Where to put the money?

[burger]

So, I've got a couple questions for you all. Before I ask, I'll give you a little background.

We recently refinanced our house for 15 years @ 3.25% (previously we had about 12 years left @ 4.75). We refinanced because of the lower rate. We plan on staying in the house through the remainder of the loan and beyond. So, now I'm left with about $350/month less of a payment than I had before, but I also added 3 years which drives me nuts.

So, do I just make the extra $350 payment on top of what is required and essentially cut off about 5 years off my loan to get me done much sooner, or do I take that extra $350 and invest it elsewhere? I currently have an IRA for myself which I contribute the max to, but my wife doesn't have one (we just didn't have the money to fund them both). I would like to think that I could earn better than 3.25% on investments and that I would be better off investing it than paying down the mortgage, but there is something to be said for being debt free sooner.

My other question revolves around what should take priority in regards to 401k, Roth IRA, Taxable accounts. My employer matches the first 4%, although, I currently contribute 12%. Some places I've seen recommend contributing enough to get the match, then fully funding the IRA's. If there is more left over, fund the 401k to the max and then finally taxable investments if there is still more left.

I know it comes down to whether you think you'll be in a higher tax bracket now or when you retire, and based off that, you would contribute accordingly, but no one knows that answer.

One final factor is the fact that I would like to retire from my current job at 55 (I would be eligible for a retiree health plan through my employer at that point that would last me until Medicare. Not as much of a deal as being employed, but still better than getting it on the open market). So, I'm going to need some money to last me from 55 to 59 1/2 when I can start drawing from the other sources. This makes me not wanting to neglect the taxable account so much. I know I could take withdrawls from my Roth prior to 59 1/2 as long as it was only the contributions portion, so that is another option to span that gap. Also, I wouldn't be completely retired at 55. I'd still plan on doing something to keep me busy...just not the normal 8-5 desk job I have now.

So there you have it. I'm open to thoughts. Oh yeah, and if it helps, I'm currently 35, married (wife stays home), and have 2 girls (6 and almost 4) with one more bun in the oven (don't know the gender). This will be the last child. As for college, I contribute $100/month to their college funds. When they get college age, that will be what they get for college. Anything over that, they'll most likely need a loan. Mom and Dad want to retire!

[Deleted]

Personally, if it were me I would piss in the Banks Cornflakes.
You have already managed to cut down the cost of the loan, by cutting the rate you pay.
Buuut,, that savings comes at a cost of an extra 3 years...
However, You stated that you could probably pay off the house 5 Years Sooner if you used the $350 monthly savings to "pad" the payments..

So In essence you could possibly pay off the house in 10 years... In Which Case you would Pay off the house sooner even stil than the Original Term Left...
And In the Process You would Actually Save money AND Screw the Bank out of Some Interest...
Even If the Savings by doing it this way is only a couple of Grand, well the Point is that you would save a couple of grand...

Seems that would work for me..

My example from my life is Balanced Billing, which I use for my Gas (Nat.) Bill And My Electric Bill.. I know what the bill is every month, I pay extra for 2 reasons (1) It is kind of Funny to watch them get all pissy becasue I overpaid and (2) At the end of the Year when They "balance" the bills for the Year I always get a couple of months Comped to Me due to the Fact I have a credit with them...

I don't like to pay any more to anyone than I have to Overall.. I pay a bit more now, because I end up paying less later..

Just my thought.

[frep]

I'm not saying it's the right thing to do but we recently did the same thing refinanced from a 15 year 4.5% to a 15 year 3.5% we had a 12.5 years left when we refinanced. I figured out what our payment would be with the new interest rate over the 12.5 years we had, took the difference and pay the extra amount so I don't extend my loan. The extra savings past that we've just added to our retirement accounts.

[The Virginian]

Why not compromise?

Pay $175 per month extra toward your mortgage

and... Put $175 per month in an IRA for your wife!

Win - Win!

[Peace77]

Do you have an emergency fund? If not, start there with a savings account or Money Market account.
If you already have 6-9 months worth of expenses in cash accounts and taxable accounts, then open a IRA for you wife.

You must file your tax return as Married - joint for your wife to have an IRA.

Put $300 per month in the IRA and send the other $50 towards the mortgage.

I would focus on the IRA for the tax benefit. After your EF is fuly funded, I would max the IRAs before investing further in taxable accounts. If you are concerned about needing the funds before aga 60, use a ROTH account for some of the funds.

[Trongersoll]

Here is how I see... I'm a Bank and have i got a deal for you! I will lend you $350 a month for the next 15 years! the interest rate will be 3.25%. You have to pay back a little each month. You can do what ever you want to with the money! If you think that you can make more than 3.25% after taxes and expenses by investing it, then do that with it. If you want a Falcon, then buy a Falcon.

Do you take the Loan?

[Bluerobin]

Whenever I refinanced, I did so for a shorter term. The thought of extending the number of years just always got to me.
Start a Roth IRA for the bride, with most of the monthly savings. Keep about $100 month to put on the principal of the loan.
Retiring at 55 is tough. I went at 57, because 55 just wasn't doable. Even at 57, I had to do something - I played with day trading and investments. It worked for me. One big thing to consider is will the health care premiums go up? It was free when I retired. It is now a several hundred a month, so you may not be able to count on the whole pension amount.
Remember if you retire at 55, you are going to need funds in a taxable account to make it to 59 and 1/2.
Good luck.

[Deleted]

I probably wouldn't have refied into a 15 year loan mainly because I would prefer to have the option of making a lower payment if I needed it. A lot can happen in the 20 years before your retire.

That said, what is done is done. I wouldn't pre-pay the cheap loan since you will have it paid off by the time you're 50, 5 years before retirement.

I would be piling it into the taxable account for the very reason you stated; to act as bridge from 55 to 59.5.

[kadee79]

I have NO investment advice. If it were me, I would do what I felt the most comfortable with....if that means paying of the loan early...that's what I would do.

It's you & your DW that will have to live with what you choose to do so cause yourselves the least amount of stress!

[beenherebefore]

Stock market returns aren't guaranteed. Paying down a mortgage is a guaranteed savings. Anything you can do to get out of debt is to your advangage.

Think of the investment opportunities you will have when you have no monthly mortgage payments, that is the way to build wealth.