Submitted by jws1300 t3_10oathi in personalfinance

Only major payment I have is house. Payoff is $53k, at 3.785%, house appraised for 345k. Typical payment is around 1k per month but I send 500 extra principal each month.

Also have 26k in savings which varies but is at 3.3% right now.

Do I dump savings into mortgage with such a low discrepancy in rates? Dont really need "emergency" money.

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WithinN0rmalLimits t1_j6dgdri wrote

I think it's unwise to assume you don't need "emergency money" because you never know what will happen. That being said, you probably don't need more than 10k on hand if you're in a stable situation

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pepperpat64 t1_j6dgixh wrote

I wouldn't dump all the savings into the mortgage since it's not enough to pay it off anyway. I'd just increase the extra principal payment.

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Default87 t1_j6dhhqr wrote

Paying off your house is not an emergency, so you shouldn’t use any emergency fund dollars to do this.

Any non emergency fund dollars you have could be used to pay this off, but at such a low interest rate under 4%, I would argue that there are much better places to be putting that money rather than paying your house off.

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AustinLostIn t1_j6dmzu0 wrote

First, I'd like to know why you don't need emergency money? I mean, technically you don't need it until you need it. But why take the risk of not having it?

Anyway, just keep paying more on principal. You have a healthy amount in saving should something financially catastrophic happen to you.

Based off the info you have provided, I'd say you're in an ideal situation already.

Edit: stop contributing to your current savings and put that extra money toward principal.

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nails_for_breakfast t1_j6drwbe wrote

What do you mean when you say you don't need emergency money? Is your emergency fund somewhere else or do you literally believe that you don't need an emergency fund?

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Acrobatic_Ad_9937 t1_j6dvdqz wrote

Put the money for payoff aside in a HYSA. When you have enough, pay it off if you want.

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CookieAdventure t1_j6dy36i wrote

I’m a huge advocate of being mortgage-free. You’re so close but not close enough. You’re executing a great plan. Keep doing what you’re doing.

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jws1300 OP t1_j6dyasl wrote

I guess I'd have to see examples of "emergencies". I have insurance for my home and everything in it, same for vehicles, same for health. With an 820 credit score, what can you not get with 0% financing in an "emergency"? I don't condone financing things but in an emergency I don't see a reason not to.

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jws1300 OP t1_j6dzp0y wrote

I think its important to have some liquidity laying around don't get me wrong - but I think for someone with stable income, good credit, ability to borrow from family in a sticky situation, and liquid assets that could be sold, etc, emergency money isn't that important.

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jws1300 OP t1_j6e0e3k wrote

Depends on if that debt was higher interest than what savings was pulling... Which answers my original OP question - I just didnt know if there was anything crafty these days to give me an even better position that I was missing.

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Comprehensive-Tea-69 t1_j6e172l wrote

Emergency fund is usually synonymous with job loss replacement fund. Anyone can lose his job, and you still have expenses that can’t be financed. Lots of factors can decrease the amount you need, like being a two income household, working in a public union job, not having kids, etc. So if all those factors are in place, your emergency fund can be closer to the 3 month amount of the recommended 3-6 months of expenses.

For someone with kids, private company, no union, spouse doesn’t work, etc the job loss fund should be more like 6 months of expenses.

Plus Expenses are not the same as income, 3 months of expenses should hopefully be substantially lower than 3 months of income.

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jws1300 OP t1_j6e2run wrote

Good point. I'm a single father so just one income. I want to have no debt asap so if I did lose my job I wouldnt be scurrying to get income.

Once the mortgage is paid off the only expenses would be the normal life expenses (water, food, electricity, etc).

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joeyd4538 t1_j6e5fj2 wrote

Your basically working tword saving your self 10 seconds of work per month when you knock out that mortgage. That 10 seconds will not compound like the money could have. You'll still have to pay property taxes twice a year, so that 2 minuites you get back every year will actually be more like 1:40.....I personally would rather have the cash on hand, even if it was hard cash under the matress. You never know when that dream car you've always wanted pops up from a guy in your neighborhood on a Sunday morning. By the time you refi, get out the money, go back and make an offer, the car has long been sold. (I lost my dream car on a Saturday night to a guy who bought it on Sunday afternoon with cash). I still loose sleep over that one.

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YankeesJunkie t1_j6e5vto wrote

Nope, actually would not even be putting money in principle, allocate that money to a retirement account or if you are maxing that out an investment account. The hard money you put in your house does not earn you money.

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Bad_DNA t1_j6e7k6n wrote

THAT is good financial planning. Use other people's money when it doesn't cost you if you can. I still think having an oh-sh*t stash will pay off for you in the future. :)

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lawyermom112 t1_j6e8cuo wrote

Keep in savings. We could pay off our mortgage but instead hold money in stocks/cash.

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yes_its_him t1_j6etjhx wrote

> I want to have no debt asap so if I did lose my job I wouldnt be scurrying to get income.

Don't do that. If you lose your job, you want cash, not equity. You can fund the mortgage for many months even if you lose your job if you have the money liquid.

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yes_its_him t1_j6ez09s wrote

Liquidity isn't generally used in that context.

"A liquid asset is an asset that can easily be converted into cash in a short amount of time. Liquid assets include things like cash, money market instruments, and marketable securities."

It's not all that different from saying you can take out a personal loan.

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ShankThatSnitch t1_j6fayws wrote

I know it is similar to a personal loan. The difference is that you have the home equity as collateral, so the odds of approval are higher, and the rate should be better.

But I agree that a home is not a liquid asset, but the equity can be tapped somewhat easily with a HELOC. That was the only point. And I don't think this is a replacement for an emergency fund.

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poodog13 t1_j6fq3ab wrote

This mentality is wrong-headed. Debt isn’t bad, expensive debt is bad. Never pay off cheap debt faster than you have to, instead put that extra money to work making better returns than your borrowing rate.

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poodog13 t1_j6fqc9d wrote

Exactly. My mortgage is at 3% and I could pay it off any time I want, but I’d rather invest. Even a relatively conservative portfolio should make more than double that rate as long as you can stay invested for a few years

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4192gym t1_j6fwsg5 wrote

8% yield in stocks > 3.785%.

If you want to piss away money and pay down your loan, go ahead.

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BDRay1866 t1_j6gk2yp wrote

I did and haven’t regretted it. You could always get an equity line at the same time. In case you needed do access money

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AgeLower1081 t1_j6goqsb wrote

You don't need an emergency fund until you have an emergency. If I were you, I would not dump my savings into the mortgage payment. By having an emergency fund, you probably are probably in a position to absorb a financial emergency.

To set my mind at ease, I would calculate how much longer it would take to pay off the mortgage at the rate you are paying it. Then I would recalculate how much I would have to increase the payments to pay off 12 months earlier. Then I would make a decision of how much to pay off. If your mortgage doesn't have balloon payments, I would just maintain your regular practice.

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BklynPeach t1_j6gqfdb wrote

Don't dump your cash on hand into paying off the house. Just pay the mortgage plus the additional $500. Mortgage will be paid off in less than 3 years.

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rubykowa t1_j6hbw3y wrote

If emotionally it makes you feel better, then sure. It really depends on your situation and calculations.

In the 2008 financial crisis, we were a single-income family and my dad was unemployed (6-8months) and taking short contract work where he could. My mom was the stay-at-home-parent but self-taught herself trading/investing. She pulled out all the money from her investment accounts to lump sum pay off the mortgage since the instability of steady income had mortgage interest payments eating away at savings.

Her reasoning was that property tax would be less instead of letting the mortgage slow bleed money away. Luckily my dad found a really great government job a few months later. I think they were close paying it off anyways, so she just accelerated it by a few years.

For my husband and I, we put down 20% and had locked in a low 3.01% fixed rate for next 4-5 years. So for us the question is where can the same money get better returns. For example, we keep part of our emergency fund in a high-yield (5%) GIC for 6 months.

Even if we could buy our place for full cash, I'd probably still only do 20% downpayment (maybe higher if it's an investment rental property and I'd calculate the most efficient time/money ratio to see returns) because the house equity is probably not going to outpace the money being invested in something else with higher returns.

Also, I would want to diversify and not have majority of net worth be tied to something as illiquid as housing.

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