The pre-paying the mortgage question

Yes, yes I am.

No, I’m not pre-paying at the expense of other diversified savings.

Currently our rate is 5.5% (yay Wells Fargo no cost refinance).  We do itemize.

If we buckled under, we could pre-pay it in 4 years. But we have decided not to go that route.

Why?

Mainly for diversification. We want a fully-funded retirement. We want 529 plans. We want to make sure that we’re putting money in the stock market on a regular basis in order to get average returns. We like the tax advantages of retirement and 529 plans. We don’t want to put all of our money in one place– a single house in a single real estate market. Of course, we’re not fully funding our tax advantaged retirement savings (yet) either… Mainly because we don’t have an extra 76K to fill out those accounts, but partly because we’re using some of that to pre-pay the mortgage. (It is SO weird going from only being able to put retirement money in Roth accounts to having way too many options.)

So we’re doing some of each. Somewhere between 15 and 20% to retirement, some to a 529, and some to prepay the mortgage. Right now we’re on a 12 year repayment plan instead of the 29 that would have been remaining in our 30 year refinance if we’d just paid the minimum.

We also have an irrational reason for pre-paying the mortgage even before I’d thought about the issues. Our mortgage is something like XX37.10. I hate writing checks for anything other than a round number. I like writing a check with one or two number(s) followed by a lot of zeroes.

Addendum… we may be doing another no-cost refinance.  4.75%.  CRAZY.  That makes the prepaying decision even more difficult.  What do you think?  Do you pre-pay and why or why not?

Addendum #2:  Savvy Working Gal mentioned the tax benefits.  I was curious to see what the effective interest rate actually is.  Luckily there is a calculator for anything on the internets.  You may also need to know your marginal tax rate based on your income.  With the 5.5% our effective interest rate after taxes (assuming DH keeps his job) is 3.960%.  If we get the refinance, that becomes 3.420%.  Those are pretty low.  Still, with easy-to-obtain savings rates hovering around 0.40% (and inflation hovering around 0%), I think pre-paying will be a good use of extra cash until things turn around.  We can re-evaluate then.