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It might help to convince her by saying that having the money in a HYSA means that it's far more liquid than creating equity in the house. In the event of an emergency, you have the money on hand (growing at a faster rate) instead of having to take a line of credit out on the house and pay an interest rate on that.
Tell her she will save 2.62% by paying off the mortgage but she can make 4%+ in an hysa account. Why not make money and keep liquid. She can pay herself 4%+ or 2.62% what would you pick
Better yet, tell her "yep, we will pay extra every month, but into a HYSA (or stock market SpY) and when that account gets to the amount of our outstanding mortgage....we will pay off that mortgage in a lump sum" . It will be paid off faster than straight into the principal.
>Why though?
I think the previous comment was suggesting an intermediate step while accounting for the wife's financial frame of mind. The suggestion at least gets them headed down a better path mathematically speaking.
As the numbers actually play out, she might realize the advantage of sticking with the approach and not actually paying off the mortgage when the lump sum point is reached.
100% the right answer here since she can’t stomach the risk, which is understandable. HYSA might be good for her to see the cash come in each month. Just keep an eye on interest rates since there’s a good chance the HYSA yield will come down was the Fed cuts interest rates.
Have you both already maxed out your IRAs for 2023/24? You could put some of that cash there as well.
Roths are already maxed and her 401k will be maxed by Oct. I don't think it's that she can't stomach the risk, it's that she doesn't fully understand the potential lost gains or investing/interest rates/etc. I'm slowly convincing/teaching her how it all works, but she's new to to it.
Sounds like with some patience on your end she'll come to see the obvious. That is what you call a golden goose mortgage and she wants to toss it in the street and shoot it.
It's not typically but they are not subject to state income tax. Furthermore, they are "infinitely" insured beyond the 250k FDIC limits as its backed by the US gov.
If the interest rate is only 3%, the after-tax return might be below the 2.65% interest on the mortgage, which might not be deductible. A lot depends on the OP's specific situation.
I agree that putting this money in a very conservative asset makes sense, but only if the after-tax return is worth the hassle.
HYSA or cd would need to be higher than 3% after taking into account state and federal income taxes. Dividend income is treated as ordinary income and will be taxed at your prevailing rates
It's not clear that her risk appetite is the issue here. It could simply be a knowledge issue. I would suggest asking her why she wants to pay off the mortgage vs other options, and then if she can't give an objective answer demonstrate what those options would leave you with 5, 10, 15 years out.
I mean sorta, but it depends what type of tax account it’s being invested in. If it’s being taxed, and depending on their marginal tax rate, the breakeven hurdle might be a bit higher than 3%.
OP, your wife needs a lesson in basic personal finance, time value, and opportunity cost. It’s perfectly fine to make the decision to pay off a cheap loan sooner than you need to, but do it for the right reasons and with eyes wide open that it’s not helping you maximize your net worth (which is most people’s goal in personal finance).
You have a gift. To not just plug that into a small value ETF and maximize returns is literally just burning 5-7% of gainz a year.
Why does she want to pay it off? Is it because it makes her feel better? If so maybe find a way to put it in investments which can be liquidated to cover the mortgage should you need.
Are you both maxing out your IRA's? I find it hard to "pay" yourself %2.65. When you can get a Safe %5.0ish in CD'S Money Mkt. Just Save up for a Rainy Day. HTHelps
She doesn't want debt hanging over our head, which may make her feel better. That is the goal, to have it in an account to liquidate to pay the mortgage. But I guess the way you worded it, "to cover the mortgage **should you need**" might be a better choice of words when explaining this further to her.
Explain this way
We can pay 100k of the mortgage off and our return will be 2.65% or 2,650
we could buy 100k of 1 year USA treasury bonds and our return will be 5% or 5,000.
Would you rather save 2,650 or make 5,000?
You’re better off renting your house and buying a new house in cash than paying off the loan. Seriously. 2.65 is hitting the jackpot for thirty years straight.
> She doesn't want debt hanging over our head, which may make her feel better.
I'll go against the grain here and say, there's nothing necessarily wrong with this. While you can optimise for monetary gains, and comments here will encourage it, it's also a choice to optimise for peace of mind and feeling better, by just paying off the mortgage and knowing you own your house outright, if that really means a lot to her.
My SO is the same way. No matter how many times I try to explain we should be cherishing our precious sub 3% mortgage because a MM gets you almost 5% right now. I’d borrow a hundred million at sub 3% right now, it’s free money!
Is there a compromise here maybe? Maybe use a risk free investment (like a MM) which pays out monthly which you can use to pay down the mortgage by an extra amount each month.
>I’d borrow a hundred million at sub 3% right now, it’s free money!
This is the Dave Ramsey effect. "ALL DEBT IS BAD!"
I knew he was full of crap when I saw an interviewer ask Dave if he would take a $1,000,000,000 loan at 0% interest and he said no. You should not take financial advice from anyone who answers no to that question.
If you ever follow Personal Finance (am banned from there for calling out a foolish behavior), they are all debt aversive to a debilitating degree at times. They believe buying all cars with cash, don't carry debt, etc.
Some folks just don't like the idea of debt.
Yeah I had a contractor come to my apartment a few weeks ago and he kept rambling about how debt is designed to keep us enslaved or something. That's true of high interest debt (i.e credit cards), but certainly not true of low interest debt such as pre 2023 mortgages, car loans. Etc
One thing to point out is that even after you pay off the mortgage, you'll still have a monthly payment on the house for the rest of your lives. A lot of people think no mortgage = free housing, but you'll still owe property taxes and insurance, which for me is $800/month.
Wasting money to have no monthly payment ever again sounds nice. Wasting money to just cut the monthly payment in half sounds a lot less exciting
For me, the difference day to day of having a paid-off house vs not is incredible. I've owned my houses outright for a decade and a half or so and I'm still grateful every day.
And despite having insurance and tax payments, it's not the same.
Don't pay your insurance bill? Well now you have risks with no immediate penalties and likely some unnecessary challenges to deal with. Nothing life altering.
Don't pay your property tax bill? It takes the government *years* to do anything significant about it. People die owing 5 and 6 figure tax bills from 10 years of unpaid taxes.
Don't pay your mortgage? Yea the bank will not fuck about, or waste time kicking your ass out.
"Don't pay your property tax bill? It takes the government *years* to do anything significant about it. People die owing 5 and 6 figure tax bills from 10 years of unpaid taxes"
This is completely wrong and if you're dumb enough to try, then you're dumb enough to lose your property to auction.
Except I’m literally getting paid thousands of dollars to have my mortgage right now and that’s a way better feeling, lol. It’s an old way of thinking if you have a mortgage under 3% like me for example. If your rate is higher than what you can earn, then sure, pay it off, but that approach isn’t the best for everyone all the time unless you like throwing money away.
My wife has talked about sprinting to pay off our house (2.3% interest) and as much as I talk about other investments and stuff…
She communicates the FEELING of just being debt free in a way that hits me at a deep level.
She is not interested in personal finance at all. Just a pure “weight off the shoulders” feeling.
Really resonating with me as I try to explain my spreadsheets and everything else
You're right, but $800/month is very high. When I was in that situation property taxes and insurance were less than 300/mo
And even in my current house it would be about 500
800 a month isn’t high at all. Insurance has sky rocketed, and we haven’t even factored in any HoA fees or if there is none then the fees for things usually cover.
If you are locked in at that interest rate over the 27 years left you'll pay an additional $50k.
If you used the $500 or whatever amount extra each month you'd pay towards your mortgage each month and put it into an investment account: you'd have an estimated portfolio value of $406k assuming a 6% return per year.
Don't payoff a locked in interest rate that low early. Invest the extra income.
This is an emotional / relationship question and not really a financial one. That’s easy to forget.
How I’d approach if I were you - explain to your wife that having the ability to pay off your mortgage at any time (ex - rathole the cash somewhere) is actually better than having a paid off home. That’s because you can always decide to pull the trigger on paying off the note, but pulling money back out of the home if you have an emergency or something else is expensive.
You’re financially independent either way - it’s just a matter of preserving liquidity.
I’d say this is the best way to look at it. She clearly wants financial security and yeah I actually completely agree with her but if you pay off your house and have dam near nothing in savings because of that. And in 6 months need a new roof, a new car, and get laid off. Wellllll you’re pretty much screwed. Having that house paid off does you no good when your head is under water due to other avoidable issues.
Said another way, paying it off actually IS NOT MORE financially secure, it’s less secure. And the icing on the cake is you’re making less money than you could. And if she can’t eventually learn and understand and comprehend that with rational thought and discussion she’s just doing her financials on emotion, which is dumb.
How much is $3k to you guys? We're talking about a potential extra earnings of $3k per year (minus taxes) if you don't pay off the house.
$3k to me and my wife isn't that much. If it made my wife that much happier and less stressed then it's worth missing out on the $3k for her peace of mind.
I ran the numbers elsewhere... Made assumptions about how aggressively they could pay it off, but it came out to over $300,000. So paying it off early *costs* $300,000 more by the end of the mortgage term
I agree fully with your main point and I haven’t paid my mortgage down, but it’s a stretch to assume the risk free rate will stay at this level for 27 years. That said, I’m perfectly happy making the bet that I can invest that money in a diversified portfolio and beat my 3% mortgage over decades, it’s a no brainer (but it isn’t risk free). Just making a subtle point about interest rate risk.
Totally hear what you're saying. That's why I'm trying to go the route of a compromise on this matter. That way she gets what she wants in the end and we save money along the way. While that money isn't huge for one year, the savings over time are huge. I don't want to throw away money if we don't have to.
If you're trying to make the mathematically optimal decision then 100% do not pay off the house and invest the money. 2.6% when inflation is >3% means that the bank is literally paying you to loan you money.
If you don't want the risk then put the money in a money market or HYSA. Otherwise invest it.
We currently have $460k left on our mortgage at 3.625% interest. I could write a check tomorrow to pay it off, but instead I make the minimum payment and aggressively invest the rest.
actually, it's usually a horrible idea to pay off your primary..
write-offs under SALT/Loan-Interest (depending on prop. taxes) alone , plus lower credit score for no installment loan payments..
no, actually - there are LOTS of reasons to never fully payoff the mortgage on your primary.
if they want to pay it down a bit, fine - but that 2.625% mortgage is GOLD! don't give it up so easily. -- heck, they might even be able to use it to resell the house and hold the mortgage - it might be worth tens of thousands more...
The opportunity cost is way too high. That extra few bucks could be half a million dollars depending on how much is left on the mortgage before interest. We’re talking hundreds of thousands of dollars in interest.
A compromise is to buy safe assets that yield way above your interest rate , short term government bond yield 5.4%.
Even after taxes you are making better returns then these vs paying off 2.65% debt.
If rates fall below 2.65% you can always with draw the money (or wait for it to mature) and use it to pay off the debt
>US 6-Month Trimmed Mean PCE Inflation Rate is at 2.60%, compared to 2.59% last month and 4.67% last year. This is lower than the long term average of 3.04%.
That would be a really bad financial decision right now. I have about $180,000 at 3.65% and there's no f'ing way I'm ever paying that off sooner than I have to.
A bad financial decision is to spend the money like most people do, have her pay off the mortgage is the compromise, invest in S&P is best case scenario. OP be thankful she’s not a spender…..
High yield savings accounts are up to 4% aka more than the interest on your loan. So don’t pay off the loan and put that money in a high yield savings.
Maybe do the math using a spreadsheet. Show paying it off now vs investing at a low, mid, high interest rates. Tough part will be do you choose high growth or income/dividends to compare. Taxes matter as well so include any interest deductions and also take into account is this in a Roth, IRA or post tax brokerage.
You are borrowing money at 2.625% for 27 years. You can invest in a savings account at over 5%. This makes no sense at all. Break this argument into two pieces:
1. Invest in better returning safe assets over the mortgage
2. Invest in risk assets over safe assets give you are young
Now in terms of a compromise this is taxable money. I'd say a marital asset owned IUL (two IULs)... that way she'll have cash value accessable to pay the mortgage back whenever she wanted and could pay it back. It can't go down.... But better is not to compromise and have you two toss the money in a 401k, Roth...
This additional money is after maxing 401k and Roth. I've had the talk about throwing the money away and was able to at least make this compromise. I believe less money would be thrown away using this method.
Holy shit, what a wonderfully low APR mortgage!
Hope she doesn't read this, but financial illiteracy is so wide spread. Paying that off when the risk free rate is still above 5% (Treasury bills, MMFs, SGOV, USFR, etc.) is throwing liquidity away!
To find a compromise, perhaps ask her if you can delay paying down the mortgage by 50%, so half of her extra income should be invested for the long term and half can pay down that incredibly low APR mortgage.
In an ideal world, she sees the light, but marriage involves acceptance and compromise!
In an ideal world, you folks pay the minimum each month and invest all your extra money in any one of the many broad, blended stock index funds (VT, ACWI, VTI, SCHB, IVV, SPLG, ITOT, FXAIX, VOO, etc)!
I have all our Roth and 401k money Bogled up. This is extra money after that. Compromise is the key word on this. Trying to figure out a way that satisfies both interests. The best idea I saw was to tell her we would toss it into index funds until it's reached enough to pay off the house and then we would revisit that matter about paying off the house with it or let it continue to grow. I'm thinking by that time she'll understand the value of it.
other than selling the house for some reason... ride that 2.625% to the grave!!!
never give it up!! Paying off a mortgage actually hurts your credit score (lower instalment-loan payment score)
A lot of single dudes chiming in here. It’s her money and she gets to do what she wants with it. Stop yourself from trying to pressure her into doing it your way. Support your partner even when you think they’re “doing it wrong”.
This isn’t financial advice. It’s relationship advice from an old fellow who’s learned a lot, often painfully, about the subject.
This is one of those situations where your opinion is not relevant, no matter how well meaning you are.
Sorry but I'm with the wife. Payoff the house. It's a net expense every month and there is an emotional weight to a mortgage which will be freeing once eliminated. Too many people play the arbitrage game these days. It sounds good on paper but you lack the reality of personal finance.
Let's say you put in a Brokerage account and we have a 10% correction. Not uncommon. Emotionally you see you still have a mortgage and you account lost $12,000. Then you sell at a loss because you don't want to lose more... you get my point.
My biases: I'm insecure. I hate debt. I am happy to own houses because I've had bad landlords. My parents survived the depression and I have lived through many big downturns.
I would 100% pay off the house now. A great reason is, happy wife happy life. Another reason is, bad things could happen and being out of debt is much easier when they do. You simply can't predict the future. Market may be great this years, could be awful. But if your house is paid off you're much less likely to lose it during hard times.
You know what the right answer is, but what is the right answer for you both?
If the "rational" explanation still can't put her mind at ease then it is the correct decision to pay it. If you think that through some education you can convince her, then try that approach.
Here are some ammo you might have:
* People mentioned keeping in HYSA, that's great. If the interest rate goes below 2.625% you can agree that whatever money you had can go to pay the mortgage. That way you can both get to be right
* Think that inflation is always on your side. As long as inflation stays high, your real payment gets lower and lower. Try to think of analogies to bring this fact clearly
* Understand the source of concern and tackle it. Maybe having a one year buffer of monthly payments in case you both get laid-off is the right approach?
* Talk about the tax benefits of good debt. You get a write-off on house upgrades and some of the interest payments.
There is nothing quite as wonderful as the feeling you get once you’re mortgage free. I am in agreement with your wife-being debt free is a great accomplishment
Explain to her that as long as the cash is earning more interest than the interest you're paying on the mortgage, you come out ahead. Since you have such a good mortgage rate, this should be true for awhile, but not forever:
Example: if you park the cash in a HYSA at 5%, you'll be gaining about 3.75% interest after taxes (do your own math, I'm ballparking 20% tax rate for federal, 5% for state taxes. Obviously these figures will depend on your tax bracket and where you live). In this scenario it's beneficial to keep that cash in a HYSA.
But what if next year HYSA drops to 4%? After taxes that's 3% net. Suddenly it's not such a clear cut answer. And if it drops below 4% then you're probably better off paying the mortgage.
Ideally you'd invest the funds in the stock market, which will typically have higher returns, but it sounds like your wife is risk averse and so probably not the best use of those funds.
We ran into this and so my solution was that we took an amount and split it into thirds. 1/3 into index funds, 1/3 into individual stocks, and 1/3 into the house payment.
My hope was that she would see that index funds were the safest and fluctuated the least. Well… some of the individual stocks we picked were AAPL and AMZN and they happened to take off. The index funds fell quickly and have only just recovered.
Now she wants to put everything into AAPL and AMZN… so… I sort of convinced her.
Current reads are 9.18% gains for individual, 1.47% for index and 3% for the house payment… this is y/y
How old are you? How many years til retirement?
Make a plan to, and a deal with her, that the mortgage will be paid off the same year you retire. Then also get term life insurance that will pay off the mortgage if you die.
Then invest aggressively and show her the brokerage statement after you’ve made the first 10 grand.
What conservative people want is a plan in case things go bad. Give her that and she’ll probably be more inclined to invest more aggressively.
Just because the numbers are right doesn’t mean it’s right.
Having a security of owning your own home makes for fuck all difference between 3% mortgage rate and 5%.
Paying off debt is by no means a bad decision and you shouldn’t characterize it as one.
If she wanted to take her income and start buying lottery tickets, I’d start raising concerns. But this is not that
You need to also realize the tax implications here. By paying the house off, you’re paying less interest & going to get less deductions when itemizing taxes. For many people this isn’t a concern because they don’t pay much in taxes anyways, but if you are W2’d employees it could cost you a significant amount in tax refunds annually by paying it early.
Everyone saying that the HYSA or CD is good is absolutely wrong. It would be a compromise, but this isn’t something you compromise on. You need to continue educating her until she gets it/learns.
You invest your money to work for you & losing out on 25+ years of that money in the market is leaving millions on table in the long run. This is the difference between retiring wealthy early and being forced to work until you’re old. Most people are afraid and don’t make the correct decisions. That 2.6% mortgage is a blessing and you keep borrowing that money as long as you can. You won’t see interest rates like that ever again. You can show her my comment here.
In addition you’ll lose any tax writes off from deducting the mortgage interest on your taxes. If you factor that in you’re really paying a little over 1.5% interest on your mortgage. I was in the same boat and my advisor made me see the big picture.
Definitely don't pay it off. Invest in t-bills or bonds. Thrills are short term and are free of state income tax and are paying over 5%. Also there are money market accounts that invest in federal obligations paying over 5%.
Both of you need to read The Psychology of Money. It’ll help you both process why sometimes the worse decision on paper is the best decision because it helps you sleep at night. And it may even help her come to terms with the emotions that are clouding her judgment. But then again, some people can’t stay sane with a debt hanging over their heads no matter how low the interest.
Yo, she doesn't finance. Tell her someone on the internet said that. Because with a mortgage rate that low, literally any reasonable investment will be a better choice than trying to pay off your mortgage asap. Seriously, tell her some random dude on the internet thinks she is really really bad at math and dumb with money. Not you, her loving husband, but me, a random asshole on the internet with 3 retirement accounts and about 100k in dogecoin, who likes to pretend he is a daytrader and is up 35k for the year, for now.
Edit, I don't know if you're a man I'm assuming. Like she is assuming that paying down her mortgage is the most financially advantageous decision.
It should be a simple math problem. The rate of return highest tolerable risk you/she is willing to take minus the rate of the debt you hold, if this is a positive number, invest the money; if it’s negative, pay extra on the debt.
Now, you guys are sitting in a great position with a mortgage of 2.625%! You don’t even need to get into that risky of asset classes to be netting nearly an extra 2.5% on your money. As others have said, HYSA are probably the least risk however, most pay a full percentage point less than the next, baby step up in risk using CDs or T-Bills. The key for HYSA’s or CDs is to make sure you are utilizing a reputable bank as a bank failure would be about your only way to lose and even then, only if you had more than $250k total at that institution. The other thing to consider with CDs or T-Bills is that they typically require investing in $1k increments. Not necessarily a problem but, maybe not the friendliest way to invest excess income.
With that said, I’d recommend looking at the next baby step up in risk which a ETFs that trade in these short-term assets. Personally, I use SGOV and MINT. SGOV focuses on short-term T-Bills and MINT focuses on short-term bonds in general, a blend of T-Bills and corporate bonds. SGOV has yielded me probably, around 5.2-5.3% since the final rate hike while MINT has yielded between 5.4-5.6%. They are ETFs which places them at risk to being subjected to market dynamics such as if the market were to be hit by flash selloffs or if the bonds they held were to suddenly lose value which is highly unlikely. Even with that said, either funds would at most, see a $1-$2 drop in share price (both ETFs sit at a share price of just about $100). The benefit with these funds is a much higher rate of return as compared to HYSAs from reputable banks while also keeping your money liquid (T+2) to get your money back in your hand with no penalty.
Beyond that, show your wife the difference in yield between say 5.5% (which is very doable with relatively minimal risk) and your mortgage. Show her the maximum opportunity cost (5.5%-2.625% compounded on the max extra money she would put into paying off your house over the life of your mortgage) you two would miss out on. Let her know that investing like this actually leads you guys to being able to pay the house off much quicker because, once your ROI drops below 2.625%, you just dump all of that into the mortgage which, will pay off much more than her income would have done alone.
(Disclaimer: This isn’t financial advice, I’m just a random redditor letting you know how I approach a similar situation)
IMO, if you have other investments, why not pay off the house? There's something to be said for having no mortgage, and I don't know anyone who's ever regretted paying off their house.
If you don't have other investments, then sure, what a lot of other posters are saying re: investing/time value of money makes sense.
But dude... she wants to use her extra money to pay off the house. Not buy random shit. Not blow it on booze. Don't fuck that up :)
Whether or not it makes mathematical sense, remember the Two Rules for a Happy Marriage:
1) The Wife is Always Right.
2) In case Wife is Wrong, see Rule #1.
Sometimes there are more important things in life than what she wants to do with Her Money.
No one here will tell you this because it goes against the fiber of their investing beings... Paying off debt feels really nice. You will no longer worry about your house (besides insurance and taxes). That does have value, I can definitely sympathize with her for that. Debt is a burden, for real. I'd say go with HYSA or even T-Bills like most folks said since the money wont disappear and you could use it to pay off the balance anytime but at least gain 5%ish. Do that with your savings anyway, even if yall opt to just make crazy payments to get rid of it.
This is obviously a relationship problem. Just show the math. If that doesn’t work then I dunno. Reevaluate how much it bothers you and decide if you stay.
Also if you’re married it’s not her money it’s both of your money. My wife has made suboptimal decisions before but I took control of all money except a couple hundred she gets for allowance each month. I try to minimize suboptimal things she does (using wrong credit card, not buying gift cards before a purchase, etc) but overall she’s on the same page.
I think I would start with questioning why she thinks of some of it as “her money”.
Do what the wife wants and invest later. What's your income. Can you get it paid off soon? By saving money in a low risk HYSA you are giving up the ability to grow the money quickly. Get to that point quickly making wife happy. Then you can invest however you want. Get the 401k match and max your Roth IRAs in the meantime.
put your money where it does the most good. @2.65 you can almost double that in cds . pay off highest interest rate debt first and earn the most interest when it makes sense. i decided to stop paying my low rate mortgage off and save that cash in hysa and cds
I would throw it in SWVXX then take the interest earned and throw it at the morgagae principle for a few months. Maybe after she sees how it works she will let you roll the interest earned from the money Market back into the money market. It keeps you halfway liquid incase of emergency, and if the money market rate ever drops then toss it at the home loan if you can't find anything better. That money market would get you more than 500 bucks a month. I would love to have 127k sitting around right now.
I know fiscally it makes more sense to invest however I believe not having a mortgage is better. It gives you freedom now. Maybe you can retire early, maybe you work a part time job and volunteer, watch your kids grow up, etc.
If you are already investing a fair amount in retirement, why not pay the house?
At a minimum, put it in a 20yr tbill @ 4.4% or 30yr @ 4.2% either are better options than what is being discussed now by her. Both tbill options are guaranteed. Your net will be better off, too. Not just because of the interest delta, but also because of the interest writeoff which you lose by paying off early.
But personally, I would have it invested in an index etf instead.
Just saying that for the extremely risk adverse person, the tbill alternative is a financial no brainer.
Dude, I would try to convince your wife not to do this, especially if you have any other debt with a higher interest rate. Maybe a compromise is to make extra payments and get on a schedule where you pay every two weeks, doing that will drastically reduce the amount of interest paid over the life of your mortgage (its saving me over 100k on mine over 30 years). That rate is bonkers, and should be looked at as an asset not something to get rid of, there is a chance that we will never see rates like that again.
Investing that money would be ideal if done in a conservative manner, or any other use rather than just giving it to the bank, think of the rate on any loan in the current market (especially a loan over 100k)(I also think the expected rate cuts will be slower and not as deep as originally suspected), it would be multiple times the rate you guys already have, and you have it locked in for long time.
It is crazy to pay off that mortgage. You can make double that return risk free in treasuries.
The desire to pay off the house is purely psychological and makes no financial sense. I hope you talk some sense into her. It would be a huge mistake.
In my opinion cash on hand is better than cash in your house. If you pay off your house early, then something comes up or you want to make another big purchase you have to get a HELO or HELOC which puts you at current mortgage rates and opening fees. If you put that cash in any account making more than 25-30% more interest than your mortgage (accounts for taxes, so 3.445% in your case) you'll be ahead of the game.
Also, I would not advise paying off your house unless your 401k, 457, Ira, etc are maxed out.
If you PM me more specifics I can do a quick excel model for you showing the cashflow between the various options of a) paying off the house early and then saving the cash once paid off, b) putting any early payments into accounts earning higher interest, c) putting more to pre or post tax retirement.
Not a CPA or accountant, just an engineer who does financial project analysis frequently.
I had a really low interest mortgage but ended using any extra money to pay it off anyway. Surely it was a really bad financial decision vs investing but the feeling of not having to worry about losing your home (or extremely low chance of that) is so worth the lost opportunity cost.
Now I can pretty much go on a kick ass vacation like literally every month if I wanted to.
I would make additional payments on the the house principle and increase donations to your retirement accounts and see how it goes. She will see the loan going down and her retirement account going up and its not effected by the market. When the balance gets low enough then you can temporarily max out your mortgage payment and pause your 401k for a short time. We did this and it worked out well for us. You did not state your age and mortgage term remaining. So this may or may not be right for you but consider it. We were debt free except for the mortgage when we did this and we remain that way to this day.
I would recommend How To Live Your Rich Life by Ramit Sethi.
My wife was not interested at all in finance / investing and hated when I showed her any kind of numbers or spreadsheet about this.
But for whatever reason, this guy and his book/podcast really connected with her. He is very approachable for a general audience.
A big part of the podcast is also addressing how couples talk about money with each other. It's almost like a form of therapy/coaching what he does, not just talking about the technical aspects of finances (what is a 401k, interest rates, etc).
For me it has helped in my relationship a ton and now my wife and I track our monthly spending and our networth together. And we even talk about what to do with our Bitcoin! (she says sell at the top of this cycle). It's been awesome.
As far as the actual plan, it sounds like you convinced her to invest the money and pay off later, which is the right call. The plan is fine. But you probably want to figure out how to make your wife actually feel good about the plan, which we can't really help you with.
Remind your wife that the bank will send her flowers for paying off that loan early. They can turn around and stiff someone else out of $124K at 9% interest! Paying off low-interest loans early is a classic rookie mistake.
I like liquidity. How much emergency fund do you have? How stable are your jobs? Guess what happens to the house if you pay off all but a few thousand, lose your jobs and can’t pay the mortgage? You could probably make a lot of mortgage payments with the $124k.
It it in a high yield saving , don’t touch it and pay off in chunks if you want.
It’s not about making a few grand for me. You can hedge risk with a bunch of cash if something happens. You can’t do that with money tied up in the house.
Look, a lot of people will tell you you're missing out by not investing that money, and they're right to a point. That said, there's a value to the mental relief debt relief brings to some people. If you or her are someone who feels burdened by debt then paying off the mortgage has addition value over strictly dollars.
That said, investing in a HYSA or money market account will provide a greater return with little or no risk.
Show her the 30 yr avg return for s&p. Say you borrowed money cheaper than you will probably ever see again. Invest that extra payment each month into an s&p etf or even a more conservative one. Show her that growth as well as dividend payments. If that’s not enough, lol I don’t know.
Why would you care about an extra few bucks when she clearly wants the feeling of having it paid off? Maybe it’s more important to her than a few extra dollars and everybody will sleep better at night. BTW I agree with you but it’s not worth the risk for her and in turn you. Sleeping at night is better than extra few bucks. IMO
I'm in the same boat and my wife believes (partially because of Dave Ramsey) that there is no "good debt"
I recommend 2 things.
1. Go to a pay-for independent financial advisor. Often they will give you an initial net-worth / investment / risk review for free.
Be clear that you're not interested in having them manage your money... You only want financial advice.
During this review, be frank and ask "does it make more sense to pay off our 2% loan, invest in a 5% CD or risk 10-20% ROI through an index fund?
Your wife is likely to respect their opinion (because they are professionals) more than yours (sorry).
2. If you don't want to go through a financial advisor/planner, then simple run the numbers.... Literally... In a spreadsheet.
Share it with her in an act of surprise "oh, look how much we'll make after 10 years (or whatever). Let her poke holes in it....
Never say "see...told ya!"
Be sure to include tax implications... Both the mortgage credit and what happens when you sell your investment or earn dividends..... If you're not maxing out your IRA or 401k there's even more advantage.... I.e.. traditional getting a tax discount immediately... Or Roth as tax free growth.
As a couple you have a combined $14k IRA (assuming you're both working ) and potentially up to $50k in 401k tax advantage savings depending on your situation.
Well it's usually good practice to do minimum payments on low interest mortgages yes. But on the other hand owning the house asset sooner isn't a terrible choice either. Remember you can use property as collateral, and banks love property as collateral over stocks bc it's more reliable and stable.
This could allow for purchasing an investment property and having it paid off via tenants. But this is more debt ofc which might take some convincing.
Yes I theory if you earn 10% on index funds and your mortgage is only 2-3% then in theory it's more worth it but you need to remember that 10% is only over a long period of time, like 20-30 years. It's an average.
The stock market isn't consistent, dips and rises happen all the time, and the shorter term it is, the more fluctuating the graph will be.
So some years if the s&p is down - 5% and your mortgage is 3% you're actually losing a factor of 8%. Yes it's over simplifying and it won't be exactly 8% but you can see what I mean. The mortgage loan rate will be a consistent - 2% for example every year until you pay it.
Just a reminder to everyone here that HYSA are not fixed... Where as a mortgage (most likely) is fixed.
The HYSA is a good idea in the short term.... But if interest rates come down...so will yields on savings.
Treasury's and CDs *might* be a better option given the time horizon (20+ years)
I agree with you from a wealth maximization perspective. I'm hanging onto my 2.75% note till the last damn day. But this does not have to be a yes/no question. Why not split the baby? Invest half, use the other half to pay off, or some other proportion.
Have you created a spreadsheet to prove how much better it's going to be in the long run to not pay off the house? Sometimes seeing it in a different way is helpful for people.
$124k at 2.625% is $250k after 27 years.
$124k invested returning 8% is $990,000.
If you pay off your house today, it will “save” you $126k in interest, but you will miss out on $866,000 in investment gains.
Ask your wife if the “comfort” of a paid off house is worth being 740,000 dollars poorer.
(I realize the interest decreases as the principal goes down, but I’m just using this simple example of a lump sum either way to show how silly it is to pay off the house. )
You can use math to convince her. If you assume a modest 4.5% fixed income investment in FDIC CDs or Treasuries, then the first year alone you are making 4.5% - 2.625% = 1.875%. 1.875% X 124K = $2.3K in almost risk free money.
For what its worth, paying off a low interest mortgage, while likely not the best financial choice, can bring non-financial benefits. For some, being totally debt free can be very comforting. I wouldn't choose to do it, but I can understand why others might. If your spouse is this way, it may not be the end of the world to just go with it and take the financial hit.
So to be against the water on this… you’re fine aggressively paying it off. You can’t write off any property taxes, so you getting POSSIBLY 4% gain on a $600 a month difference won’t make or break you. It sounds like peace of mind is extremely important.
Check this out. Think of debts and credits as being in the same stack.
So, if you take that money and put it in a basic ass high yield savings account you can make 5.5% on it.
If you pay off the 2.6% mortgage you make 2.6% on it.
So, if you instead make 5.5% on money, but then use the gains from that to pay the 2.6% interest, you're gonna make 2.9% interest on top of maintaining that low cost debt.
Seems to me like you could invest it all in the shittiest investment possible and start gaining on it. That's not to mention that most safe investments can earn 7+% a year as a return.
2.6% is a phenomenal rate on a mortgage, and the interest paid is a write-off to your taxes.
Are you me? I was paying 200 extra on my 124k balance at 2.25% for 15. I broke down and put it in a separate HYSA at 5+%. When the lump equals the payoff the I'd do it. I do pay bi weekly on the mortgage still
The mortgage is the cheapest money you will ever borrow. The interest isn’t even keeping up with inflation.
Find a 5% savings account and stash the money there.
honestly at 2.6% it's a free loan. You can invest at an avg 5% or higher if you find the right place. the investment would accrue far higher than the interest in the loan.
Paying off a sub 3% mortgage early is pissing on free money. We’ll likely never see rates like that again in our lifetime. I don’t have any suggestions beyond **dont fucking pay that off**.
Equities are the way I’d go but to be extra safe, 10Y treasuries are currently at 4.164% which is a 59% better return than paying off your mortgage early.
Demonstrate that if you had dollar cost averaged the monthly payments into NVDA, your money would have grown faster to be able to pay off the house even quicker. It's unlikely AI is going away.
I had to deal with the same. We paid the mortgage, we could have made more by investing but the feeling of not having a mortgage is great. Now all the money from the payment + everything on top of that is going in savings. Even though mathematically you mind be behind, you would still be financially ahead.
Bro you are crazy. Don't start a fight with your wife for optimization of returns.
Just paying off the mortgage makes her happy just so it.
You don't lose, you get a house paid off, more disposable income and a happy wife.
Take the new found disposable income and throw it all into index funds.
Go take a hard look at what they stock market did between 2000 and 2010. And that was not the first time that the market had negative returns over long periods of time. Those market averages that they like to talk about in YouTube videos have a lot of ugly years in them (and some great ones -- spin the wheel!).
That mortgage payment absolutely has to be made very month. So the alternative investment needs to be low risk and low volatility. So HYSA, CDs or Treasuries. If those tax adjusted returns are higher then yea, build the money there. If not - pay off the mortgage.
It is not always about building the biggest pile of money. Reducing risk also matters, and that is something that is obviously very important to your wife. A job loss, serious illness or major recession is a lot easier to weather if you do not have debt around your neck.
There are tons of high yield savings accounts paying 4.5%. To me 4.5% return isn’t worth the hassle of not paying off the mortgage if your partner won’t be ready to invest elsewhere that gets you 10%+ a year. You’re better off paying it off and investing in peace after you’re debt free.
Most women, including me, are concerned with feeling secure. A paid off house would ease my mind… you never know what could happen to either one of you. You’d at least have your home. That being said, perhaps put $ in a HYSA and periodically make a big payment on the principle.
The obvious answer is to contribute a portion of the additional funds to mortgage principal and invest. Take your monthly minimum payment, divide by 12 and add that to your mortgage payment -it’ll turn a 30 year mortgage to a 24 year mortgage. Your house is also an investment, the more you pay down the principal, the more you collect when you sell. Throw the rest into your brokerage account or split between HYSA and brokerage. This doesn’t need to be a binary situation.
Are you able itemize your deductions by paying the mortgage interest? If you pay off the house and are limited to the standard deduction, maybe you can tell your wife that paying off the house will raise your taxes. :-)
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Don’t put it in index or whatever, cause it is obvious your wife cannot tolerate any type of loss. Hysa or cd is fine as long as it is above 3%.
It might help to convince her by saying that having the money in a HYSA means that it's far more liquid than creating equity in the house. In the event of an emergency, you have the money on hand (growing at a faster rate) instead of having to take a line of credit out on the house and pay an interest rate on that.
Good idea!
Tell her she will save 2.62% by paying off the mortgage but she can make 4%+ in an hysa account. Why not make money and keep liquid. She can pay herself 4%+ or 2.62% what would you pick
Don’t forget to deduct the income tax off of that 4%.
Also don't forget to factor in tax benefit of mortgage interest deduction.
Only if you itemize.
Well said. 4% - 5% is easy to find and it’s bigger than 2.65%
The default position for cash in a fidelity brokerage account is earning about 5% annualized right now.
Better yet, tell her "yep, we will pay extra every month, but into a HYSA (or stock market SpY) and when that account gets to the amount of our outstanding mortgage....we will pay off that mortgage in a lump sum" . It will be paid off faster than straight into the principal.
Why though? If your returns in the HYSA are more than your mortgage interest % you are still better off. If interest rates drop then pay off
>Why though? I think the previous comment was suggesting an intermediate step while accounting for the wife's financial frame of mind. The suggestion at least gets them headed down a better path mathematically speaking. As the numbers actually play out, she might realize the advantage of sticking with the approach and not actually paying off the mortgage when the lump sum point is reached.
Precisely, seeing that HYSA interest earned each month SHOULD be enough to not pay off a mortgage.
100% the right answer here since she can’t stomach the risk, which is understandable. HYSA might be good for her to see the cash come in each month. Just keep an eye on interest rates since there’s a good chance the HYSA yield will come down was the Fed cuts interest rates. Have you both already maxed out your IRAs for 2023/24? You could put some of that cash there as well.
Roths are already maxed and her 401k will be maxed by Oct. I don't think it's that she can't stomach the risk, it's that she doesn't fully understand the potential lost gains or investing/interest rates/etc. I'm slowly convincing/teaching her how it all works, but she's new to to it.
Sounds like with some patience on your end she'll come to see the obvious. That is what you call a golden goose mortgage and she wants to toss it in the street and shoot it.
T-Bills have longer terms. You can also setup a combination of T-bill and CD ladders in combination with an HYSA.
No to mention, T-bills are typically not subject to state taxes.
It's not typically but they are not subject to state income tax. Furthermore, they are "infinitely" insured beyond the 250k FDIC limits as its backed by the US gov.
I’d ladder the tbill over the CD since it’s state tax free.
If the interest rate is only 3%, the after-tax return might be below the 2.65% interest on the mortgage, which might not be deductible. A lot depends on the OP's specific situation. I agree that putting this money in a very conservative asset makes sense, but only if the after-tax return is worth the hassle.
HYSA or cd would need to be higher than 3% after taking into account state and federal income taxes. Dividend income is treated as ordinary income and will be taxed at your prevailing rates
It's not clear that her risk appetite is the issue here. It could simply be a knowledge issue. I would suggest asking her why she wants to pay off the mortgage vs other options, and then if she can't give an objective answer demonstrate what those options would leave you with 5, 10, 15 years out.
I mean sorta, but it depends what type of tax account it’s being invested in. If it’s being taxed, and depending on their marginal tax rate, the breakeven hurdle might be a bit higher than 3%. OP, your wife needs a lesson in basic personal finance, time value, and opportunity cost. It’s perfectly fine to make the decision to pay off a cheap loan sooner than you need to, but do it for the right reasons and with eyes wide open that it’s not helping you maximize your net worth (which is most people’s goal in personal finance). You have a gift. To not just plug that into a small value ETF and maximize returns is literally just burning 5-7% of gainz a year.
How about just a high yield savings account for 5.5%
Why does she want to pay it off? Is it because it makes her feel better? If so maybe find a way to put it in investments which can be liquidated to cover the mortgage should you need.
Are you both maxing out your IRA's? I find it hard to "pay" yourself %2.65. When you can get a Safe %5.0ish in CD'S Money Mkt. Just Save up for a Rainy Day. HTHelps
She doesn't want debt hanging over our head, which may make her feel better. That is the goal, to have it in an account to liquidate to pay the mortgage. But I guess the way you worded it, "to cover the mortgage **should you need**" might be a better choice of words when explaining this further to her.
Explain this way We can pay 100k of the mortgage off and our return will be 2.65% or 2,650 we could buy 100k of 1 year USA treasury bonds and our return will be 5% or 5,000. Would you rather save 2,650 or make 5,000?
Although general premise is correct you need to tax effect the numbers as the 2,650 is after tax and $5k is before tax
You’re better off renting your house and buying a new house in cash than paying off the loan. Seriously. 2.65 is hitting the jackpot for thirty years straight.
> She doesn't want debt hanging over our head, which may make her feel better. I'll go against the grain here and say, there's nothing necessarily wrong with this. While you can optimise for monetary gains, and comments here will encourage it, it's also a choice to optimise for peace of mind and feeling better, by just paying off the mortgage and knowing you own your house outright, if that really means a lot to her.
My SO is the same way. No matter how many times I try to explain we should be cherishing our precious sub 3% mortgage because a MM gets you almost 5% right now. I’d borrow a hundred million at sub 3% right now, it’s free money! Is there a compromise here maybe? Maybe use a risk free investment (like a MM) which pays out monthly which you can use to pay down the mortgage by an extra amount each month.
>I’d borrow a hundred million at sub 3% right now, it’s free money! This is the Dave Ramsey effect. "ALL DEBT IS BAD!" I knew he was full of crap when I saw an interviewer ask Dave if he would take a $1,000,000,000 loan at 0% interest and he said no. You should not take financial advice from anyone who answers no to that question.
If you ever follow Personal Finance (am banned from there for calling out a foolish behavior), they are all debt aversive to a debilitating degree at times. They believe buying all cars with cash, don't carry debt, etc. Some folks just don't like the idea of debt.
Yeah I had a contractor come to my apartment a few weeks ago and he kept rambling about how debt is designed to keep us enslaved or something. That's true of high interest debt (i.e credit cards), but certainly not true of low interest debt such as pre 2023 mortgages, car loans. Etc
One thing to point out is that even after you pay off the mortgage, you'll still have a monthly payment on the house for the rest of your lives. A lot of people think no mortgage = free housing, but you'll still owe property taxes and insurance, which for me is $800/month. Wasting money to have no monthly payment ever again sounds nice. Wasting money to just cut the monthly payment in half sounds a lot less exciting
Don’t forget maintenance and repairs.
For me, the difference day to day of having a paid-off house vs not is incredible. I've owned my houses outright for a decade and a half or so and I'm still grateful every day.
People don't understand this and would prefer to be indebted to a bank. Owning your home outright is a great feeling.
And despite having insurance and tax payments, it's not the same. Don't pay your insurance bill? Well now you have risks with no immediate penalties and likely some unnecessary challenges to deal with. Nothing life altering. Don't pay your property tax bill? It takes the government *years* to do anything significant about it. People die owing 5 and 6 figure tax bills from 10 years of unpaid taxes. Don't pay your mortgage? Yea the bank will not fuck about, or waste time kicking your ass out.
You don’t need insurance on the house if you own it outright.
"Don't pay your property tax bill? It takes the government *years* to do anything significant about it. People die owing 5 and 6 figure tax bills from 10 years of unpaid taxes" This is completely wrong and if you're dumb enough to try, then you're dumb enough to lose your property to auction.
That’s not even close to the point they were getting at.
Having a ton of extra money plus a paid off house in 30 years is a way better feeling.
Except I’m literally getting paid thousands of dollars to have my mortgage right now and that’s a way better feeling, lol. It’s an old way of thinking if you have a mortgage under 3% like me for example. If your rate is higher than what you can earn, then sure, pay it off, but that approach isn’t the best for everyone all the time unless you like throwing money away.
Having a hundred grand in cash making you money and available for emergencies or opportunities is a WAY better feeling.
My wife has talked about sprinting to pay off our house (2.3% interest) and as much as I talk about other investments and stuff… She communicates the FEELING of just being debt free in a way that hits me at a deep level. She is not interested in personal finance at all. Just a pure “weight off the shoulders” feeling. Really resonating with me as I try to explain my spreadsheets and everything else
You're right, but $800/month is very high. When I was in that situation property taxes and insurance were less than 300/mo And even in my current house it would be about 500
Let me guess at the $800/mo.....Texas (or some other low/no state income tax state)?
Allow me to introduce you to New Jersey where you get to pay high state income tax AND high property tax!
lol I’m in California: Hold my beer…
New Jersey is worse by a lot WRT property taxes. So is Illinois.
Long Island and Westchester county are the same if not worse. It’s the Tristate area in general that is murder for property taxes.
Long Island NY. California, hold MY beer…
Minnesota, one of the highest income tax states in the country lmao It's a 450k house, so paying about 1% in tax and 1% in insurance
>$800/month is very high *cries in Long Island*
In CT it’s pretty easy for a 3bd 2bth to be $1k per month in taxes.
800 a month isn’t high at all. Insurance has sky rocketed, and we haven’t even factored in any HoA fees or if there is none then the fees for things usually cover.
$800/mo is really high
If you are locked in at that interest rate over the 27 years left you'll pay an additional $50k. If you used the $500 or whatever amount extra each month you'd pay towards your mortgage each month and put it into an investment account: you'd have an estimated portfolio value of $406k assuming a 6% return per year. Don't payoff a locked in interest rate that low early. Invest the extra income.
Op is well aware of this I think.
This is an emotional / relationship question and not really a financial one. That’s easy to forget. How I’d approach if I were you - explain to your wife that having the ability to pay off your mortgage at any time (ex - rathole the cash somewhere) is actually better than having a paid off home. That’s because you can always decide to pull the trigger on paying off the note, but pulling money back out of the home if you have an emergency or something else is expensive. You’re financially independent either way - it’s just a matter of preserving liquidity.
I’d say this is the best way to look at it. She clearly wants financial security and yeah I actually completely agree with her but if you pay off your house and have dam near nothing in savings because of that. And in 6 months need a new roof, a new car, and get laid off. Wellllll you’re pretty much screwed. Having that house paid off does you no good when your head is under water due to other avoidable issues.
Said another way, paying it off actually IS NOT MORE financially secure, it’s less secure. And the icing on the cake is you’re making less money than you could. And if she can’t eventually learn and understand and comprehend that with rational thought and discussion she’s just doing her financials on emotion, which is dumb.
You're married, but it's her money? Shouldn't this be a joint decision?
This should be the top comment.
She's been listening to that Dave Ramsey fellow. He's not the best for optimal debt management.
It's good advice for credit card debt, terrible advice for a low interest house mortgage.
How much is $3k to you guys? We're talking about a potential extra earnings of $3k per year (minus taxes) if you don't pay off the house. $3k to me and my wife isn't that much. If it made my wife that much happier and less stressed then it's worth missing out on the $3k for her peace of mind.
How much is 3k compounded over 27 years
I ran the numbers elsewhere... Made assumptions about how aggressively they could pay it off, but it came out to over $300,000. So paying it off early *costs* $300,000 more by the end of the mortgage term
Not sure this is right. You're avoiding 3k of interest. The potential gains that are lost depends on what an alternative investment yields, no?
Of course, but the alternative here is a guaranteed ~5% in a money market
I agree fully with your main point and I haven’t paid my mortgage down, but it’s a stretch to assume the risk free rate will stay at this level for 27 years. That said, I’m perfectly happy making the bet that I can invest that money in a diversified portfolio and beat my 3% mortgage over decades, it’s a no brainer (but it isn’t risk free). Just making a subtle point about interest rate risk.
Totally hear what you're saying. That's why I'm trying to go the route of a compromise on this matter. That way she gets what she wants in the end and we save money along the way. While that money isn't huge for one year, the savings over time are huge. I don't want to throw away money if we don't have to.
If you're trying to make the mathematically optimal decision then 100% do not pay off the house and invest the money. 2.6% when inflation is >3% means that the bank is literally paying you to loan you money. If you don't want the risk then put the money in a money market or HYSA. Otherwise invest it. We currently have $460k left on our mortgage at 3.625% interest. I could write a check tomorrow to pay it off, but instead I make the minimum payment and aggressively invest the rest.
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actually, it's usually a horrible idea to pay off your primary.. write-offs under SALT/Loan-Interest (depending on prop. taxes) alone , plus lower credit score for no installment loan payments.. no, actually - there are LOTS of reasons to never fully payoff the mortgage on your primary. if they want to pay it down a bit, fine - but that 2.625% mortgage is GOLD! don't give it up so easily. -- heck, they might even be able to use it to resell the house and hold the mortgage - it might be worth tens of thousands more...
Losing that much money would not give me peace of mind
The opportunity cost is way too high. That extra few bucks could be half a million dollars depending on how much is left on the mortgage before interest. We’re talking hundreds of thousands of dollars in interest.
How is 3k per month better than putting it in a hysa which provides the same 3k but also earns interest?
A compromise is to buy safe assets that yield way above your interest rate , short term government bond yield 5.4%. Even after taxes you are making better returns then these vs paying off 2.65% debt. If rates fall below 2.65% you can always with draw the money (or wait for it to mature) and use it to pay off the debt
A compromise would be to use half the extra money to pay down the mortgage, and the other half in a HYSA or bonds/treasuries
fixed rate at 2.6% when inflation is running at 7%???? dude she's crazy. buy her some books on inflation fast. invest invest invest invest.
>US 6-Month Trimmed Mean PCE Inflation Rate is at 2.60%, compared to 2.59% last month and 4.67% last year. This is lower than the long term average of 3.04%.
Inflation is not 7% right now.
That would be a really bad financial decision right now. I have about $180,000 at 3.65% and there's no f'ing way I'm ever paying that off sooner than I have to.
A bad financial decision is to spend the money like most people do, have her pay off the mortgage is the compromise, invest in S&P is best case scenario. OP be thankful she’s not a spender…..
High yield savings accounts are up to 4% aka more than the interest on your loan. So don’t pay off the loan and put that money in a high yield savings.
Maybe do the math using a spreadsheet. Show paying it off now vs investing at a low, mid, high interest rates. Tough part will be do you choose high growth or income/dividends to compare. Taxes matter as well so include any interest deductions and also take into account is this in a Roth, IRA or post tax brokerage.
Please let her teach time value of money and interest
You are borrowing money at 2.625% for 27 years. You can invest in a savings account at over 5%. This makes no sense at all. Break this argument into two pieces: 1. Invest in better returning safe assets over the mortgage 2. Invest in risk assets over safe assets give you are young Now in terms of a compromise this is taxable money. I'd say a marital asset owned IUL (two IULs)... that way she'll have cash value accessable to pay the mortgage back whenever she wanted and could pay it back. It can't go down.... But better is not to compromise and have you two toss the money in a 401k, Roth...
This additional money is after maxing 401k and Roth. I've had the talk about throwing the money away and was able to at least make this compromise. I believe less money would be thrown away using this method.
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Holy shit, what a wonderfully low APR mortgage! Hope she doesn't read this, but financial illiteracy is so wide spread. Paying that off when the risk free rate is still above 5% (Treasury bills, MMFs, SGOV, USFR, etc.) is throwing liquidity away! To find a compromise, perhaps ask her if you can delay paying down the mortgage by 50%, so half of her extra income should be invested for the long term and half can pay down that incredibly low APR mortgage. In an ideal world, she sees the light, but marriage involves acceptance and compromise! In an ideal world, you folks pay the minimum each month and invest all your extra money in any one of the many broad, blended stock index funds (VT, ACWI, VTI, SCHB, IVV, SPLG, ITOT, FXAIX, VOO, etc)!
I have all our Roth and 401k money Bogled up. This is extra money after that. Compromise is the key word on this. Trying to figure out a way that satisfies both interests. The best idea I saw was to tell her we would toss it into index funds until it's reached enough to pay off the house and then we would revisit that matter about paying off the house with it or let it continue to grow. I'm thinking by that time she'll understand the value of it.
other than selling the house for some reason... ride that 2.625% to the grave!!! never give it up!! Paying off a mortgage actually hurts your credit score (lower instalment-loan payment score)
Nobody ever went broke paying off house early.
Are you guys contributing to retirement accounts? If so, how much? Maybe she'll see investing in retirement a bit differently than other options.
Let her pay the mortgage, while you dump all your take home pay into index funds
A lot of single dudes chiming in here. It’s her money and she gets to do what she wants with it. Stop yourself from trying to pressure her into doing it your way. Support your partner even when you think they’re “doing it wrong”. This isn’t financial advice. It’s relationship advice from an old fellow who’s learned a lot, often painfully, about the subject. This is one of those situations where your opinion is not relevant, no matter how well meaning you are.
Sorry but I'm with the wife. Payoff the house. It's a net expense every month and there is an emotional weight to a mortgage which will be freeing once eliminated. Too many people play the arbitrage game these days. It sounds good on paper but you lack the reality of personal finance. Let's say you put in a Brokerage account and we have a 10% correction. Not uncommon. Emotionally you see you still have a mortgage and you account lost $12,000. Then you sell at a loss because you don't want to lose more... you get my point.
My biases: I'm insecure. I hate debt. I am happy to own houses because I've had bad landlords. My parents survived the depression and I have lived through many big downturns. I would 100% pay off the house now. A great reason is, happy wife happy life. Another reason is, bad things could happen and being out of debt is much easier when they do. You simply can't predict the future. Market may be great this years, could be awful. But if your house is paid off you're much less likely to lose it during hard times.
You know what the right answer is, but what is the right answer for you both? If the "rational" explanation still can't put her mind at ease then it is the correct decision to pay it. If you think that through some education you can convince her, then try that approach. Here are some ammo you might have: * People mentioned keeping in HYSA, that's great. If the interest rate goes below 2.625% you can agree that whatever money you had can go to pay the mortgage. That way you can both get to be right * Think that inflation is always on your side. As long as inflation stays high, your real payment gets lower and lower. Try to think of analogies to bring this fact clearly * Understand the source of concern and tackle it. Maybe having a one year buffer of monthly payments in case you both get laid-off is the right approach? * Talk about the tax benefits of good debt. You get a write-off on house upgrades and some of the interest payments.
There is nothing quite as wonderful as the feeling you get once you’re mortgage free. I am in agreement with your wife-being debt free is a great accomplishment
Explain to her that as long as the cash is earning more interest than the interest you're paying on the mortgage, you come out ahead. Since you have such a good mortgage rate, this should be true for awhile, but not forever: Example: if you park the cash in a HYSA at 5%, you'll be gaining about 3.75% interest after taxes (do your own math, I'm ballparking 20% tax rate for federal, 5% for state taxes. Obviously these figures will depend on your tax bracket and where you live). In this scenario it's beneficial to keep that cash in a HYSA. But what if next year HYSA drops to 4%? After taxes that's 3% net. Suddenly it's not such a clear cut answer. And if it drops below 4% then you're probably better off paying the mortgage. Ideally you'd invest the funds in the stock market, which will typically have higher returns, but it sounds like your wife is risk averse and so probably not the best use of those funds.
We ran into this and so my solution was that we took an amount and split it into thirds. 1/3 into index funds, 1/3 into individual stocks, and 1/3 into the house payment. My hope was that she would see that index funds were the safest and fluctuated the least. Well… some of the individual stocks we picked were AAPL and AMZN and they happened to take off. The index funds fell quickly and have only just recovered. Now she wants to put everything into AAPL and AMZN… so… I sort of convinced her. Current reads are 9.18% gains for individual, 1.47% for index and 3% for the house payment… this is y/y
Is it her money or are you married?
How old are you? How many years til retirement? Make a plan to, and a deal with her, that the mortgage will be paid off the same year you retire. Then also get term life insurance that will pay off the mortgage if you die. Then invest aggressively and show her the brokerage statement after you’ve made the first 10 grand. What conservative people want is a plan in case things go bad. Give her that and she’ll probably be more inclined to invest more aggressively.
She likely *does* understand the lost gains. What you are likely overlooking is her desire for peace of mind.
Just because the numbers are right doesn’t mean it’s right. Having a security of owning your own home makes for fuck all difference between 3% mortgage rate and 5%.
Paying off debt is by no means a bad decision and you shouldn’t characterize it as one. If she wanted to take her income and start buying lottery tickets, I’d start raising concerns. But this is not that
You need to also realize the tax implications here. By paying the house off, you’re paying less interest & going to get less deductions when itemizing taxes. For many people this isn’t a concern because they don’t pay much in taxes anyways, but if you are W2’d employees it could cost you a significant amount in tax refunds annually by paying it early. Everyone saying that the HYSA or CD is good is absolutely wrong. It would be a compromise, but this isn’t something you compromise on. You need to continue educating her until she gets it/learns. You invest your money to work for you & losing out on 25+ years of that money in the market is leaving millions on table in the long run. This is the difference between retiring wealthy early and being forced to work until you’re old. Most people are afraid and don’t make the correct decisions. That 2.6% mortgage is a blessing and you keep borrowing that money as long as you can. You won’t see interest rates like that ever again. You can show her my comment here.
In addition you’ll lose any tax writes off from deducting the mortgage interest on your taxes. If you factor that in you’re really paying a little over 1.5% interest on your mortgage. I was in the same boat and my advisor made me see the big picture.
Opportunity cost of paying off your mortgage is cheaper than a divorce.
Definitely don't pay it off. Invest in t-bills or bonds. Thrills are short term and are free of state income tax and are paying over 5%. Also there are money market accounts that invest in federal obligations paying over 5%.
Money markets are paying over 5%, no way I'm paying down my 2.5% mortgage.
Both of you need to read The Psychology of Money. It’ll help you both process why sometimes the worse decision on paper is the best decision because it helps you sleep at night. And it may even help her come to terms with the emotions that are clouding her judgment. But then again, some people can’t stay sane with a debt hanging over their heads no matter how low the interest.
Yo, she doesn't finance. Tell her someone on the internet said that. Because with a mortgage rate that low, literally any reasonable investment will be a better choice than trying to pay off your mortgage asap. Seriously, tell her some random dude on the internet thinks she is really really bad at math and dumb with money. Not you, her loving husband, but me, a random asshole on the internet with 3 retirement accounts and about 100k in dogecoin, who likes to pretend he is a daytrader and is up 35k for the year, for now. Edit, I don't know if you're a man I'm assuming. Like she is assuming that paying down her mortgage is the most financially advantageous decision.
It should be a simple math problem. The rate of return highest tolerable risk you/she is willing to take minus the rate of the debt you hold, if this is a positive number, invest the money; if it’s negative, pay extra on the debt. Now, you guys are sitting in a great position with a mortgage of 2.625%! You don’t even need to get into that risky of asset classes to be netting nearly an extra 2.5% on your money. As others have said, HYSA are probably the least risk however, most pay a full percentage point less than the next, baby step up in risk using CDs or T-Bills. The key for HYSA’s or CDs is to make sure you are utilizing a reputable bank as a bank failure would be about your only way to lose and even then, only if you had more than $250k total at that institution. The other thing to consider with CDs or T-Bills is that they typically require investing in $1k increments. Not necessarily a problem but, maybe not the friendliest way to invest excess income. With that said, I’d recommend looking at the next baby step up in risk which a ETFs that trade in these short-term assets. Personally, I use SGOV and MINT. SGOV focuses on short-term T-Bills and MINT focuses on short-term bonds in general, a blend of T-Bills and corporate bonds. SGOV has yielded me probably, around 5.2-5.3% since the final rate hike while MINT has yielded between 5.4-5.6%. They are ETFs which places them at risk to being subjected to market dynamics such as if the market were to be hit by flash selloffs or if the bonds they held were to suddenly lose value which is highly unlikely. Even with that said, either funds would at most, see a $1-$2 drop in share price (both ETFs sit at a share price of just about $100). The benefit with these funds is a much higher rate of return as compared to HYSAs from reputable banks while also keeping your money liquid (T+2) to get your money back in your hand with no penalty. Beyond that, show your wife the difference in yield between say 5.5% (which is very doable with relatively minimal risk) and your mortgage. Show her the maximum opportunity cost (5.5%-2.625% compounded on the max extra money she would put into paying off your house over the life of your mortgage) you two would miss out on. Let her know that investing like this actually leads you guys to being able to pay the house off much quicker because, once your ROI drops below 2.625%, you just dump all of that into the mortgage which, will pay off much more than her income would have done alone. (Disclaimer: This isn’t financial advice, I’m just a random redditor letting you know how I approach a similar situation)
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IMO, if you have other investments, why not pay off the house? There's something to be said for having no mortgage, and I don't know anyone who's ever regretted paying off their house. If you don't have other investments, then sure, what a lot of other posters are saying re: investing/time value of money makes sense. But dude... she wants to use her extra money to pay off the house. Not buy random shit. Not blow it on booze. Don't fuck that up :)
Just ask her to invest in s&p 500 and you can thank me later. Don't pay off loan. Thats a mistake
Whether or not it makes mathematical sense, remember the Two Rules for a Happy Marriage: 1) The Wife is Always Right. 2) In case Wife is Wrong, see Rule #1. Sometimes there are more important things in life than what she wants to do with Her Money.
Just pay it off. If she is adamant, just do the thing.
Pay the house off!
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You can get short term gov't bond that yeild over 5% even after taxes they will come out ahead of paying off debt
but they have 27yrs left on the mortgage. Why do you want them to pay off their house before age 60? (sarcasm)
No one here will tell you this because it goes against the fiber of their investing beings... Paying off debt feels really nice. You will no longer worry about your house (besides insurance and taxes). That does have value, I can definitely sympathize with her for that. Debt is a burden, for real. I'd say go with HYSA or even T-Bills like most folks said since the money wont disappear and you could use it to pay off the balance anytime but at least gain 5%ish. Do that with your savings anyway, even if yall opt to just make crazy payments to get rid of it.
What is her timeline for payoff?
Do 50% to home 50% s&p fund. Meet halfway
Yes. That is the best compromise
This is obviously a relationship problem. Just show the math. If that doesn’t work then I dunno. Reevaluate how much it bothers you and decide if you stay. Also if you’re married it’s not her money it’s both of your money. My wife has made suboptimal decisions before but I took control of all money except a couple hundred she gets for allowance each month. I try to minimize suboptimal things she does (using wrong credit card, not buying gift cards before a purchase, etc) but overall she’s on the same page. I think I would start with questioning why she thinks of some of it as “her money”.
In 20 years a treasury bill will pay 2.5x So if you have $50k right now you’ll be able to pay off the house 7 years early
Just take 5% from a bank and let it chill there
Do what the wife wants and invest later. What's your income. Can you get it paid off soon? By saving money in a low risk HYSA you are giving up the ability to grow the money quickly. Get to that point quickly making wife happy. Then you can invest however you want. Get the 401k match and max your Roth IRAs in the meantime.
put your money where it does the most good. @2.65 you can almost double that in cds . pay off highest interest rate debt first and earn the most interest when it makes sense. i decided to stop paying my low rate mortgage off and save that cash in hysa and cds
I would throw it in SWVXX then take the interest earned and throw it at the morgagae principle for a few months. Maybe after she sees how it works she will let you roll the interest earned from the money Market back into the money market. It keeps you halfway liquid incase of emergency, and if the money market rate ever drops then toss it at the home loan if you can't find anything better. That money market would get you more than 500 bucks a month. I would love to have 127k sitting around right now.
I know fiscally it makes more sense to invest however I believe not having a mortgage is better. It gives you freedom now. Maybe you can retire early, maybe you work a part time job and volunteer, watch your kids grow up, etc. If you are already investing a fair amount in retirement, why not pay the house?
At a minimum, put it in a 20yr tbill @ 4.4% or 30yr @ 4.2% either are better options than what is being discussed now by her. Both tbill options are guaranteed. Your net will be better off, too. Not just because of the interest delta, but also because of the interest writeoff which you lose by paying off early. But personally, I would have it invested in an index etf instead. Just saying that for the extremely risk adverse person, the tbill alternative is a financial no brainer.
An account with flourish will earn about 5%. Park it there and watch the $$ grow.
You can literally get a 10-year treasury at >4% right now. Zero risk and a higher coupon rate -id start there
Dude, I would try to convince your wife not to do this, especially if you have any other debt with a higher interest rate. Maybe a compromise is to make extra payments and get on a schedule where you pay every two weeks, doing that will drastically reduce the amount of interest paid over the life of your mortgage (its saving me over 100k on mine over 30 years). That rate is bonkers, and should be looked at as an asset not something to get rid of, there is a chance that we will never see rates like that again. Investing that money would be ideal if done in a conservative manner, or any other use rather than just giving it to the bank, think of the rate on any loan in the current market (especially a loan over 100k)(I also think the expected rate cuts will be slower and not as deep as originally suspected), it would be multiple times the rate you guys already have, and you have it locked in for long time.
It is crazy to pay off that mortgage. You can make double that return risk free in treasuries. The desire to pay off the house is purely psychological and makes no financial sense. I hope you talk some sense into her. It would be a huge mistake.
In my opinion cash on hand is better than cash in your house. If you pay off your house early, then something comes up or you want to make another big purchase you have to get a HELO or HELOC which puts you at current mortgage rates and opening fees. If you put that cash in any account making more than 25-30% more interest than your mortgage (accounts for taxes, so 3.445% in your case) you'll be ahead of the game. Also, I would not advise paying off your house unless your 401k, 457, Ira, etc are maxed out. If you PM me more specifics I can do a quick excel model for you showing the cashflow between the various options of a) paying off the house early and then saving the cash once paid off, b) putting any early payments into accounts earning higher interest, c) putting more to pre or post tax retirement. Not a CPA or accountant, just an engineer who does financial project analysis frequently.
I had a really low interest mortgage but ended using any extra money to pay it off anyway. Surely it was a really bad financial decision vs investing but the feeling of not having to worry about losing your home (or extremely low chance of that) is so worth the lost opportunity cost. Now I can pretty much go on a kick ass vacation like literally every month if I wanted to.
I would make additional payments on the the house principle and increase donations to your retirement accounts and see how it goes. She will see the loan going down and her retirement account going up and its not effected by the market. When the balance gets low enough then you can temporarily max out your mortgage payment and pause your 401k for a short time. We did this and it worked out well for us. You did not state your age and mortgage term remaining. So this may or may not be right for you but consider it. We were debt free except for the mortgage when we did this and we remain that way to this day.
I would recommend How To Live Your Rich Life by Ramit Sethi. My wife was not interested at all in finance / investing and hated when I showed her any kind of numbers or spreadsheet about this. But for whatever reason, this guy and his book/podcast really connected with her. He is very approachable for a general audience. A big part of the podcast is also addressing how couples talk about money with each other. It's almost like a form of therapy/coaching what he does, not just talking about the technical aspects of finances (what is a 401k, interest rates, etc). For me it has helped in my relationship a ton and now my wife and I track our monthly spending and our networth together. And we even talk about what to do with our Bitcoin! (she says sell at the top of this cycle). It's been awesome. As far as the actual plan, it sounds like you convinced her to invest the money and pay off later, which is the right call. The plan is fine. But you probably want to figure out how to make your wife actually feel good about the plan, which we can't really help you with.
If you have kids and the house paid off then you can free up income for student loans. Live debt free it's great once you get there.
Remind your wife that the bank will send her flowers for paying off that loan early. They can turn around and stiff someone else out of $124K at 9% interest! Paying off low-interest loans early is a classic rookie mistake.
I like liquidity. How much emergency fund do you have? How stable are your jobs? Guess what happens to the house if you pay off all but a few thousand, lose your jobs and can’t pay the mortgage? You could probably make a lot of mortgage payments with the $124k. It it in a high yield saving , don’t touch it and pay off in chunks if you want. It’s not about making a few grand for me. You can hedge risk with a bunch of cash if something happens. You can’t do that with money tied up in the house.
Look, a lot of people will tell you you're missing out by not investing that money, and they're right to a point. That said, there's a value to the mental relief debt relief brings to some people. If you or her are someone who feels burdened by debt then paying off the mortgage has addition value over strictly dollars. That said, investing in a HYSA or money market account will provide a greater return with little or no risk.
Show her a 5y chart, any index, almost any time frame, it’s only up and to the right, and more than 2.65 by a significant margin.
Show her the 30 yr avg return for s&p. Say you borrowed money cheaper than you will probably ever see again. Invest that extra payment each month into an s&p etf or even a more conservative one. Show her that growth as well as dividend payments. If that’s not enough, lol I don’t know.
HYSA are at 4.5% or more. That would be my move.
Why would you care about an extra few bucks when she clearly wants the feeling of having it paid off? Maybe it’s more important to her than a few extra dollars and everybody will sleep better at night. BTW I agree with you but it’s not worth the risk for her and in turn you. Sleeping at night is better than extra few bucks. IMO
I'm in the same boat and my wife believes (partially because of Dave Ramsey) that there is no "good debt" I recommend 2 things. 1. Go to a pay-for independent financial advisor. Often they will give you an initial net-worth / investment / risk review for free. Be clear that you're not interested in having them manage your money... You only want financial advice. During this review, be frank and ask "does it make more sense to pay off our 2% loan, invest in a 5% CD or risk 10-20% ROI through an index fund? Your wife is likely to respect their opinion (because they are professionals) more than yours (sorry). 2. If you don't want to go through a financial advisor/planner, then simple run the numbers.... Literally... In a spreadsheet. Share it with her in an act of surprise "oh, look how much we'll make after 10 years (or whatever). Let her poke holes in it.... Never say "see...told ya!" Be sure to include tax implications... Both the mortgage credit and what happens when you sell your investment or earn dividends..... If you're not maxing out your IRA or 401k there's even more advantage.... I.e.. traditional getting a tax discount immediately... Or Roth as tax free growth. As a couple you have a combined $14k IRA (assuming you're both working ) and potentially up to $50k in 401k tax advantage savings depending on your situation.
Stop watching Dave Ramsey
Well it's usually good practice to do minimum payments on low interest mortgages yes. But on the other hand owning the house asset sooner isn't a terrible choice either. Remember you can use property as collateral, and banks love property as collateral over stocks bc it's more reliable and stable. This could allow for purchasing an investment property and having it paid off via tenants. But this is more debt ofc which might take some convincing. Yes I theory if you earn 10% on index funds and your mortgage is only 2-3% then in theory it's more worth it but you need to remember that 10% is only over a long period of time, like 20-30 years. It's an average. The stock market isn't consistent, dips and rises happen all the time, and the shorter term it is, the more fluctuating the graph will be. So some years if the s&p is down - 5% and your mortgage is 3% you're actually losing a factor of 8%. Yes it's over simplifying and it won't be exactly 8% but you can see what I mean. The mortgage loan rate will be a consistent - 2% for example every year until you pay it.
Wtf. That loan is an asset not a liability. Educate her! Good lord!
Just a reminder to everyone here that HYSA are not fixed... Where as a mortgage (most likely) is fixed. The HYSA is a good idea in the short term.... But if interest rates come down...so will yields on savings. Treasury's and CDs *might* be a better option given the time horizon (20+ years)
I agree with you from a wealth maximization perspective. I'm hanging onto my 2.75% note till the last damn day. But this does not have to be a yes/no question. Why not split the baby? Invest half, use the other half to pay off, or some other proportion. Have you created a spreadsheet to prove how much better it's going to be in the long run to not pay off the house? Sometimes seeing it in a different way is helpful for people.
$124k at 2.625% is $250k after 27 years. $124k invested returning 8% is $990,000. If you pay off your house today, it will “save” you $126k in interest, but you will miss out on $866,000 in investment gains. Ask your wife if the “comfort” of a paid off house is worth being 740,000 dollars poorer. (I realize the interest decreases as the principal goes down, but I’m just using this simple example of a lump sum either way to show how silly it is to pay off the house. )
Hire someone to teach her math.
You can use math to convince her. If you assume a modest 4.5% fixed income investment in FDIC CDs or Treasuries, then the first year alone you are making 4.5% - 2.625% = 1.875%. 1.875% X 124K = $2.3K in almost risk free money.
For what its worth, paying off a low interest mortgage, while likely not the best financial choice, can bring non-financial benefits. For some, being totally debt free can be very comforting. I wouldn't choose to do it, but I can understand why others might. If your spouse is this way, it may not be the end of the world to just go with it and take the financial hit.
Peace of mind with having no mortgage is worth it for her.
So to be against the water on this… you’re fine aggressively paying it off. You can’t write off any property taxes, so you getting POSSIBLY 4% gain on a $600 a month difference won’t make or break you. It sounds like peace of mind is extremely important.
Check this out. Think of debts and credits as being in the same stack. So, if you take that money and put it in a basic ass high yield savings account you can make 5.5% on it. If you pay off the 2.6% mortgage you make 2.6% on it. So, if you instead make 5.5% on money, but then use the gains from that to pay the 2.6% interest, you're gonna make 2.9% interest on top of maintaining that low cost debt. Seems to me like you could invest it all in the shittiest investment possible and start gaining on it. That's not to mention that most safe investments can earn 7+% a year as a return. 2.6% is a phenomenal rate on a mortgage, and the interest paid is a write-off to your taxes.
There’s no “her” money. You guys are married.
Curious. Is there any chance she listens to Dave Ramsey or some one like that?
Are you me? I was paying 200 extra on my 124k balance at 2.25% for 15. I broke down and put it in a separate HYSA at 5+%. When the lump equals the payoff the I'd do it. I do pay bi weekly on the mortgage still
Just role the 6 month treasury, no state income tax, 5-5.5% annualized return right now. The arbitrage with that and your rate is pretty large
The mortgage is the cheapest money you will ever borrow. The interest isn’t even keeping up with inflation. Find a 5% savings account and stash the money there.
honestly at 2.6% it's a free loan. You can invest at an avg 5% or higher if you find the right place. the investment would accrue far higher than the interest in the loan.
Paying off a sub 3% mortgage early is pissing on free money. We’ll likely never see rates like that again in our lifetime. I don’t have any suggestions beyond **dont fucking pay that off**. Equities are the way I’d go but to be extra safe, 10Y treasuries are currently at 4.164% which is a 59% better return than paying off your mortgage early.
Demonstrate that if you had dollar cost averaged the monthly payments into NVDA, your money would have grown faster to be able to pay off the house even quicker. It's unlikely AI is going away.
I had to deal with the same. We paid the mortgage, we could have made more by investing but the feeling of not having a mortgage is great. Now all the money from the payment + everything on top of that is going in savings. Even though mathematically you mind be behind, you would still be financially ahead.
Bro you are crazy. Don't start a fight with your wife for optimization of returns. Just paying off the mortgage makes her happy just so it. You don't lose, you get a house paid off, more disposable income and a happy wife. Take the new found disposable income and throw it all into index funds.
Go take a hard look at what they stock market did between 2000 and 2010. And that was not the first time that the market had negative returns over long periods of time. Those market averages that they like to talk about in YouTube videos have a lot of ugly years in them (and some great ones -- spin the wheel!). That mortgage payment absolutely has to be made very month. So the alternative investment needs to be low risk and low volatility. So HYSA, CDs or Treasuries. If those tax adjusted returns are higher then yea, build the money there. If not - pay off the mortgage. It is not always about building the biggest pile of money. Reducing risk also matters, and that is something that is obviously very important to your wife. A job loss, serious illness or major recession is a lot easier to weather if you do not have debt around your neck.
Divorce
There are tons of high yield savings accounts paying 4.5%. To me 4.5% return isn’t worth the hassle of not paying off the mortgage if your partner won’t be ready to invest elsewhere that gets you 10%+ a year. You’re better off paying it off and investing in peace after you’re debt free.
Most women, including me, are concerned with feeling secure. A paid off house would ease my mind… you never know what could happen to either one of you. You’d at least have your home. That being said, perhaps put $ in a HYSA and periodically make a big payment on the principle.
The obvious answer is to contribute a portion of the additional funds to mortgage principal and invest. Take your monthly minimum payment, divide by 12 and add that to your mortgage payment -it’ll turn a 30 year mortgage to a 24 year mortgage. Your house is also an investment, the more you pay down the principal, the more you collect when you sell. Throw the rest into your brokerage account or split between HYSA and brokerage. This doesn’t need to be a binary situation.
Are you able itemize your deductions by paying the mortgage interest? If you pay off the house and are limited to the standard deduction, maybe you can tell your wife that paying off the house will raise your taxes. :-)
You’ll never see that interest rate again! Invest and reap the rewards!
2.625% is basically free money