Comments on: You have $100 extra per month. Should you pay off your mortgage early or invest?

By: Homeowners are taking the risky route and I am confused | I Will Teach You To Be Rich

Fri, 07 May 2010 16:58:32 +0000

[...] « Is it better to pay off your mortgage early or invest? [...]

By: Ken

Ken — Wed, 01 Jul 2009 00:55:28 +0000

The problem in this example is that the stock market period is between 1986 and 1996 during a large portion of the market’s largest up swing in history. It would be interesting to see the same comparison during 1997 though 2009.

By: Wayne

Wayne — Sun, 14 Jun 2009 01:13:35 +0000

You’re not keeping the mortgage for the tax deduction.

You’re keeping the mortgage for the liquidity.

If person A puts and extra $40,000 towards their mortgage, and person B saves the $40,000, person B will be in a much better position if they lose their jobs.

As the current economy shows, getting out that $40,000 from your house can be impossible at times.

Ideally, you’d have a large cash reserve, retirement fully funded, house paid for, etc. However, for the majority of us who aren’t quite there yet, the liquidity can be a lifesaver.

By: Curtis

Curtis — Tue, 09 Jun 2009 14:13:50 +0000

Matt and Ramit… Your right, It always blows me away the number of people who say don’t pay off your mortgage just to keep your interest / tax deduction… if you do the math it doesn’t make sense… Example… $100,000 mortgage at 6% interest = about $6000 of int paid that year… if your income is $50,000 /yr and your income tax bracket is 20%… so your tax due is $10,000… $50k subtract your tax deduction of 6,000 is now $44,000 adjusted income at 20% = $8800 tax due …….You saved $1200 in taxes by paying $6000 in interest…. wouldn’t you rather NOT pay the $6000 in interest? You would then be $4800 ahead…. You know who says” keep your mortgage for the tax write off”? Banks and mortgage companies… If I’m wrong on this show me how…

By: bethoughtful

bethoughtful — Sat, 30 May 2009 05:49:34 +0000

Shelly’s advice to Mehul is the most thoughtful I have seen on this thread. Advice that is meaningfully backed by reasoning.

If you would like to pay towards mortgage it may be a better option to rent and not own a house. Although personally I think it is better to own within ones means than to rent.

It is easy to say invest and earn on average 6%, 9%, etc, etc than to really do it.

May be I am not that financially educated, but there are some very simple things that seem contradictory.

If it were so easy to invest and get 8% – 9% average in mutual funds, why are banks so willing to lend the average joe at 5% – 6%. Why aren’t they instead putting in mutual funds to get those higher returns? Are some other things at play such as fund fees, etc, and more importantly market crashes like the recent ones?

By: Shelly

Shelly — Mon, 22 Dec 2008 23:44:37 +0000

Mehul,
You won’t be paying your mortgage for 27 years, only the next 15 years,(applying the extra $150.00 monthly to the PRINCIPLE) and as for making that kind of return (6.5) on a mutual fund in the next 15 years is anyone’s guess… but doubtful.

I don’t know where someone came up with a 3 yr change but that is incorrect.

Your interest rate doesn’t change unless you refi, but the principle of your loan changes(goes down), thus reducing cost of dollars/time.

I would like to mention, that if your intest rate isn’t at about 5% right now, I would encourage you to refi. You will make up the cost of the refi, in the 1st year, of payments vs paying a higher rates. Then, I would encourage you to make extra payments towards the principle. You might also check the payments for a 15 yr, vs 30 yr. Sometimes it’s only about $100 more for the difference, but still less than if you have a higher rate, and the interest saved is huge. Then continue to make as many extra payments to shave that to a 7yr payoff.

You can check out these figures on http://www.af24-7.com on the calculators.

Thanks Shelly

By: Mehul

Mehul — Mon, 22 Dec 2008 22:28:39 +0000

I just refinanced my mortage and will save about $150/month. If I invest it in a low cost mutual fund with a modest 6.5% return for 27 years (remaining years in my old loan), I will have $131000. If I subtract the $32000 owed for the last three years on the new loan, I still come out $99000 on top after 30 years.

Thanks for the post and comments from the users. It really helped me confirm the direction I was going to take with my new found cash.

By: Matt

Matt — Mon, 01 Dec 2008 16:02:54 +0000

Maria: The interest you pay for each payment is calculated once a month on remaining principal.
So, if you pay extra on the principal, you will see a (very slightly) lower interest amount on the very next payment.
This keeps building and building over the months and years.
Keep paying down extra on the principal, and save interest the whole way.

By: Maria

Maria — Sat, 29 Nov 2008 13:56:51 +0000

I am interested in this add 100.00 to your monthly mortgage payment. But, do you see any result right away, or soon, or does it just cut the time you pay off your mortgage by 3 years? Also, a good idea each year would be to (if you don’t have credit card debt) use your tax return money and put it towards the principal on the mortgage. What other ways can we substantially cut the amount of years we pay on the mortgage? Having it paid off in say 10 years by being creative ? Lets talk about that. Any ideas?

By: Jess

Jess — Fri, 28 Nov 2008 06:52:29 +0000

It would be interesting to hear what the results on consumer reports analysis would be under present market conditions. Home values in CA have dropped 30% while many of the money market funds are down as much as 45% and more.