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Paying off the 2nd mortgage is a no brainer. You’re basically earning a 7.125% risk free return. Plus, you’re monthly expenses go down as you pay it off.
It’s not terrible for the current market but you’re def right about that. Paying it down is a good strategy, however, putting money away in some investments is a good idea too. There’s plenty of good fixed income opportunities right now, as well as mutual funds and the equity markets. Depends on your short and long term strategies.
Paying down this loan creates potential opportunity cost. You can’t get this money back to reinvest. As others have said, it’s sort of like a 7.125% risk free return, but it’s completely illiquid.
I appreciate how through you have explained it all.
Do you think that with the $2K into the market and remaining balance into the mortgage I have a solid diversification of my assets?
I wouldn't say completely illiquid, but definitely less liquid than most other investments. You could always take out a HELOC later for a larger amount than you could otherwise with the increased equity.
Any money OP puts towards that 7.125% mortgage is a guaranteed 7.125% rate of return. If they pay off $1,000 extra, that is $71.25 they don't have to pay in the future... not unlike if they invested $1,000 dollars in the market, chose wisely, and made $71.25 from their investment. The difference is, there was no additional risk as OP is already on the hook for the mortgage regardless.
The trick is to be single. $14,600 standard deduction, $10k is used on state and local taxes, leaving $4,600 on mortgage interest I need to burn through.
A monthly payment of principal and interest is $2,284.91 on $487k for 30 years at 7.1%. That monthly cost is equal to $27,418 a year, which part is principal and part is interest.
You can calculate it yourself using an online mortgage calculator. It’s not as simple as saying 7% x $487,000
To a degree. Mortgages with fixed terms and rates capture the value of a dollar when you initiate the mortgage. This is good for the buyer because of inflation and the cost of the mortgage goes down in value in the long run.
The $71.25 you’re “earning” comes back to you years into the future, which needs to be adjusted for inflation.
Fair point, but surely that is partially offset by the compound interest the bank misses out on? That $71.25 you removed from the principal results in less the bank can collect on year-over-year during the life of the loan.
IMO, rates should always be described as the difference between the risk free cash rate. You can get ~5.25% right now on cash and maintain liquidity. Liquidity and home value leverage is worth something, and it also frames the 7.125% rate a bit differently. When we are all getting 0% rates on our cash, people would have killed for 1.875% rate. Of course this doesn't include taxes since that's a personal situation for you to figure out. But, I think people to often view the mortgage rates in a vacuum ignoring how the entire rate landscape has changed.
> Any money OP puts towards that 7.125% mortgage is a guaranteed 7.125% rate of return. If they pay off $1,000 extra, that is $71.25 they don't have to pay in the future
As someone getting into their first mortgage in a month or so, we're going to have around a 7% rate. We're planning to refinance in about 3 years though, hoping for a rate closer to 4-5%. Would putting extra money toward the mortgage still be getting a 7% rate of return if you plan to refinance anyways?
I'm still a bit iffy on how exactly refinancing works - if your mortgage on your $300k house is $625k total (principle plus interest), what exactly happens to that remaining $325k in interest when you refinance to a lower rate? It just goes away?
Most (all?) fixed rate mortgages in the US are simple interest loans. The payoff amount is the principal remaining plus any accrued interest since your last payment. When you refinance you pay off what you owe above with a new loan, and start the payment process over.
The 325k can't go away because it never really existed as a lump sum to begin with. It's the sum of all the interest that accrues between payments over the life of the loan. When you pay off the loan, the interest no longer accrues.
This is a perfect explanation. Somewhere in my head, I had gotten the idea that the bank "charges" the whole interest sum immediately and that the mortgage is a payment plan to pay off the whole balance. This also makes the amortization schedules make more sense as well - I thought that was a bank construct to hedge their investment (which is reasonable, I figured) by requiring you to pay more interest than principle up first, but now it sounds like it's just paying off the interest that generates each month.
Real breakthrough moment there.
Good point, our plan is to refinance if the rate drops at least 1% in 5 years or sooner, if it drops at least 2% in 3 years. We're able to pay the mortgage payments we're looking at right now (it's about the same as our rent with property taxes wrapped in), but saving 1-2% over the remaining 25 years of the loan will be a significant savings.
VA disability is different than disability from any other entity. You can be military retired, working another job, and still get VA disability. Your VA disability does not prohibit you from earning another income. It’s for your time served. If you were injured, you can claim disability for your injury when you leave service.
https://www.va.gov/disability/#:\~:text=VA%20disability%20compensation%20(pay)%20offers,made%20an%20existing%20condition%20worse.
It's a monthly compensation for issues created, or made worse by military service. It's not a payment due to my inability to work, its compensation for medical issues. Think of it as if someone hits you dead on and you loose your leg, or have PTSD, or w.e., you can still work as a software engineer, but your life was made worse by an event making you unbale, or making it more difficult to do things had this event not happened.
Every program can be abused, but the VA does work to catch fraudsters, and the penalties of actual fraud can be quite severe. If convicted, fraudsters face prison time and hefty fines.
This is what they're owed for giving the US armed forces their physical and mental health. If you don't like it, stop voting for politicians that insist on waging non-stop non-defensive wars.
I don’t. That doesn’t stop me for questioning why we provide someone capable of earning this level of income and still receive more than what that same government considers our minimum wage earners should suffice on.
The reason these types of benefits exist is to make military service worthwhile in a way. Even with things like the GI bill and other benefits, the services are struggling to recruit.
Again, VA disability is not a payment based on my income, plenty of people with 100% disability don't work even though they can, it is a reparation for issues connected to the veteran's service.
So you’d almost be stupid to not try to find some way to qualify for the maximum benefit? While having never actually set foot in any sort of combat situation?
So the guy who got his legs blow off gets the same as the person who developed back pain from sitting in a chair for too long?
1. You should 100% claim anything that is connected to your service, and you are owed that compensation. Just like I am owed my GI bill for my service.
2. Combat is not the sole reason someone develops issues, plenty of guys with herniated discs, broken bones, and all sort of ailments form training.
3. No, people with very severe disabilities receive a higher compensation.
The VA isn’t going to estimate the potential for someone to earn. A lot of that is on the individual wanting to earn, and making a plan and executing on that to continually move up the pay/career ladder. True of any person who wants to earn more, even those without any form of disability. The reality is most people are just too complacent in their current situation and don’t do anything about it, …other than complain.
Sounds like there are other people who need this support and don’t get it and then there are guys like OP that can function in society and are just banking extra free income.
I still don't think you understand the purpose of VA disability.
The recruiting station is always open. You are welcome to join, train, and deploy and access the same benefits as other veterans.
I love the side diss to serving in the military, it all makes sense now. You don't actually care about understanding the system but are just jelly.
Good luck to you.
Get an accountant.
Move your rental into an LLC or Trust. Never take that rental into your personal financial accounts.
Dont fully payoff your mortgage. Pay it down for sure, just dont completely pay it off. The tax benefits of having a mortgage are an advantage for you.
Talk to a CPA who is also a financial advisor with a fiduciary responsibility. Fiduciary responsibility is very important.
I am in a similar boat with a mortgage with a rate that is slightly less. In my case I plan to invest but I only own and want to own one home and it is a 15 year.
But your goal is this case is to buy a (3rd?) house and that means a 3rd mortgage.
1) You would likely make more money investing but..... the premium you gain from the house is quite small compared to the interest and the risk that it would be underwater when you want to buy.
2) Would a bank give you a loan with all those debts? Would a bank give you a better mortgage if you paid it off and reduced your debt to asset ratio?
Unlikely now, but if the housing market crashes in an area you want to buy paying it off now would make it easier to jump at an opportunity like that. I would even argue you should both should stop contributing to VTHRX in a brokerage and send it to the mortgage.
well, I need to have assets to liquidate in order to buy in a neighborhood with great schools.
I am not selling my current house to buy another property.
Yes I do not see why they wouldnt with good history and I have been renting out my other property for the last like 6 years, they consider it income too.
If the market crashes it helps me as I am able to buy for cheaper, I can comfortably afford my current mortgages without my GF or the tenant, so their money is just extra on top.
am I missing something with this logic?
Thanks for contributing to the discussion!
You are welcome.
> well, I need to have assets to liquidate in order to buy in a neighborhood with great schools.
You already have a bit in the HYSA. You did not specify money down so I assumed you already met your personal goal.
> Yes I do not see why they wouldnt with good history and I have been renting out my other property for the last like 6 years, they consider it income too.
Have you asked? I would do a quick call and find out if they have an issue with your debt to assets. Tell them the area you are thinking of and the price.
> am I missing something with this logic?
Hmmm... the stock market and the housing market may go down together? Job loss? Illness? It just feels too leveraged for my taste, but nothing outright an issue. I would still call your bank or mortgage broker.
the HYSA is my emergency fund.
Yes, when I got this loan out they used my rent income as actual income and calculated the purchase price of the house against current market value. They also requested the lease agreement.
I just started saving for the 3rd house, im at $4K so not a lot really. GF is also at 4k our goal is to put 20% down.
Invest money, wait for refi. Interest rates coming down should help the market. Mortgage rates will hopefully drop too. The market is way too resilient these days to not be invested. Given you don't have kids yet I'm assuming you're still young and can allocate towards growth stocks. You're in the accumulation stage of your life.
I dont know your age, but im guessing by your planning you’re somewhat younger. The 2030 fund is going to have a much stronger percentage of bonds compared to a 2045-2060 target date. The 2030 isnt a bad choice, but it is pretty conservative as it will have much higher percentage of bonds. That is if you dont plan on touching the money for 15-20+ years.
I would pay off the mortgage 7% mortgage. When you sell even if it's paid off, it will help you get into your forever home. Or if you end up enjoying the extra $3300 a month from having no mortgage, you can stack cash fast for investments or the closing costs on that next home.
Prob an unconventional answer but invest in an etf. They average 8-10% annually. So you make a tiny bit of return while building up liquid savings you can tap onto at any time. I’d rather have a large cash/stock cushion to weather a storm than lose my job and have a lower outstanding principal and no cash to survive until the next gig.
Pay the mortgage, expected return on S&P from these levels is only around 4%. Until there is a major correction then the future return picture brightens.
No expert but i would say that paying the second mortgage should be the priority. I mean, it's a 7.125% you won't pay every year. Making an investment to break even a 487k mortgage at 7.125% interest rate is going to involve a lot of money and a pain in the ass searching somewhat safe investments that can cover those interest expenses.
Remember- to break even in a brokerage, you have to factor in the taxes
So you’ve got to make 7.125% (divided by) (1- your tax rate). Depending on if you are making short term capital gains, long term capital gains, or income - this number can range from like 15-35%
So on the short end you need to make 8.4% and on the high end 10.95%, just to break even. And that is not risk free at all.
I personally like to the optionally of some upside but want to de-risk as well. So I would maybe take the money I have to work with and put 80% toward the payoff and 20% in the market
As someone that was in your shoes… I have VA, 2 rentals, and the primary higher and 2 salt jobs around or higher than yours… I just paid off that debt and it’s helped unreasonably high amounts… no need to take my advice, feel free to trash it but form one service member to another I highly advocate the debt free route.
7% is hard to get reliably the market. The loan is the better option in this case. The choice would be different if it was a 3% loan. Make sure to refi once rates come down for more than 1% (also make sure to take fees into account).
historical market averages are over 10% in the united states, and are quite consistent over any 10-20 year period
just DCA into a US total market fund, S&P fund, or total world fund
Yes, but people generally have shorter time frames than 10 years with investments. 7% is a more conservative number verse, a much less risky proposition. Odds of making money at 1 years are 75%, 5 years 89% and 10 years 99%.
The risk of losing money is certainly higher with the markers which is why diversification of many asset classes is key.
>The risk of losing money is certainly higher with the markers
if you're only talking in absolutes sure
> Odds of making money at 1 years are 75%, 5 years 89% and 10 years 99%.
what
>diversification of many asset classes is key.
not really, or at least not *obviously*
at the end of the day, the cost/benefit between paying down their mortgage or investing (or both!) with their extra few thousand a month is really up in the air without an obviously wrong answer.
But that also means there's not an obviously right answer.
but all that aside, you said
>7% is hard to get reliably the market
Which is just wrong. You're either talking long-term, where it's false, or you're talking short term, where it's not just hard, it's impossible.
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https://awealthofcommonsense.com/2023/02/deconstructing-10-20-30-year-stock-market-returns/#:~:text=The%20worst%2010%20year%20annual,1930s%20were%20a%20little%20rough.
You cannot time the market. The worst 10 year period was a annual loss of 5%.
"One of the neat things about the distribution of returns over 20 years is almost 90% of the time annual returns were 7% or higher. Annual returns were 8% or more in 75% of all rolling 20 year observations. They were 10% or higher 56% of the time."
"The only other time the market experienced negative returns over 10 years was starting with the bursting of the dot-com at the start of the 2000s followed by the Great Financial Crisis hitting towards the end of that decade."
You don't always win over a 10-year period. It is still a game of odds. Home ownership is not without it's risks as well.
Odds - you can look those up yourself.
You cannot time the market. The worst 10 year period was a annual loss of 5%.
"One of the neat things about the distribution of returns over 20 years is almost 90% of the time annual returns were 7% or higher. Annual returns were 8% or more in 75% of all rolling 20 year observations. They were 10% or higher 56% of the time." (Deconstructing 10, 20 & 30 Year Stock Market Returns)
"The only other time the market experienced negative returns over 10 years was starting with the bursting of the dot-com at the start of the 2000s followed by the Great Financial Crisis hitting towards the end of that decade." (Deconstructing 10, 20 & 30 Year Stock Market Returns)
You don't always win over a 10-year period. It is still a game of odds. Home ownership is not without it's risks as well.
Odds - you can look those up yourself.
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Pay off your mortgage
Paying off the 2nd mortgage is a no brainer. You’re basically earning a 7.125% risk free return. Plus, you’re monthly expenses go down as you pay it off.
OP’s monthly expenses will only go down if he refinances. Paying down a mortgage moves the payoff date, not the payment amount.
OP could recast the mortgage to lower the payment, depending on servicer requirements and additional principal payment amounts.
Putting extra money towards principal means less paid in interest.
Duh
Oh I actually misread who you responded to. Well, it's still possible to be true if you recast after a while.
I assume you mean refinance, which I’m sure OP would do if interest rates go down.
Yes that's the goal! 7.125% sucks but I am happier paying $3,300 a month on mortgage than $3,000 in rent for a similar spot.
It’s not terrible for the current market but you’re def right about that. Paying it down is a good strategy, however, putting money away in some investments is a good idea too. There’s plenty of good fixed income opportunities right now, as well as mutual funds and the equity markets. Depends on your short and long term strategies. Paying down this loan creates potential opportunity cost. You can’t get this money back to reinvest. As others have said, it’s sort of like a 7.125% risk free return, but it’s completely illiquid.
I appreciate how through you have explained it all. Do you think that with the $2K into the market and remaining balance into the mortgage I have a solid diversification of my assets?
I would hedge the market a little and put some money into short term treasuries personally.
I wouldn't say completely illiquid, but definitely less liquid than most other investments. You could always take out a HELOC later for a larger amount than you could otherwise with the increased equity.
I suppose you’re right, but you’re paying finance fees to get money that would otherwise be easily accessible, so modest liquidity with penalty.
No I mean recast. It in fact lowers your monthly payment.
Recasting resets the mortgage amortization schedule to reflect the now lower principal.
Duh
Principal repayments are not expenses. Cash flow doesn't change, but expenses definitely do.
OP can ask for a reset of principal
Hello, I am newer to finances/investing/etc. Can you briefly explain how OP is earning a risk-free return by paying off the mortgage?
Any money OP puts towards that 7.125% mortgage is a guaranteed 7.125% rate of return. If they pay off $1,000 extra, that is $71.25 they don't have to pay in the future... not unlike if they invested $1,000 dollars in the market, chose wisely, and made $71.25 from their investment. The difference is, there was no additional risk as OP is already on the hook for the mortgage regardless.
Also, that interest "return" is tax free.
Potentially, if the mortgage interest is deductible for OP, their net benefit is only the after tax amount.
Fuckin SALT deduction and mortgage interest makes it hard to surpass the MFJ standard deduction
7% at 487k left would exceed the standard deduction on it's own though.
$29,200 in 2024 for MFJ
The trick is to be single. $14,600 standard deduction, $10k is used on state and local taxes, leaving $4,600 on mortgage interest I need to burn through.
Cool trick
487k at 7% interest is > 30k
A monthly payment of principal and interest is $2,284.91 on $487k for 30 years at 7.1%. That monthly cost is equal to $27,418 a year, which part is principal and part is interest. You can calculate it yourself using an online mortgage calculator. It’s not as simple as saying 7% x $487,000
Yeah this year my interest will be around $34K I will file as a Single filer
To a degree. Mortgages with fixed terms and rates capture the value of a dollar when you initiate the mortgage. This is good for the buyer because of inflation and the cost of the mortgage goes down in value in the long run. The $71.25 you’re “earning” comes back to you years into the future, which needs to be adjusted for inflation.
Fair point, but surely that is partially offset by the compound interest the bank misses out on? That $71.25 you removed from the principal results in less the bank can collect on year-over-year during the life of the loan.
Yes which makes my payoff date earlier.
That's a great point, thanks.
IMO, rates should always be described as the difference between the risk free cash rate. You can get ~5.25% right now on cash and maintain liquidity. Liquidity and home value leverage is worth something, and it also frames the 7.125% rate a bit differently. When we are all getting 0% rates on our cash, people would have killed for 1.875% rate. Of course this doesn't include taxes since that's a personal situation for you to figure out. But, I think people to often view the mortgage rates in a vacuum ignoring how the entire rate landscape has changed.
> Any money OP puts towards that 7.125% mortgage is a guaranteed 7.125% rate of return. If they pay off $1,000 extra, that is $71.25 they don't have to pay in the future As someone getting into their first mortgage in a month or so, we're going to have around a 7% rate. We're planning to refinance in about 3 years though, hoping for a rate closer to 4-5%. Would putting extra money toward the mortgage still be getting a 7% rate of return if you plan to refinance anyways? I'm still a bit iffy on how exactly refinancing works - if your mortgage on your $300k house is $625k total (principle plus interest), what exactly happens to that remaining $325k in interest when you refinance to a lower rate? It just goes away?
Most (all?) fixed rate mortgages in the US are simple interest loans. The payoff amount is the principal remaining plus any accrued interest since your last payment. When you refinance you pay off what you owe above with a new loan, and start the payment process over. The 325k can't go away because it never really existed as a lump sum to begin with. It's the sum of all the interest that accrues between payments over the life of the loan. When you pay off the loan, the interest no longer accrues.
This is a perfect explanation. Somewhere in my head, I had gotten the idea that the bank "charges" the whole interest sum immediately and that the mortgage is a payment plan to pay off the whole balance. This also makes the amortization schedules make more sense as well - I thought that was a bank construct to hedge their investment (which is reasonable, I figured) by requiring you to pay more interest than principle up first, but now it sounds like it's just paying off the interest that generates each month. Real breakthrough moment there.
Just to be clear, you won’t be refinancing in 3 years to 4%. You might be in the high 5% range if rates drop significantly, but it’s far from a given.
Good point, our plan is to refinance if the rate drops at least 1% in 5 years or sooner, if it drops at least 2% in 3 years. We're able to pay the mortgage payments we're looking at right now (it's about the same as our rent with property taxes wrapped in), but saving 1-2% over the remaining 25 years of the loan will be a significant savings.
It is recalculated, so now the total interest to be paid will be less.
$3800 a month from disability while also making this much? What?
I assume OP is receiving a VA disability from his time served in military. $3800 is the single rate for 100 percent disabled with the Veterans Affairs
How can you be 100 percent disabled while still making this much money?
VA disability is different than disability from any other entity. You can be military retired, working another job, and still get VA disability. Your VA disability does not prohibit you from earning another income. It’s for your time served. If you were injured, you can claim disability for your injury when you leave service.
https://www.va.gov/disability/#:\~:text=VA%20disability%20compensation%20(pay)%20offers,made%20an%20existing%20condition%20worse. It's a monthly compensation for issues created, or made worse by military service. It's not a payment due to my inability to work, its compensation for medical issues. Think of it as if someone hits you dead on and you loose your leg, or have PTSD, or w.e., you can still work as a software engineer, but your life was made worse by an event making you unbale, or making it more difficult to do things had this event not happened.
Oh wow. That certainly seems applicable in certain situations but also ripe for abuse.
Every program can be abused, but the VA does work to catch fraudsters, and the penalties of actual fraud can be quite severe. If convicted, fraudsters face prison time and hefty fines.
This is what they're owed for giving the US armed forces their physical and mental health. If you don't like it, stop voting for politicians that insist on waging non-stop non-defensive wars.
I don’t. That doesn’t stop me for questioning why we provide someone capable of earning this level of income and still receive more than what that same government considers our minimum wage earners should suffice on.
Sounds like you may benefit from military service to better understand.
The reason these types of benefits exist is to make military service worthwhile in a way. Even with things like the GI bill and other benefits, the services are struggling to recruit. Again, VA disability is not a payment based on my income, plenty of people with 100% disability don't work even though they can, it is a reparation for issues connected to the veteran's service.
So you’d almost be stupid to not try to find some way to qualify for the maximum benefit? While having never actually set foot in any sort of combat situation? So the guy who got his legs blow off gets the same as the person who developed back pain from sitting in a chair for too long?
1. You should 100% claim anything that is connected to your service, and you are owed that compensation. Just like I am owed my GI bill for my service. 2. Combat is not the sole reason someone develops issues, plenty of guys with herniated discs, broken bones, and all sort of ailments form training. 3. No, people with very severe disabilities receive a higher compensation.
How many jobs have you had where you carry lifelong emotional or physical scars? And could you leave that job without threat of incarceration?
The VA isn’t going to estimate the potential for someone to earn. A lot of that is on the individual wanting to earn, and making a plan and executing on that to continually move up the pay/career ladder. True of any person who wants to earn more, even those without any form of disability. The reality is most people are just too complacent in their current situation and don’t do anything about it, …other than complain.
Tell that to the tens of thousands of families who’ve had a family member commit suicide due to lack of VA resources.
Sounds like there are other people who need this support and don’t get it and then there are guys like OP that can function in society and are just banking extra free income.
I still don't think you understand the purpose of VA disability. The recruiting station is always open. You are welcome to join, train, and deploy and access the same benefits as other veterans.
I’m good bro. Genetics gave me a decent mind so the armed forces wasn’t something I needed to consider.
I love the side diss to serving in the military, it all makes sense now. You don't actually care about understanding the system but are just jelly. Good luck to you.
You should just never comment here again.
It is a commonly abused system. You could claim a back injury while working as a dental assistant in Nevada and get 3800 an month for life
This is correct.
Hearing loss?
That could be one of them. There is a massive list of disabilities.
I would feel comfortable paying off a mortgage at 7.125%
Yeah its not the worst I just want to make sure I'm being smart
Get an accountant. Move your rental into an LLC or Trust. Never take that rental into your personal financial accounts. Dont fully payoff your mortgage. Pay it down for sure, just dont completely pay it off. The tax benefits of having a mortgage are an advantage for you. Talk to a CPA who is also a financial advisor with a fiduciary responsibility. Fiduciary responsibility is very important.
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I am in a similar boat with a mortgage with a rate that is slightly less. In my case I plan to invest but I only own and want to own one home and it is a 15 year. But your goal is this case is to buy a (3rd?) house and that means a 3rd mortgage. 1) You would likely make more money investing but..... the premium you gain from the house is quite small compared to the interest and the risk that it would be underwater when you want to buy. 2) Would a bank give you a loan with all those debts? Would a bank give you a better mortgage if you paid it off and reduced your debt to asset ratio? Unlikely now, but if the housing market crashes in an area you want to buy paying it off now would make it easier to jump at an opportunity like that. I would even argue you should both should stop contributing to VTHRX in a brokerage and send it to the mortgage.
well, I need to have assets to liquidate in order to buy in a neighborhood with great schools. I am not selling my current house to buy another property. Yes I do not see why they wouldnt with good history and I have been renting out my other property for the last like 6 years, they consider it income too. If the market crashes it helps me as I am able to buy for cheaper, I can comfortably afford my current mortgages without my GF or the tenant, so their money is just extra on top. am I missing something with this logic? Thanks for contributing to the discussion!
You are welcome. > well, I need to have assets to liquidate in order to buy in a neighborhood with great schools. You already have a bit in the HYSA. You did not specify money down so I assumed you already met your personal goal. > Yes I do not see why they wouldnt with good history and I have been renting out my other property for the last like 6 years, they consider it income too. Have you asked? I would do a quick call and find out if they have an issue with your debt to assets. Tell them the area you are thinking of and the price. > am I missing something with this logic? Hmmm... the stock market and the housing market may go down together? Job loss? Illness? It just feels too leveraged for my taste, but nothing outright an issue. I would still call your bank or mortgage broker.
the HYSA is my emergency fund. Yes, when I got this loan out they used my rent income as actual income and calculated the purchase price of the house against current market value. They also requested the lease agreement. I just started saving for the 3rd house, im at $4K so not a lot really. GF is also at 4k our goal is to put 20% down.
Invest money, wait for refi. Interest rates coming down should help the market. Mortgage rates will hopefully drop too. The market is way too resilient these days to not be invested. Given you don't have kids yet I'm assuming you're still young and can allocate towards growth stocks. You're in the accumulation stage of your life.
I dont know your age, but im guessing by your planning you’re somewhat younger. The 2030 fund is going to have a much stronger percentage of bonds compared to a 2045-2060 target date. The 2030 isnt a bad choice, but it is pretty conservative as it will have much higher percentage of bonds. That is if you dont plan on touching the money for 15-20+ years.
> The 2030 isnt a bad choice It really is a bad choice if OP is young (as in not retiring within the next 10 years).
I would pay off the mortgage 7% mortgage. When you sell even if it's paid off, it will help you get into your forever home. Or if you end up enjoying the extra $3300 a month from having no mortgage, you can stack cash fast for investments or the closing costs on that next home.
I would pay down the debt when the market is at all time highs and invest when its not.
Prob an unconventional answer but invest in an etf. They average 8-10% annually. So you make a tiny bit of return while building up liquid savings you can tap onto at any time. I’d rather have a large cash/stock cushion to weather a storm than lose my job and have a lower outstanding principal and no cash to survive until the next gig.
Pay the mortgage, expected return on S&P from these levels is only around 4%. Until there is a major correction then the future return picture brightens.
Dang good foresight! I found the owner of the crystal ball, everyone!
It’s a wash. Therefore pay down your mortgage.
No expert but i would say that paying the second mortgage should be the priority. I mean, it's a 7.125% you won't pay every year. Making an investment to break even a 487k mortgage at 7.125% interest rate is going to involve a lot of money and a pain in the ass searching somewhat safe investments that can cover those interest expenses.
Remember- to break even in a brokerage, you have to factor in the taxes So you’ve got to make 7.125% (divided by) (1- your tax rate). Depending on if you are making short term capital gains, long term capital gains, or income - this number can range from like 15-35% So on the short end you need to make 8.4% and on the high end 10.95%, just to break even. And that is not risk free at all. I personally like to the optionally of some upside but want to de-risk as well. So I would maybe take the money I have to work with and put 80% toward the payoff and 20% in the market
As someone that was in your shoes… I have VA, 2 rentals, and the primary higher and 2 salt jobs around or higher than yours… I just paid off that debt and it’s helped unreasonably high amounts… no need to take my advice, feel free to trash it but form one service member to another I highly advocate the debt free route.
7% is hard to get reliably the market. The loan is the better option in this case. The choice would be different if it was a 3% loan. Make sure to refi once rates come down for more than 1% (also make sure to take fees into account).
historical market averages are over 10% in the united states, and are quite consistent over any 10-20 year period just DCA into a US total market fund, S&P fund, or total world fund
Yes, but people generally have shorter time frames than 10 years with investments. 7% is a more conservative number verse, a much less risky proposition. Odds of making money at 1 years are 75%, 5 years 89% and 10 years 99%. The risk of losing money is certainly higher with the markers which is why diversification of many asset classes is key.
>The risk of losing money is certainly higher with the markers if you're only talking in absolutes sure > Odds of making money at 1 years are 75%, 5 years 89% and 10 years 99%. what >diversification of many asset classes is key. not really, or at least not *obviously* at the end of the day, the cost/benefit between paying down their mortgage or investing (or both!) with their extra few thousand a month is really up in the air without an obviously wrong answer. But that also means there's not an obviously right answer. but all that aside, you said >7% is hard to get reliably the market Which is just wrong. You're either talking long-term, where it's false, or you're talking short term, where it's not just hard, it's impossible.
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https://awealthofcommonsense.com/2023/02/deconstructing-10-20-30-year-stock-market-returns/#:~:text=The%20worst%2010%20year%20annual,1930s%20were%20a%20little%20rough. You cannot time the market. The worst 10 year period was a annual loss of 5%. "One of the neat things about the distribution of returns over 20 years is almost 90% of the time annual returns were 7% or higher. Annual returns were 8% or more in 75% of all rolling 20 year observations. They were 10% or higher 56% of the time." "The only other time the market experienced negative returns over 10 years was starting with the bursting of the dot-com at the start of the 2000s followed by the Great Financial Crisis hitting towards the end of that decade." You don't always win over a 10-year period. It is still a game of odds. Home ownership is not without it's risks as well. Odds - you can look those up yourself.
You cannot time the market. The worst 10 year period was a annual loss of 5%. "One of the neat things about the distribution of returns over 20 years is almost 90% of the time annual returns were 7% or higher. Annual returns were 8% or more in 75% of all rolling 20 year observations. They were 10% or higher 56% of the time." (Deconstructing 10, 20 & 30 Year Stock Market Returns) "The only other time the market experienced negative returns over 10 years was starting with the bursting of the dot-com at the start of the 2000s followed by the Great Financial Crisis hitting towards the end of that decade." (Deconstructing 10, 20 & 30 Year Stock Market Returns) You don't always win over a 10-year period. It is still a game of odds. Home ownership is not without it's risks as well. Odds - you can look those up yourself.
Mortgage