen16]

Originally Posted by Hawkeye

This is why it is recommended to get a term insurance policy when you have large debt... so you don't have to worry about throwing every penny at a loan and you can worry about other stuff.

Do you really think that any sane insurance company would write a term policy worth more than a cup of coffee to cover someone who was sent home from the hospital three years ago with a 24/7 IV infusion of heart medication so that I could die in peace at home?

I have a group life policy from work that will pay off the house and still provide over a year of my salary should I not make it to see the mortgage payoff, but SOB that I am there's no way that I'm giving up before the house is paid off...even if it kills me.....

[eluded]

If you get 7% year return like CALPERS then I'd invest.

[Hawkeye]

Originally Posted by vreihen16

Do you really think that any sane insurance company would write a term policy worth more than a cup of coffee to cover someone who was sent home from the hospital three years ago with a 24/7 IV infusion of heart medication so that I could die in peace at home?

I have a group life policy from work that will pay off the house and still provide over a year of my salary should I not make it to see the mortgage payoff, but SOB that I am there's no way that I'm giving up before the house is paid off...even if it kills me.....

Did you buy the house after you had that hospital visit, if so then sure your case is special. Otherwise you usually get the policy in a similar time frame as the original loan as an "insurance policy"

[vreihen16]

Originally Posted by Hawkeye

Did you buy the house after you had that hospital visit, if so then sure your case is special. Otherwise you usually get the policy in a similar time frame as the original loan as an "insurance policy"

When I bought the house, I intended to flip it in three years for a 25% profit that was common here historically at the time. Then, the bubble popped, and silly me decided to do the responsible thing and NOT walk away from my under-water mortgage. My group term life policy from work would have covered the mortgage amount from day one, so it wasn't a concern until it was too late.....

[2000cs]

Originally Posted by Hawkeye

This is why it is recommended to get a term insurance policy when you have large debt... so you don't have to worry about throwing every penny at a loan and you can worry about other stuff.

Being 50 makes your expected investment horizon a little shorter than would be optimal for an all market portfolio (expecting you will want to retire in your early/mid 60s). I feel like my investments will beat out my interest rate on my loan, probably with just inflation alone.

Being 50 should not shorten the horizon which would be to end of life, or beyond if you are planning to leave your assets to a spouse or heirs. This is a common error in retirement planning. With a balanced portfolio (and some rebalance may be appropriate as retirement approaches to generate more cash income although selling cap gains is a better tax strategy than dividends/interest), retirement becomes essentially irrelevant to the analysis.

What does matter is cash flow. If retirement creates a cash flow deficit then you might be over leveraged or too early to retire and lose work income.

[Hawkeye]

Originally Posted by 2000cs

Being 50 should not shorten the horizon which would be to end of life, or beyond if you are planning to leave your assets to a spouse or heirs. This is a common error in retirement planning. With a balanced portfolio (and some rebalance may be appropriate as retirement approaches to generate more cash income although selling cap gains is a better tax strategy than dividends/interest), retirement becomes essentially irrelevant to the analysis.

What does matter is cash flow. If retirement creates a cash flow deficit then you might be over leveraged or too early to retire and lose work income.

I am going to go out on a limb and say the majority of people do not have enough saved by the time they want to retire to live off of capital gains and not care if there is a major market downturn (hopefully heavily in cash).

I personally am planning on getting into an FIA or similar product before retirement so that I can have a known and reliable income for the rest of my life. Whatever does not go into that will likely be play money and extra spending cash.

I think you would be hard pressed to find a financial analyst that would suggest you stay risky when you no longer have an income to fund the account, hence the reason the time horizon matters. That and a longer time horizon takes a lot more volatility out of the returns.

[2000cs]

Originally Posted by Hawkeye

I am going to go out on a limb and say the majority of people do not have enough saved by the time they want to retire to live off of capital gains and not care if there is a major market downturn (hopefully heavily in cash).

I personally am planning on getting into an FIA or similar product before retirement so that I can have a known and reliable income for the rest of my life. Whatever does not go into that will likely be play money and extra spending cash.

I think you would be hard pressed to find a financial analyst that would suggest you stay risky when you no longer have an income to fund the account, hence the reason the time horizon matters. That and a longer time horizon takes a lot more volatility out of the returns.

I agree with that - long horizon but different objectives for investments post retirement. Obviously Social Security, 401(k), defined benefit plan, etc - whatever an individual has - play into the post-retirement equation. What bothers me is when planners suggest a portfolio “ends” at retirement, as if the investments must be liquidated on that very day.

[zx10guy]

Originally Posted by Hawkeye

I am going to go out on a limb and say the majority of people do not have enough saved by the time they want to retire to live off of capital gains and not care if there is a major market downturn (hopefully heavily in cash).

I personally am planning on getting into an FIA or similar product before retirement so that I can have a known and reliable income for the rest of my life. Whatever does not go into that will likely be play money and extra spending cash.

I think you would be hard pressed to find a financial analyst that would suggest you stay risky when you no longer have an income to fund the account, hence the reason the time horizon matters. That and a longer time horizon takes a lot more volatility out of the returns.

Had this very discussion with my financial advisor. Yes, I use one as I just have too much going on to spend the time necessary on my investments. He also subscribes to 2000cs 's philosophy. So far I have no reason not to trust his decisions as he's done well for me over the 6 years I've been with him. He also said he eats his own dog food with how his own personal investments are allocated.

[chassis]

Originally Posted by zx10guy

Had this very discussion with my financial advisor. Yes, I use one as I just have too much going on to spend the time necessary on my investments. He also subscribes to 2000cs 's philosophy. So far I have no reason not to trust his decisions as he's done well for me over the 6 years I've been with him. He also said he eats his own dog food with how his own personal investments are allocated.

zx10guy Roughly how many hours per month would you estimate your advisor spends managing your assets? I'm considering working with an advisor but can't get my head around the cost-benefit scenario.

[David70]

Originally Posted by chassis

zx10guy Roughly how many hours per month would you estimate your advisor spends managing your assets? I'm considering working with an advisor but can't get my head around the cost-benefit scenario.

I have a financial advisor that holds part of my money (and also a really good friend of mine). It's less about how much time he spends per month & more about the value he provides. If you have a guy spending a ton of time looking at what you have and then making bad decisions then the hours don't matter.

I also went the first 27 years of my professional life (I'm 50) without one, they aren't needed, and the more important question to make is if you are willing to be educated enough to not need one. If you have no interest in figuring out what to do then you need one far more than someone else. Even then you need to be educated as you shouldn't completely trust anyone with your money (taxes, insurance, investments, mortgage, whatever). Also add that the more money you have the percentage charged goes down. You can also pay flat fees to people where you pay them for a job, not a percentage of your investments. Both have their benefits.

As for the original question, the idea of refinancing has to include how long you plan to be in the house and how much it will drop your interest rate. Then comes all of the other benefits. I have a 15 year mortgage at 2.75 that I am about half way through. I think the best money decision is to invest excess but I plan to start paying the mortgage down starting at the end of the year (spending a lot of money now on a rental). Doing it because I like the idea of eventually not owing anyone anything, even if there are better places to put my money. It also reduces the amount of cash I hold in case I lose my job as I wouldn't need nearly as much.

Originally Posted by David70

I have a 15 year mortgage at 2.75 that I am about half way through.

Same.

After doing the math though, throwing 15% more towards the principle each month doesn't really shave off much interest at all at this point though. Yeah, you'll go ~1 year less without having to make mortgage payments, but all that money is going to principal that late in the game anyway.

If anything, your point about not having expenses if you lose your job should be playing devils advocate here; not strengthening your idea of just throwing it at the house. Assume you lose your job in the next ~8 years? Then what? I'm assuming u have savings, but it would be a lot nicer knowing u have a couple years worth of extra principal saved up on top of that to not have to stress it.

[David70]

Originally Posted by FCobra94

Same.

After doing the math though, throwing 15% more towards the principle each month doesn't really shave off much interest at all at this point though. Yeah, you'll go ~1 year less without having to make mortgage payments, but all that money is going to principal that late in the game anyway.

If anything, your point about not having expenses if you lose your job should be playing devils advocate here; not strengthening your idea of just throwing it at the house. Assume you lose your job in the next ~8 years? Then what? I'm assuming u have savings, but it would be a lot nicer knowing u have a couple years worth of extra principal saved up on top of that to not have to stress it.

We owe about $120k on our house and think could pay it off in 2-3 years instead of 7. Will pay about $3k in interest this year, if the $120k was invested in something with a close to guaranteed return it might have a higher return but then I have to consider the likely 15% capital gain tax lowering the ultimate return. If the house was paid for we could likely live on either my wife or my salary, it would be close enough it would be fine and we have a decent amount of savings.

We both drive 2013's that are paid for, both with about 60k miles and expenses are low.