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pay off mortgage early?

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linuxjim123
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pay off mortgage early?  Reply with quote  

Hello folks,
I know conventional wisdom says pay the mortgage and invest savings however I'm interested in your opinion. I am 37 and have almost 400k in my 401k. I have a mortgage and I have exactly enough in savings to pay it off. My wife is considering quitting working with our second on the way, However, with the mortgage, we can't afford it from a cash flow perspective. The savings is in a S&P inex fund and the mortgage is 2.75% for another 13 years. Question is; With the 401k in the market am I over exposed and would it be advisable to simply pay off the mortgage and improve cash flow in this scenario? Or is there a good way to create passive income with the savings? My travel schedule is not at all conducive to being a landlord.
Post Sat Jan 31, 2015 4:58 am
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oldguy
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Prepay 2.75% capital?? Sounds backwards to me - surely you can earn more than 2.75% without much risk? (Personally, I would keep the SP500 Index longterm and live with the market fluctuations, you're young, that money can stay invested for 25 or 30 yrs.)
Post Sat Jan 31, 2015 3:24 pm
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linuxjim123
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Thanks oldguy. For long term wealth building this a no brainer. I don't expect to ever see 2.75% mortgage again, however my goal for the next few years is to increase my current cash flow so my wife can stay at home with the kids. The way I see it I have 3 options.

1. Increase salary (working on it but it doesn't happen fast)
2. Eliminate debt payments (mortgage is the only one we have)
3. Invest in something low risk that will allow us to draw from it monthly. A mutual fund may not be the best bet there given fluctuations and I won't have time to rent.

Thoughts?
Post Sat Jan 31, 2015 8:24 pm
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Heirloom
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Pay Off Mortgage  Reply with quote  

If you pay off the mortgage you increase cash flow but you loose the potential growth on the capital. As has been pointed out there are plenty of ways, several relatively safe ways to garner a return greater than your interest rate.

Another option you have perhaps is to move. Don't know the details and understand that is a significant change, however, it is an option.

If you are working with a financial professional it would be good to run a MorningStar report and see if your S&P savings and your 401k have overlapping investments - why double your risk there.

Find an excellent agent who can show you a properly designed cash value life policy, something indexed to any number of quality equities markets. If built correctly this could generate a better than 6% return, give your family some protection and fit in nicely with reducing the mortgage.

Be Well
Post Sun Feb 01, 2015 2:47 pm
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