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I know this has been "covered" in many sites forums and threads:
Paying of Mortgage vs investing.
Many sites note that mortgages interest rates are still very low.
And you can receive a higher rate of return by investing.
However, what is the ... border zone? (For lack of a better term.)
At what mortgage interest rate, given the return rate of the market for the past couple of years as a comparison, do you think it is it OK/better to pay off your mortgage earlier rather than investing?
(I assume for FHA loans, adding on PMI, technically increases the mortgage rate .5 - 1%)
I'd invest primarily because mortgage interest is tax deductible (which is of no use to people who take standard deduction though).
But until mortgage interest doubles or so, you get slightly better return in the markets
Lastly, I don't consider a home mortgage an investment if you aren't using it as a rental. It doesn't matter if the price "goes" up after you pay it off and "retire" in it. You can't access the money unless you sell it or do a reverse mortgage. If you sell it, you don't get to live in the "dream" home anymore, if you reverse mortgage it, you have nothing to leave kids unless they buy it back (though if this isn't important then go ahead). Being "worth" a millionaire because of a house doesn't mean you have access to it, even with heloc, you still have to pay it back later.
I know this has been "covered" in many sites forums and threads:
Paying of Mortgage vs investing.
Many sites note that mortgages interest rates are still very low.
And you can receive a higher rate of return by investing.
However, what is the ... border zone? (For lack of a better term.)
At what mortgage interest rate, given the return rate of the market for the past couple of years as a comparison, do you think it is it OK/better to pay off your mortgage earlier rather than investing?
(I assume for FHA loans, adding on PMI, technically increases the mortgage rate .5 - 1%)
Curious to hear what others here think.
It depends on a lot of things. Essentially the question is one of a tradeoff between expected return on the one hand, and uncertainty of return on the other hand. It is also quite closely related to the asset allocation question - since mortgage paydown is similar to a bond (but not identical - there is always the built-in "call option" of payoff.)
Age, time to intended retirement, length of time you will stay in the house, risk tolerance, stomach for volatility (without panic selling), debt-to-income ratio, other assets and liabilities, and job security all play a role in affecting your risk tolerance.
I know this has been "covered" in many sites forums and threads:
Paying of Mortgage vs investing.
Many sites note that mortgages interest rates are still very low.
And you can receive a higher rate of return by investing.
However, what is the ... border zone? (For lack of a better term.)
At what mortgage interest rate, given the return rate of the market for the past couple of years as a comparison, do you think it is it OK/better to pay off your mortgage earlier rather than investing?
(I assume for FHA loans, adding on PMI, technically increases the mortgage rate .5 - 1%)
Curious to hear what others here think.
Border zone depends on (a) interest rate of mortgage after tax deductions and (b) expected return on a long-term treasury bond - including interest and capital appreciation.
(a) is easy to calculate if you know your marginal (not overall) tax bracket.
(b) is fuzzier - interest is easy but cap gains - who knows? Probably OK to assume zero. Or make your own assumption.
Then if (a) > (b), pay off mortgage first.
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