This is actually around the number I've been thinking of investing over that time frame. I'm just trying to get some outside opinions from folks without a dog in this fight.

My parents are the ones pushing the cash for the house idea. But they also came up in difficult times and know what its like to struggle to pay a mortgage. They've raised me to hate owing anyone anything, especially banks. I don't think it is necessarily a bad view point, but I don't want to cut myself short on the investing side of things.

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Posted by Korkstand

Member since Nov 2003

28712 posts

Posted on 11/1/13 at 3:08 pm to braindeadboxer

quote:
I don't want to cut myself short on the investing side of things

Then break out the calculator (and someone please correct me if I'm wrong):

Let's assume you end up with $200k that you can't decide whether to invest it or pay the house off.

Assuming you invest it and finance $200k for a house at 5% for 15 years, your payments will be around $1600, which results in about $285k in payments. Meanwhile, your $200k investment with no additions will have grown to about $490k after 15 years (assuming a modest 6%).

Now let's assume you use that $200k to buy the house, and invest that extra $1600 per month you will have instead. After 15 years, you will end up putting that same $285k aside, but it will have only grown to about $465k.

So, 15 years on, you will have a paid-for house either way, but by investing you will have an extra $25k. And that's with the very tight percentage spread I used. You can probably get lower than 5% on a mortgage, and you will probably average better than 6% by investing wisely. Whether that's worth the trade-off for peace of mind by not having a mortgage is up to you.

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