Assuming that you continue to make the 401K payments to at least capture the employer match.. it is a simple question of what is the better return... the rate on your mortgage or the return on your 401k?

If you mortgage is at 6%, and your 401K is at 10%, think of is as borrowing money at 6% and investing it at 10%. you are making 4% (the numbers are slightly different after tax, but are in the same direction).

-luck

If you are getting an empoloyer match on the 401k money, then it is a no-brainer. Even if you wound up taking the money out of the 401k at the first possible moment and paying off the mortgage, you would still have gained the free money from your employer.

Also, you're making an assumption that the future will work out the way you've planned. You're thinking you will keep working. Who knows what life-changing event could change that. You're thinking you'll be able to stay at the same company. Hmm, the people at Enron and New Century thought that, too. While you intend to contribute more to the 401k later, if something drastic happens and you're unable to do that, you will have missed out on that opportunity.

You're better off with the money in the 401k.

I think you're forgetting the tax implications.

The IRS would love you -- it's a double whammy from a tax perspective. If you're paying more toward your mortgage, you're taking away one of the best ways to reduce your tax bill (by paying off the interest faster and faster) while you're also losing your tax-free contributions to your 401k (since that's where the extra cash is coming from.)

So, basically, you start paying taxes on more money because it isn't going into the 401k PLUS, you're losing your tax breaks on the interest you're paying toward your mortgage.

You'd have to crunch the numbers to be sure (or check with a financial advisor), but as a general rule, it's a bad idea in my opinion.

Great debate. A simple and quick answer would be to invest in your 401K. Most people need a good deduction which they get from having a mortgage. Hopefully at this point, you have a smaller mortgage, and the compounding factor of the 401 will have a bigger impact.

from my own experiences it's harder to put money back into savings the second time ,plus in your 401k the way things seem to be going ,looks like saving your money in the long run may generate more return than paying on our house if it's a fixed rate mortgage. however if your financing allows maybe a split into both would be more helpful like 10% to your 401k and as much as you can towards your house

At that point you COULD catch up....but most people don't and find other uses for the money. All up to you...if you think you're diligent enough then go ahead. Much easier to let compounding work for you.


And I hope you meant to use the $ instead of the %. Limits are 15.5k and 5k (though both are indexed so likely won't be that in 6 years).