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On 4/12/2022 at 7:54 PM, Nugget said:

Yes if you are getting a refund. I haven’t tried this and I’m a bit intimidated by having to hold a paper bond. I am more willing to set up a trust account as I should start planning for my kids anyway.  The 10K for you and $10k for your wife should be all electronic. 

You can transfer them to electronic form.

I grabbed the 5k in paper form from my return (way overpaid due to an RE sale that left a lot of uncertainty on what I would owe).  I'll let you know how it goes.

 

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Have inheritance coming in.  Roughly enough to pay off remaining mortgage free and clear.  Mortgage was refinanced 2 years ago down to 2.5%, 30 years.  Only debt wife and I have.  Ages 41 and 37, both working.  One child, 6.

Option 1 - pay off mortgage completely, no longer hanging over us.  Reallocate monies that have been used to pay mortgage now into 401k, IRAs, HSA.  Will not be maximizing the maximum allowable into these if we go this route, but close.

Option 2 - same idea, but rather than paying off, put inheritance into vehicle that that’s generating return.  Make monthly (or annual) withdrawals to pay mortgage.  This way have upside potential of basis, have basis available for emergencies, still reallocate income to 401, IRA, HSA. 

Option 3 - put money in vehicle and “live off” it.  Allocate as much income as I can  into 401k, IRA x2, family HSA, wife’s 403b (roughly $60k a year) to lower tax burden.  Make qualified to ROTH conversions each year up to the next tax bracket.  
 

Really comes down to paying off mortgage or not I guess.  Thoughts?

 

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4 hours ago, matttyl said:

Have inheritance coming in.  Roughly enough to pay off remaining mortgage free and clear.  Mortgage was refinanced 2 years ago down to 2.5%, 30 years.  Only debt wife and I have.  Ages 41 and 37, both working.  One child, 6.

Option 1 - pay off mortgage completely, no longer hanging over us.  Reallocate monies that have been used to pay mortgage now into 401k, IRAs, HSA.  Will not be maximizing the maximum allowable into these if we go this route, but close.

Option 2 - same idea, but rather than paying off, put inheritance into vehicle that that’s generating return.  Make monthly (or annual) withdrawals to pay mortgage.  This way have upside potential of basis, have basis available for emergencies, still reallocate income to 401, IRA, HSA. 

Option 3 - put money in vehicle and “live off” it.  Allocate as much income as I can  into 401k, IRA x2, family HSA, wife’s 403b (roughly $60k a year) to lower tax burden.  Make qualified to ROTH conversions each year up to the next tax bracket.  

Really comes down to paying off mortgage or not I guess.  Thoughts?

 

Option 2 is mathematically the best choice.  But, #### it, I'd choose (and did choose) #1 when I could pay it off.  All day long and twice on Saturday.  Owing nobody anything puts you in a spectacular FU position.

Cue John Goodman.

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54 minutes ago, Sand said:

 

Option 2 is mathematically the best choice.  But, #### it, I'd choose (and did choose) #1 when I could pay it off.  All day long and twice on Saturday.  Owing nobody anything puts you in a spectacular FU position.

Cue John Goodman.

If the mortgage rate was 4%+, I’d be right there with you.  But at 2.5%, potentially deductible, not sure I’ll be able to pull that trigger.  

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6 hours ago, matttyl said:

Have inheritance coming in.  Roughly enough to pay off remaining mortgage free and clear.  Mortgage was refinanced 2 years ago down to 2.5%, 30 years.  Only debt wife and I have.  Ages 41 and 37, both working.  One child, 6.

Option 1 - pay off mortgage completely, no longer hanging over us.  Reallocate monies that have been used to pay mortgage now into 401k, IRAs, HSA.  Will not be maximizing the maximum allowable into these if we go this route, but close.

Option 2 - same idea, but rather than paying off, put inheritance into vehicle that that’s generating return.  Make monthly (or annual) withdrawals to pay mortgage.  This way have upside potential of basis, have basis available for emergencies, still reallocate income to 401, IRA, HSA. 

Option 3 - put money in vehicle and “live off” it.  Allocate as much income as I can  into 401k, IRA x2, family HSA, wife’s 403b (roughly $60k a year) to lower tax burden.  Make qualified to ROTH conversions each year up to the next tax bracket.  
 

Really comes down to paying off mortgage or not I guess.  Thoughts?

 

Tough choice.  I have a 3% mortgage and have thought about trying to pay it off.  But after itemizing and thinking about inflation over the next 10-20 years, can’t do it.  I’ve decided to invest and just let inflation devalue the debt.  Now I don’t have a lump sum currently to pay it off, so not apples to apples.  I’d go option 2.  

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Refi'd my 3bd/2ba mortgage at 2.8% to less than the rent on the 1-bedroom apartment I moved out of 10 years ago in the same city. I'm more than happy to pay it back as slowly as possible. Inflation has already put me well ahead, for the next 20 years it's gravy. 

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4 minutes ago, Runkle said:

Refi'd my 3bd/2ba mortgage at 2.8% to less than the rent on the 1-bedroom apartment I moved out of 10 years ago in the same city. I'm more than happy to pay it back as slowly as possible. Inflation has already put me well ahead, for the next 20 years it's gravy. 

That's one upside of inflation.  Prices go up.  My salary goes up.  My mortgage payment stays exactly the same.   I might decide to just keep paying that thing until I'm 70.   

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5 minutes ago, NutterButter said:

That's one upside of inflation.  Prices go up.  My salary goes up.  My mortgage payment stays exactly the same.   I might decide to just keep paying that thing until I'm 70.   

Best inflation hedge out there.  Even if the lump sum was enough to do #1 and #2 above, no way I’d pay off my 2.75% mortgage.  

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1 hour ago, matttyl said:

If the mortgage rate was 4%+, I’d be right there with you.  But at 2.5%, potentially deductible, not sure I’ll be able to pull that trigger.  

I hear you, though the new standard deduction, particularly at your rate, makes itemizing unlikely.  Unless you give big to charity - good on you if you do!

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13 hours ago, Sand said:

I hear you, though the new standard deduction, particularly at your rate, makes itemizing unlikely.  Unless you give big to charity - good on you if you do!

Just mean that you never know what tax law will be for the next 28 years.  It’s possible things change in such a way that I’ll be able to itemize and have that interest there to do so.  

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One action I am taking this month - due to I Bonds going to the stratosphere I am giving my wife 2023 and 2024 bonds and having her give me the same.  This makes those monies illiquid for 1 and 2 years, but it captures all the interest up through then.  8.5% for the next year (as long as bought in April) with no risk is way, way too good to pass up.  No telling what future rates will be, but they should be elevated for a while.

Buying IBonds as gifts.

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53 minutes ago, b-snatchers said:

Agree. Can put that money to work in the market with better returns than the 2.5%

Yeah, I’d love to  cash out refi at our current value. That would almost double our payment but gets us over $200k at 2.25% (if they kept the same rate)

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There are certainly scenarios where I would pay off that mortgage now, but those are usually ones where both are retiring soon. In those scenarios, here are sweet spots for taxable income in terms of capital gains and Obamacare subsidies that would be easier to manage without needing to pay P&I.

Edited by Desert_Power
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20 minutes ago, -OZ- said:

Yeah, I’d love to  cash out refi at our current value. That would almost double our payment but gets us over $200k at 2.25% (if they kept the same rate)

Won’t be the same rate.  Got a call from my lender earlier this week asking if I wanted a cash out refi.  I asked, “at the same 2.5%?”  No, would be at todays rates, and cash out refi’s have higher rates typically than non cash out.  I’d be raising my rate up by about a full percent on the full amount.  Just do a home equity line of credit if you need the cash.

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27 minutes ago, matttyl said:

Won’t be the same rate.  Got a call from my lender earlier this week asking if I wanted a cash out refi.  I asked, “at the same 2.5%?”  No, would be at todays rates, and cash out refi’s have higher rates typically than non cash out.  I’d be raising my rate up by about a full percent on the full amount.  Just do a home equity line of credit if you need the cash.

Right, which is why I haven’t pursued it. We don’t really NEED the cash, we’d invest it other than maybe $50-75k for home improvements which we’d only do this year if the loan was cheap enough. I’m not cashing out investments to do them.  
i do have another $40k I can borrow from our M1 line of credit but haven’t bit that yet. 

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1 hour ago, -OZ- said:

:wall: now both my treasury accounts are locked. The wait on hold is 90 minutes. 

 

I haven't done anything yet here, so have no idea if mine are unlocked.

:scared:

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2 hours ago, b-snatchers said:

Agree. Can put that money to work in the market with better returns than the 2.5%

January, February, and March would like to have a word with you.

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45 minutes ago, Sand said:

January, February, and March would like to have a word with you.


Those months have communicated enough.  

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47 minutes ago, Sand said:

 

I haven't done anything yet here, so have no idea if mine are unlocked.

:scared:

You’re probably fine. I input the wrong password in both :bag: 

all good now, just funded our soon to be HS freshman’s first year of college. Or, down payment on a boat 🤔 

related, our HS junior is now set up to have tuition covered at Auburn or Alabama :) (got a 30 on his ACT with a 4.0 gpa)

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On 4/14/2022 at 7:42 PM, Runkle said:

Refi'd my 3bd/2ba mortgage at 2.8% to less than the rent on the 1-bedroom apartment I moved out of 10 years ago in the same city. I'm more than happy to pay it back as slowly as possible. Inflation has already put me well ahead, for the next 20 years it's gravy. 

The value of the balance of the loan is diminished as well and on top of that inflation will help to buoy the large real estate value gains we have seen. A mortgage under 3% is good debt. One of the most misunderstood concept in personal finance is understanding good and bad debt because of morons like Ramsey pushing this childish concept of all debt being bad. 

People hoping to be rich with very little understanding of personal finance seek to pay off debt. Rich seeking to be really rich and really rich people use debt to build their wealth. Whether rich or not, understanding the difference between good and bad debt is an important part of growing wealth. 

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9 hours ago, Chadstroma said:

The value of the balance of the loan is diminished as well and on top of that inflation will help to buoy the large real estate value gains we have seen. A mortgage under 3% is good debt. One of the most misunderstood concept in personal finance is understanding good and bad debt because of morons like Ramsey pushing this childish concept of all debt being bad. 

People hoping to be rich with very little understanding of personal finance seek to pay off debt. Rich seeking to be really rich and really rich people use debt to build their wealth. Whether rich or not, understanding the difference between good and bad debt is an important part of growing wealth. 


It definitely seems the anti debt crowd is seeking safety and not wealth. 

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10 hours ago, Chadstroma said:

The value of the balance of the loan is diminished as well and on top of that inflation will help to buoy the large real estate value gains we have seen. A mortgage under 3% is good debt. One of the most misunderstood concept in personal finance is understanding good and bad debt because of morons like Ramsey pushing this childish concept of all debt being bad. 

People hoping to be rich with very little understanding of personal finance seek to pay off debt. Rich seeking to be really rich and really rich people use debt to build their wealth. Whether rich or not, understanding the difference between good and bad debt is an important part of growing wealth. 

I am hoping to be happy, not rich.  Being debt free would make me significantly happier than having some extra money in an account that I probably won't ever spend. :shrug:

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2 hours ago, -OZ- said:


It definitely seems the anti debt crowd is seeking safety and not wealth. 


I see paying down mortgage debt as financially similar to increasing your cash position. I understand being aggressive with investing as a young person but it makes sense why the standard advice is to increase bond/cash portfolio percentages closer to retirement. 

When we read the advice to invest instead of pay down the mortgage, that doesn’t necessarily make sense if you may already have significant stock/risky allocations. 

 

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So, I bought $10k in i-bonds in Nov 2021.  Rate is 7.12%.  Looking at its current value, it shows $10,088.  I guess the $88 is the 6-month payout (Nov 1 - Apr 1).  But since the rate is 7.12% shouldn't the balance be something like $10,350?  (i.e. roughly half of the expected $712 annual gain)?

Feel like I'm missing something obvious here.

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39 minutes ago, Juxtatarot said:


I see paying down mortgage debt as financially similar to increasing your cash position. I understand being aggressive with investing as a young person but it makes sense why the standard advice is to increase bond/cash portfolio percentages closer to retirement. 

When we read the advice to invest instead of pay down the mortgage, that doesn’t necessarily make sense if you may already have significant stock/risky allocations. 

 

agree for the most part on the time horizon / risk assessment. Although I’ll keep my mortgage until I die if we stay in the house, current T bill rates for 2 year and longer are higher than my mortgage rate. Not hugely, but combined with shorter terms and liquidity it’s an easy choice imo. 
paying off the mortgage is basically buying an illiquid bond at that rate (assuming no tax benefits). 
Ultimately, know your own tolerance and plan accordingly. Even if we were zero bonds at retirement I’d still keep the mortgage. We’ll have roughly 10% in I bonds by that point I think (maybe less if the equities exceed my expectations).  But that’s us and the logic doesn’t apply the same unless you’re in our shoes. 

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38 minutes ago, Fruitbat said:

So, I bought $10k in i-bonds in Nov 2021.  Rate is 7.12%.  Looking at its current value, it shows $10,088.  I guess the $88 is the 6-month payout (Nov 1 - Apr 1).  But since the rate is 7.12% shouldn't the balance be something like $10,350?  (i.e. roughly half of the expected $712 annual gain)?

Feel like I'm missing something obvious here.


Pretty sure the return shows what you’d be able to withdraw, or offset by 3 months until you’re 5 years in. 

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13 hours ago, Chadstroma said:

The value of the balance of the loan is diminished as well and on top of that inflation will help to buoy the large real estate value gains we have seen. A mortgage under 3% is good debt. One of the most misunderstood concept in personal finance is understanding good and bad debt because of morons like Ramsey pushing this childish concept of all debt being bad. 

People hoping to be rich with very little understanding of personal finance seek to pay off debt. Rich seeking to be really rich and really rich people use debt to build their wealth. Whether rich or not, understanding the difference between good and bad debt is an important part of growing wealth. 

Bogleheads thread on whether folks regret paying off their mortgage early.

Right now my assets to debt ratio hovers at about 3000:1.  

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3 hours ago, Fruitbat said:

So, I bought $10k in i-bonds in Nov 2021.  Rate is 7.12%.  Looking at its current value, it shows $10,088.  I guess the $88 is the 6-month payout (Nov 1 - Apr 1).  But since the rate is 7.12% shouldn't the balance be something like $10,350?  (i.e. roughly half of the expected $712 annual gain)?

Feel like I'm missing something obvious here.

 

2 hours ago, -OZ- said:


Pretty sure the return shows what you’d be able to withdraw, or offset by 3 months until you’re 5 years in. 

 

hmmm, that would make more sense...but still seems low.  Should be just under $60 per month.  My understanding is even though I purchased in late November, I get the entirety of November as far as interest earning.  So removing first 3 months, I should have Feb and March interest at minimum.

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Let me clarify a couple of things. 

First, "hoping to be rich" was a poor choice of words. Growing wealth or maximizing your personal finances are likely better. 

Second, after spending most my adult life in lending, financial services, banking etc and being a student of personal finance the one thing that I hold to when it comes to personal finance is that there is no such thing as a one size fits all approach to personal finance. It is actually one of the reasons why I loathe Ramsey and so called personal finance gurus like him that have some gimmick approach that they sell. Things like personal situations, goals, and what I call the the sleep well at night factor (aka individual appetite/tolerance for risk) are important factors. However, even if the ending right choice is to eliminate debt, and even good debt, you still need to have the understanding of good and bad debt, how it can help/hinder and how it can be used to build wealth and increase financial stability or meet goals. My post was not meant to say that everyone should use good debt to increase their wealth but rather that everyone needs to ignore morons like Ramsey and have a solid understanding of this concept in order to make the right choices for them. Regardless of what your grandma's wisdom may be and regardless how much money is spent marketing by personal finance companies, this is not a hard concept to understand.

The point being made here is that personal finance is personal. It is varied. People ought to enrichen their understanding of it in order to make intelligent decisions based on math, history, and logic versus some dingbat on the radio or podcast or book that they are pushing with some over simplified concept blown out of proportions sprinkled with large heaping amounts of horrible advice concerning mortgages, insurance, investing... well, pretty much everything about personal finance.  

The fact is that the really rich understand this. The understand good and bad debt. Whether being really rich or not is a good does not matter. When the people who are the most successful at something you are learning do something, you should pay attention. It is like Stephen Curry trying to teach you how to shoot a jump shot and you respond, no thanks, I am happy with my granny shot making less than half of my shots because that is what that guy that makes money off of telling me to shoot like that tells me to do. 

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5 hours ago, Sand said:

Bogleheads thread on whether folks regret paying off their mortgage early.

Right now my assets to debt ratio hovers at about 3000:1.  

Not a compelling argument at all. I would expect someone who made a goal of paying off their mortgage to view it as a positive. Most likely are starting off with the poor understanding of debt (which is why they made it a goal to do so) and further, when they paid it off it was important to them and a priority. Moteso, when interest rates were 7% or so, it made much more sense versus now when unless you bought in the last few months you should have a rate under 3% and if not then I am most likely not interested in what you have to say about personal finance anyways. 

It would be like asking people who collect comic books or baseball cards or whatever in a thread that they frequent... do you regret collecting comic books or baseball cards? What would the responses be? The same as that thread. 

Edited by Chadstroma
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3 hours ago, Sand said:

Bogleheads thread on whether folks regret paying off their mortgage early.

Right now my assets to debt ratio hovers at about 3000:1.  


of course they don’t regret taking the Safe approach. Now ask people if they regret investing over the past decade instead of paying down their mortgage.  

My assets to debt (including mortgage) ratio is a comfortable 6:1. I’m quite happy with that. 

Edited by -OZ-
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28 minutes ago, Fruitbat said:

 

 

hmmm, that would make more sense...but still seems low.  Should be just under $60 per month.  My understanding is even though I purchased in late November, I get the entirety of November as far as interest earning.  So removing first 3 months, I should have Feb and March interest at minimum.


I’ve having trouble with the math too. $88 is very close to 1 1/2 months of interest at 7.12%. I thought the penalty might use partial months but that should result in a value of 2 1/2 months interest, not 1 1/2. 

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54 minutes ago, Fruitbat said:

 

 

hmmm, that would make more sense...but still seems low.  Should be just under $60 per month.  My understanding is even though I purchased in late November, I get the entirety of November as far as interest earning.  So removing first 3 months, I should have Feb and March interest at minimum.

You must have actually bought these in October 10,000*((.0354/12)*3) = $88.5. If you click through on the Treasury Direct site you should be able to see the effective starting date.

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2 hours ago, Chadstroma said:

Not a compelling argument at all. I would expect someone who made a goal of paying off their mortgage to view it as a positive. Most likely are starting off with the poor understanding of debt (which is why they made it a goal to do so) and further, when they paid it off is important. When interest rates were 7% or so, it made much more sense versus now when unless you bought in the last few months you should have a rate under 3% and if not then I am most likely not interested in what you have to say about personal finance anyways. 

At the moment my rate is 0.  Does that qualify for permission to still post?

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7 hours ago, Fruitbat said:

So, I bought $10k in i-bonds in Nov 2021.  Rate is 7.12%.  Looking at its current value, it shows $10,088.  I guess the $88 is the 6-month payout (Nov 1 - Apr 1).  But since the rate is 7.12% shouldn't the balance be something like $10,350?  (i.e. roughly half of the expected $712 annual gain)?

Feel like I'm missing something obvious here.

I think they only pay interest every 6 months. 

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1 hour ago, Sand said:

At the moment my rate is 0.  Does that qualify for permission to still post?

 

1 hour ago, Chadstroma said:

I have no idea what you are attempting to say here. 

Miscommunication I think. I took your comment “if not then I am most likely not interested in what you have to say about personal finance anyways.” To mean that if someone wasn’t able to get the good rates available they’re probably not financially savvy. 

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1 hour ago, -OZ- said:

 

Miscommunication I think. I took your comment “if not then I am most likely not interested in what you have to say about personal finance anyways.” To mean that if someone wasn’t able to get the good rates available they’re probably not financially savvy. 

Correct as if you failed to refinance during that time period with rates at least close to or under 3% them you are asleep at the wheel. (In most cases, there are plenty of other explanations to possibly not refinancing but a wilful or ignorant failure to refinance assuming it made financial sense is pretty much indefensible)

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Thinking about it over the weekend and I think I’ve decided to not pay off mortgage.  Makes little to no sense to do so other than the feeling I’d have of being debt free in it - but so what?  I’d still owe annual taxes and insurance on it.  We may never see the 2.5% 30 year again, so be happy that I locked it when I did.  No plans to move in the next decade plus at least.  28 years left, putting me at paid off at ages 69/66 - so maybe I’ll write a check for the balance later in life when I “retire” to be done with it then.  

So invest it, do what I can to maximize 401k, 403b, IRAs, HSA, 529 contributions annually - and likely do a qualified to ROTH conversion at end of each year up to next tax bracket.  Any gaps in cash flow (living expenses) to be made up from investments.  

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2 hours ago, matttyl said:

Thinking about it over the weekend and I think I’ve decided to not pay off mortgage.  Makes little to no sense to do so other than the feeling I’d have of being debt free in it - but so what?  I’d still owe annual taxes and insurance on it.  We may never see the 2.5% 30 year again, so be happy that I locked it when I did.  No plans to move in the next decade plus at least.  28 years left, putting me at paid off at ages 69/66 - so maybe I’ll write a check for the balance later in life when I “retire” to be done with it then.  

So invest it, do what I can to maximize 401k, 403b, IRAs, HSA, 529 contributions annually - and likely do a qualified to ROTH conversion at end of each year up to next tax bracket.  Any gaps in cash flow (living expenses) to be made up from investments.  

At your age and that rate, you absolutely are making the right choice.

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On 4/17/2022 at 1:07 PM, Desert_Power said:

You must have actually bought these in October 10,000*((.0354/12)*3) = $88.5. If you click through on the Treasury Direct site you should be able to see the effective starting date.

:bag:

Yes this is it.  I even looked at the date before asking, but I misread it as November since that is when I thought I bought them.

Thanks!

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3 minutes ago, matttyl said:

on the younger wife part, or the only debt part?

Both!

I think one argument for paying off the mortgage is that you have to be disciplined with the extra money you just got and not let it go for things other than replenishing your income that is now going into investments.  That's easier to do on a monthly basis (extra money from not having a mortgage payment) than it is having a bunch of cash that could be tempting to buy a boat or redoing the kitchen.  Also, in the current environment sitting cash is loosing out to inflation. 

But you're in a great spot, and reason for the congratulations, I was late 40s almost 50 until I was in a position to make that same choice.  

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