EXTRA Mortgage Payments vs Stock Market Investments

[mathjak107]

anything i can charge i charge . i have not paid interest in decades . we have thousands of dollars in rewards we use for trips

[bmw335xi]

Originally Posted by mathjak107

anything i can charge i charge . i have not paid interest in decades . we have thousands of dollars in rewards we use for trips

Exactly!

[Larry Caldwell]

A 2-year treasury bond is paying 2.71%, and inflation is running about 1.9% to 4%, depending on where you live. Subtract the inflation rate from your mortgage interest rate, and that is what is is costing you. Subtract the inflation rate from your investment returns, and that is what it is earning. It's simple arithmetic, but it it gives you a starting point.

Investing in stocks is great in a down market. The further the market tanks, the more attractive that investment is. There's no way to predict interest rates, but bond funds normally have a "churn" of no more than 6 years, so new bond purchases will offset rising rate losses fairly quickly. Some funds specialize in high yield, short term bonds, where the losses are due to bankruptcies rather than variations in interest rates.

You could also save your money for a home down payment, rent your existing home to cover PITI/maint and buy another home to live in. Rinse and repeat. If you do that every 5 years for 30 years you will have a substantial rental income and your current home could be debt free.

Your choices are stocks, bonds, real estate, or debt reduction. Enjoy.

[mathjak107]

the problem is most retirees do not understand the difference between cutting costs and increasing income .

way to many concentrate on cutting costs , which are fine . because cutting costs looks the same as growing income . that is until there is nothing left to cut and expenses keep rising . then it becomes very apparent that cost cutting is not the same as growing assets that generate more income .

many would be far better off growing assets that can keep growing income and not accelerating paying off the house any sooner . they already have enough going in to cost cutting , they need to grow assets .

so many retirees eventually end up to house rich and cash poor and they can't get the money back out without loans or selling . even a reverse mortgage is a loan with a balloon payment . . it can be one costly loan ,even though you or your heirs can give them the house to pay it off .

so ideally you want a nice healthy amount working for you in a portfolio and eventually the house will be paid off on schedule .

it is like fighting a war , and pulling resources that should go in to investing and income generation ability to sure up extra house payments and cost cutting may win a battle but in the end you could lose the war

[RosemaryT]

Originally Posted by oceangaia

That's an impossible question. You can calculate precisely the effect of applying extra payments to the principal on your mortgage but you have no idea what will happen in the stock market. You could double your money or lose it all. Given current bearish market conditions, closer to the latter unless you invest like a genius.

All we can say is that your best "guaranteed" option is to pre-pay the mortgage. That will shorten your loan term and save you lots of interest cost.

THIS is very sound counsel.

I just sold off a chunk of my stock market investments because I can't take the stress of these wild swings. I'm moving into laddered CDs for now, until the market has its "correction."

[mathjak107]

let us all know when that is ....... apparently i never get the memo to get back in.

so whenever this magic moment is , you are going back in with the stress of the swings all over again ? and then what bail out and lose more money ?

[homelessinseattle]

Originally Posted by bmw335xi

So if you want to buy a car for $50,000 and have the option to get a loan for 1.5% no fees, no prepayment penalty, you’d rather pay cash then put that money in a CD at 3%?

Do you not have any credit cards too? I use credit cards for all purchases that don’t have a fee. I pay no annual fee and get 2% cash back.

It’s all about self control and making your money work for you homeless in seattle.

It was sarcasm.
Buying a new car is a terrible investment.
For 50k I would buy a house.
Yes I have the fidelity visa.

[RosemaryT]

Originally Posted by mathjak107

let us all know when that is ....... apparently i never get the memo to get back in.

so whenever this magic moment is , you are going back in with the stress of the swings all over again ? and then what bail out and lose more money ?

I'm not sure I understand the question.

Lots of smart folks say that the market is overdue for a correction. I may *NEVER* get back in, if CD rates keep climbing. I'm almost 60. Time for me to go ENJOY life and stop worrying about the vagaries of the stock market!

[lieqiang]

It's more than just mortgage interest rate versus average return of stocks, otherwise nobody would invest in anything but stocks. It's about risk, return, time frames, and goals. There is always a point where a guaranteed return is better than a likely higher return.

[jrkliny]

Originally Posted by homelessinseattle

It's always good to pay down debt. Can you do both?

This is an old out of date myth. When mortgages were well under 4% it made sense to keep that debt and maintain your cash reserve and investments instead. The story changes when rates start to hit and exceed 5%.