Deciding to pay off house with retirement savings...

[huntnful]

So I decided about 4 years ago that I didn't want to run the rat race until I was 60 years old, in order to retire with a full pension. I have a good and stable job (pipe welder) but I knew I didn't want an employer for another 30 years dictating what I do because I hunt a lot and know it will eventually become an issue. I just decided to save and invest in a vanguard index fund after reading a few books. Over the last 4 years I've saved/invested $210K and made $50k from my investments. Since all of this Covid stuff, I started to realize that things really aren't all that stabile in general, no matter your current circumstances. My only debt is my mortgage and I owe exactly $260k. Ive decided to move my money to a safe account (honestly a little too soon, could have made quite a bit of money in this last month) and pull it out next year, for tax purposes, and just get rid of all my debt for more future stability should things drastically change for myself, like they have for so many other people during these times. It was a tough decision because I've been saving for so long for a sole purpose of using that money to retire myself early. But I'll just restart the process of saving again once everything is said and done. I'm 30 years old, so I know paying off my house is still a big accomplishment, but it wasn't my goal to begin with, and I know it's not the absolute best thing to do with that money. But these weird times has shifted my perspective for sure!!

 

[Justin Crossley]

I'm not an expert but investing that money in real estate (paying off your mortgage) is still a risk. If property values drop as they did in 2009 you could potentially lose a lot. Depending on your interest rate which I'm assuming is low, you are most likely better off keeping that money in other investments.

I might even put it in some high-risk investments to make more $$ faster and allow you to pay off the house faster with the earnings.

Either way, congratulations on thinking ahead and setting yourself up to have these options. Most people don't start thinking this way until later in life and realize they are behind.

 

[Glory]

I think it’s a solid move. Now save another 250k in the next 4 years and invest the crap out of it.

 

[huntnful]

I'm not an expert but investing that money in real estate (paying off your mortgage) is still a risk. If property values drop as they did in 2009 you could potentially lose a lot. Depending on your interest rate which I'm assuming is low, you are most likely better off keeping that money in other investments.

I might even put it in some high-risk investments to make more $$ faster and allow you to pay off the house faster with the earnings.

Either way, congratulations on thinking ahead and setting yourself up to have these options. Most people don't start thinking this way until later in life and realize they are behind.

You are absolutely spot on. I've thought about this A LOT! It would mean my full investments are now technically only in real estate. However, I did get a screaming deal on my home and its value has risen extensively in the last 6 years. It's also on 2 acres just outside of some big towns here in California and these properties are really getting more sought after and harder to come by. I'm really trying not to view it as an investment, because it quite honestly doesn't make sense as an "investment". I'm trying to justify it in my mind as just a purchase, that would make any future income catastrophes much more manageable without HAVING to make a payment. Like say I were to lose my job AND the market takes a shit. Now I need to withdraw money at a huge loss in order to make my mortgage, while looking for a job. If that makes sense?

 

[Geewhiz]

I like the idea just for the fact that you now are debt free as a 30yo. How many 30 year old guys can say they own their house. Keep working like crazy and saving and then you will really be getting ahead. Good on ya man.

 

[jfs82]

All a matter of perspective and risk tolerance. It's very likely that if you have a good APR on your mortgage (not hard considering the current rates climate) you should be able to make tht money make much more for you in investments than it costs you to keep your mortgage going. But you sure won't go broke owning your house outright.

 

[Nomadx2]

Given the uncertainty with the economy moving forward, you may want to consider paying 1/2 your mortgage off and then doubling up on your mortgage payments to pay it off over time.

With interest rates so low, you'll see a better return on invested $$ and housing may be slowing.

Balance your situation so you do not become house rich & cash poor. Never know what issue you could face so having some cash reserves important.

Either way, good to focus on reducing your debt.

 

[huntnful]

All a matter of perspective and risk tolerance. It's very likely that if you have a good APR on your mortgage (not hard considering the current rates climate) you should be able to make tht money make much more for you in investments than it costs you to keep your mortgage going. But you sure won't go broke owning your house outright.

Yeah my APR is 4.5%. I'm currently paying $12k in interest per year. After writing it off, its costing me $9k annually. Which is less than what I made in the stock market for sure. I also hate throwing $9k in the trash every year too hahaha.

 

[kipper09]

Theoretically the rule of 72 would say that your 260 grand would be around 2 million bucks when you are around 60 years old if you drew 7% on your investments throughout. (And if you never added another dollar to it)..The thought of your home being paid for is and unbelievable feat at 30 years old as well. I think it would depend on how comfortable I felt with my career and job. If you feel solid and let that money go for another 30 years it would be a massive amount of growth. I have a friend that says the key is not timing the market, but it’s time in the market. Starting as young as you have allows for a massive amount of growth over 30 years. Congrats to you for putting yourself in an incredible situation!!


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[huntnful]

Given the uncertainty with the economy moving forward, you may want to consider paying 1/2 your mortgage off and then doubling up on your mortgage payments to pay it off over time.

With interest rates so low, you'll see a better return on invested $$ and housing may be slowing.

Balance your situation so you do not become house rich & cash poor. Never know what issue you could face so having some cash reserves important.

Either way, good to focus on reducing your debt.

Excellent point of view actually. This is why I reached out. Everyone views things differently! I just recieved a 3% APR offer from my current lender. Maybe I'll call them run some more numbers if I say, pay off $130k of the mortgage with the new rate...

 

[boom]

What about the tax breaks from the interests payments? I remember a finance person telling me not to do what you say. the power of the compounding interests is difficult to ignore. Imagine that quarter million in 30 more years of your continuous contributions? It will be huge. You are 30, the greatest advantage you have now is time. You have time to grow A Great nest-egg.

maybe (a big maybe) if you live in a real estate market that is appreciating at an astronomical level it might be a decent idea. But in general I was told never to touch my retirement. Ever.

again you are 30. You might move, change jobs, get married, any myriad life changes. I think You'll make more money if you let the money ride and grow. Than cash out and pay off your house and start over at zero. I would ask an accountant or financial advisor for sure.

but kudos! You are kicking ass. I didn’t start caring about my money until I was 38. I lost a lot of time.

 

[HeavilyArmedHIppie]

Are you sure you won’t miss being able to reduce your taxable income with the interest on your mortgage? The way I see it, we are going to face some serious inflation in the next decade, and if you’re in a fixed mortgage it is entirely possible that your monthly payment today is going to be a pretty trivial amount of money in the future.

 

[huntnful]

Theoretically the rule of 72 would say that your 260 grand would be around 2 million bucks when you are around 60 years old if you drew 7% on your investments throughout. (And if you never added another dollar to it)..The thought of your home being paid for is and unbelievable feat at 30 years old as well. I think it would depend on how comfortable I felt with my career and job. If you feel solid and let that money go for another 30 years it would be a massive amount of growth. I have a friend that says the key is not timing the market, but it’s time in the market. Starting as young as you have allows for a massive amount of growth over 30 years. Congrats to you for putting yourself in an incredible situation!!


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Another great point of view! I have already pulled (sold) my shares, so damn id have a hard time buying back in at this absolute and somewhat unrealistically high market. But it wouldn't hurt to leave it as a safety net and then jump back into the market when it inevitably crashes or takes a steep dip again!

 

[Desk Jockey]

Mmmm. Sounds like you are a good saver which is good. Talk to a financial advisor before you make that move.

While debt isn’t great, the tax advantages and cost of capital are not terrible. However, interest rates are low right now and mortgages are cheap. If you keep that $200k in an investment account and make a decent return while still paying your mortgage you will come out ahead in the long run.

 

[Zdub02]

What books did you read? I'd be interested in learning some different ways to invest and save.

 

[EastMT]

The peace of mind with no mortgage payment is worth more than the interest IMO. The amount you can put away in the next couple years with no house payment will make it up so fast.

As far as the deduction, I’m with you on the math, paying 12k to save 3k is not saving money. Say you make the avg of 7% on 260k in a reasonably safe fund, that’s 18k. So you’d make a bit more than you pay in interest, but the peace of mind would make me happier than the extra few 1000’s.


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[CorbLand]

Either way is a gamble. Paying off your house with all your cash makes you house rich, cash poor but you dont owe anything. If the housing market tumbles, your net worth tumbles too but if the housing market goes, the stock market isnt far behind it.

Welcome to the world of building wealth...there's so many avenues to get there.

 

[huntnful]

So much wisdom and different perspectives in here! I'm really glad I decided to share this!

I guess one MAJOR factor I keep forgetting about is that I have a 401k that i've been maxing out since I was 20, which now has $365k in it. I never look at it and just invest in the large index fund. Which is why I forgot to mention it. So I guess technically I'd still have a versed portfolio haha. But it's not really liquid since I'd be penalized for touching it before 59 1/2 years old.



The books were "Your Money or Your Life" and "The Simple Path to Wealth".

 

[wildwilderness]

No way would I do that!

As mentioned home mortgage rates are at an all time low! I can get it for under 3%. So that would be a waste of cash on hand.

It also sounds like you are a responsible person so don’t fall into all the conspiracy crap that is out there that you could loose it all.

I know of a few investment options that will guarantee 9-10% return if you have 250k+

Once you get enough $ you will realize that having a trusted financial planner will be worth the extra fees to maximize your wealth creation. This is not the Ramsey way that the average Joe needs to stop living pay check to pay check, but the real way to create wealth.

 

[browning2480]

Rule of thumb for me is not to use true Retirement funds like 401ks or IRAs. If you just have the other money in mutual funds but not tied to an actual government retirement account, then yes use it and then take that money you are paying on your mortgage and start throwing it into a Roth IRA. At your age, that income gain will really push your investments to the next level.