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Started By
Message
Pay down mortgage vs invest extra money
Posted on 4/27/14 at 7:06 pm
Posted on 4/27/14 at 7:06 pm
I am about one year into a 30 year mortgage at 4.75%. The wife and I have a little extra money on top of what we put away for savings/retirement/future unforseens.
Would it be better to put a few hundred bucks a month into an investment or pay down principal on mortgage?
We plan on staying in the house for a long time if that matters.
Would investing return greater dividends than the mortgage interest rate of am I overthinking this?
Would it be better to put a few hundred bucks a month into an investment or pay down principal on mortgage?
We plan on staying in the house for a long time if that matters.
Would investing return greater dividends than the mortgage interest rate of am I overthinking this?
4
Posted on 4/27/14 at 7:26 pm to DzNtz
I'd invest it in something else. Go on a long vacation...
Posted on 4/27/14 at 7:31 pm to DzNtz
We're making one extra payment a year, that'll put our house being paid off at exactly age 65. We'll save about 40k in interest (30 year, 3.625%, 417,000 loan) knock 4 years off the loan.
Are there better returns possible? Of course. This is just what works for us. I would speak to someone who can look at your entire portfolio and help guide you best.
Are there better returns possible? Of course. This is just what works for us. I would speak to someone who can look at your entire portfolio and help guide you best.
Posted on 4/27/14 at 7:36 pm to ItNeverRains
Are you sure your math is right? I believe on extra payment a year knocks much more than that off.
Posted on 4/27/14 at 7:43 pm to I Love Bama
I would argue that if you can earn more in an investment you should put the money there. Have you maxed out your roth?
Posted on 4/27/14 at 7:46 pm to I Love Bama
quote:
Are you sure your math is right? I believe on extra payment a year knocks much more than that off.
Pretty sure. At 3.625 there's not much to knock off.
Posted on 4/27/14 at 7:59 pm to DzNtz
I'm no expert, but if you could get a return greater than your interest rate, would you not be better off investing it?
Conversely, if you feel you'd only get a return less than your interest rate, I'd imagine you'd be better off paying down your mortgage.
Conversely, if you feel you'd only get a return less than your interest rate, I'd imagine you'd be better off paying down your mortgage.
Posted on 4/27/14 at 8:22 pm to dcrews
Refi to a 15 year note if you are going to be in the house for at least five more years.
You'll thank me later.
You'll thank me later.
Posted on 4/27/14 at 10:11 pm to DzNtz
quote:
We plan on staying in the house for a long time if that matters.
It does matter.
You're paying 4.75%. Assuming you're in the 25% tax bracket and can take the interest deduction, that's a post-tax rate of 3 5/8 %.
So if you pay extra now, that is basically the equivalent of buying a 29 year bond at that rate. That isn't much better than the rate of inflation, btw. It's a better return that buying 30 year US Treasuries, which currently yield 3 5/8 pretax, so it isn't terrible but not great either.
But when mortgage rates get back up closer to historical norms my answer might well change, but for now I'd invest.
Posted on 4/27/14 at 11:52 pm to foshizzle
I'm 36 and paid my mortgage off in 8.5 yrs. It was the best decision I ever made. I now have money to do whatever the hell I want.
Posted on 4/27/14 at 11:56 pm to LSUWhoDat
quote:
paid my mortgage off in 8.5 yrs. It was the best decision I ever made.
8.5 years ago rates were much higher and it probably was a good decision then. Today, not really.
Posted on 4/28/14 at 12:20 am to foshizzle
quote:
So if you pay extra now, that is basically the equivalent of buying a 29 year bond at that rate. That isn't much better than the rate of inflation, btw. It's a better return that buying 30 year US Treasuries, which currently yield 3 5/8 pretax, so it isn't terrible but not great either.
Doesn't history say 29 years in the stock market will give you a much better return?
Posted on 4/28/14 at 5:56 am to urinetrouble
quote:
Doesn't history say 29 years in the stock market will give you a much better return?
I think that was his point.
Posted on 4/28/14 at 9:56 am to bobaftt1212
quote:
Have you maxed out your roth?
This is the big question. In my opinion if you still have space left in tax-advantaged accounts the math just doesn't support paying down a low-interest home loan.
Posted on 4/28/14 at 10:40 am to Cold Cous Cous
Also, keep in mind that once you pay extra money towards your mortgage, that money is gone. You can't call them up and say "I need some of that money back for an unexpected emergency/investment opportunity/just because." If you invest it, you can sell your investment if the money is ever needed.
I'm now 2 years into a refi of my house for 15 yr, 3.375%. I'm choosing to invest the extra money instead of paying down the mortgage right now.
I'm now 2 years into a refi of my house for 15 yr, 3.375%. I'm choosing to invest the extra money instead of paying down the mortgage right now.
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