Restacking the loan means they just recalculate the monthly payment after paying a lump some. Term stays the same but monthly P&I payment would drop accordingly. Currently it’s about $1830 if I pay off $100k it would drop to about $1100 per month
Even with the 401K, consider contributing to a ROTH IRA.
Money from a home sale cannot be contributed to a retirement account. But there is nothing stopping from using that money to maximize his 401k and Roth contributions.
If he is contributing to a 401k at work there should be a Roth 401k option ... all employers should allow this unless but they may not; usually because they are unaware the option exists. The contribution limits for a Roth 401k are $20,500 for 2020. And $6000 for a Roth IRA. Both can be contributed to in the same year.
"If you have both a Roth 401(k) plan and a Roth IRA, your total annual contribution for all accounts in 2022 has a combined limit of $26,500 ($20,500 Roth 401(k) contribution + $6,000 Roth IRA contribution)" (The numbers are higher if you are age 50 or over.)
Money from a home sale cannot be contributed to a retirement account. But there is nothing stopping from using that money to maximize his 401k and Roth contributions.
What I mean by the above is that the IRS doesn't care money comes from put into retirement accounts. What they care about are that contributions meet income limits. Most people cannot invest the maximums allowed because of high living expenses. But with an investment home sale maximizing is a possibility.
There are many things that you need to be taken into consideration when deciding to use money like this. I would set up a priority list and orient myself towards that. The best thing to do would be to speak with a mortgage advisor like the one from https://Newcastlemoneyman.com and have a different perspective. After speaking with him and setting a list, I would divide the whole sum into smaller parts. Then, I would put some money aside in my emergency fund. It helps a lot to have some money saved up in order to prevent any unfortunate situation and I'm advising you to do
Restacking the loan means they just recalculate the monthly payment after paying a lump some. Term stays the same but monthly P&I payment would drop accordingly. Currently it’s about $1830 if I pay off $100k it would drop to about $1100 per month
Didn't you say your mortgage was around 2.6x percent and purchased the home for 200-250K? How is your monthly payment $1830? Did you put 5% down?
Restacking the loan means they just recalculate the monthly payment after paying a lump some. Term stays the same but monthly P&I payment would drop accordingly. Currently it’s about $1830 if I pay off $100k it would drop to about $1100 per month
Didn't you say your mortgage was around 2.6x percent and purchased the home for 200-250K? How is your monthly payment $1830? Did you put 5% down?
Also, that seems like a poor use of your money. The home should appreciate 3-5% conservatively. You can beat that in the market on average, so why tie it up in real estate? I could see having it in real estate if they were investment properties that you were renting out and will eventually sell because there is less risk involved. You will be able to contribute 8700 more per year into your retirement if you recast your mortage vs just investing the 100k now. 11-12 years of time to get that much of principal into your investments.
Hi all. You need to save up enough money so that you can finish the repair on time. When I did the renovation, I was lucky that I found cheap builders merchants and I didn't spend a lot of money. All their materials are of very good quality. And soon we finished the repair and were very pleased with the work done. So I advise you to visit their website. Good luck to you.
The advice in this thread hasn’t held up well over the last six months. What did you end up doing OP? Bet the 2.65% “return” you would have made paying down the house is looking pretty good right now.
Selling rental property and will be netting $100k. Question is what should we do with the money? Here’s our current finance situation:
Owe $250k on our home and it’s worth roughly $200k.
Early 40s and decent amount of money in 401k
We have roughly 13 years left on mortgage but we were using around $500 from rental income to offset our mortgage. Will no longer have that after the sale so was going to restack the loan to make the payments more manageable.
Have 2 x 2016 cars and one is paid off and other we owe $13k at 4% (mortgage is @ 2.65%)
Renovations we are thinking of is a new kitchen and new hardwood floors (bedrooms, kitchen, living room, hallway and stairs) and replacing a large casement window (maybe $4k), also redoing stair railings. House is a typical raised ranch.
No other debt really and some money in regular savings in case of emergency.
Any thoughts? Best to pay down mortgage and car or hold back money for renovations? Or any other options I’m missing?
Thanks in advance
This advice from me may surprise some people, but given your still youthful age, given that you seem satisfied with the amount in your 401k currently, and all the other things you said, if I were in your shoes, I would do this:
1) Use the money for the renovations. I wouldn't even put a limit on the amount spent on the renovations other than no more than about the $100,000 you are going to net from the rental sale.
2) I don't much care about the $13,000 you owe on a 2016 car. I assume through normal payment that that will be gone relatively soon. I would just go with that. If you WANT to pay it off, fine by me, but I don't think you NEED to.
3) 13 more years on the mortgage is not really all that much longer. Assuming you don't refinance, you'll own the house outright by your mid 50s. That's pretty good.
This is what I was going to say. Especially if making payments are not an issue and your employment is secure. Enjoy your house. But when getting them done...try and find your way to do it the least expensive way. For example, get contracts where there is to be no subcontractors involved. They only mark stuff up then. And I have no idea what your state laws are, but try and use handymen for stuff if possible. If the law say jobs up to $500....then sign him up for job after job at $500. For example, $500 to demo something. Then $500 to install dry wall in this room...and then $500 for for that room. I've saved a lot of doing things that way as they usually do not have employees to pay out.