Question for OCD Financial Planners, I got a new job…so what's the best thing to do with this money?
Goal: Pay off both mortgages and not be slave to the mortgage!
Here’s the run down Assets:
Primary Residence 0,000
401k 4000
IRA (Traditional) 0,000
Roth IRA ,000
Savings (Cash) ,000
Stocks ,000
Liabilities:
1st mortgage 0,000 (5%)
2nd Mortgage ,000 (8%)
No other bills or debt. HH Income 0k before taxes
The market sucks so I reduced my 401k contributions from 20% to 3% (company matching) and I’m plowing the rest into the 2nd mortgage to get rid of it. Only thing, it takes a while to pay off ,000 (2 years) and I’m an instant gratification kind of person. It’s really depressing putting the whole paycheck towards that 2nd and not seeing any gain from it until 2 years from now, when we won’t have to pay 0/month. It just seems like a lot of effort to save 0/month… but it is a balloon loan due in 6 years. If I don’t pay it off now, I’ll have to refi in 6 years. What would you do with your paycheck?
Build up savings? Continue to pay down 2nd? I still contribute 0/month to my stock account and another 0/month to my Roth IRA.
I’d consider refinancing the 2nd with a Home Equity Line of Credit (HELOC). You should have plenty of equity in your home and, assuming you’re a good risk, the % would be around 4% instead of 8, and still tax deductible. And, so long as you’re paying it off quickly, you don’t have to worry (much) about a variable interest rate. (Fed Chairman Bernanke keeps promising low interest rates for an "extended period").
I’d also consider upping your 401k contribution. With P/E’s in the single digits for many high-quality companies, it seems like a bad time to me to pull back from regular monthly contributions.
Your finances look like they’re in great shape – keep up the great work!
why are you putting money into a taxable stock account if you stopped putting money into your 401(k) because "the market sucks"?
I’d continue what you’re doing, pay down the 2nd mortgage and invest in stocks because the market has to go up eventually.
Roth money is after tax, so put the $300 against your second mortgage and earn a guaranteed 8% right now, then save the $270 for retirement (or put it against first mortgage) after second mortgage is paid off. A house is part of a good retirement plan, so it is quite okay to put the money there. {Maybe including the other $300 you are putting toward stocks now.]
If you want the instant gratification of paying off the second mortgage, refi $300,000 for 15years at today’s low interest rates, pay off the second mortgage, and the larger payments on the 15 yr loan will get you to your goal of paying off the house sooner, and even sooner if you add some extra to the principal every month (easy when you set up autopay).