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I used to be solidly in the "pay down your mortgage" camp. Lately, however, after actually crunching some numbers figuring in inflation and opportunity cost, I am leaning more away from tying up money by paying down the mortgage early. After all, if your mortgage payment (P&I) is $1000, in 20 years, it will still be $1000, but $1000 will buy half what it does today in the market, so the money is worth more to you today. Theoretically, your P&I will become a smaller and smaller percentage of your income, even if your income only increases to match inflation.
Therefore, on mortgages with interest rates that low, it is probably smarter to invest the money elsewhere. You already have awesome saving habits, congratulations on that.
I'm in a similar situation, however this calculation is easy. If you can make more than "4%" investing your money on your own, then by definition you are better off investing it than paying down your mortgage. However, this does not factor in time value of money. What is the value of "financial independence" of knowing you no longer have a mortgage payment? Got me. I'm sure its worth something feeling wise.
Actually it is thanks to the stock market that I'm sitting on enough money to pay off my mortgage at this time, but I don't think it makes financial sense to do so. As you said, the payment is $1000 today, and its the same $1000 in 5 years from now. But the $1000 5 years from now probably has the buying power of $900. If I'm to get the full value of my $ I need to spend it somewhere today for future appreciation.
Sure, CD rates/bonds are lousy (lol 2.9% on 10 year) but why tie up all your cash by paying things off? The real estate market has to bounce at sometime (history always repeats, right) so it seems like the smart thing to do is be nimble and pick up some real estate if you can pick it up at the right place. What is the right price? Yes, that's the question to ponder. When everyone says sell or everyone says RE is crap, that is when I'm looking to buy. We're headed there.
Open another account and the extra money that would go towards your mortgage put it into that account. When you hit your mortgage payoff amount, THEN pay off the house. (As long as you still have your 18 month emergency fund). Why give the extra money to the bank for no reason and have it tied up with them. If something tragic happens, you can't get that money from the bank, it's gone. Unless you sell. Keep those extra payment on your own that way if you need it, it's accessible.
Open another account and the extra money that would go towards your mortgage put it into that account. When you hit your mortgage payoff amount, THEN pay off the house. (As long as you still have your 18 month emergency fund). Why give the extra money to the bank for no reason and have it tied up with them. If something tragic happens, you can't get that money from the bank, it's gone. Unless you sell. Keep those extra payment on your own that way if you need it, it's accessible.
Mortgage interest rate 4+%
Savings account rate 1+%
Loss of 3%
I would pay off the mortgage. Others have said that you can get better interest by investing, but they are not taking into account the risk of having a mortgage. If something were to happen and you default then you would lose the home and your entire investment. Making a few extra percent in interest with an investment is not worth the risk of losing a home. How much faith do you have in investing in todays market anyhow?
Mortgage interest rate 4+%
Savings account rate 1+%
Loss of 3%
I don't have any investments paying that little. Even my checking account pays 4.51%. There are many very safe investments which pay dividends in the 4 to 8 percent range. I am banking on rates going up in the next few years, while my mortgage interest will be fixed and low.
I don't have any investments paying that little. Even my checking account pays 4.51%. There are many very safe investments which pay dividends in the 4 to 8 percent range. I am banking on rates going up in the next few years, while my mortgage interest will be fixed and low.
Well, a high interest checking account is good, i have one also, but how much are you actually saving when you have to spend ten times a month.
Well, a high interest checking account is good, i have one also, but how much are you actually saving when you have to spend ten times a month.
You mean the minimum 10 debits per month? I would be buying small ticket items anyway, so what difference does it make which account I take it from?
Did I misunderstand the question?
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