401k or pay off mortgage?

Question

I just bought a house and I'm trying to pay it off in 3 years. I'm 30 years old. Now, with the extra cash I have should I put it towards the principal and pay off the house later or start puting money in the 401k plan (currently I'm not participating in the plan)

Answer 1

put it in the principal....that way your mortagage payments would be low and you can pay more that due to pay off your home quickly....you have a lot of time to retire so make use of the money now and pay it off in a few years...then.....SAVE.....have fun

Answer 2

You need both are very important in your life.Try this put half the money towards your mortgage and the other part towards your 401k.Listen be careful where 401 k is being invest in ok the US & other countries are not in the same boat as far financial health goes.Most other nations around the world donot have same burdens so other opportunity to look at but know what you are buy into.Do your homework it your money if don't look out for it who will.

Good luck,

Adam

Answer 3

I like your thinking here, but you need to sit down and understand the consequences of your actions.  I like the idea of paying off the mortgage early.  The sooner you own it free and clear the better and this asset will be bigger than any 401k you have, but how have your tax returns been?  Once this is paid off, you lose the interest write off so be prepared for that. Are you married, kids, these factors need to be taken in. Even if you pay the mortgage off in 5 years, you'll be 35 have have a tremendous asset for retirement.  Honestly, I would knock this down to where you have about a year left on payments and then I would start looking at rates and see where you are.  I would consider a cash out refi to about 50-60% ltv (no more)  and put the cash into an ira, amortize the loan over 10-15 years, have an ira growning and a home paid off by the time your 50, hope this helps

Answer 4

Pay off mortgage

Answer 5

I would NOT pay off the mortgage.  The interest is a major tax write off.  You generally have 30 years to pay off a house, but once you are retired, that's it.  Therefore, invest in your 401K.

However, feel free to pay a little extra each month toward your mortgage.  Just don't pay it off in three years.

I wanted to pay off our house early and we consulted a financial advisor, who told us what I wrote above.

Answer 6

if your employers matches 401k contributions, u should put in enuf to get the maximum match. otherwise that's like forgoing extra pay. why do u need to pay off your house so soon? mortgage pmts give u a deduction for the interest. if the house needs a new roof or a new furnace, it might $10,000 or more--do you have enough set aside for that??why not put some extra cash in a roth ira so you can earn investment income and still be able to pull some out if you have an emergency?

Answer 7

You are going to have to sit down and figure out which will help you more.  If the interest on the mortgage is higher than the employer 401k match then pay the mortgage.                     If the employer match will net you more money then go with the 401k.

Answer 8

1. max out the 401K. 2. Then pay the mortgage twice a month. Whatever you pay for one month, pay half of it twice a month... this will lessen the accruing interest by thousands by the time it is paid off. You may find in later years that you want to sell the house and you will profit off it regardless, however you will never deposit into the 401 anymore than your work allows you plus it is gaining interest.

Answer 9

I would put some of it on the principal of the house and put the rest of it in the 401k.  You are 30 years old and have many years to pay off the house, but most importantly you need to consider your retirement.  there is a possibility that there will be no more social security in the future for our generation so prepare now so that you dont have to worry then.

Answer 10

If the company matches I would put in enough to take full advantage of it.  The 401k doesn't get taxed and the mortgage is a tax right off so that's kinda a wash.  To be honest I would dived your funds and work on both.

Answer 11

Pay off the mortgage.  Here is something you can do for yourself and you will see why this may be better for you.  Pay your mortgage and file your taxes for 2008 in 2009.  You will probably be able to complete a Schedule A (itemized deductions) when you do your federal taxes.  Then after you file your taxes take some blank tax forms and pretend your house is pay off.  More than likely your mortgage company will get a lot more money than you paying the IRS if you owe additional taxes.  Many Americans think that being able to itemized their deductions is a great deal but I think it is legalized stealing for the mortgage companies.

Answer 12

You should get a financial advisor before you do anything.

Here are some considerations:

If your 401K matches, down the road when you pull it out, they will have at least paid your tax consequence, so you may want to invest at least that much in the 401k.

Your home interest is tax deductible, so if you are earning a lot and in a high tax bracket, do not pay your home off early.  If you are paying 33% state/fed tax, for every $300 you pay in interest, you deduct $100 in taxes.

I believe the safest thing to do is pay yourself the mortgage payments that you have been thinking about paying to the bank.  

So lets say you are buying a house for $100K w/20% down, financing $80K at 6%.  Your 30 year amortized payment inc. tax/ins woudl be $610.  Pay that to the mortgage company.  

Lets say your 401k matched $1000 a month so you'd deposit that in the 401k.  

Now if you were going to pay the house off in 3 years, your payment would be $2,434.  

So $2434-1610 = $824/mo into an investment account every month for 3 years = $29,664 +

401k: ($1000+ $1000) x 36 = $86,400

So you'd have $116,064.  These numbers do not take into account the interest your money would be earning, but you would control 45% more than you owed on the mortgage, a lot of it liquid.  

In my book, the $116,064 in these accounts is better than being buried in the walls of your house.  Equity is not liquid, and does not pay you interest every month.

You can safely invest your "extra payments" where you can earn an aggressive rate of return without risking the principal, and even access it tax exempt at any age.

Answer 13

401K

Answer 14

I would put the money into your 401K because then you can take advantage of the interest deduction on your taxes...I guess it depends on your situation but your house is going to always appreciate and its nice to have extra money to put away in your 401K...