Joined Jul 2004
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Dead Horse? 2.5% Mortgage - Pay Down VS Invest into VTI Until Balance Cancels Out VS Invest and Drag Out Mortgage
February 14, 2021 at
09:22 AM
Thread Details
My brain is tired and fried... Been trying to figure out the smart/best thing to do semi-long term (3-10 years).
My mortgage on a $330k condo I bought is at $220K left and at 2.5% with 14.5 years to go. I rent it out currently and slightly more than break even after mortgage and HOA fees. I gutted and rebuilt the condo when I bought it so repairs/problems that might cost me money to address have been non-existent (other than a refrigerator bulb going out). I am very resistant to the idea of selling it and it does not seem to make sense to do so in any of the scenarios I've come up with to date.
I have $30k saved up to play with after selling my expensive car and buying a cheap one last week. All the teachers at my school got notice last week that we're getting about a $25k pay cut effective this summer so I don't anticipate being able to set aside as much as I have been. $18k of the cut is permanent. $7k of the cut will be restored in a few years when/if the state budget recovers from covid-19.
I am also considering quitting this summer. I've been hustling multiple part time jobs near-daily for a few years now that I can fall back on and will have the same salary as the new pay-cut teacher salary while working LESS hours total. This seems to be a no-brainer but feels scary so I'm not sure. Anyways, that bit isn't the point of this post...
I want to find myself in a better place in 3-10 years (will take early retirement option by then if I'm still working as a teacher).
Before I refinanced my mortgage rate down from 4.99% then from 3.4% to the current 2.5%, it would have been a no-brainier to apply the extra funds towards the principal. But now at 2.65% which is almost equal to inflation as I understand it, I don't think it's smart to try to pay it off early anymore.
Old option: Continue to put it all towards principal (which I did a lot of previously). Pay off condo earlier (10 years estimated). Start making bank off of the rental in a decade.
New Options? Put all $ and continue adding funds whenever possible into a Vanguard Total Stock Market ETF (VTI) then...
A. Pay off mortgage when my total investments match the remaining principal. Years unknown. Could be 6-12 years. Could be never. No more investments. Have rental income.
B. Only pay minimum mortgage payments: 14.5 years to pay off. Sell my VTI stocks piece by piece when I need money. My money would likely go considerably further if the market doesn't take a bad long-term dump right?
Also... If I were to quit and agree to forfeit my retirement savings ($58k currently) into their system, the Department of Education will give me that plus 50% ($85k total ) for giving up rights to my pension, health insurance, etc (minus 20% tax, so about $68k)) which I could also then invest. I could easily have 100k invested by this summer if I did this.
What makes the sense at first glance? Anything else I should look into or consider?
My mortgage on a $330k condo I bought is at $220K left and at 2.5% with 14.5 years to go. I rent it out currently and slightly more than break even after mortgage and HOA fees. I gutted and rebuilt the condo when I bought it so repairs/problems that might cost me money to address have been non-existent (other than a refrigerator bulb going out). I am very resistant to the idea of selling it and it does not seem to make sense to do so in any of the scenarios I've come up with to date.
I have $30k saved up to play with after selling my expensive car and buying a cheap one last week. All the teachers at my school got notice last week that we're getting about a $25k pay cut effective this summer so I don't anticipate being able to set aside as much as I have been. $18k of the cut is permanent. $7k of the cut will be restored in a few years when/if the state budget recovers from covid-19.
I am also considering quitting this summer. I've been hustling multiple part time jobs near-daily for a few years now that I can fall back on and will have the same salary as the new pay-cut teacher salary while working LESS hours total. This seems to be a no-brainer but feels scary so I'm not sure. Anyways, that bit isn't the point of this post...
I want to find myself in a better place in 3-10 years (will take early retirement option by then if I'm still working as a teacher).
Before I refinanced my mortgage rate down from 4.99% then from 3.4% to the current 2.5%, it would have been a no-brainier to apply the extra funds towards the principal. But now at 2.65% which is almost equal to inflation as I understand it, I don't think it's smart to try to pay it off early anymore.
Old option: Continue to put it all towards principal (which I did a lot of previously). Pay off condo earlier (10 years estimated). Start making bank off of the rental in a decade.
New Options? Put all $ and continue adding funds whenever possible into a Vanguard Total Stock Market ETF (VTI) then...
A. Pay off mortgage when my total investments match the remaining principal. Years unknown. Could be 6-12 years. Could be never. No more investments. Have rental income.
B. Only pay minimum mortgage payments: 14.5 years to pay off. Sell my VTI stocks piece by piece when I need money. My money would likely go considerably further if the market doesn't take a bad long-term dump right?
Also... If I were to quit and agree to forfeit my retirement savings ($58k currently) into their system, the Department of Education will give me that plus 50% ($85k total ) for giving up rights to my pension, health insurance, etc (minus 20% tax, so about $68k)) which I could also then invest. I could easily have 100k invested by this summer if I did this.
What makes the sense at first glance? Anything else I should look into or consider?
About the OP
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Do you have any other debts? Car, SL's, CC's, etc? I'm assuming not since those would be far more important than a measly 2% home loan.
Psychologically you need some sort of buffer - a lower loan balance is nice except when you need $20k quick - kind of thinking. Also certainty - the mortgage loan is certain, market returns (at least ones that will be on par with the home loan rate) are not.
You also don't mention how you live if you're renting the condo?