Pay off 8.25% mortgage on land or max both my and my wife’s Roth?

[eider]

Vacant land came up for sale next to us and we bought it. Loan is 136,000 at 8.25%. Currently we’re maxing both roth’s. I will be putting $500 extra a month on the loan regardless, but wondering if I should take that $11k a year and drop it on the loan for a few years until hopefully rates come down and I can refinance or the interest portion isn’t as bad.

 

[judu18]

@eider Maybe hedge your bets put an extra 5500 in the loan and only 5500 into the roths. Guaranteed 8.25% sounds nice but there is always a chance one of the next few years is a 20-40% year.

 

[eider]

@judu18 That’s kind of where I was thinking to be honest. Or Just still maxing the Roth. I highly doubt rates are staying at 8% for more than a couple years, they’ll drop to five sooner than later

 

[returnedihave]

@eider I keep reading this statement from you and others and I’m curious the rationale behind it. 7.74% has been the average 30-year rate since 1971. It must be recency bias that people think sub 5 is the norm. Feels like the economy is more likely to bottom out. Fed is going to be stuck fighting inflation - major RE asset classes are going to start breaking with rates where they are. Going to be more pain coming.

 

[trogdortheterrible]

@eider I’d say no. Someone once told me when it comes to Roth IRAs you can’t get time back. You can only contribute so much each year. Best to do that every year.

 

[marilee]

@eider Ramsey would say pay off the loan. Loans have risk too, so that needs to be factored in to the cost:benefit analysis. I would pay the loan off as fast as possible. You’re not even losing much compared to the market. Would you take out an 8.25% mortgage on your house to put it in the market?

 

[eider]

@marilee I would not lol. Just wasn’t sure if over long term growth id make more than I saved.

 

[marilee]

@eider Dave would say that using money in a brokerage rather than paying off your mortgage is the same as taking money out of your house to put in the stock market and always recommends paying off your house first. The most powerful evidence in my mind is from the largest study of millionaires ever done. Everyday millionaires pay off their houses in around 11 years (they don't use the full duration of their mortgage because of a "better interest rate").

 

[maybeitsme]

@eider Always pay off a loan that is more than 4% pre-tax (that’s my internal calculus). Get the land paid off and get aggressive on the saving.

 

[kobolt]

@eider When do you plan on utilizing the land?

 

[eider]

@kobolt Immediately, it’s open field next to my woods so I’ll put in an acre or so food plot for deer. We’re considering starting a u-cut Christmas tree farm as well, but mostly we just didn’t want neighbors lol. And land pretty much only goes up.

 

[nuni]

@eider The advice I got years ago was, “Never plant more trees than your wife can take care of.”

 

[okafor1886]

@eider Depends on your marginal tax rate

 

[mangomint]

@eider Free up your income and get close out the debt.

 

[xlemon]

@eider I’d keep maxing the Roth’s. Debt can always be refinanced. You can’t go back and add that missing Roth money.