Author Topic: mortgage pay-off versus investing  (Read 1290 times)

mfpeachybaby

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mortgage pay-off versus investing
« on: October 23, 2016, 02:18:26 PM »
My husband and I have officially been home owners for about 1.5 years. We opted to purchase a home that was very comfortably within our "can afford" range at that time ($168K, 30-year mortgage, monthly payment less than 20% of net income). Knowing that we would stay in the house for no longer than 5-10 years and that our incomes would likely grow considerably within that time frame, we hoped that it would be a way to easily start building equity and make a jump to a more long-term home.

We are extremely fortunate to have no other debts. I had a few college loans, which I paid off in full shortly after discovering MMM almost a year ago. My husband and I currently have what we consider a very reasonable savings rate of about 40-50% of our income. In addition to what we save/invest, for the past 6-9 months, we have been making additional principal payments to our mortgage of abut $600 a month. From the calculations I've done, this will save us over $40K in interest over the life of the loan. We have a very low interest rate of about 3.8%.

My question: knowing that we no debt aside from our mortgage, is paying off our house faster with this large additional principal payment each month really worth it? Should we be investing that money instead? Or making a smaller principal payment and investing the rest?

Admittedly, I realize that I may not have given enough information to solve this equation, so ask away if more is needed to give a good answer.

Thanks!

TaxChick

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Re: mortgage pay-off versus investing
« Reply #1 on: October 23, 2016, 03:30:11 PM »
Are you maxing out your retirement contributions? What other investments do you already have? You don't want to have all your eggs in one basket...ie the house.

Telecaster

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Re: mortgage pay-off versus investing
« Reply #2 on: October 23, 2016, 03:45:44 PM »
Very hotly debated topic.

Basically, the pros are that paying down the mortgage provides a predictable rate of future savings.*  Many people report a feeling of relief of being mortgage free.

Cons are that investing is very likely to provide much higher returns over the life of a typical 30-year mortgage, hence a higher standard of living in retirement.   Plus investments are much more liquid, should you need or want the money.

Tons and tons of threads on this topic, if you care to poke around a bit, but that's it in a nutshell.   

*I don't think it is accurate to call paying down the mortgage a "rate of return."  If that was true, then paying off your credit cards each month would give you a 22% rate of return and you could retire in a couple years.   Paying off the mortgage does result in a future savings though.   


MDM

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Re: mortgage pay-off versus investing
« Reply #3 on: October 23, 2016, 06:07:43 PM »
Tons and tons of threads on this topic, if you care to poke around a bit, but that's it in a nutshell.   
+1

In particular, see Frequently Asked Questions under "Investing", and other posts on this topi in that thread.