[USER]

Given all the uncertainty in the market these days and not knowing how long this will continue, we’re considering pulling back any ‘extra’ investments beyond maxing out both my wife and my employer 401K contributions at $23.5K per person, contributing max of Roth IRA at $7K for me and her Employee Stock Purchase Plan at about $10K per year, and instead aggressively paying down on auto loan and mortgages.

I did a rough calculation and fortunately we have enough excess cash already sitting in HYSA account that is beyond 4 months of emergency savings with 1 months average monthly expenses sitting in our checking account that we can pay off the auto loan this month.

if we so chose to (I just finished paying off my auto loan last year and was just routing that payment to my wife’s new car for our growing young family instead, so was on track to pay off a 4 year loan in 3, so we would have had another 2 years of payments otherwise, but interest rate equals HYSA account interest).

We can then use the same monthly payment we were making for the auto loan now freed up towards the mortgage for our rental condo (have 5 more years otherwise, interest rate just about a percent less than current HYSA interest), and then when that’s done being paid off in 1.5 years from now near end of 2026, we can then pay both the amounts we were already paying off towards auto loan and rental condo to our primary home (would have had payments until summer of 2041) and be done in about 9 years.

If I were to route any net income from the rental condo, we could even pay that off another year or so earlier.

Basically not necessarily paying anything extra but just accelerating paying off auto loan and reallocating what we were already spending to different debt allows us this outcome.

This thought excites us since we’ll be completely debt free and free up about $4K in monthly expenses that we could then use for travel and vacation, or just stash up in cash or other investments.

Continuing to max out 401K, roth IRA and ESPP would still mean we hit our CoastFI number right around when we finish paying off our mortgage and the retirement accounts will continue to grow to our eventual FI number without any additional contribution.

This may be an opportunity for us to pick a less demanding/stressful job that will still provide health insurance benefits and effectively allow us to begin early or semi retirement perhaps.

I know I’m not giving much specific numbers but it’s the general outline of our plan – what do people think?

Should we pursue this?

I know the mantra is to think long term because that typically outweighs any debt interest but this seems like a good proposition for our situation and allow us to spend more meaningful time with our child who will be becoming a teenager then.

[Jule]

You left out the most important information, what are the interest rates on those loans?

Also, you need to have a larger emergency fund of 6-8 months, especially in these times.

[Frank]

I would not pay off low interest loans that are below savings account rates.

[Rick]

You probably should do the same thing you did during all the previous “uncertainty”

2024 ongoing multiple regional wars
2023 multiple banks evaporated in a few short weeks
2022 runaway inflation

2021 global supply chains seized up multiple times
2020 the new flu that ended all other flus

[Mitch]

If you were within 3-5 years of FI, I could see the acceleration of payoff of the house and condo which effectively acts like a fixed rate bond and lowers your FI number.

But, you are too far away if you haven’t reached coast fi yet, in my opinion so I would not pull that trigger.

The ONLY way I’d consider the mortgages is if you can contact the servicer and ask if they offer a recast down the road.

Reason being, when we get out of this mess, and times are better perhaps you want to turn back to relentless investing with extra money and if you could recast those notes, at least you
Free up some monthly payment to redirect to investments.

Ultimately, I can tell you from my perspective, I had a chance to do everything you are considering doing with a couple payments from a sale of a business.

And instead I stuck to my investor policy statement which said: never pay off these low interest mortgages (2 of them).

Instead, pile the cash in an after tax brokerage and know the 4% rule can PAY THE MORTGAGES for you in a pinch, but you get the benefit of compounding arbitrage of interest over time.

Long answer and long way of saying no, I wouldn’t if I were you. But I hope the thought exercise is helpful to frame your thinking.

[Jamie]

I wouldn’t use the EF for the loan, but the rest of the plan might make sense if it will bring you peace of mind since you are maxing your retirement accounts.

It isn’t necessary the best financial plan, but I’d probably do the same thing because I would value that flexibility over maximum gains.

[Angela]

Do you also have money set-aside for expenses for the rental like repairs and the like?

[Author]

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