41f single no kids. I live in nyc in a single family house. Mortgage is 3.5% 30 year fixed. My mortgage balance is 84000.
Emergency fund cash is 35k
401k is 63k
I will be joining a new job, so will be getting a 10k sign on bonus and pto payout from my old job of 11k after tax. Should I put this into my mortgage? I really want to pay it off for peace of mind and am aiming to do it next year.
New job salary is 170k with 55k potential bonus.
Also I am considering to start putting the max into 401k? Or should I wait until I pay off the mortgage next year?
The emergency fund is like enough to cover me for 7 months. I am basically not sure if I should put my pto payout and bonus into emergency fund vs paying down the mortgage.
Should I pay down my mortgage with my pto payout?
byu/ThrowawActual-Ad3882 inpersonalfinance
Posted by ThrowawActual-Ad3882
40 Comments
No, put it to the 401k especially at that interest rate.
With a 3.5% mortgage, make sure you first pay down any higher interest debt. Then max out a Roth IRA.
Follow this sub’s prime directive
Max your 401k. Don’t pay down a 3.5% mortgage any faster than you need to.
84k mortgage is nothing for your new salary, you can throw the 11k at it if you want, it sounds like you’re planning to pay it off quickly either way so it’s not going to make a huge difference.
I think you make more than enough to put the max towards 401k.
At 41 years old, I sincerely hope that you have other savings and retirement savings aside from the $35k e-fund and the $63k 401k.
If you don’t, the payout and signing bonus should be used to improve them both.
Don’t listen to all these nay-sayers who are completely incapable of understanding that peace of mind can trump the math on likely interest earning in 401Ks.
Pay that sucker off. Be done with it forever. Then throw the extra money into retirement accounts for years after that. You already want to do it, so just do it. The overall difference in your lifetime net worth will me minor. But the stress relief will be incalculable.
What’s your current retirement savings situation ?
I’m more interested in understanding how you manage to have a single family house in NYC with only 84k left in the balance. Did you inherit? If so seems like maybe payoff is worth it since property taxes in NYC can often force a lot of people to sell.
No. Your rate is very low and you are way behind on retirement. You can’t borrow for retirement.
You need to open up a Roth IRA. Your retirement savings are way too low. Stop paying off your extremely low rate mortgage.
What good is “peace of mind” on owning a home when you’re never going to be able to retire? Your mortgage is 3.5%. Meanwhile, you will be working until the day of your funeral.
Ehhh come on now lol is this sub serious with critiques of her situation? Her emergency fund covers her expenses for 7 months. She’s close to paying off her mortgage. She’s entering her peak earning years. She doesn’t mention any debts other than her house.
Basically, she’s doing great. If she continues as-is, pays off her house and then maxes her 401k for the next 10-15 years she’s on track to retire years earlier than the standard retirement age. If she saves more aggressively she could retire in her early 50s. That’s GREAT.
Not everyone is a 25 year old FAANG millionaire.
@OP at a 3.5% rate if I were you I’d focus on maxing out the 401k and after that taxable brokerage. Let the mortgage be.
The average cd rates are under 4% so arguably paying down the mortgage is a good thing. My rule of thumb is to invest only if the guaranteed return is 0.5% above the mortgage rate. I see us at a break even point currently.
With your interest so low I would not pay down the mortgage any faster. Put as much as you can into an investment account. Buy a few ETF index funds and keep adding money every month until you retire. It will pay you much more than reducing the mortgage. I bought a house in 2021 for and had the funds to pay cash. I found out that mortgage interest was below 2.5% so I secured a 500k loan. I put the 500k to work in the market and it is up now over 65%. Within a few years I should be able to pay the mortgage off with the gains. But I plan to just keep it in the market.
Milk that 3.5% mortgage forever. Every bit extra you pay down on that mortgage delays your retirement substantially.
Unless you’re north of 5% on the mortgage there’s no value in putting extra money down on a mortgage.
Inflations going up so fast and rates were artificially so low for so long to throw money at it is wasteful.
It seems to me based on the info you gave you should probably use that money to bolster your emergency fund
>Should I pay down my mortgage with my pto payout?
>Mortgage is 3.5% 30 year fixed.
No. Don’t pay any more toward such a low rate mortgage than required.
IMHO, in the current job market, you should have 12 months worth of expenses in your emergency fund.
What other debt do you have, what interest rate on each if any?
Why is it one or the other? Why not max out 401k/Roth, then anything leftover goes toward the mortgage? At $170k/year, it should be doable, unless your other spending takes all of your salary.
I would open a Roth IRA and put $7k in it for 2025. If you need to do a backdoor roth, do that.
Make sure you also max out your Roth for 2026. I’d up your retirement to max out your 401k each year.
You should also open a brokerage account and save extra money in there.
Is it true your monthly expenses are only $5k with a $170k yearly salary? I’d beef up your savings first and then pay double to your mortgage next year after you fund your Roth and increase your savings with the PTO payout & sign on bonus.
No. Open am IRA and stick the bonus in there.
Why are you so set on paying off the house? If you put the money into safe investments, it’s not going to disappear. A 3.5% mortgage is close to free money. Because of the way mortgage interest works, most of the money you are paying now is going to the principle anyway.
You could even find a 5% CD and make 2% without any risk. On $21k, that’s $1085 without any risk. Even better, put at least half into a retirement account. and let it grow at 5-10% per year tax free. At 5% rate, you will have $71K in 10 years. WIth a 10% return, it would be $228K. You need more than this obviously.
In an emergency, you can take the money out without the 10% penalty for early withdrawals. Check the details on an IRS website.
Please just sit down with a calculator or Excel sheet and you will see what a terrible idea this is. If you need peace of mind, see a psychologist. The idea that one can build wealth by paying everything off is just not correct. Max out your retirement investments as soon as possible.
Careful use of debt is the way to build wealth. This only true for people who would not spend every penny they get. If that’s you, forget everything I said.
No. Put it into retirement or HYSA until you are completely settled in your new job. Life throws curve balls unexpectedly. Your future 60-year-old self will thank you for taking that cash and banking it. Keep paying that 3.5% mortgage and forget about it. That will resolve itself in time whether you stay ling term it sell and downsize.
I would lean in to retirement savings. Your interest rate is low and your mortgage balance is not really high.
if you want the peace of mind pay it off, but in my opinion don’t pay it down. The money you would pay toward it, put in a CD and let your money work for you even if it’s a little bit. It also gives you larger temporary emergency fund should something happen at the new job.
Put it in an IRA. You need to build up your retirement $
Max into retirement savings, just pay the required on mortgage nothing more. Paying down mortgage only earns you 3.5%, probably the cheapest loan you will get in your lifetime.
Putting into retirement savings vehicles nets you 7%+, and if your company has a match even more. Can also do IRA and some of them offer a 1-2% match.
Hell no, you’re going to let inflation eat away at that debt.
I get the peace of mind party you are discussing. However, you should max out your 401k,ira withholdings, then apply Any extra you have to the mortgage. Continue the 401k, IRA investing for at least 20 years. My estimation is you will have your mortgage paid off in 5 years or less regardless….. Because it is important to you.
It doesn’t sound like you really want to listen to the numerous people telling you not to pay down your mortgage but that is the correct answer at least for now. You should be instead using that money to fund your 401k, then a Roth and then a brokerage account. Your interest rate is also tax deductible if you itemize so that makes it even lower.
You are about $500k behind on your retirement savings and you want to pay down a 3.5% mortgage? No, just no. Maxing out your 401k is not nearly enough. Double or triple down on your retirement savings!
Getting rid of debt should be everyone’s priority. Whatever the highest interest rate first. Considering your young age, once your mortgage is paid off, you can put the maximum into your IRA for the next 25 years.
Keep that mortgage as long as you can. That rate won’t be seen again in a long time.
Easy answer. With that retirement. Open a ira and back door into roth. New year is right around the corner. Max it out again. And then max out 401k next year.
Work to max out your 401k and look into backdoor IRA to get yourself more retirement income. If you already maxxed out your 401k this year put your bonus/ extra money in money market funds or HYSA you’ll get ~ 4% on it
I think you have done an amazing job so far. You have a great paying job and very low housing costs. I’m a bit older than you (56f) and am about to pay off my mortgage and it feels so freeing. However, I wish I’d invested more in my retirement. I would suggest that you max out your retirement accounts and then use what’s left to pay it down. 3.5% on 85k is just a couple of hundred dollars a month in interest costs. It’s not an all or nothing thing you are doing. Maybe max your retirement funds and hold onto the rest each year and see if you need it as an emergency fund before doing a lump sum each year. However, psychologically paying it off might be fun.
Your interest rate is basically the rate of inflation, which means it’s essentially a free loan of 84k.
So no, you should not. Invest it.
I personally would not pay my mortgage off with that money. You have an excellent rate. And you’re young. I would invest that money into a Fidelity high-yield. savings account. They are getting anywhere from 3.75 to 4.5 depending on what you go after. Essentially you’re still making one percent or 1.25% on your money now using that method. Good luck with your career.
Absolutely not, keep the cash start saving and investing more. Rate is very low and your way behind on retirement. With your new salary bonus you should be able to save a considerable amount.