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...Would you take 4.14% annual GUARANTEED in a 4 year fixed period or would you gamble with the balanced mutual fund and hope you do better in the next four years?
Yes and no.
I'd not compare the mortgage to a balanced fund. I'd instead compare it to a low-volatility bond-fund, which basically means short-term bonds. Interest on such bonds is far, far less than 4%.
Consider the stock/bond allocation in your investment portfolio. Think of your mortgage as a bond that's invested against you. If you're overwhelmingly in stocks, and are comfortable with that allocation, then keep paying the mortgage at normal rate. But if the bond-portion of your portfolio is large, and for whatever reason you prefer it that way, then consider pre-paying the mortgage, instead of contributing more to the bond portion of your portfolio.
A more aggressive investor would invest in stocks and keep paying the mortgage, counting on higher rate of return from stocks. A less aggressive investor who is already skittish and relies overwhelmingly on bonds, would instead benefit from paying down the mortgage.
I'd not compare the mortgage to a balanced fund. I'd instead compare it to a low-volatility bond-fund, which basically means short-term bonds. Interest on such bonds is far, far less than 4%.
Consider the stock/bond allocation in your investment portfolio. Think of your mortgage as a bond that's invested against you. If you're overwhelmingly in stocks, and are comfortable with that allocation, then keep paying the mortgage at normal rate. But if the bond-portion of your portfolio is large, and for whatever reason you prefer it that way, then consider pre-paying the mortgage, instead of contributing more to the bond portion of your portfolio.
A more aggressive investor would invest in stocks and keep paying the mortgage, counting on higher rate of return from stocks. A less aggressive investor who is already skittish and relies overwhelmingly on bonds, would instead benefit from paying down the mortgage.
what makes this a tricky question is the fact he is not comparing it to just a bond fund
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
Originally Posted by wheelsup
Current 15 year rates are 1% less. Refi and make min payments.
2nd this^^^ I have often used my CU for a 'No Fee refi'
We do not know enough about you (risk profile, holdings / objectives / income )
I would hope you can do better than 4.14%, + your actual Cost of funds is less than 4.14%, and you have TIME on you side. (paying back with deflated currency)
There are a lot of options.
I for one, will likely never have a paid off 'primary' residence. I just find the personal mortgage rates too attractive to NOT leverage into my other RE investments. (I always keep the cash / liquidity on hand to pay my home mortgage tomorrow off if needed) Not needed (yet).
As long as my RE $ are spinning off a 10 - 12% cap rate, I am fine with a personal mortgage or even renting the rest of my life.
Your personal objectives will be different than mine, or others.
I’d put the money on the mortgage. Who knows what mortgage rates will be in 4 years and to me, less debt is always a good thing. You can run numbers every which way to Sunday and I’m sure you MAY do better doing other things, but psychologically I always pay off debt after my investment plans have been met. And by that I mean you are already investing and on track to meet your goal.
I’d put the money on the mortgage. Who knows what mortgage rates will be in 4 years and to me, less debt is always a good thing. You can run numbers every which way to Sunday and I’m sure you MAY do better doing other things, but psychologically I always pay off debt after my investment plans have been met. And by that I mean you are already investing and on track to meet your goal.
why would you look at what mortgage rates would be in 4 years ? he wont have this mortgage .
Sure it does. If he has to borrow less with his new mortgage by paying more on his old. Try and keep up.
There is NO logic here. Either way the OP might be getting a new mortgage. If he invests and makes more money then he might decide to take a smaller mortgage. The question is which will leave him with more money, paying more to the mortgage or investing.
Long term investing will return more. Short term who knows? Personally even for the short term of 4 years, I would put the money into investments. First, the odds of coming out ahead a better. Second, it is better to have ready access to your money instead of having it tied up in a house. Third, wise money management means investing. Now is better than later. We always want to aim for returns due to the power of compounding. Finally, there are indeed some psychological considerations. Many people just seem to "feel" good when they pay off low cost loans. Instead they would have come out way ahead by investing that money. Next, when the OP does sell they will receive a chunk of equity in the current house. It is tempting to roll that over into an even more expensive house. People do this frequently and end up paying for more house than they should. Houses are typically poor investments.
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