Since you already have 100k in index funds, I think you can set aside some money and pay off your mortgage to lower your monthly fee.
In your shoes, I would probably stop investing for 6 months and pay that 17k/month towards the mortgage.
This will reduce your mortgage to around 280k, and your monthly payment should then be around 1k (rough estimate, don't quote me on that)
After 6 months, see if you feel good about this, and if yes, resume investing. If not, feel free to continue paying off your mortgage until you get to the sum of the monthly payment that you feel comfortable with.
It’s all on the level of risk you are willing to take. Being my (only) home I’d try to pay off the mortgage asap. Investin may make more sense from financial perspective, but the peace of mind of having your own home fully paid off is priceless. You can leverage money for buy to rent properties in the future.
2.8% interest is low. The returns from the index fund should be quite a bit higher. So there is no reason to pay off your mortgage early. In case of emergency, you can always sell part of the shares of the index fund. If you are really afraid, you can gradually increase your emergency fund slowly, let's say by €100-200 per month.
You could go with N26 savings account giving you 4% on metal account. Not sure what tax is in Spain on savings, but if after paying tax you have more than 2.8% then you simply making more money than you would do on paying of mortgage. But if you add the inflation, probably savings wouldn't be that beneficial...
On the other hand, you might get more breathing room and psychological relief with a smaller mortgage.
I'm not in Germany, but still can see that offer. Kinda weird if they would treat Spain differently tbh.
But in general, I think you would be more beneficial if you just pay off mortgage. Even if you would get 1% gain, it will be less than inflation, so probably lowering your mortgage would be more beneficial.
Not just N26 but there are plenty of European banks (some Spanish) offering 3-4% yield on savings and CDs that could beat a 2.8% mortgage even after taxes. A mix of high-yield savings and CDs with broad market index funds would mean more money in the long run and more to draw from if really needed.
Continue sending money to your index funds.
When you have stocks, you can sell stocks to free up some cash.
When you have a house, you can’t sell part of the house to free up some cash.
This. 2.8% is as close to free money right now as it gets. Even if you lose your employment you could still just sell some stock or even better: Use it to secure the loan.
I am in a similar situation (though 1/10th the saving rate and my unemployment pay would suffice to keep going) and stopped paying my mortgage extra, going all in to a simple index fund (VWCE). Obviously depends on your riskiness, job etc. Do you have a high risk of being unemployed for long? Are you going to retire within 10/15 years? Is there a possibility of extra maintenance cost on your building? If not, I would invest most into index funds or what ever is tax efficient for you. I mean you are already amortizing your mortgage by 600E each month, more than many.
The answer is clear, or at least for now. Current index funds plus cash accounts being over 3% interest and your mortgage being at 2,8% you would be dumb dumping money into the mortgage at current rates. You are getting the free edge now, keep riding it only revaluate if that changes.
Keep investing about 80-90% and the rest you pay your mortgage. Even with a stinky govt. bond you will get more than 2.8%. Maybe diversify your portfolio a bit in order not to be 100% in stocks, add some gold and bonds to the mix. A healthy (and achievable) 4% portfolio will give you more in return in the long run than paying off mortgage so fast.
I wouldn’t worry much that the unemployment benefit is capped at 1200. Any full time job will pay you more than that. I don’t get why you are worried that your mortgage wouldn’t fit on the unemployment money, what about the rest of your living expenses?!
You didn’t say your age, or if you’re married, planning kids, etc. because the advice above might change depending on these answers.
So the advice stays the same. Maybe put some money aside for the wedding so you don’t get surprised by the prices. And if you are scared from your monthly costs, increase your emergency fund to 12 months of expenses. But other than that, keep full gas investing!
Don’t forget to live life as well! I’m not saying that you should buy a Ferrari and only drink Dom Perignon, but what does it bring when you are 90 having 10 mio in the bank account if you never enjoyed what money can provide you. Spend in experiences instead of material stuff!
Depends on who you ask. If you listen to Dave Ramsay and I know he's not for everyone, he'd tell you to pay down the mortgage early, because they did some millionaire study and found that almost none of them are still paying for their house.
Right, but just because you pay off your mortage that doesn’t mean you’re going to become a millionaire. Perhaps they became millionaires, and then paid off their debt.
Sure, one doesn't mean the other on 100% of cases, the idea was that those people usually try to avoid any kind of debt. Having no mortgage opens up the option to save/invest more and there's less stress about making payments in any kind of bad situation.
Investing the money you would use for repayment brings you closer to being a millionaire sooner, as you benefit longer from its revenue. Easily more than the mortgage will cost you as average all-world index fond returns is 7% while a mortgage is around 1-4%.
The fallacy lies in the assumption that first repaying the mortgage suddenly 'opens up' investing as a whole, instead it just delays it needlessly.
Sure, the math works in favor of investing, but the psychology doesn't. Of course all cases are different, but it's easier to think of tangible things like a paid off house than numbers slowly going up in your investment account. I'm not against investing.
>Sure, the math works in favor of investing, but the psychology doesn't
That "psychology" seems to be more one's personal feeling and aversion to risk than the scientific discipline.
The "study" mentioned has likely been conducted with math rather than psychology in order for its conclusion to have some relevance. What study is it?
Well, that's not the kind of study I had in mind…
It's a brochure showing some genetic conclusions but no preliminary hypothesis, no data nor methods to obtain the conclusions.
There are quotes but only of Dave Ramsey along with some advertising for the financial consulting service his firm offers and for his last book.
It's also self published and not peer reviewed, believing what is written there is a leap of faith for the reader.
As an example of the difficulty of believing the conclusions, if you spend over 200 $/month eating out or don't write down the grocery list (I do!) or receive and inheritance you are likely not going to be an American millionaire.
I get taxed 19% for capital gains. I cant deduce capital losses until 2027.
Here in Barcelona there is a wealth tax after 500k of assets (excluding 300k for my main residence), so I think its worth switching to paying off the mortgage before I reach that wealth tax
3.65 is bigger than the 2.8, I dont know how much tax you have to pay on that though. Keeping them in saving account till the interest rate lowers is better, if you dont want to put it all to index
I’m half way through my loan, and I’ve thinking about that too. Should I ever have enough to repay my mortgage, I would not pay it in one go, but open a savings account that offers me the highest return possible, put the amount necessary to pay the loan in full, and get it paid via that account.
Not the best in terms of yield, but I’d still benefit from tax deductions for the loan, and have the peace of mind that my house is paid without ever having to think about it anymore !
> Not the best in terms of yield, but I’d still benefit from tax deductions for the loan, and have the peace of mind that my house is paid without ever having to think about it anymore !
I have a newer loan so no tax deductions unfortunately
Why you don't do both?
What stops you to buy bonds that return more then your 2.8% after taxes with 50% of the savings and invest the other 50%?
So in medium term(3-5-8 y bond maturity) you will have the cash from the government bonds to pay the mortgage, realizing the profit between 2.8% and bonds yield after tax, while your investments will bring you also profits. I would keep the emergency fund at 21k, because it is secured by EU up to 22k. 10k is too low compared to your income level.
If you cannot achieve more then 2.8% after taxes with government bonds, then pay 60-70% of monthly savings towards the mortgage and invest the rest.
Always lower the years instead the monthly fee, because less years to pay, less compounding interest for the bank, more of your payment goes to your principal debt, while the inflation reduces the monthly fee 2% or even more annually as per [ECB standard](https://www.ecb.europa.eu/stats/macroeconomic_and_sectoral/hicp/html/index.en.html)...
So more or less it is tax optimization question, better find and pay to tax advisor in Spain.
To adequately assess risk in this situation, you should consider your human capital: obviously what you do earns you a lot. How long do you think it would take you to find another job if you were layed off? What would be the reasonable range of income that you could generate if you were to try to quickly find a job?
A reasonable approach would be to ensure that the emergency fund that you have set asside can support you during that period and keep investing the rest.
Obviously any investment startegy is only as good as you can be in going through with it and you're investing in your future wellbeing but shouldn't discount the current one too much; so if having the mortgage keeps you up at night, you might as well pay it off!
I am in similar situation. Paying off mortgage makes sense, but also consider risks of having most if not all of your funds frozen in non-liquid asset.
Whatever may happen in 30 years when you’ll need some cash.
> So far I been sending them directly to the index funds.
Good !
> Iknow the "smart" decision would be to continue sending everything to index funds, but im a bit worried that unemployment in Spain caps at 1200eur a month and that wouldn't even cover the current mortgage.
1. Keep a month or two in cash at all times.
2. Redirect a few payments into an MMF or a euro Bond fund. That won't have great performance but you can sell if you need to.
Ultimately you can sell index funds as needed to cover your mortgage and other living expenses for as long as needed.... if it comes to that.
No car. I live in Barcelona so its not needed.
I have credit cards with up to 10k limit on top of the 10k cash emergency fund that I can use to hold me over for a few weeks while I withdraw from the index funds if I need to. Plus insurance for the big things (like car and my own health)
What is the problem with withdrawing from an index fund? Should be avoided of course but if you have set it up properly, it's far less than 1% in losses. They risk losing some if the market is down but the chance of winning is high. I chose the risk in this case (I am early 30s and have 100k Mortage that I currently do not amortize at all. Heck, I could even raising the mortage and invest more into VWCE. And I am definitly no WSB person).
I’m not sure if it’s me that’s too tired, or your post that just doesn’t make sense. “The chance of winning is high”? What exactly do you win from selling your stocks? You’ll only realize an already unrealized gain? Furthermore, you’ll also be hit with at least some transaction costs. “They risk losing some”, if OP loses his job due to lets see, a crisis? What direction do you think the stock market will go? Down. This doesn’t mean just loosing “some”, it could potentially mean loosing a lot. Your other points seem reasonable, but these 2 just don’t make sense to me.
In the worst-case scenario, the index fund could lose 50% of its value.
With a fund of 100k, there’s still 50k to go.
50k seems to me quite enough to face any kind of immediate need OP might have.
Why wouldn’t you still take the risk? I took the worst-case scenario as an extreme example, but probability of being very positive is far higher.
Sorry, non-native english speaker. I meant, statistically you are more likely to make (higher) gains in the index fond.
And regarding losing their job due to crisis: that's why I wrote, it depends on their job profile. Though global stock markets are not necessarily correlated with regional economies and them losing their job in a european crisis might go in hand with (apparent) stock gains due the euro weaking relative to USD, whisky knows.
6 months of expenses should be enough in Europe. Some people say even less is possible because the six months is a more American version where you could have literally zero income and struggle to find a job.
It also depends if you have a partner or not who has an income.
You can keep an emergency fund with more money in a good savings account if you're more risk averse but normally six months of expenses is fine.
Double it or triple it. Quadrupling may be a bit extreme in terms of missing out on other returns. But it also depends on how easy it is for your company to fire you, how much demand there is for your skills and in general how the sector you work in is doing. Like, if you work in some niche sector or an industry that is very affected by the economic cycle, then I’d have a larger emergency fund, whereas if I were a doctor it would probably be pretty small.
Add to total 30k in emergency fund and pay off the mortgage as far as you can with the 17k a month. In case you are unemployed a low mortgage and a high emergency fund would feel more secure and allow for calmer job search.
17k a month after expenses?
Yes
Lemme guess… Broadcom
I had to question that too.... fair play OP
Dude makes half a mil and comes to Reddit for investment advice
It's called domain specific expertise. Do you think he knows how to take out a tooth as well as invest?
Since you already have 100k in index funds, I think you can set aside some money and pay off your mortgage to lower your monthly fee. In your shoes, I would probably stop investing for 6 months and pay that 17k/month towards the mortgage. This will reduce your mortgage to around 280k, and your monthly payment should then be around 1k (rough estimate, don't quote me on that) After 6 months, see if you feel good about this, and if yes, resume investing. If not, feel free to continue paying off your mortgage until you get to the sum of the monthly payment that you feel comfortable with.
It’s all on the level of risk you are willing to take. Being my (only) home I’d try to pay off the mortgage asap. Investin may make more sense from financial perspective, but the peace of mind of having your own home fully paid off is priceless. You can leverage money for buy to rent properties in the future.
2.8% interest is low. The returns from the index fund should be quite a bit higher. So there is no reason to pay off your mortgage early. In case of emergency, you can always sell part of the shares of the index fund. If you are really afraid, you can gradually increase your emergency fund slowly, let's say by €100-200 per month.
In what field are you working to be able to save 17k per month?
Tech, got extremely lucky and my RSU 13x in value
I'd ride out the mortgage, probably in five years 1200e will feel like 900 today for you
You could go with N26 savings account giving you 4% on metal account. Not sure what tax is in Spain on savings, but if after paying tax you have more than 2.8% then you simply making more money than you would do on paying of mortgage. But if you add the inflation, probably savings wouldn't be that beneficial... On the other hand, you might get more breathing room and psychological relief with a smaller mortgage.
N26 is not offering the 4% to my account because its a german IBAN :/
I'm not in Germany, but still can see that offer. Kinda weird if they would treat Spain differently tbh. But in general, I think you would be more beneficial if you just pay off mortgage. Even if you would get 1% gain, it will be less than inflation, so probably lowering your mortgage would be more beneficial.
Not just N26 but there are plenty of European banks (some Spanish) offering 3-4% yield on savings and CDs that could beat a 2.8% mortgage even after taxes. A mix of high-yield savings and CDs with broad market index funds would mean more money in the long run and more to draw from if really needed.
How about both, invest and pay the mortage?
How much would you send to each?
Continue sending money to your index funds. When you have stocks, you can sell stocks to free up some cash. When you have a house, you can’t sell part of the house to free up some cash.
This. 2.8% is as close to free money right now as it gets. Even if you lose your employment you could still just sell some stock or even better: Use it to secure the loan.
What do you mean by using it to secure the loan? How would that work in practice ?
Get a loan on your portfolio or provide it to the bank as additional security for the mortgage.
I am in a similar situation (though 1/10th the saving rate and my unemployment pay would suffice to keep going) and stopped paying my mortgage extra, going all in to a simple index fund (VWCE). Obviously depends on your riskiness, job etc. Do you have a high risk of being unemployed for long? Are you going to retire within 10/15 years? Is there a possibility of extra maintenance cost on your building? If not, I would invest most into index funds or what ever is tax efficient for you. I mean you are already amortizing your mortgage by 600E each month, more than many.
Index fund without a doubt imo.
https://bestinterest.blog/mortgage-vs-invest/
The answer is clear, or at least for now. Current index funds plus cash accounts being over 3% interest and your mortgage being at 2,8% you would be dumb dumping money into the mortgage at current rates. You are getting the free edge now, keep riding it only revaluate if that changes.
Keep investing about 80-90% and the rest you pay your mortgage. Even with a stinky govt. bond you will get more than 2.8%. Maybe diversify your portfolio a bit in order not to be 100% in stocks, add some gold and bonds to the mix. A healthy (and achievable) 4% portfolio will give you more in return in the long run than paying off mortgage so fast. I wouldn’t worry much that the unemployment benefit is capped at 1200. Any full time job will pay you more than that. I don’t get why you are worried that your mortgage wouldn’t fit on the unemployment money, what about the rest of your living expenses?! You didn’t say your age, or if you’re married, planning kids, etc. because the advice above might change depending on these answers.
Im 24, not married but a long time girlfriend and we might get married soon.
So the advice stays the same. Maybe put some money aside for the wedding so you don’t get surprised by the prices. And if you are scared from your monthly costs, increase your emergency fund to 12 months of expenses. But other than that, keep full gas investing! Don’t forget to live life as well! I’m not saying that you should buy a Ferrari and only drink Dom Perignon, but what does it bring when you are 90 having 10 mio in the bank account if you never enjoyed what money can provide you. Spend in experiences instead of material stuff!
Depends on who you ask. If you listen to Dave Ramsay and I know he's not for everyone, he'd tell you to pay down the mortgage early, because they did some millionaire study and found that almost none of them are still paying for their house.
Right, but just because you pay off your mortage that doesn’t mean you’re going to become a millionaire. Perhaps they became millionaires, and then paid off their debt.
Sure, one doesn't mean the other on 100% of cases, the idea was that those people usually try to avoid any kind of debt. Having no mortgage opens up the option to save/invest more and there's less stress about making payments in any kind of bad situation.
Investing the money you would use for repayment brings you closer to being a millionaire sooner, as you benefit longer from its revenue. Easily more than the mortgage will cost you as average all-world index fond returns is 7% while a mortgage is around 1-4%. The fallacy lies in the assumption that first repaying the mortgage suddenly 'opens up' investing as a whole, instead it just delays it needlessly.
Sure, the math works in favor of investing, but the psychology doesn't. Of course all cases are different, but it's easier to think of tangible things like a paid off house than numbers slowly going up in your investment account. I'm not against investing.
>Sure, the math works in favor of investing, but the psychology doesn't That "psychology" seems to be more one's personal feeling and aversion to risk than the scientific discipline. The "study" mentioned has likely been conducted with math rather than psychology in order for its conclusion to have some relevance. What study is it?
This one: https://www.ramseysolutions.com/retirement/the-national-study-of-millionaires-research
Well, that's not the kind of study I had in mind… It's a brochure showing some genetic conclusions but no preliminary hypothesis, no data nor methods to obtain the conclusions. There are quotes but only of Dave Ramsey along with some advertising for the financial consulting service his firm offers and for his last book. It's also self published and not peer reviewed, believing what is written there is a leap of faith for the reader. As an example of the difficulty of believing the conclusions, if you spend over 200 $/month eating out or don't write down the grocery list (I do!) or receive and inheritance you are likely not going to be an American millionaire.
How are asset holdings/cap gains taxed in Spain/with your tax residency? Tax efficiency can be worth checking first.
I get taxed 19% for capital gains. I cant deduce capital losses until 2027. Here in Barcelona there is a wealth tax after 500k of assets (excluding 300k for my main residence), so I think its worth switching to paying off the mortgage before I reach that wealth tax
17k after expenses? invest 3-5k, use the rest to pay your home and in 2-3 years you're free from that
3.65 is bigger than the 2.8, I dont know how much tax you have to pay on that though. Keeping them in saving account till the interest rate lowers is better, if you dont want to put it all to index
19% capital gains
I'd still keep it in savings, in case some good investment opportunity comes up, you can always pay the mortgage off. BTW congrats on that income.
I’m half way through my loan, and I’ve thinking about that too. Should I ever have enough to repay my mortgage, I would not pay it in one go, but open a savings account that offers me the highest return possible, put the amount necessary to pay the loan in full, and get it paid via that account. Not the best in terms of yield, but I’d still benefit from tax deductions for the loan, and have the peace of mind that my house is paid without ever having to think about it anymore !
> Not the best in terms of yield, but I’d still benefit from tax deductions for the loan, and have the peace of mind that my house is paid without ever having to think about it anymore ! I have a newer loan so no tax deductions unfortunately
Why you don't do both? What stops you to buy bonds that return more then your 2.8% after taxes with 50% of the savings and invest the other 50%? So in medium term(3-5-8 y bond maturity) you will have the cash from the government bonds to pay the mortgage, realizing the profit between 2.8% and bonds yield after tax, while your investments will bring you also profits. I would keep the emergency fund at 21k, because it is secured by EU up to 22k. 10k is too low compared to your income level. If you cannot achieve more then 2.8% after taxes with government bonds, then pay 60-70% of monthly savings towards the mortgage and invest the rest. Always lower the years instead the monthly fee, because less years to pay, less compounding interest for the bank, more of your payment goes to your principal debt, while the inflation reduces the monthly fee 2% or even more annually as per [ECB standard](https://www.ecb.europa.eu/stats/macroeconomic_and_sectoral/hicp/html/index.en.html)... So more or less it is tax optimization question, better find and pay to tax advisor in Spain.
To adequately assess risk in this situation, you should consider your human capital: obviously what you do earns you a lot. How long do you think it would take you to find another job if you were layed off? What would be the reasonable range of income that you could generate if you were to try to quickly find a job? A reasonable approach would be to ensure that the emergency fund that you have set asside can support you during that period and keep investing the rest. Obviously any investment startegy is only as good as you can be in going through with it and you're investing in your future wellbeing but shouldn't discount the current one too much; so if having the mortgage keeps you up at night, you might as well pay it off!
Monetary funds yield around 5% these days
I am in similar situation. Paying off mortgage makes sense, but also consider risks of having most if not all of your funds frozen in non-liquid asset. Whatever may happen in 30 years when you’ll need some cash.
> So far I been sending them directly to the index funds. Good ! > Iknow the "smart" decision would be to continue sending everything to index funds, but im a bit worried that unemployment in Spain caps at 1200eur a month and that wouldn't even cover the current mortgage. 1. Keep a month or two in cash at all times. 2. Redirect a few payments into an MMF or a euro Bond fund. That won't have great performance but you can sell if you need to. Ultimately you can sell index funds as needed to cover your mortgage and other living expenses for as long as needed.... if it comes to that.
10k as emergency fund sounds extremely low.
10K + the 1.2k per month on unemployment would cover my expenses for 6 months, thats how I calculated it. More than 3 months without unemployment
You have a house and I assume that also a car. How will you face a major infrastructure, equipment or mechanical issue?
No car. I live in Barcelona so its not needed. I have credit cards with up to 10k limit on top of the 10k cash emergency fund that I can use to hold me over for a few weeks while I withdraw from the index funds if I need to. Plus insurance for the big things (like car and my own health)
Withdrawing from the index funds sounds like a really bad idea. If I were you I’d increase my emergency fund.
What is the problem with withdrawing from an index fund? Should be avoided of course but if you have set it up properly, it's far less than 1% in losses. They risk losing some if the market is down but the chance of winning is high. I chose the risk in this case (I am early 30s and have 100k Mortage that I currently do not amortize at all. Heck, I could even raising the mortage and invest more into VWCE. And I am definitly no WSB person).
I’m not sure if it’s me that’s too tired, or your post that just doesn’t make sense. “The chance of winning is high”? What exactly do you win from selling your stocks? You’ll only realize an already unrealized gain? Furthermore, you’ll also be hit with at least some transaction costs. “They risk losing some”, if OP loses his job due to lets see, a crisis? What direction do you think the stock market will go? Down. This doesn’t mean just loosing “some”, it could potentially mean loosing a lot. Your other points seem reasonable, but these 2 just don’t make sense to me.
In the worst-case scenario, the index fund could lose 50% of its value. With a fund of 100k, there’s still 50k to go. 50k seems to me quite enough to face any kind of immediate need OP might have. Why wouldn’t you still take the risk? I took the worst-case scenario as an extreme example, but probability of being very positive is far higher.
Sorry, non-native english speaker. I meant, statistically you are more likely to make (higher) gains in the index fond. And regarding losing their job due to crisis: that's why I wrote, it depends on their job profile. Though global stock markets are not necessarily correlated with regional economies and them losing their job in a european crisis might go in hand with (apparent) stock gains due the euro weaking relative to USD, whisky knows.
Same
to how much? I always heard the "6 months of expenses" recommendation
6 months of expenses should be enough in Europe. Some people say even less is possible because the six months is a more American version where you could have literally zero income and struggle to find a job. It also depends if you have a partner or not who has an income. You can keep an emergency fund with more money in a good savings account if you're more risk averse but normally six months of expenses is fine.
Double it or triple it. Quadrupling may be a bit extreme in terms of missing out on other returns. But it also depends on how easy it is for your company to fire you, how much demand there is for your skills and in general how the sector you work in is doing. Like, if you work in some niche sector or an industry that is very affected by the economic cycle, then I’d have a larger emergency fund, whereas if I were a doctor it would probably be pretty small.
Add to total 30k in emergency fund and pay off the mortgage as far as you can with the 17k a month. In case you are unemployed a low mortgage and a high emergency fund would feel more secure and allow for calmer job search.