I'm moving into a new home and will be selling my old starter home.  Would I be better off investing the money ($75-85K) from selling my house or paying down the new mortgage.  

I'd pay down the new mortgage, the market may crash but being mortgage free last forever

Investment rate of return - mortgage interest rate = net positive return?

(Ex.: 8% - 3% = 5%)

If so, invest.

Also, if investment rate of return > annual house appreciation, then invest.

(Ex.: 8% - 6% = 2%)

Other than being a liability, houses make shitty savings accounts except in a hot market. However, if you put very little down, then you have some good leverage on the money, i.e. you control a several hundred thousands dollar asset for the investment of tens of thousands of dollars.

If your investments average 7% a year return, they will double in ten years. If your house value will not double in ten years, then invest.

For most scenarios I would recommend investing.

Depends on the rest of the financial situation, do you have 6-12 months emergency savings, other higher debt?  If you're getting low single digit mortgage, look at other investments.

Don't be house rich and cash poor.

I agree with this way of thinking but I would be very cautious on what I figured a reasonable rate of return on dollars invested today with the S&P 500 trading at almost 25 times earnings.  That's an earnings (not dividend) yield of 4% as a baseline plus a percent or two of growth might mean 5%-6% is a reasonable expectation today whereas it would have been higher a few years ago with the same calculation.

Nonetheless, I agree with your approach.  It's probably still the case where investing makes more sense due to how cheap debt is these days and the added benefit of the mortgage interest deduction which goes against regular income whereas investment returns are taxed at potentially lower rates on dividends and long term capital gains.  The deck is definitely stacked in the favor of not paying down your mortgage in many ways.

It's always an "it depends" scenario especially without knowing the full picture.

The goal will be to increase your net worth as fast as possible AND continue to grow it at a faster rate for the future. Paying down the mortgage with a big chunk does that but on a daily growth of compounding interest, it's only a small step. We want that money to work FOR you at the fastest rate possible with your current tolerance of risk. There are other things you can do to grow you net worth faster then just throwing it at your mortgage.


If I was in you shoes for a few scenarios:

If you are currently paying PMI, pay off the principle to knock out PMI.

If you have a high interest rate OR your note is a high % of your take home pay, pay down the principle AND refi to get your note to be around 15%-25% of your take home pay.



If the above are already taken care of, I'd use some for seed money for college funding. No kids, void that.

Are you maxing 401-k and Roths? If not, use some of the proceeds money injected into your budget so you can max $18,000 per person and then max the Roths for both people in household. That way you are using the windfall to pressure out your retirement and get some tax savings now.

Anything left over, I'd park for long term horizon growth such as 21 years. That way it'll be compounding and increasing your net worth on a daily basis faster then your mortgage. Easy funding such as Vanguard funds such as:
VTMSX (low turnover, low tax implications)
VTCLX (low turnover, low tax implications)
VIGAX

Just more food for thought as it boils down to your top 3 objectives for your household.


After reading these replies, what is resonating with you? Leaning any particular direction? Did any of these replies jump out at you?

Tagged because I'm in the same boat, except a much larger sum of money coming in from the starter home (mortgage was almost completely paid off)... I could pay my new mortgage down to less than 10 years left, or I can invest... I'm leaning towards a mix, would be nice to have some rainy day fund set aside for if/when the neighboring property comes up for sale but paying down debt early in the cycle really knocks it out fast...

Get rid of debt first.

I'm in the mindset that I could scrape by working minimum wage if I had to with no debt if my wife and I lost our current jobs. I would much rather own a home free and clear than be in a position of having to sell everything I own (worst case scenario).

Have a safety net of funds, pay off house, then invest. I do not cut out paying into my 401k or my Roth IRA, but I will not be investing any more until I pay the house off.

This approach may seem too conservative for some, but works for me.

Another reason I think I'd rather invest and not pay off the mortgage is to take the tax benefits when filing my taxes.   Here are some more details on my situation:

My savings are beginning to run low after building the house (paid for the property/lot, upgrades to construction and property).
My new mortgage will be roughly 25% of our take home income, no PMI on the mortgage
I do put 16K a year into my 401
Currently do not have a Roth
No other debt
2 kids

I have a 529 plan for my younger kids education but I started late for my older daughter and do have to catch up (graduates HS in 2 years).

Get rid of debt or bet it all on black. 

Great details. You're in a strong position with great options.

Many guys in here posting "pay off mortgage" but that might be the case for them but that's not the same for everyone. Not that there's anything wrong with that. It depends.

One tipping point number is the ratio of house equity/mortgage to amount of total in retirement:

If your retirement account value is LESS than the equity or mortgage, well you've got a problem and the numbers are too soft. That heads towards slow growth of retirement. Also heads towards, house rich-cash poor scenario.
If your retirement account value is MORE than the equity, that's the position we want to be in. Pay down the house consistently, meanwhile the retirement account builds momentum while the house equity increases at a slower rate.

Remember the goal is the 20 year play. Paid off mortgage, regardless of this house or another, while having $1m-$2m in retirement.


If I was in your shoes, the first thing you are facing is emergency fund then college:
1) I'd top off my emergency fund. Making sure we've got a solid 6 month of expenses(or salary) in the bank
2) Get a more solid investment base for eldest child then figure out how much we will need to cash flow the rest of their college
3) Start a ROTH ira in both the wifes/your names for 2017 and then have the same for 2018. That way you can get that money in the game soon. Your net worth would be growing by $22k immediately after January 1st 2018 then your compounding interest would be growing as well. This is a much better play before buying brokerage account mutual funds outside of retirement.
4) Depending on how much is left, consider child number 2's college, that way it grows over time and you don't have to cash flow it in the future thereby freeing up your income. Depending on the childs age and how much is already in there, you could park $6k-$8k in there for when she's 18.
5) Park the remaining in a brokerage account in growth stock funds with low expenses. That is 20-30 year money and a line item in retirement as well never to be touched.
6) OR instead of 5, consider re'fing to a 15 year fixed if you can keep your note down to 15 years.

That's what I would do.



For my situation, we've got a 15 year fixed with 12 more years to go with only $79k remaining on it.  No need to pay more money to it when the mortgage is only about 10% of our take home pay. We could pen stroke a check and pay it off but the money is at play in the market with low risk while making us more money. Meanwhile we are pounding our retirement accounts to the max. The retirement accounts have 2x in them of what the house is alone worth. Everyday our net worth goes up with the different streams of revenue into the retirement accounts while the home equity builds very SLOWLY and contributes to us being set to retire.

Debt has a function. It's leverage. It's using someone else's money to get yourself more money. It shouldn't be avoided outright.

I agree with this. Why not rent out your starter home? You already have 80k in equity, now imagine someone paying off the balance and after that, pocketing 1.3, 1.5k or more per month. That's like 18k per year or 180k in 10 or 360 in 20 PLUS the equity and interest if you invest. if you sell. Figure th house is worth 120k today plus growth of 3% per year which is not unreasonable unless your area turns into the ghetto. So that's another 230k in 20 years.  If your luck holds, that's 500 to 600k depending on a little luck and just a bit of hard work from you managing the rental. WORST case, it's 400k. 85k at 7% over 20 years is about 320k.

Just think about that.

I considered renting it out, but in the end I believe that the house just isn't a good candidate as a rental.  It's almost 50 years old and needs a bit of work.  I'd probably end up putting a lot of that money back into the house for the first couple of years.  The house is also a 4 bedroom so a couple of friends who do the landlord thing have cautioned me that it will attract larger families with more maintenance headaches.  One friend even recommended I sell the house and buy a smaller 2 bedroom if I wanted to get into a rental property.  But it is food for thought and if my circumstances were a bit different I can definitely see where the rental would pay off more. 

Pay off a chunk of our mortgage.

Mathematically it makes more sense to put it into the market, but the people who say that never account for risk, sure the market can go up 10%, but It can also go down 10%. Also, aggressively paying down your mortgage and choosing to live a debt free life style that will lead you to a prosperous future, it causes you to save for big purchases rather than putting it on a credit card, which make you delay gratification. I don't know how many times I think I need something, I start saving for it and a few weeks later I don't want it anymore, they novelty wears off very quick, or the times when I purchase some item I MUST buy and then a day later I forget about it. Living a debt free life will set you up to be financially independent.

I too considered renting my home but there just isn't much money to be made on high-end, larger rental homes. I can do better to sell it. Around here you can make GREAT money on rentals, if your rental is a cheap half-century old, 2 bedroom house. Most renters are on a budget, they can't afford the $1600 rent of a large home, they don't usually care what they get for their budget, only that they have a home to live in and it's in the budget. This limits your possible tenant candidates if you're asking higher rents (it doesn't matter if the space etc justify the added rent).

most people follow the dave ramsey mantra and get rid of debt first

i would invest the money so that you are in this stock market if not already

With fixed rates as low as they are I'm in the camp of putting the money in low cost index funds.  As long as your looking for long term growth you should do well there.  Short term we may have a dip, but as long as you have some tolerance for risk I would put it in the market.

At a minimum I would max 401k/Roth IRA for the year.  Take advantage of the tax breaks when you can.