Should I pay my house off early?

Ok,

I have a question which has been bugging me for the last couple of weeks. I can't decide if I should pay off my house early ... so going ask the "floor" what I should do...Here is the info that I have to make the decision

#1 We are a married couple (30 & 25) with no kids...but plans to start in the next year.

#2 House value is ~$650,000

#3 Balance of loan $165,000 ... term is 30 year ... 25 years left...So payment is around $1,500 with taxes and insurance.

#4 Dual income with 130k & 70k (200k total)

#5 No high interest debt...credit cards or car loans

#6 Retirement funds with 401k funded (I hit the yearly limit)

#7 2 years of living expenses saved in ready assets

The plan right now...would be to throw $2,000 a month at it. Which would pay it off in about ~7 years....or do I dump that money in a mutual fund...

...Yes, there is no penalty on pre-paying the mortgage...just a straight 30 year fixed. When you pre-pay it...you just move up the schedule...

It is never a bad idea to pay off your mortgage early. But there may be better ideas.

Look at your current interest rate on the loan. If you can afford to pay it off in less than 10 years, you may want to consider refinancing to a 10 or 15 year mortgage at a lower rate. Then you could still pay it off in 9-10 years, but for less than the extra $2000/month. I like the 15yr mortgage option, it allows you to be flexible with the extra payments where with the 10yr, you would be locked in to the new payment.

A second option is conservative mutual funds. This is usually good. A recession could counter that. even mutual funds are suspect these days. You can look ate fixed income funds, they tend to do well during rocky times. compare these returns to the savings you would get by paying off the mortgage early.

A third option is to invest in other real estate ventures. Be careful and wise. This usually is a good idea, but remember "location, location, location"! get to know the market areas.

do you want a vacation home/rental?
Do you want to be a landlord?
Do you want someone else to pay for your real estate investments ?

Lastly, your financial situation is nicely packaged. You may want to keep it simple. It is nice to have just a mortage and normal bills without the complexity of other ventures. This is something you and your wife need to decide.

-Good Luck

As long as there are no pre payment penalties then I would recommend paying it off in 2 lump sums. 1 now, and 1 in about 9 months. That way you are not out too much money at once.

1. Are you out of all other debt? (from your #5, it doesn't sound like it) If not, get out of all consumer debt. Use part of your (#7) 2 years of living expenses to do this if need be. With your salary and savings, there is no reason for you to be in any kind of debt. Think of what you would do with those monthly payments if they weren't going to the bank!
2. You Already have 3-6 month of money saved up for emergencies (your #7).
3. You are already funding your retirement- good.
4. Then yes, attack the mortgage with a vengeance!

I also suggest you read the Total Money Makeover by Ramsey. You are doing well with money but he will explain why to pay off all debt, why to pay off the house early, etc, etc.

Sounds pretty much like an ideal financial situation, especially for such a young couple. I'd keep it the way it is. You can always still claim the interest on your taxes. Your idea of the mutual fund is good - more liquid of an asset than a house (with the way the housing market is these days).

First thing you wanna do is check and make sure that you won't be charged a penalty for paying off your house early. Some loans will charge a percentage penalty if you pay it off too quickly.

Congrats on the income and pretty good financial situation!
Mutuals are BAD. Really. Management fees, buy-in amounts, the portfolio changes as the manager wishes (can run up costs), etc. Nothing to recommend them (I outperform mutuals so to me for sure, NOTHING to recommend them). However, if you like "baskets" of stocks, investigate ETFs--Exchange Traded Funds. Word to the wise in this market:
invest in something REAL: energy, utilities, and food (nothing posh, but what people REALLY have to eat) and you should do OK. Second thought: dividends--you get income and if they're at least quarterly it's harder to cook the books.

But to the real question--I would pay off the house. So would Elizabeth Warren, Harvard law professor, expert on bankruptcy (read All Your Worth). We both fully understand "leverage," thank you. However, the fact is that this is your HOME which is actually a liability, not an asset. (Kiyosaki's definition is real-world: an asset puts money IN your pocket, a liability takes money OUT of your pocket. You will have maintenance, taxes, insurance, eventually improvements, etc.) So the silliness about mortgage tax deductions aside (better ways to reduce tax--like start a business), this is a form of real security against job loss, disability, unexpected medical expenses, etc. Pay it off.

You could select some good ETFs along the way and make some reasonable investments as well as pay extra. (You do have a no prepayment penalty mortgage, yes? If not, OUCH!)

We paid off our mortgage 20 years ago and then started serious investing outside of tax deferred retirement plans. Our choice was based on the fact that we have no tax benefit for mortgage interest (Canada), so mortgage interest is all from after tax income. Otherwise we would have started our investing program earlier.

But having the mortgage paid off gave us a degree of boldness in investing that we might have felt uncomfortable with without first paying it off. We have averaged (compounded) about 14% in our investment portfolio, so it would have been better for us to have started investing earlier. When we started paying our mortgage down, however our interest on the mortgage was at 22%. It was clearly our best choice at that point to pay very quickly even with early payment penalties.

One will avoid paying a mortgage down if it is large, low interest and transferable, an asset to selling the home.

You've already saved a good amount of emergency money, that would have been step one. The decision on whether to pay off your mortgage early comes down to where it can work the hardest for you. There is a good article below that lays out some scenarios. Because of your high income (and the fact that you contribute to an employer-sponsored plan), you won't qualify for any tax deductions if you invest using an IRA. Because you probably have a good interest rate on your mortgage, I would suggest you look at a low-cost index mutual fund. Check out Vanguard's 500 index fund. It's available with a $3,000 minimum (yearly expenses of 0.15%) or a $100,000 minimum (yearly expenses of 0.07%). You may even want to include some of your 2 years of living expenses to get the $100,000 minimum for the low expense ratio. I wouldn't go below 9 months of living expenses, unless you're using some of that money for self-insurance (to pay higher policy deductibles or to replace collision and comprehensive coverage on your cars).

I would open a 529 Education savings account, and a health savings account (if you have a PPO plan w/ a min 2000 deductible) , fund them well, and use mutuals as the investment vehicle.

Next, I would look to a regular brokerage account and invest in ETFs or mutuals (as you have suggested). Since real estate is down, I would also suggest looking to expand your real estate portfolio, either buy purchasing an investmentment property, or purchasing a REIT stock.

For your situation, I do not suggest paying down your mortgage more aggressively.

I'd say "good luck" but you obviously don't need it. Live long and prosper.

Since you been paying the mortgage for over 15 years, you already paid 70% of the interest. That's how the banks/mortgage co make their money.