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.
Actually it would be less than 60% because the numbers above do not include dividend payments. Those would be captured by an equity index fund. However, your main point stands.
"Pay down the mortgage early" vs. "make required payments and invest the rest" has been debated countless times on message boards since they were created (and probably in bars, living rooms and park benches long before the intermawebz were around). The short answer is that the effective after tax interest rate on many mortgages today could be under 3%. At that rate, one is likely (but not certain) to wind up better off financially over 15 (or 30) years if one were to invest money in outside assets rather than pay down the mortgage early. Having liquid assets available outside one's house also gives additional flexibility if adverse events happen (yes, one can have a HELOC on their home and use that if Something Bad Happens to access their equity in their house, although there are limits to that and of course interest rate risk on that path).
That said, "paying down the mortgage" is essentially equal to a guaranteed 3% or so (after-tax) annual return. Investing in equities, as the two earlier posts reflect, has a lot of volatility (even though over the long haul an investment in, say, an equity index fund will likely return greater than 3% after-tax, possibly much greater. But over the short term it can return a lot less, as noted above. It depends on the goals of the person in question and their risk tolerance.
Either way can work just fine, as long as you're not "biting off more risk than you can chew", and as long as you're consistent and disciplined. IOW, if you're going to use half your "excess" money to invest in "other stuff" and half to pay down the mortgage early, don't jump into "all equities all the time" 3 years down the road because the stock market got hot. That's a good way to "buy high and sell low". Know your risk tolerance and your situation and make an informed decision.
Good point, I think when the stock is fairly and overvalued, you should pay off your mortgage, and when there's a collapse, like 2008, (note, we all know it was undervalued because PE was less than 7) you can get a HELOC against your house and put it into the stock market.
Currently the stock market is fairly valued heading overvalued, I would not consider putting new money to work if I have a mortgage above 4%.
I would love to buy a home for 1x my annual gross, though I haven't purchased anything yet. It is definitely doable in my city or in the suburbs of my area. I'm just not sure whether I would actually go through with it or not, as I would have to give up on some areas that I am not really sure I would like to give up on.
3x income is probably safe. Other variables come into play also, such as the amount of down payment you have. I usually put down 30-50% on a home, to keep the monthly payments low.
I would love to buy a home for 1x my annual gross, though I haven't purchased anything yet. It is definitely doable in my city or in the suburbs of my area. I'm just not sure whether I would actually go through with it or not, as I would have to give up on some areas that I am not really sure I would like to give up on.
I think I could find a home for 1x my income (right around 60k) but I feel like it would probably be in a not-so-nice neighborhood...
3x income is probably safe. Other variables come into play also, such as the amount of down payment you have. I usually put down 30-50% on a home, to keep the monthly payments low.
Are you saying you'd accept a mortgage thats 3x your income after a 50% down payment?
Your income will rise in time but your loan will stay the same.
Actually, this is VERY outdated. There's a pretty good chance a lot of people's incomes will NOT rise with time. This is old programming that needs to be disposed of. As another poster said, this is the kind of outmoded thinking that caused the real estate bubble and crash.
In exactly the same place as if the house didn't drop. It is irrelevant as long as your income and payments and costs are the same or if you have to sell.
But over the long term (more than 15 years), housing almost always increases in value.
But a house can be a ball and chain if you lose your job (very common) and can't sell your house to move to another area because it's worth less than what you owe on it. Life today is not the stable picture you make it out to be.
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.
