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#1
10-30-2007, 11:46 AM
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Re: Would it be better to invest or pay down mortgage?
[ QUOTE ]
I'm a fan of paying off the mortgage. A guaranteed return of 6% is better than you can expect given average market returns (8%-12% MINUS taxes). It is a no headache way of getting an immediate return on your monies. [/ QUOTE ] It is easy to assume that the OP is in the highest tax bracket and is using his interest as an itemized deduction. Including his State tax his 6% savings is reduced to less than a 3.5% savings. No doubt he should put his money in the stock market. Jimbo 
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#2
10-30-2007, 11:53 AM
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Re: Would it be better to invest or pay down mortgage?
[ QUOTE ]
[ QUOTE ] I'm a fan of paying off the mortgage. A guaranteed return of 6% is better than you can expect given average market returns (8%-12% MINUS taxes). It is a no headache way of getting an immediate return on your monies. [/ QUOTE ] It is easy to assume that the OP is in the highest tax bracket and is using his interest as an itemized deduction. Including his State tax his 6% savings is reduced to less than a 3.5% savings. No doubt he should put his money in the stock market. Jimbo [/ QUOTE ] I keep forgetting you guys can deduct the interest you are paying on your primary residence (no such luxury in Canada). While this makes the case better for mainatining that debt, how is it different from the scenario I described where he has a fully paid off home, and takes a $150,000 loan at 6% to invest in the market? I don't see how these situations differ and they directly relate to the level of risk one is willing to take in the market.
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#3
10-30-2007, 12:18 PM
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Re: Would it be better to invest or pay down mortgage?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] I'm a fan of paying off the mortgage. A guaranteed return of 6% is better than you can expect given average market returns (8%-12% MINUS taxes). It is a no headache way of getting an immediate return on your monies. [/ QUOTE ] It is easy to assume that the OP is in the highest tax bracket and is using his interest as an itemized deduction. Including his State tax his 6% savings is reduced to less than a 3.5% savings. No doubt he should put his money in the stock market. Jimbo [/ QUOTE ] I keep forgetting you guys can deduct the interest you are paying on your primary residence (no such luxury in Canada). While this makes the case better for mainatining that debt, how is it different from the scenario I described where he has a fully paid off home, and takes a $150,000 loan at 6% to invest in the market? I don't see how these situations differ and they directly relate to the level of risk one is willing to take in the market. [/ QUOTE ] It differs because the interest on the 6% loan you suggest to be used to buy stocks is not tax deductible wheras the 6% interest portion of his loan on his home is, effectively making the loan you suggest be an 8.5% loan instead of a 6% loan. Jimbo
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#4
10-30-2007, 12:57 PM
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Re: Would it be better to invest or pay down mortgage?
[ QUOTE ]
[ QUOTE ] [ QUOTE ] [ QUOTE ] I'm a fan of paying off the mortgage. A guaranteed return of 6% is better than you can expect given average market returns (8%-12% MINUS taxes). It is a no headache way of getting an immediate return on your monies. [/ QUOTE ] It is easy to assume that the OP is in the highest tax bracket and is using his interest as an itemized deduction. Including his State tax his 6% savings is reduced to less than a 3.5% savings. No doubt he should put his money in the stock market. Jimbo [/ QUOTE ] I keep forgetting you guys can deduct the interest you are paying on your primary residence (no such luxury in Canada). While this makes the case better for mainatining that debt, how is it different from the scenario I described where he has a fully paid off home, and takes a $150,000 loan at 6% to invest in the market? I don't see how these situations differ and they directly relate to the level of risk one is willing to take in the market. [/ QUOTE ] It differs because the interest on the 6% loan you suggest to be used to buy stocks is not tax deductible wheras the 6% interest portion of his loan on his home is, effectively making the loan you suggest be an 8.5% loan instead of a 6% loan. Jimbo [/ QUOTE ] OK, this I didn't know. Canadian rules state that you can deduct the interest on any loan made for "investment purposes" - excluding the mortage on your principal residence (though you also don't face cap gains when you sell). So in the US you can't borrow money to invest and deduct the interest but you can deduct the interest on your principal residence. Understood. In that case, OP would definitely benefit more by keeping the tax deductible mortgage payment and investing the 150k. Thanks for clearing it up.
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#5
10-30-2007, 01:07 PM
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Re: Would it be better to invest or pay down mortgage?
You are WAAAY too young too be paying off your mortage IMO!
You have a great 6% fixed rate mortgage at this time.Are you thinking of re-locating/moving before your kids settle into a specific area or school district? There are alot of options that are much more appealing/and basically safe than just a 4.5% MM account,with 2 young children that I assume you will be sending to college one day? The the tax write off alone from carrying a mortgage is well worth it.If this $150k is a large part of your networth,you should ALWAYS keep some freecash flow for emergencies,job loss,etc. What is your household monthly income/debt ratio? (mortage,car loans C/C,etc) Unless you just cant take or want the risks/rewards of any type of market that go with the territory? Stephen [img]/images/graemlins/cool.gif[/img]
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#6
10-30-2007, 01:34 PM
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Re: Would it be better to invest or pay down mortgage?
[ QUOTE ]
You have a great 6% fixed rate mortgage at this time.Are you thinking of re-locating/moving before your kids settle into a specific area or school district? [/ QUOTE ] We love our house and have no plans to move. New house in nice area that we moved into ~2 yrs. ago. [ QUOTE ] There are alot of options that are much more appealing/and basically safe than just a 4.5% MM account,with 2 young children that I assume you will be sending to college one day? [/ QUOTE ] Yes, education very important to us. Most likely our state University, which is quite good and relatively inexpensive (currently around 5k/year tuition for resident undergrad). If the talent and desire is there for a private University we will do what we can to facilitate. [ QUOTE ] What is your household monthly income/debt ratio? (mortage,car loans C/C,etc) [/ QUOTE ] I don't have any debt other than my mortgage. Our combined gross income/mortgage payment is around 4.5. [ QUOTE ] Unless you just cant take or want the risks/rewards of any type of market that go with the territory? Stephen [img]/images/graemlins/cool.gif[/img] [/ QUOTE ] I am very risk tolerant, my wife less so. That is why I was thinking of just putting the majority in a broad index. If I were not married I would most likely invest most of it in individual stocks and derivatives.
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#7
11-04-2007, 04:39 PM
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Re: Would it be better to invest or pay down mortgage?
"The the tax write off alone from carrying a mortgage is well worth it."
This cracks me up, lol. I see it over and over. Someone please explain to me why paying $10K in interest, to save $2.5K in taxes is good?
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#8
11-04-2007, 07:08 PM
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Re: Would it be better to invest or pay down mortgage?
[ QUOTE ]
Someone please explain to me why paying $10K in interest, to save $2.5K in taxes is good? [/ QUOTE ]Say your loan amount is $200,000 and intrest rate is 5%, then you'll indeed pay $10k in intrest. But since you only have to pay $7.5k, you really only payed a 3.75% intrest rate. If you can get higher than a 3.75% intrest rate with your money, then taking the loan would be +EV. Given a possible return rate of r, a mortgage rate of m, and income tax rate of t, we would need (m - t) < r for the mortgage to be +EV. If the calcs I just did in my head are correct, at least.
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#9
11-04-2007, 08:17 PM
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Re: Would it be better to invest or pay down mortgage?
[ QUOTE ]
[ QUOTE ] Someone please explain to me why paying $10K in interest, to save $2.5K in taxes is good? [/ QUOTE ]Say your loan amount is $200,000 and intrest rate is 5%, then you'll indeed pay $10k in intrest. But since you only have to pay $7.5k, you really only payed a 3.75% intrest rate. If you can get higher than a 3.75% intrest rate with your money, then taking the loan would be +EV. Given a possible return rate of r, a mortgage rate of m, and income tax rate of t, we would need (m - t) < r for the mortgage to be +EV. If the calcs I just did in my head are correct, at least. [/ QUOTE ] This is a level right? possibe? this implies risk? No? go back to the drawing board plz.
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