Paying Down Mortgage v. Investing

[womanonfire]

So after more than half a life of not saving or investing, I find myself in my 50s, in Chapter 13 and looking towards the future. I have NOTHING set aside for retirement unless you want to consider around 2k worth of stocks that are steadily losing value my home the latter of which is my best chance for investing.

The interest rate on the house is 5%. I missed out on refi opportunities because of litigation with mortgage company and horrible credit. I read that by the time I get out of bk, then the interest rates might be well above 5%.

If I can't get a guaranteed return on any investment of 5%, then isn't it best to try and pay down the mortgage rather invest? If no, why not?

[shipo]

You're more or less in the same boat I was in 2015 when I filed for my Chapter 13; I was in my late 50s, all of my investments had been consumed, I'd lost my house, I had a 14 year old car (which rusted away during my 4th year of my Chapter 13), and had just started a new 401(K) plan with my new employer. In my case, I ramped up my 401(K) withholdings to the IRS maximum, my (now former) company had a whopping 10% match, and in the space of the next six years that fund had grown from zero to over $330,000 when I left the company. Keep in mind, this was partially due to the large annual contributions, but also due to the single fund I put the money into.

Fast forward one year and markets are in huge turmoil and yet I still believe investing is the path forward. This Ukrainian war won't last forever, COVID seems to be on the wane, and my bet is we're going to see a reprise of the Roaring 20s, 100 years later. Said another way, 2022 is probably going to be a huge bust for investors, however, beyond that, I don't see any benefit to paying down your mortgage versus investing. Think about it this way, investing when the markets are down allows you to buy in when prices are depressed; you'll essentially be buying more for less.

[womanonfire]

Thanks shipo! I'm glad to hear that you managed to invest some.

Can you explain this return on investment better? I don't know how to crunch the actual numbers to see math. It still somehow makes sense to own a home free and clear and to also be able to use that for rental income later.

[shipo]

LOL, talking to your accountant will probably be a better approach, but I'll cover what I can.

It has been a long time since I was a landlord, like decades, at the time it was impressed upon me by my accountant to NOT pay down the mortgage for rental property; I don't remember the exact rationale, but it had to do with tax advantages relative to the rental income.

As for return on investment comparisons between investments and paying down one's mortgage, I can only go by my experience which, over the last 40+ years sees conservative investments in mutual funds and such returning between eight and ten percent annually on average; some years were near zero (or even below for a couple of years, 2008 and 2022 for example), other years were over twenty percent.

[womanonfire]

I'm revisiting this post in the off chance someone can give me something to consider as I received an offer of a loan modification that would reduced my current 36 mo. bk payment by $700 per month, which in turn could be used to invest. The UPB on my home is $110,000 on my home plus arrearages. I'm supposed to be paying escrow and I am not because my now approved plan said I would pay it myself. The plan also reduced their claim from around 37k to 34k. The remaining interest owed is around 58k and in 18 years, it's paid off.

The loan mod UPB would be 134k, 30 year term at 5.5% interest. Even if my attorney counters with ok but make the interest 5% to match the current rate, I'm paying an additional 82k in interest and owing into my 80s. This seems like a raw deal because even if I were to use some of my savings to pay it down, I'm still going to be paying more in interest.

I supposed the problem that I have is not understanding ROI. Right now, I'm able to save a couple 100 a month and make my current payment. Any thoughts?

[justbroke]

Someone please correct me if I'm wrong, but if you modify a mortgage while in a Chapter 13, that not only requires permission, but the Chapter 13 Trustee will notice. If it reduces your payment to the lender and increases your disposable monthly income (DMI), I would think that the Chapter 13 Trustee would try to modify your plan to include some or all of the difference. I've just never had this issue, so don't know how it is handled.

If you're asking from an investment perspective, I don't think that refinancing a home with 18 years left to a 30 year mortgage, is a good investment. Additionally, 15 and 20 year mortgages have significant advantages including lower interest rates and potentially little to no PMI.

[womanonfire]

justbroke I'm in a 100% plan and I don't know either but that is a good question!

It's not a refi, it is mod but I guess you could look at it as similar. Yeah, this mod offer doesn't sound very good at all.

[justbroke]

Modifications have worked in a Chapter 13 debtor's favor. I know that my bankruptcy district pushes them all the time. Whether or not the mod will work for you may be based on your Chapter 13 Trustee and your district and how they deal with excess "disposable" income after the modification is made permanent. I just can't talk to that.

[womanonfire]

Modifications have worked in a Chapter 13 debtor's favor. I know that my bankruptcy district pushes them all the time. Whether or not the mod will work for you may be based on your Chapter 13 Trustee and your district and how they deal with excess "disposable" income after the modification is made permanent. I just can't talk to that.

I do know that the Trustee initially tried to get me to pay interest and my attorney told him he would fight it hard and he dropped it. The issue is how they can force someone that is in a 100% plan to pay more each month than they are supposed to pay. If I'm supposed to be in a 36 or 60 month plan, and I'm already in a 36, making me pay more than you owe would be forcing me into a 22 month plan and that number doesn't exist in the code.

[shipo]

nancypalmer, please reread the forum rules regarding responding to old threads. Reopening and commenting on old threads is strongly discouraged without a good reason to comment.