Mystery
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Dilemma
Jun 13, 2011 12:01:45 GMT -5
Post by Mystery on Jun 13, 2011 12:01:45 GMT -5
We have 38K left on our mortagage. Houe value is at 250K. I have been itiching to pay it off. We have 35K in an emergancy fund. We also have another 40K in investment accounts outside of retirement. Every month we have 5K left after all or expenses including maxing out our 401K's and IRA's. I am tempted to pull 20K from the emergency fund and 18K from the investment accounts and pay off the home loan. We can quickly build up the emergency fund in the next 4-6 months. the home loan is @ 4.75%.
What say?
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qofcc
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Jun 13, 2011 12:07:01 GMT -5
Post by qofcc on Jun 13, 2011 12:07:01 GMT -5
If paying off your house is part of a well-thought-out strategy of asset allocation, then go for it. Be sure to get a HELOC in place in case you need to access the funds. There should be no fee for opening the account.
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Deleted
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Jun 13, 2011 12:08:33 GMT -5
Post by Deleted on Jun 13, 2011 12:08:33 GMT -5
I wouldn't do that. How about you just pay it off over the next 8 months. It will be fun watching it go down, down, down.
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crockpottin
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Jun 13, 2011 12:09:53 GMT -5
Post by crockpottin on Jun 13, 2011 12:09:53 GMT -5
I totally get your desire to have a paid off house, as I paid mine off this year That said, I would be a bit leery of pulling from both the investment account AND the EF at the same time-what if an actual emergency came up? Maybe instead of paying it off in one fell swoop, pay it in some chunks over the next year or two. If you could really save 20K to replenish an EF in 6 months, maybe try saving that 20K and put that towards the mortgage. This way, you'll make progress towards the paid off house without touching the funds you already have saved for true emergencies.
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cronewitch
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Jun 13, 2011 12:14:59 GMT -5
Post by cronewitch on Jun 13, 2011 12:14:59 GMT -5
I would use a HELOC to pay off the first then pay off the HELOC over the next year. You could pay off the HELOC from the emergency fund and use the HELOC as an emergency fund until you rebuild the current fund.
I don't like to touch taxable investments unless you happen to have loose money in there like dividends so you don't pay taxes on gains.
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Deleted
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Jun 13, 2011 12:19:36 GMT -5
Post by Deleted on Jun 13, 2011 12:19:36 GMT -5
I just pay it off with cash flow.
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phil5185
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Jun 13, 2011 12:21:33 GMT -5
Post by phil5185 on Jun 13, 2011 12:21:33 GMT -5
I would look for balance - the two appreciating assets are stocks and real estate - a good diversification between the two is desirable, you don't want to over/underweight either.
You've listed $287k of your NetWorth - ie, $212k of RE equity and $75k of cash/stock. So the wildcard is your retirement - 1) is it primarily in stocks? and, 2) is it big/small compared to the $287k that you've listed.
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Tiny
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Jun 13, 2011 12:26:33 GMT -5
Post by Tiny on Jun 13, 2011 12:26:33 GMT -5
I'm lazy. Why $$ out of 2 buckets just to redirect incoming money back to those buckets? Why not just do one step - redirect incoming money to the mortgage? All that redirecting (and checking to make sure it's working) sounds like alot of "work". I'd just redirect some or all of the 'extra' 5K you have each month towards the mortgage... one step versus 4 steps (pull from ef, pull from investments, redirect income to EF, and when it's full redirect to Investments)... not to mention you'll be doing all of this while then dealing with the bank to get them to finalize the paid off mortgage... There may even be some tax implications and/or fees with cashing out the Investments (and maybe parts of the EF if it's in CDs)...
That's WAY too much work for me... I'd just redirect some or all of the 'extra' 5K to the mortgage and not think about it again until maybe November - when I'd maybe think about paying it off in Full in December with a one time pull from the EF combined with the 5K and regularly scheduled payment. Then sometime in January or February when the bank gets around to finalizing/closing the mortgage and you get the paperwork I'd go out for a nice dinner and look forward to a Happy Spring.
ETA: I'd second the advice to set up a line of credit (HELOC) on your paid off house. I paid off my house last summer and opened a new HELOC on it (the original HELOC was a year away from ending). I've got retirement, EF, additional savings covered so the HELOC makes for a nice bit of flexibility should I need it.
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Mystery
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Jun 13, 2011 13:33:00 GMT -5
Post by Mystery on Jun 13, 2011 13:33:00 GMT -5
I love the idea of getting an HELOC and then paying the HELOC. My monthly payments should be pretty low. Are there closing costs for a HELOC?
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qofcc
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Jun 13, 2011 13:41:26 GMT -5
Post by qofcc on Jun 13, 2011 13:41:26 GMT -5
Most banks offer no closing cost HELOC, but you have to reimburse them for the fees if you close the account within 3 years. Most are adjustable rates tied to prime.
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Mystery
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Jun 13, 2011 14:54:08 GMT -5
Post by Mystery on Jun 13, 2011 14:54:08 GMT -5
Phil,
to answer your questions:
retirement is 180K. Mostly funds. S&P 550, target retirement, small caps, big caps.
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phil5185
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Jun 14, 2011 23:46:45 GMT -5
Post by phil5185 on Jun 14, 2011 23:46:45 GMT -5
retirement is 180K. Mostly funds. S&P 550, target retirement, small caps, big caps. That adds to $467,000 - $212k in RE and $255k in cash/securities. That's a pretty good balance, I would keep the mortgage. The rate is only 4.75%, if it is deductible for you, your net cost is probably about 3.5%, pretty inexpensive use of someone else's capital. Meanwhile your capital is mostly invested in 10% to 11%/yr issues. I wouldn't pull $38,000 out of 10% issues to prepay a 3.5% loan - that is an instant loss for you of 6.5%/yr on the $38,000.
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share88
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Jun 15, 2011 4:10:57 GMT -5
Post by share88 on Jun 15, 2011 4:10:57 GMT -5
I would just pay out of income over the next 8 months.
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Mystery
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Jun 15, 2011 9:11:32 GMT -5
Post by Mystery on Jun 15, 2011 9:11:32 GMT -5
just to add more info:
I am 40 and DH is 39. We also have 100K in an 529 plan for both the kids....
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Mystery
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Jun 19, 2011 19:46:21 GMT -5
Post by Mystery on Jun 19, 2011 19:46:21 GMT -5
we ended uo doing this:
DH got a bonus of 8K on the 15th of June. so we used that and pulled another 10K from the EF and prepaid mortgage. that brings the balace down to 20K on both mtg and EF. we can easily build the EF back in next 2 months. did not want to go thru the hassle of HELOC.
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Mystery
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Jun 20, 2011 8:30:25 GMT -5
Post by Mystery on Jun 20, 2011 8:30:25 GMT -5
yes patstab, I meant to say paid towards principle. if everything goes as planned we should be done with the mtg by dec of this year. so close but feels like forever.
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DVM gone riding
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Jun 20, 2011 9:33:04 GMT -5
Post by DVM gone riding on Jun 20, 2011 9:33:04 GMT -5
I wouldn't call a HELOC a hassle, its not like getting a mortgage. If you already have an established account at a bank you like that gives good rates you might barely need to signs something!! its a really good back up emer fund that costs you nothing if it just sits there open.
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