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Payoff or save?
So, I need help deciding if we should pay off our 2nd mortgage ($33k) or save the cash. Let me just say that I am so grateful that we are in this position and also grateful for any guidance you smart ladies have.
As a bit of background, we are 30 years old. We are a 2 working parent family (both in what we think are very stable corporate jobs--been with companies for 6+ years and moving up) with kids, 3 and 1. We have 3 months of savings in an emergency fund in cash, and about another 9 months in stocks that can be sold if necessary. Our total retirement savings is around $115k right now ($20k in a Roth and the remainder in 401ks), which I feel good about given our ages. Both cars are paid off (2009 and 2004 models, although we are thinking of starting to save to replace my husbands 9 year old Honda in a few years). We also have around $15k saved in cash for our kids college funds, and are looking into Coverdell and 529's to begin investing it in the next few months. We just refi'ed our house in December, and based on what things are going for in our neighborhood we probably have around $10k in equity in our house (not planning on moving for at least 4-5 more years). We bought in 2007 and paid about $50k more than what it's worth now, plus have put around $50k in renovations in (and I'm okay with all of this--it is what it is).
My question is this...over the next 9 months, should we work to divert "savings" money to pay off our 2nd mortgage, or bank the cash? DH says we should pay it off, but I'm not so sure. I know that we would not make as much of a return as we would be paying in interest on the loan, but I also don't know if putting more money into our house is a good idea. Our plan is eventually to sell and upgrade to a bigger house in our neighborhood, but not until we can save enough for a significant down payment and to pay for possible renovation costs (houses in our area are older). Something is telling me to keep the money more fluid, but I don't really know why.
Thanks for reading and look forward to hearing your responses.
Re: Payoff or save?
How much are you able to put toward it each month? If it will take 5 years to pay off, then I would split the extra money toward saving up for a new car and paying down the 2nd mortgage. If it will take 2 years or less, then I would knock out the 2nd mortgage.
Also, what is the interest rate at?
Definitely invest the 15k you have saved up for the kids' college. It can do more work in an investment over the next 15 years, than sitting in a savings account.
TTC since 1/13 DX:PCOS 5/13 (long, anovulatory cycles)
Clomid 50mg 9/13 = BFP! EDD 6/7/14 M/C 5w6d Found 11/4/13
1/14 PCOS / Gluten Free Diet to hopefully regulate my system.
Chemical Pregnancy 03/14
Surprise BFP 6/14, Beta #1: 126 Beta #2: 340 Stick baby, stick! EDD 2/17/15
Riley Elaine born 2/16/15
TTC 2.0 6/15
Chemical Pregnancy 9/15
Chemical Pregnancy 6/16
BFP 9/16 EDD 6/3/17
Beta #1: 145 Beta #2: 376 Beta #3: 2,225 Beta #4: 4,548
www.5yearstonever.blogspot.com
We will be paying it off over the next 9 months, paying around $10k now and between $1k-$2k per month through the end of the year. Interest rate is at 6.5%...when we refinanced we did a subordination of it.
TTC since 1/13 DX:PCOS 5/13 (long, anovulatory cycles)
Clomid 50mg 9/13 = BFP! EDD 6/7/14 M/C 5w6d Found 11/4/13
1/14 PCOS / Gluten Free Diet to hopefully regulate my system.
Chemical Pregnancy 03/14
Surprise BFP 6/14, Beta #1: 126 Beta #2: 340 Stick baby, stick! EDD 2/17/15
Riley Elaine born 2/16/15
TTC 2.0 6/15
Chemical Pregnancy 9/15
Chemical Pregnancy 6/16
BFP 9/16 EDD 6/3/17
Beta #1: 145 Beta #2: 376 Beta #3: 2,225 Beta #4: 4,548
www.5yearstonever.blogspot.com
I agree with this. 6.5% interest it would be good to be able to pay that off, then start saving toward efund and car.
You may want to consider bumping up your retirement savings too. Perhaps a bit more in the Roth. $115,000 may seem like a lot, but it depends on annual salary and your ages. Some couples eventually phase out of a roth eligibility so I feel it's good to take advantage of it while you can.
Our thoughts exactly. We have had pretty significant income growth over the last few years, and only started investing in the Roth in 2010 (fully funded 2 per year for the last few years) when we started getting more money-saavy. After I posted, I went back to check the balances (that I had not looked at since December), and the 401ks are actually around $120k, plus the Roth values are around $35k. We will be phased out in the next few years (God willing and with reasonable forcasted increases), so we are trying to fund them now. We both just bumped up our 401k contributions so each are contributing 10% pre tax plus 3% and 6% company matches--so all in that is another $26k-$30k per year being contributed depending on how annual bonuses shake out.
My DH is also eligible for a pension with his company that we are not counting on at all but could also provide a decent amount of money come retirement time. He is fully vested and if he quit tomorrow it would pay out around $600/month at retirement time, but if he chooses to stay he will essentially get 6-8% more for each year he stays there.
I would...
- Beef up your e-fund. (Have at least 6 months)
- Add to college savings
- Start saving for a DP on future home. While you have an idea of what your house is worth now, it could change in 4 years or whenever you anticipate to move. And even then, you may have trouble selling it for that price and may settle for 10K less than priced (or lower).
First off, way to go! You guys are rocking it!
Given the information in this thread, I would pay it off. It will also free up some cash flow to help with some of your other savings goals.
So funny you say this--we actually just closed on our second refi (our first was in 2008, a year after we bought our house). In order to pay the principal down faster, we opted into a 15 year fixed at 3.5% under HARP (since we had practically no equity). It added a few hundred to our monthly payment overall, but since we are really looking to build some equity in order to be able to sell (and hopefully walk away with some money) in 4-6 years. It seemed like a win to us as we will be paying down the principal much faster. Thanks for the advice!
No prob; even funnier because I was originally going to mention HARP as a possibility, but wasn't sure if the program was still going, lol.
Question: why didn't you take the 30 yr fixed on your re-fi with the lower payment and the use the savings (versus the higher payment for a 15 yr mortgage) to pay down the second? The second is the one with the high interest, right?