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 Mortgage extra payment OR Higher 401K contribution?
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Posted on 03-27-18 2:17 PM     Reply [Subscribe]
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Mortgage extra payment for quick payoff
OR
Higher 401K contribution for retirement savings?

Which one is the best?
Last edited: 27-Mar-18 03:45 PM

 
Posted on 03-27-18 3:00 PM     [Snapshot: 52]     Reply [Subscribe]
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You need to pay off your house before you start throwing extra money at your 401(k).
There are a few reasons:

Mortgage debt is still debt.
If you get sick or lose your job, would you rather have a mortgage payment or be completely debt-free? Mortgage debt is still debt and always remember debt is the risk. Your house represents your last big hurdle in your financial journey. Don’t fall apart just before the finish line. Pay off the house, and you’ll be complete, totally, 100% debt-free!

The “tax advantage” is a joke.
If someone warns you not to pay off your house because of the tax advantage, it is a complete joke or that person does not understand math. Let's say you pay $10,000 in interest on a $200,000 mortgage. That saves you roughly $2,500 in taxes per year. That might sound good and well when tax time comes around, but stop and think about the math for a minute. All you’re doing is sending $10,000 to the bank instead of $2,500 to the IRS. That’s not a good reason to keep a house payment.


Your most important wealth-building tool is your income.
A lot of people are paying somewhere between $500–1,000 on their monthly mortgage. That’s a pretty decent chunk of change. But think about this: When your debt is gone, you’re free to keep more of your money. How much money could you put into your 401(k) and retirement investments if you didn’t have to make a house payment each month? You could supercharge it in no time! Nothing kicks your retirement savings into high gear like paying off the house.

The last thing you want to carry with you into retirement is a house payment. Lugging that mortgage around will turn the American dream into a nightmare.
 
Posted on 03-27-18 3:17 PM     [Snapshot: 46]     Reply [Subscribe]
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If you maxed your company's match, start paying off mortgage.
 
Posted on 03-27-18 4:13 PM     [Snapshot: 135]     Reply [Subscribe]
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s001, I disagree with your logic. There are many factors. Just like your 401K, your house is also your investment. You can also reduce your tax bracket with your interest. In this economy, many people are getting more than 10% return on their 401K, why would you rush to pay off your mortgage which will save you only 3-4%. That means you would lose money.
Paying off your house with very low interest rate will gives you peace of mind but may not be good financial decision when you are getting high interest rate in today's market+ you will lose employer's contribution.
 
Posted on 03-27-18 4:29 PM     [Snapshot: 156]     Reply [Subscribe]
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Maxed company's match. Should I invest on 529 and IRA (or other options without any match) or make extra payments? 3.15% interest rate, no tax benefit for the interest paid.
 
Posted on 03-27-18 4:30 PM     [Snapshot: 153]     Reply [Subscribe]
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What if I contribute 4% with company's 100 % matching.
Then I will pay my mortgage with extra money that is coming from my saving.

But again you can contribute 18K or 24 K annually if you are above 50. This means you can contribute like 14 to 16 percent.

What would you do in such case?
Contribute only 4 % and pay extra in mortgage
Or
Max out the contribution (i.e 16 % in my case) and pay just a regular mortgage payment..

Last edited: 27-Mar-18 04:31 PM

 
Posted on 03-27-18 4:57 PM     [Snapshot: 210]     Reply [Subscribe]
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Don’t just go one way ! Contribute to 401k so you can get full employers match and rest you can use to pay off your mortgage . If you have huge savings then yes go ahead and pay off the mortgage , this market is in the bubble and huge risk of another recession !
 


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