Personal Finance Question

Your money in savings is likely making close to 0%. Your mortgage is costing you presumably 3-4% irregardless of the PMI. Putting your savings towards the mortgage principal is the equivalent of that money making 3-4% instead of 0%. Plus you could lower the principal enough to save the PMI.

I do not believe that you are Euclid. Even recognizing Euclid's lack of mathematical creativity, he would not have any difficulty with this problem.

Plain vanilla savings is a good place to keep a pad for just in case. Maybe $10,000?

Pay down the mortgage. That is first.

The annual limit on paying into a 401k is too low. As soon as you get that mortgage chopped down, start saving way beyond a 401k.

I'm a yield investor with some apprecitation in mutual funds. Vanguard is generally a fair deal. Do not be tempted to stock pick or worse with savings. There is enough to learn to choose decent mutual funds.

Understand that investing is not insured. You could lose most or all that you put in. Plenty of stories of people having to unretire after losses.

Pay down that house and get busy saving.

I'd like to piggy back off this question.

Let's say you have 0 unsecured debt, you just have basic utility bills and a mortgage.

How do you determine how much of your salary you put into retirement, savings, and personal/everday spending?

litterbug wrote:

I'd like to piggy back off this question.

Let's say you have 0 unsecured debt, you just have basic utility bills and a mortgage.

How do you determine how much of your salary you put into retirement, savings, and personal/everday spending?

There is not a right or wrong, you have to decide what's important to you. Personally, I'd save enough to maximize tax breaks available as a starting point (if that is possible on your salary), but I also prefer to enjoy life rather than save to retire at the earliest possible moment.

Euclid wrote:

Is there an obvious place to put some of that money? What's your reasoning?

I agree with the other poster that paying down your mortgage is your best investment here. If you get rid of the PMI you are going to earn 4 or 5% on that investment risk-free. There are other investments with same or better expected returns, but they entail risk. Make sure you keep enough cash on hand for emergencies though.

A lot of this for me depends on what the interest rate on your mortgage is. If it's high, you might be better refinancing, particularly if a new appraisal will get you closer to 20% equity.

Thanks for all the insight everyone!

Mortgage rate is 4.125%...

Another thought...though I recommend paying down the mortgage, another poster wisely pointed out the importance of keeping some available cash. But this doesn't have to be in a savings account. You have a Roth IRA, so keep your cash there. The rules allow you to withdraw contributions penalty free at any time. The return on that money will likely be greater than if it were in a typical bank savings account, CD, or money market fund. The only drawback is that it could take 2-3 days to get your money from the Roth.

Financial guru wrote:

Your money in savings is likely making close to 0%. Your mortgage is costing you presumably 3-4% irregardless of the PMI. Putting your savings towards the mortgage principal is the equivalent of that money making 3-4% instead of 0%. Plus you could lower the principal enough to save the PMI.

Irregardless?

Nice.

Thanks.

Origin: probably blend of irrespective and regardless.

First use: circa 1912

Usage: Irregardless originated in dialectal American speech in the early 20th century. Its fairly widespread use in speech called it to the attention of usage commentators as early as 1927. The most frequently repeated remark about it is that “there is no such word.” There is such a word, however. It is still used primarily in speech, although it can be found from time to time in edited prose.

Financial guru wrote:

Thanks.

Origin: probably blend of irrespective and regardless.

First use: circa 1912

Usage: Irregardless originated in dialectal American speech in the early 20th century. Its fairly widespread use in speech called it to the attention of usage commentators as early as 1927. The most frequently repeated remark about it is that “there is no such word.” There is such a word, however. It is still used primarily in speech, although it can be found from time to time in edited prose.

Any word can be used by any one to mean any thing. That is the beauty and bane of the English language.

Your choice of words and their usage is what makes you sound like an idiot.

Next time use 'regardless' and you will sound less like an idiot.

YOu sound like an idiot for correcting someone's use of acceptable English.

How much cash would it take to pay the mortgage down to get rid of the PMI payment?

I get the whole "pay the mortgage and it's like you're making 4%" claim, but at your age, I would be socking money into retirement instead of paying the mortgage down. Mortgage interest is simple interest, investments will compound. Look at it this way: $1,000 stuck into into an investment at 6% will be worth over $10,000 when you retire in 40 years. At 8%, it's over $21,000 -- and that's if you add nothing to the principal. That's way more value than knocking out $1,000 at 4% today - $40.

If you were 55 years old and had a huge mortgage hanging over your head, I'd feel differently because your time until retirement doesn't give you the same compounding power as the 40 years you have now does.

Larry nails a number of important points. Age is important here and so is compounding, as is mortgage interest deductions, which you should not be in a hurry to get rid of. Add the fact that the long-term return in equities is 8-10% and the opportunity cost of paying off a mortgage instead of investing equities is huge. Stocks have more than tripled in the past six years. By paying off a 4+% mortgage you would be in your 100s before you could match that return.

Larry nails a number of important points. Age is important here and so is compounding, as is mortgage interest deductions, which you should not be in a hurry to get rid of. Add the fact that the long-term return in equities is 8-10% and the opportunity cost of paying off a mortgage instead of investing equities is huge. Stocks have more than tripled in the past six years. By paying off a 4+% mortgage you would be in your 100s before you could match that return.

Hoe much do you pay for that mortgage interest deduction? It ain't free.

"Regardless" means without regard. "Irregardless" is a double negative. It actually means the opposite of what you're trying to convey.

Larry Liberal wrote:

How much cash would it take to pay the mortgage down to get rid of the PMI payment?

I get the whole "pay the mortgage and it's like you're making 4%" claim, but at your age, I would be socking money into retirement instead of paying the mortgage down. Mortgage interest is simple interest, investments will compound. Look at it this way: $1,000 stuck into into an investment at 6% will be worth over $10,000 when you retire in 40 years. At 8%, it's over $21,000 -- and that's if you add nothing to the principal. That's way more value than knocking out $1,000 at 4% today - $40.

If you were 55 years old and had a huge mortgage hanging over your head, I'd feel differently because your time until retirement doesn't give you the same compounding power as the 40 years you have now does.

Logic behind bolded sentence is so bad that it does not even rise up to the level of being wrong.

Not even wrong.

"Quite recently, a friend showed him the paper of a young physicist which he suspected was not of great value but on which he wanted Pauli’s views. Pauli remarked sadly ‘It is not even wrong.’"