Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Hi,
I'm 29 with a mortgage of 2350 a month including everything (1450 interest a month, 180k equity)
after paying mortgage, i have about 3500 to invest. should i pay towards principle (rate: 5.25% 30 years) or invest in stocks/MMA/etc. (already heavily invested in stocks in my 401k. 20% towards 401k including the match)
if i pay 3500 additional towards principle every month, mortgage will be paid off in 6 years. but i don't want to lose out on more returns from stocks.....but there are risks of course.....
Advice appreciated
Its hard to beat 5.25% on a risk adjusted basis especially if you already have equity exposure. Though oil and PMs can offset the prepayment risk if it turns out that inflation rewards the debtor. I doubt we are going to see huge gains in the general stock market until real estate finishes what I see as a very long cycle.
At your age and assuming you will be able to toss a whole lot of cash into investments for a long time before tax rates go up my strong bias would be to avoid paying down that mortgage. I used to think that a paid off mortgage was a wonderful but as I see my life go through different stages I am more and more certain that things that leave ME with more control of my dough are to be preferred over giving MY CREDITORS more on my money than I have to...
Of course all the standard disclaimers apply -- don't invest in anything you don't understand, don't mistake a mortgage for other kinds of unsecured consumer debt, don't over count nor under value the value of mortgage interest deduct-ability ...
I've never met anybody who regretted paying off their mortgage early, but I've met plenty of people who regretted playing the stock market. Your mileage may vary.
I think sterlingirl needs to talk to some of the many folks that have recently seen all their equity wiped out by declining housing prices.
Further I never advocate folks "play" with investment funds -- there are plenty of 'games' out there but the fact is that the OP (and millions of others) already have a substantial stake in the performance of stocks to provide for their retirement. If you do not understand the business of the firm you are considering you ought not invest in it directly. If you do not believe that over long periods of time the broad indexes will have greater returns than real estate or other classes of investment than you are ignoring the research of lots of smart people. I would have no hesitation with the OP putting his excess payment into something like Berkshire-Hathaway B shares, and if you think Warren Buffet is just playing a game then I guess you really ought to keep your dough in a piggy bank...
Before you start paying down your mortgage (or even gambling in stocks) you should make sure you have an emergency fund on-hand, just in case you're laid off. In this economy layoffs, downsizing & restructuring can come at a moment's notice & it could literally take you a year or more to find another position with a comparable salary. One attorney friend was given the ax when his firm merged & it took him 14 months & countless interviews to secure another job at a 20% pay cut.
I think sterlingirl needs to talk to some of the many folks that have recently seen all their equity wiped out by declining housing prices.
I think chet needs to talk to some of the many folks that have recently seen all of their 401K equity wiped out by declining stock prices.
The question at hand is whether it is smarter to:
A. Minimize your risk of future foreclosure while gaining a guaranteed ROI equal to your future interest payments
or
B. Continue to carry the risks of leveraging your home in order to make a speculative investment in the stock market which is much more volatile than home prices
I'm firmly in camp A, much like Warren Buffet, Steve Jobs, and Alan Mulally. Chet is in camp B along with the former CEOs of Enron, GM, Chrysler, GMAC, Lehman Brothers, etc.
There are a lot of personal factors that weigh in this. I am hoping in a few years to have the flexibility to take a lower-paying job with fewer hours and less stress. Because of this I am putting my discretionary income toward principal. I'm not being completely single-minded about it; I have an emergency fund (approx 1 year) and max out my 401k and IRA contributions. But again, my decision is based on personal considerations.
Before you start paying down your mortgage (or even gambling in stocks) you should make sure you have an emergency fund on-hand, just in case you're laid off. In this economy layoffs, downsizing & restructuring can come at a moment's notice & it could literally take you a year or more to find another position with a comparable salary. One attorney friend was given the ax when his firm merged & it took him 14 months & countless interviews to secure another job at a 20% pay cut.
yes, i agree.
i currently have 6 months of PURE expenses in cash, and another 6 months in Bonds.
I think chet needs to talk to some of the many folks that have recently seen all of their 401K equity wiped out by declining stock prices.
The question at hand is whether it is smarter to:
A. Minimize your risk of future foreclosure while gaining a guaranteed ROI equal to your future interest payments
or
B. Continue to carry the risks of leveraging your home in order to make a speculative investment in the stock market which is much more volatile than home prices
I'm firmly in camp A, much like Warren Buffet, Steve Jobs, and Alan Mulally. Chet is in camp B along with the former CEOs of Enron, GM, Chrysler, GMAC, Lehman Brothers, etc.
I think you hit it right on the money by your description of option A. it's guaranteed ROI. Based on my calculations, each 3500 EXTRA that i give towards the principle each month, saves me about 12k in interest in the life of the loan! that is huge! of course, next month, the same 3500 will reduce the total interest paid by about 11800 or so, and so on and on. The amount saved keeps going down exponentially.
now, my idea was to pay down as much as possible (ie. option A) for another couple of years, until most of the INTEREST is paid off....then i can relax a bit and maybe do a split between options A and B at that point.
thoughts?
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
