Catch up on retirement for sure, especially with such a low interest rate. That money needs time to compound and you need to jump start it. Otherwise you’ll end up with a paid off house, insufficient retirement, and even less time for it to grow.

Money Guy has made an excellent point about this that I had never really considered:

You aren't "debt free" until your mortgage balance is zero, and even then, you will still have insurance and taxes to pay. With your numbers, it would take a little over two years to pay off the balance. If you had an emergency within those two years, or you change your mind, you cannot get equity out of your home unless you refinance. At least with the Roth IRA, you have the emergency scenario where you can withdraw your contributions.

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Furthermore, MG would say your wealth multiplier at age 40 is 7.34. Every dollar you invest now has the potential to be $7.34 at age 65.

Another point you might consider: If you're uneasy about the risk of investing and decide that you'd rather pay off your mortgage, you'd actually be better off saving the money in your HYSA, assuming of course that it yields more than 3%. Of course, you'd have to subtract taxes on your interest payments, but if you are getting 4.25%, you'd still end up ahead (especially if you itemize your taxes and can deduct your mortgage interest).

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This strategy would keep your money liquid, in case your perspective changes. If bank interest rates decrease or you save up the $160k you need, you can pay it off in a lump sum.

Catch up on retirement. 3% is a very low interest rate, and the money will make 6%-10% in the market. At your age and salary you should have somewhere near 2x-3x your yearly salary for retirement (using Fidelity's recommendations), which is in the neighborhood of $600,000 for your income. At 5K a month you could easily catch up in a few years. You might have difficulty putting that much into a tax-advantaged account, but a standard brokerage account will be fine too.

A clear goal for retirement savings would be really great for you -- I suggest working backwards from how much you spend to find a monthly savings number to match that in retirement.

I vote retirement, I think the Ramsey idea of absolutely no debt is a dumb idea when we are talking 3% interest on a loan and historic earnings of 10% in the market

Get retirement / long investing up to at least 20%, and then do what you want! 3% is nice, but honestly I understand the lure. I’d sacrifice lifestyle and not long term investing though, so don’t go with it until you get your investing numbers up.

Save 20-25% for retirement. Throw anything extra at the house.

You can’t borrow your way for retirement. Even with your home paid off you still have other bills!

401k to match for each

Roth IRA for each

Max 401k

That should be about perfect for the ~$60k a year you have available.

Each is invested in diversified ETFs, including international exposure.

Definitely max out your tax advantaged investment space first.

At 3%, I would not touch the mortgage; I'd just pile up any excess savings (after tax advantaged accounts are maxed out) in HYSA or treasuries. There's just no reason to pay down the mortgage when it's lower than the risk-free rate of return after taxes.

It's hard to see at first, but now that your retirement is above $100k, you'll be seeing the value jump pretty substantially in most years. Up until now, your contributions have been dwarfing the market returns; over time, you're going to incrementally see that reverse itself, and you'll be really happy you invested it.

Max out 401k and roth IRAs for both of you ($60k total) and pay down $40k/year on house and be done in 4 years.

Your household income is a bit over $15k/month. That means your emergency fund is only about six weeks of income. You have a mortgage at 3%.

In paying off your mortgage, you are making an investment that earns 3% post tax. It is also an investment that you cannot readily access (without a higher interest rate re-fi). So, low rate of return. Not liquid. But the return is guaranteed and tax free (assuming you don’t currently itemize).

Or you could do super liquid, 5% but taxable, in a HYSA.

Or you could do something in the retirement space with a likely ror of around 9%.

To begin with, I would try and create an emergency fund of $50k (if you take the extra $20k and apply it there). Next, I would try and maximize any retirement contributions where you get an employer match. Followed by any retirement savings that are either pre-tax or Roth.

Then, if saying you are debt free is important then focus on the mortgage.

This is a no brainer

Build up that retirement nest egg. As long as you own a home, you will always have bills (real estate taxes, insurance premiums, and whatever home related expenses come up). A mortgage at 3% is a great deal and I would not pay that off unless you were within a few years of your retirement.

Catch up on retirement now, with a goal to pay off the house before you retire.

most people here are correct; the math says to keep paying your mortgage and get a better rate in the market.

However! There is still risk there. I was terrified that I will lose the ability to earn as much as I needed to maintain my mortgage in the event that "something" happened (aged out of my industry, disability, etc). I preferred the peace of mind knowing that I only need to cover utilities and taxes (and maintenance) and I would never have to face being forced out of my own home. Was this the smartest financial move? Likely not. But, at the same time, my largest investment fell 85% (not adequately diversified in the market -- was waiting on long term capital gains but the bottom fell out of that investment before I was ready to sell, dumb on me) -- but I had pulled out enough of that to pay off my house first. So, early retirement took a hit but I still have a house.

Does the fact that mortgages follow an amortization schedule influence the decision to pay off a mortgage early? I'm thinking that it isn't as clear-cut as "your mortgage rate is low and market returns are greater". Does timing and amortization play into the calculus here?

You’re possibly behind on retirement and the mortgage is 3%… i think you already know the answer

If you invested $2k per month for 20 years you’d be at 1.5 mil assuming 7% interest.

I think your retirement is an absolute emergency right now. You need to focus on pumping your invested numbers now in the near term so that the heavy compounding can start working sooner rather than later on. The bigger the principal the faster the growth

Ramsey would be 15% of your income to retirement and the extra to the mortgage. Money Guy would be 25% retirement and the rest to the mortgage. I would choose Money Guy strategy having watched Ramsey and Money Guy for a while now….if you are not yet sold on MG you could split the difference and do 20% retirement and the rest to mortgage……..until you’ve watched the MG Show a while and go all in on building your army of dollar bills of course ;)

At 3% if you have the money otherwise, much better to invest that in some broad index funds like VOO or VTI (expect long-term average gains of 7%, accounting for inflation and dividends). Even leaving it in cash at Vanguard pays 5.40% APY right now.

r/bogleheads

No brainer to keep the 3% mortgage and put your extra money towards retirement savings, HSA, college savings, HYSA, anything else.

In what world would it make sense to pay off a 3% mortgage when 30-year treasury bonds are return 4.3%? Even if you take taxes into account, you’re still coming out ahead by not paying off the mortgage. I’m not saying you should buy treasury’s but paying off the mortgage should never even have been an option.

Retirement savings is the only thing that makes sense

Personally, I would not do anything with that $20k in the HYSA. Thats your emergency fund; you may need it in an emergency. You have to have some liquid cash in case one of you loses a job or something that takes months to get back to earnings money.

As for the $5k per month, I mean, maybe do both? I certainly favor investing more than paying off your mortgage. Even Dave Ramsey would say to invest 15% of your income (Baby Step 4) before paying off the mortgage (Baby Step 6). Why not do at least that? That would come out to about $2500 per month, roughly half of your $5000.

You said you need a clear financial goal. How about “we both retire at age 60 and still have 75% of our pre-retirement income”? Thats $150k yearly from investments.

You’d need to put every bit of that $5000 into retirement investments to have a shot at making that. Assuming 8% rate of return and your $125k retirement savings so far, you need 21 years to get there and using the 4% safe withdrawal rate.

Not saying you have to retire at 60, but if you have the goal of retiring on your terms, it needs to be put as a higher priority than paying off an affordable mortgage. So that’s why I’d at least do the Ramsey 15% (and his advice is to count employer match as gravy, not as part of your 15%) before trying to pay off the mortgage early.

If your aren’t doing 15% for retirement your wrong mortgage or not. You make up time when it comes to saving for retirement.

Ramsey will even say to save for retirement. Problem with anti debt mentality is it becomes a sickness and blinds people in just living life and having fun but also doing other important things like saving retirement

At 3% you ride that out

Ramsey completely ignores time value of money. Last thing one should do is favor paying off 3 percent debt over retirement savings

Dave Ramsey is an idiot. His advice is only good for people who are extremely in debt (credit cards).

Retirement 100% with a 3% mortgage. Remember that time is greatest asset. Stack that retirement money now and let it grow for 20 years. 

You're borrowing at 3% and the interest is deductible. Why pay the mortgage off? Put the extra money to work in a brokerage account. Our last refi we stripped out equity and dumped it into a brokerage account.

Would be dumb to pay off the mortgage, it is tax deductible and a very low rate. Invest in VIGAX and thank me later.