Comments on: Should You Put Extra Money Towards Your Mortgage or Invest?

By: Laura

Laura — Tue, 02 Aug 2011 17:54:31 +0000

You can also reamoritize your loan at your current interest rate. Payoff a large chunk at once and they have them reduce your monthly payment accordingly. Not many places know about this so ask. If you refi you just need to figure out how many months would it take you before you broke even on the costs.

By: John

John — Tue, 08 Mar 2011 18:04:01 +0000

Could one of the many experts who post on this site please help me with this facet of the conversation:
I have a $300,000 30yr fixed mortgage at 5.2% and $100,000 in the bank. I plan to own (or rent) the home for a long time (15yrs or more). Should I be looking into paying off a big chunk and refinancing at a lower rate for 15 yrs?

By: Aury (Thunderdrake)

Aury (Thunderdrake) — Thu, 06 May 2010 23:45:54 +0000

Personally, I try to avoid owning a high mortgage in the first place. But this is because I have a very low standard of living, and don’t really require much of one to enjoy my life. If pressed, I’d ask myself “Does the mortgage have a higher interest rate, or will my portfolio earn me more?” Since there are ways to bail out of a mortgage, both harmful and fair. But with a portfolio, you can’t weasel in gain the same way.

Every case is different. So this is something someone should ask themselves and answer themselves. I’d rather build my assets than assume the responsibility of liability.

By: Financial Samurai

Financial Samurai — Thu, 06 May 2010 04:54:21 +0000

Perhaps doing a little bit of both is a good idea. It’s all about comparing your mortgage rate to the risk free rate of return, which is currently close to 4%.

I would say any mortgage rate above 6.5% one should just focus on prepaying. 5-6% is not so clear, and under 5%, I’d just keep the mortgage for as long as the bank allows me to borrow.

Best,

Sam

By: Panda Mike

Panda Mike — Wed, 05 May 2010 15:31:21 +0000

I like the “how does this feel approach”, this is a big factor in one’s decision to pay off his mortgage faster or invest his money.

In my case, the decisive question was:
Can you beat your mortgage rate on the stock market?

If you take the compound interest power in consideration, as long as you can match or beat your mortgage rate in your investment portfolio, you will be better off with your investments.

For example: a mortgage of $100,000 at 5% over 20 years.
scenario #1: you pay down your mortgage (monthly payment of 657.13$). in 20 years, you will be done with your mortgage, so creating 100K of value (the amount of your mortgage).

scenario #2: you pay interest only for 5 years and you invest the difference at 5%. Interest only payment is $416.67 per month. You invest the difference ($240.46). At 5%, you get $98.838. You seem to be a loser but you kept your tax advantage all the way down which equals way much more than $1,200. Also, if you only invest at 5.5% instead, you get $104,752 (plus tax advantage).

This is why I rather go with scenario 2