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Real Estate Escrow/Mortgage vs Paid Off
Posted on 6/2/17 at 6:33 am
Posted on 6/2/17 at 6:33 am
Question and possibly dumb for many reasons, but the money board is usually civilized when it comes to these things...
Lets say you have two homes, one that is your primary residence and has a mortgage on it and a second that doesn't have a mortgage. Both are worth the same amount of money... Does it make any sense whatsoever to attempt to shift things and ultimately borrow money against the paid off home if you can get a rate in the low 4s and invest all of that money in the market?
I've read that it makes no sense to rush to pay off your home at such low interest rates, that over whatever time frame, investing the money in the market will result in a high return than paying off the house.
Again, prob a stupid question, but figured I'd ask.
Lets say you have two homes, one that is your primary residence and has a mortgage on it and a second that doesn't have a mortgage. Both are worth the same amount of money... Does it make any sense whatsoever to attempt to shift things and ultimately borrow money against the paid off home if you can get a rate in the low 4s and invest all of that money in the market?
I've read that it makes no sense to rush to pay off your home at such low interest rates, that over whatever time frame, investing the money in the market will result in a high return than paying off the house.
Again, prob a stupid question, but figured I'd ask.
2
Posted on 6/2/17 at 6:43 am to Lsut81
There is no right or wrong answer and nothing you are asking is "dumb".
Risk vs reward is what it boils down to.
If the market turns the wrong way will you be ok?
What is peace of mind worth? To me it's worth quite a bit. I'm currently living in a paid off home and driving a paid off car.
As mentioned in another thread, I will make less money this year than I have since getting out of college. Yet, I have zero stress because I have no major financial obligations.
Risk vs reward is what it boils down to.
If the market turns the wrong way will you be ok?
What is peace of mind worth? To me it's worth quite a bit. I'm currently living in a paid off home and driving a paid off car.
As mentioned in another thread, I will make less money this year than I have since getting out of college. Yet, I have zero stress because I have no major financial obligations.
This post was edited on 6/2/17 at 6:45 am
Posted on 6/2/17 at 8:07 am to Lsut81
Not a dumb question at all.
Consider your investment horizon. How close are you to retirement? Because investing in "the market" (by which people usually mean stocks) is not a guaranteed return, one generally should plan for staying invested over the entire term of a 30 year mortgage to be more sure of seeing a tangible benefit. Even longer if you live in Japan. The shorter your investment horizon, the bigger chance you're taking.
OTOH perhaps there are other non-stock investments that might be worthwhile, or certain tax plays. Today's rates really are pretty low so one might expect to be able to take advantage of that somehow. For example, the general expectation is that interest rates will rise over the next several years. If so, you shouldn't necessarily be in a hurry to pay off that debt.
Remember too that the real cost of your money is your rate minus inflation. It never makes sense to pay off a loan with a rate lower than inflation (as is sometimes the case with car notes). Just pay the minimum on those and be sure you have enough cash to take of things if the secured asset is totaled.
Consider your investment horizon. How close are you to retirement? Because investing in "the market" (by which people usually mean stocks) is not a guaranteed return, one generally should plan for staying invested over the entire term of a 30 year mortgage to be more sure of seeing a tangible benefit. Even longer if you live in Japan. The shorter your investment horizon, the bigger chance you're taking.
OTOH perhaps there are other non-stock investments that might be worthwhile, or certain tax plays. Today's rates really are pretty low so one might expect to be able to take advantage of that somehow. For example, the general expectation is that interest rates will rise over the next several years. If so, you shouldn't necessarily be in a hurry to pay off that debt.
Remember too that the real cost of your money is your rate minus inflation. It never makes sense to pay off a loan with a rate lower than inflation (as is sometimes the case with car notes). Just pay the minimum on those and be sure you have enough cash to take of things if the secured asset is totaled.
Posted on 6/2/17 at 8:15 am to I Love Bama
I've also considered borrowing against the paid off home and purchasing two rental properties with the money.
Although, I'm hesitant to get into the rental game. I know I can pay a third party to handle everything, but seems like a pain in the arse.
I can't sell the paid off property yet, but feel like it's a lot of value sitting on the sidelines and not making any money for me.
Although, I'm hesitant to get into the rental game. I know I can pay a third party to handle everything, but seems like a pain in the arse.
I can't sell the paid off property yet, but feel like it's a lot of value sitting on the sidelines and not making any money for me.
Posted on 6/2/17 at 8:21 am to Lsut81
I have a real estate bias.
I like the idea of buying rentals with your equity. It would likely be less down side risk that the stock market. But, my crystal ball is not working at the moment.
I like the idea of buying rentals with your equity. It would likely be less down side risk that the stock market. But, my crystal ball is not working at the moment.
Posted on 6/2/17 at 9:44 am to Lsut81
quote:
I can't sell the paid off property yet
Why not? Inherited?
What is your plan for the paid off house if you do pull money out of it?
You have a plan for the money, but what about the house with a new mortgage? rent it?
Why not sell the house and invest the money interest free?
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