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Contributor

My wife just got a part time job and will be adding 285 extra on the mortgage each month. 

Should we add the extra money on the mortgage each monh to pay the home off early 

Or should we put in into our retirement account 

3 REPLIES

Dear madmoney23,

Congratulations to your wife on her new job, and to you both for talking steps to save or pay off your home. Your question can be answered in depth my one of our financial planners who can be reached at 800-771-9960, They will be able to take an in depth look at your finances and make a recommendation based on your personal situation! Please keep us updated on what you decide is best! Good luck!

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I agree strongly that you should also consult with a financial representative.  Some questions that may be helpful to be prepared for a productive conversation --

 

1a) How close to retirement are you?

1b) How well situated is your retirement portfolio without the extra $285 and compounding?

1c) Try to quantify how your retirement portfolio will grow with the extra $285 and then compounding growth.

1d) Will it reduce significant stress for you both to be pushing these extra funds into your retirement?

 

2a) How likely are you to stay in your currently-mortgaged home?  Planning to relocate, downsize, upsize?

2b) If you expect that you will be selling this home, how much equity do you have already into the home or are you underwater on your mortgage?

2c) How much faster will the mortgage be paid off with the extra $285? 

[If it's a relative short period, your loss from compounding growth is minimized if you choose to pay debt over investing.]

2d) Will it reduce significant stress for you both to be free of this debt?

 

3) Is your mortgage interest rate and its loan balance comparable to a reasonable rate of return on your current retirement portfolio?  In other words, does it cost you the same(-ish) to owe on this loan as you would be earning in investing?

[that can be difficult to quantify -- your cost is the mortgage interest if you choose to invest, and the loss of your investment growth from compounding and infusions of the $285 by choosing to pay off debt]

 

Tax implications (not a comprehensive list, as I am not an expert)

4) How reliant are you on the mortgage interest deduction? 

5) Depending on how your retirement portfolio is structured, how close are you to any annual maximum contributions?

6a) What kind of tax credits/deductions will you receive, depending on how you invest the additional $285?

6b) Also depending on how you invest the $285, what additional tax might be incurred?

7) Have you also taken into budget/consideration the additional taxes to be paid on these additional wages?

 

8) Is splitting the extra $285 between the two "needs" a compromise you and your wife would be happiest with? [personally, I would prefer to focus my extra income rather than diluting its impact.  But if one partner is stressing over debt and the other is stressing over nest egg, this option might be good to consider]

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EEE3, thank you for this helpful input!