richmckeon
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Cash: $ 0.45
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Joined: 04 Jul 2006
Location: los angeles
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| questions. need advice |
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Assumptions:
We have a 200k mortgage at 4.5% with around 12 years to go on the loan
Our house is worth between 700 and 800k
We have a 75k home equity line of credit
We have 2 cars: one a purchase with a 540/mo payment and the other with a 330/mo lease
We have 250k invested in mutual funds, variable life insurance, 401k, 529
As a public school teacher with 25 years of experience, when I retire I will have an income from between 4-5 k per month. I plan on retiring in or around 10 years.
My wife and I bring home @ 9k per month.
We have two daughters, one of which will be going to college in three years
Questions:
Should we think about paying off our mortgage? With what?
Should we think about converting our home equity loan to a fixed or a second?
Should we pay off our cars with our home equity line of credit and include that in a second?
Should we use any of our investments to either pay off our mortgage, our home equity line, or our cars?
Thanks
Rich
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Tue Jul 04, 2006 6:15 pm |
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richmckeon
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Cash: $ 0.45
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Joined: 04 Jul 2006
Location: los angeles
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Tim,
Thanks for you suggestions. One more thing. What about converting the mutual funds to some sort of safer vehicle? Like Treasury bills, bonds, etc. The volatility of the market drives me cuckoo and I am wondering if I should play it safe with the 250K we have invested. We have mainly Oppenheimer and River Source mutual funds.
Thanks,
Rich
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Tue Jul 04, 2006 7:59 pm |
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oldguy
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You're spending $10,400/yr just for car ownership - add gas, insurance, plates, maintenance - that's an outlay of over $17,000/yr - that takes about $24,000/yr of your gross salary - you must really love cars?
I concur with coaster, don't prepay a 4.5% loan. And don't give up on equities - you must accept a finite amount of risk to optimize your $250k - you should expect it to double about every 6 years. When you're 4 years from retirement, you can start moving toward 50%/50% because a market downturn would be difficult to recover from a that point of your career.
Do you mean variable annuity or variable life insurance? In a few years, you may want to cancel your life insurance and self-insure (after you no longer have dependants). If you meant variable annuity, yipe.
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Thu Jul 06, 2006 5:01 am |
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forexmaestro
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I would absolutely do something about the cars, and just the cars. First I would get out of that lease ASAP and then downgrade to a car that you can buy cash, and run it into the ground. With the other car you can either pay it off, and then make sure you use it for years to come, or sell it and get something again, that you can buy cash. Cars are a liability where as you are building equity with your home.
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Sat Jul 08, 2006 3:29 am |
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moneylogue
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Your mortgage offers a tax deduction (along with your equity line), thus these would be the last things to pay off since they create a small advantage for you.
I would only pay off the car if it is in good shape and you plan to drive it forever (depriciating asset). The leased vehicle can be returned or purchased easily within the final year of the lease agreement - otherwise enjoy the low $330 per month.
Never touch your investments to pay off debt. As a school teacher, I am sure you understand the advantages of compounding interest.
As for college - do you feel obligated to pay? Student loans are a fact of life now. Perhaps it would be more efficient to borrow now and analyze the situation when the loans begin repayment in 4-5 years. Federal subsidized loans actually pay the accured interest while your child is at school - check your options.
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Sat Jul 08, 2006 3:37 am |
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Blue Eyed Cat
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Location: Central Florida
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Do not pay off your mortgage at this time. The rate is good and you can reconsider in 10 years when you retire if you should pay it off then.
You do not say if you have any of the line of credit in use. If you owe on it, then switching it to a fixed rate and increasing it to eliminate the car and any other debt might be worth doing. Do the math on what you would save plus the cost of the deal.
Do not use investment to pay off debt. Go on a debt reduction diet and do a budget and record everything you spend money on each month. Find ways to reduce what you spend and put that money against debt. Whether it is a second trust on the house or auto loans--make more than the minimum payments and get rid of it ASAP.
I do not ascribe to the idea that parents must finance college. Have your children go to a local junior college and live at home for the first 2 years. Encourage them to work and save for school. Discourage them from private colleges unless they get really good scholarships. Discourage them from borrowing large sums to go to school. State schools offer a good education and what they get out of college is more dependent on their efforts rather than what school they attend. Get out of debt so you can have extra money each month to help them with college expenses but only if they maintain an appropriate GPA and do all they can to help themselves.
Reevaluate what you need in automobiles. You are paying a lot every month for transportation. Pay them off and they save to buy the next one you need (not want). Stay out of debt. Save for what you want; do not charge it. Do not buy cars for your children. Multiple cars are not only the expense of the car, but gas, maintenance, and insurance.
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Wed Jul 12, 2006 3:03 pm |
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jasonm
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Location: Southern Cali
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Pay of the 2nd mortgage buy sending more and write on the check "apply to principle" as long as they do that. The Heloc's are a high rate and some may adjust. Have one car that is paid off and the other to shine if your into cars. Don't drive 2 depreciating assets if you don't have to.
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Thu Aug 03, 2006 9:08 am |
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go2self
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Location: hawaii
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Another school of thought.
1) pay off the cars or use depreciation benefits if owned by home business
2) pay off the mortgage, from low cost money to freed money
3) keep the HELOC, increase it to 150 K but save the 75K increase as emergency funds (interest also deductible)
4) car & mortgage payment amounts are now disposable income for investing or
5) if you need a larger tax deduction set up an education fund or just make a check to the Red Cross. That way you get a 100% tax deduction and it goes to a cause of your choice.
Biggest advantage to this thought is increased disposable cash flow.
Imagine 12 years or 144 mortgage payments directed to a compounding investment.
There are other ways to leverage your cash flow for your benefit, this is just one.
Time is our most volatile resource that if not used immediately is lost instantly
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Mon Aug 07, 2006 2:43 am |
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