Last month (May):
Years left: 11.25
P = $707.05, I =$507.35, Escrow = 591.95
This month (June):
Years left: 10.5833333
P = $714.58, I =$499.83, Escrow = 591.95
One month’s savings (difference in amount going to interest rather than principal next month): $20.56. Not bad!
So we got our gigantic tax refund. Yes, I know we’re not supposed to get a huge tax refund, but our taxes were very complicated this year so we overestimated our estimated payments (or rather, we knew we should send in less, but not how much less, and we didn’t want a penalty). Since we weren’t expecting it and we’re already on track for summer money, it doesn’t need to spend the summer in savings at 0.55%.
What to do with a gigantic tax refund you’re not expecting (and thus, have not already spent)?
I asked #2. Here’s her response:
#2: So… tapir massage is a thing?
#1: I don’t think I want a tapir massage.
I could put the money in a retirement account…
#2: No, no, YOU massage the tapir!
#1: I don’t want to do that either
nor do I want to donate to the fund for unmassaged Tapirs
So that’s out.
Her next suggestion was to pre-pay the mortgage with some and buy lots of books… but I don’t really want to buy any more books until either the next Parasol Protectorate comes out or I make at least a teeny dent in the books I really want to read and already own.
I narrowed it down to three options.
1. Mortgage prepayment
2. Tax advantaged savings
3. Non-tax advantaged accounts
Mortgage prepayment is the easiest of the three and well suited to my laziness. It’s also still giving a relatively good return on a safe investment. Our interest rate is 4.75 with the effective rate (adjusted for taxes) lower than that, but still higher than our savings account. However, the stock market seems to have settled down some and we could still be funneling another 33K into tax advantaged retirement accounts. It might make more sense to put money there. Money paid towards the mortgage is also difficult to take out, either with a higher interest rate HEL or by selling the house.
Tax-advantaged savings would be my first choice if we qualified for Roth IRAs or were sure we’d be able to get tax savings on a traditional IRA. Since our income is often right near the phase-out, it would be safer to start funneling money into the state 457 (which is similar to a 401(k) but has slightly different rules), because we would be sure to get the tax deduction. We’re already maxing out our 403(b). However there are start-up costs to the 457 and I’m not actually sure that we could contribute a lump-sum, or how etc. and that would take research. Of course it is research we would only have to do once, but meh. Another problem is that it’s a bit harder to tap this money without penalty, though a 457 is easier/less expensive to liquidate than a 403(b) in cases of lost employment.
Non-tax-advantaged accounts are also appealing. If I didn’t have a years expenses in them right now, I might start there. It is nice knowing that in case of emergency this is another place we could tap and that one day we’ll have enough money in them to have a nice income stream from dividends. But, when we have a healthy second-tier emergency fund already, it seems silly to bypass tax advantaged savings or a guaranteed return interest rate in the form of the mortgage.
Which did I choose? As always, I satisficed and took the lazy way out. Hence this month’s mortgage update. (We also bought some furniture that we probably should have bought 4 years ago…) Next September though, I am going to think really hard about if we want to keep funneling money into the mortgage or if we want to start focusing our extra funds on the 457 plans instead with regular paycheck deductions, especially since our employer matching is being cut next year (and health insurance costs are rising etc.). These real wage paycuts are killing me! We want raises!
So, what do you think? Was the mortgage the right decision?