Under what circumstances would you consider paying down a mortgage with lump sums to accelerate time to home ownership or reduce monthly expenses?

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  • #86524 Reply

      We have a 700k loan, with about ~$6k in monthly payments including property tax.  Internet rate is ~4.5%.  (All numbers are approx). I have a lump sum coming to me via stock vesting, say 200k which I am considering purting towards paying down the loan.  (We’ve already recast the loan once so I’m not quite sure how else to apply the 200k towards the principal- if anyone has thoughts on that please share.)

      I know the wisdom would be to put the 200k in market for returns but I’m thinking that with a 4.5 interest rate plus inflation, at what point does it make more sense to try reduce monthly expenses vs seek market gains?

      Looking for all points of view as well as what I might be missing in this scenario. For background, we are a couple in our 40s, with two young kids.  We are both working and are comfortable but should either of us lose our job or be laid off, we would be stressed to make payments.  As you’d expect from the numbers, we live in a VHCOL market though the value of the house has dropped quite a bit over the last year.

      #86525 Reply

        It makes sense when you’re getting close to retirement. It doesn’t make sense otherwise.

        You also don’t add inflation to the interest rate. The payment is getting cheaper by the rate of inflation not increasing.

        #86526 Reply

          At that rate I’d just aim to have it paid off before retirement if you’ll stay in the house. You can get more than that rate in savings accounts right now.

          Liquidity is more important than paying down the mortgage as a safety net.

          Also, check out: Based on this info would you put any cash down or take the $300k mortgage?

          #86527 Reply

            Typically, the advice is, if you can pay it ALL off and eliminate your monthly payment then do it.

            If the lump sum cannot accomplish paying off the mortgage, then only do it if the interest rate is much higher than what you can make investing the money.

            #86528 Reply

              If I were married I never would. As a single person only after hitting 1m invested.

              #86529 Reply

                I know I’m in the minority here (so you trolls can move along lol) but we’re actually paying our mortgage off in our 5 year plan.

                We want the peace of knowing we own our home free & clear…

                I’m the breadwinner & self-employed, so it will allow us to decrease our monthly expenses by 25& & decrease my stress by 5000%.

                Don’t forget to take a look at: I want to compare putting my savings into paying off my mortgage versus into shares

                #86530 Reply

                  How many years are you into the mortgage? If still early years I’d recast your mortgage since you are paying mostly interest during early life of mortgage.

                  Recast doesn’t make much sense if you are over half way thru life of your mortgage.

                  #86531 Reply

                    If you are worried about making payments, absolutely do not put the money towards the house balance. It will not reduce your payments at all.

                    However, if you have $200k in liquid assets, it 100% will pay your mortgage while you look for another job.

                    #86532 Reply

                      It seems like you need to shore up your emergency fund so that if one of you loses your job it won’t be as stressful.

                      The problem of having a large equity is that it’s not liquid and you will face a liquidity crunch if an emergency happens.

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