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4% house loan vs. 0.25% emergency fund

tennis4789 890 383 September 13, 2015 at 03:11 PM in Finance (2)
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Paying 4% on house loan.

Have money in my emergency fund making anemic 0.25%

I want to use the emergency fund to pay down house loan but still have access to money in case of emergency. Maybe a HELOC? Pay down loan then have HELOC?

Also have some 0% credit card money i could use. Stocks could be good but I don't want to do stocks.

Thinking if have to pay closing appraisal fees etc. . Not worth it.

Any thoughts advice appreciated.

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Are you maxing out all possible tax-advantaged retirement accounts? If not, I'd go that route before I paid off a mortgage with such a low interest rate.

The savings rate you're getting now won't stay low forever, but your mortgage rate is locked in. I wouldn't be in a rush to pay it off. I would, instead, put that money to work in the market (index funds, not individual stocks).

As for an emergency fund, you could either use your Roth IRA (contributions only) as an emergency fund and/or a HELOC.
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Quote from Brian1 View Post :
Are you maxing out all possible tax-advantaged retirement accounts? If not, I'd go that route before I paid off a mortgage with such a low interest rate.

The savings rate you're getting now won't stay low forever, but your mortgage rate is locked in. I wouldn't be in a rush to pay it off. I would, instead, put that money to work in the market (index funds, not individual stocks).

As for an emergency fund, you could either use your Roth IRA (contributions only) as an emergency fund and/or a HELOC.

I was going to say something similar - anything in the 2-3% range is very "cheap" money - lowest of priorities to pay off unless you have years of expenses in cash in the bank.
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#4
how much money is in your emergency money


I would not buy into stocks now


how much is your house loan

are you paying pmi
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is that haiku?
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#6
Quote from Brian1 View Post :
Are you maxing out all possible tax-advantaged retirement accounts? If not, I'd go that route before I paid off a mortgage with such a low interest rate.

The savings rate you're getting now won't stay low forever, but your mortgage rate is locked in. I wouldn't be in a rush to pay it off. I would, instead, put that money to work in the market (index funds, not individual stocks).

As for an emergency fund, you could either use your Roth IRA (contributions only) as an emergency fund and/or a HELOC.
Yes I will be maxing out my tax advantage retirement accounts - 401k & Roth IRA (starting now). I just got my emergency fund where I want it. Although I am thinking I might want to buy another house. Sooo I hate locking my money into 401k and Roth IRA.

Not sure how Roth IRA as an emergency fund work? any penalties risk or anything? Any danger in getting my HELOC cut off/shut off?

Quote from narnaie View Post :
how much money is in your emergency money


I would not buy into stocks now


how much is your house loan

are you paying pmi
No PMI. I have about 20 months worth of expenses in my emergency fund. I know this is more than the standard 3 or 6 months, but I sleep very well at night.
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Quote from tennis4789 View Post :
Not sure how Roth IRA as an emergency fund work? any penalties risk or anything?
After you've had a Roth IRA for 5 years, you can withdraw your contributions (not earnings) without penalty.
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Quote from tennis4789 View Post :
Any danger in getting my HELOC cut off/shut off?
Lender can reduce or close your HELOC at any time during the draw period. Biggest trigger is zero utilization (you never draw on the line) or high 80%+ utilization with no pay-down/clear-down of balances.


Easiest way to avoid possible action is to always float 1 month of balance each year. Draw a small amount on the 1st of a month, pay it off the 1st of the next month. Even if your HELOC is Prime +0% (and hopefully it is less!), this is minimal interest.


Yes, technically you can draw on Day 1 of Month 1 and pay off balance on Day 2 of Month 1 (the next day) and still record an Average Daily Balance for the year, but 30 days is not that onerous
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Quote from tennis4789 View Post :
Not sure how Roth IRA as an emergency fund work? any penalties risk or anything?
Quote from DocLego View Post :
After you've had a Roth IRA for 5 years, you can withdraw your contributions (not earnings) without penalty.
You can withdraw your contributions at any time tax and penalty free - no need to wait 5 years.

Quote from tennis4789 View Post :
Any danger in getting my HELOC cut off/shut off?
There's always the possibility of a HELOC getting reduced or closed, but that risk is far lower than it was from 2008 - 2012.

If you're not comfortable with using either of those options - or even credit cards - as an emergency fund, that's OK. Everyone's tolerance level is different. A savings vehicle very well might be your wisest route.
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#10
Contributions: Tax free in /tax free out - An investor can take out the exact amount of his or her Roth IRA contributions at any time, for any reason without having to pay any tax or penalty – with one big caveat. The earnings from your principal cannot normally be withdrawn prior to age 59½ without paying the 10% early withdrawal penalty. Earnings can generally be withdrawn without penalties after age 59½, provided you meet the five-year rule (see below.).

http://www.rothira.com/roth-ira-withdrawal-rules

Definitely will max out a roth IRA.

Some money will use as capital to open bank accounts/credit cards offering bonuses. Maintain balances direct deposits. What's left will shove into 1. 05% synchrony bank account.

Thanks for everyone's input.
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