Mortgage vs. 401K investment

[Jerryl]

I was reading an article about Mortgage vs. 401K investments. :wink:
The crux of the article was related to "early mortgage pay-off", vs. 401K investment. This is NOT my field of expertise :redface:, so I wanted to ask. I know it is FAAAR from this simple, but is this about the correct school of thought?

So lets just pick an example.
Pay off your 20 year mortgage balance 4 years early, with additional $150/month on a $1,000/month payment.
You “avoid payments of”; 4*12*$1000/month=$48,000
You also paid the additional $150/month = (20-4)*12*$150 = $28,800
Net savings to your pocket = $48,000 - $28,800 = $19,200.

If you added the extra $150 in your 401K at 100% match you accrue 20*12*($150 + $150 match)=$72,000
Over 20 years, you could end up at; 401K accrual - 4 years mortgage = $72,000 - $19,200 = $52,800

 

[counterman]

Well, I'm working as hard as I can to pay off the shack. I put money in the 401k, too. I figure I'll always have a place to stay (once I pay it off), even without money in the bank. I simply don't trust the market to protect my money over the long haul. I have a friend who is actively buying rental properties for the same reasons. Regardless of values down the line, he knows he will still have a tangible item in a paid off house.

 

[PHINFAN]

Hey, i'm not going to discourage anyone from investing in their retirement, but are you taking into account the money our corrupt government allows wall street to steal from our 401k accounts ?

YouTube - ‪The 401k Fallout‬‏

Unfortunately, this is not widely known, if you want to know of the most abused people in this country, it is the normal, everyday workers/taxpayers. They have NOBODY protecting them, politicians screw them, unions screw them, wall street screws them etc.

Which is better, 401k or paying off your house? I would pay off my house, but i am biased, i would do whatever the government doesn't want me to, and guess that would be better.

 

[BEATAV8]

My 401K sucks.

2 things happened since I started it:

-Osama flew some airplanes into the WTC and tanked the market.

-A bunch of morons gave out a pile of crappy home loans and tanked the market again.

Despite being "well diversified", that promised 8% return hasn't materialized over the last 12 years.... I think I'm at about 3% (WTF!) The only good part is the employer match which does make it worth while (up to a point anyways)

What's next?

I've been putting extra money into the mortgage instead....

 

[charlief1]

Simple but complicated math Jerryl. The catch is the APR rate.

To give you an example, say you're buying a vehicle for $10K, TT&L as a total. With the current bank rates for most at 20% it will cost you more than you think. Most of them are running 6 years, so let's look at this.

You have to take the total and multiply it by 1.20 for each year you plan to pay for it. First year it is $12,00. Second year it is $14,400. Third year is $17,280. Fourth year is $20,736. Fourth year is $24,883.20. Fifth year is $29,859.84. Sixth year is 35,831.80.

As you can see the exponant is the key here because it's basically a ballon payment scam. This is the way it's currently set up so no matter what you do you're going to loose more than it's worth.

 

[JP112_89]

Pay off your mortgage. Just for the piece of mind.

Pay cash for EVERYTHING! Never pay any interest!

Why tie your money up till 59 1/2?

I am with PHILFAN concerning the 401k.

 

[Pronto]

Guess I'm lucky. My IRA and my wife's 401k both have bounced back from the 09 levels in that show. I've got less than a 1.5 years to go on my mortgage and am contemplating throwing extra at it to pay it off. Got no deductions now and the mortgage interest doesn't make a dent so I only get the stadard deduction anyway. Once it's payed off I can concentrate on the son's college loan.

 

[Spooln1]

You should honestly be doing both. Making 1 extra mortgage payment a year will pay your mortgage off 7 years faster. Add extra principle payments as you can to reduce it further.

Add to your 401k! A traditional IRA will reduce your annual taxable income which is another deduction. It helped me get $900 or so more in my tax refund from 2010. A Roth IRA is an after tax contribution which will be Tax Free once you start taking it out. My company matches up to 5% of my income. Free money. Social security in all reality will not be there to support us once we retire. We need to have more saved up than just our 200k home.

Property is and has always been a great way to acculmulate wealth. I would recommend having your estate/retirement set up in multiple buckets. Just my 2 cents.


*my first post here. I love this site

 

[klrv6]

Move your 401K to an IRA even if it means quiting your job and getting another one (where it makes sense). My IRA is heavy on the stock side, many of the new technologies and big companies that tanked when everyone pulled their entire 401K out in 09. I have few regrets for investment choices after getting out of the 401k that binds me as far as what I can do.