Would it be better to invest or pay down mortgage?

[Ray Zee]

pay down the mortgage and keep some money in reserve for good deals. in this world you sit so much better without debt, and then can make better financial decisions and live a more carefree life.
this is a guaranteed 6% investment for your money. you cant get that now or any time in the near future.
good luck with life mano

[T50_Omaha8]

[ QUOTE ]
[ 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.

[/ QUOTE ]I'm not advocating anything, just stating a mathematical expression that explains why people do it. Look at your original quote; that's exactly the question I answered.

[CrushinFelt]

[ QUOTE ]
OK, I got the answer I think I already knew, that I should invest the money, I just wanted some validation.


[/ QUOTE ]

Mano, you should DEFINITELY use at least some of this to pay down the mortgage. The amount of interest you pay on long term mortgages is really sick. It would be so, so, so criminal for you to not take some of this to pay down some of your mortgage.

[mtgordon]

[ QUOTE ]
[ QUOTE ]
OK, I got the answer I think I already knew, that I should invest the money, I just wanted some validation.


[/ QUOTE ]

Mano, you should DEFINITELY use at least some of this to pay down the mortgage. The amount of interest you pay on long term mortgages is really sick. It would be so, so, so criminal for you to not take some of this to pay down some of your mortgage.

[/ QUOTE ]

Ummm, I assume I'm not understanding you correctly. Are you saying that he should pay part of the mortgage because the interest compounds? If so that makes 0 sense since the money will be compounding if it's in the market (or even savings account) also.

Let me know what I'm missing.

[abuljooj]

FWIW I would bet $150k on black and flip the table if it lands on red. jk

all depends on how your life would be affected if you lost a decent amount of that 150k. if it would ruin your life than pay off your mortgage, if not then invest in a pretty aggressive portfolio. Maybe consider taking 10k and invest in some penny stocks...may hit big! good luck

[Duck Rabbit]

I don't mean to hijack the thread, but can we look at a hypothetical situation where investor has lots of cash (let's say 5 million) and wants to buy a $500,000 house. Money is not a concern for the investor. Assuming a 6% fixed rate on the mortgage and 9% annual returns in the market. Wouldn't they always be better off making as small a down payment as possible and putting the rest in the market? I've heard arguments that you should try to pay off your mortgage as soon as possible, but I don't really understand that idea. As long as your mortgage interest rate is lower than the return you expect to make in the market long term, it seems it would be wise to put it in the market, regardless of one's financial situation.

[Jimbo]

The only problem is that your 6% will remain fixed but your 9% return may not, in fact you could lose your entire investment and be broke and still have a mortgage. Now if you are talking about Bill Gates type of money his ROR is so low it would never matter either way but in your example of 5 million the ROR may be a deciding factor.

Jimbo

[mtgordon]

I think an even larger factor is what if you lose all of the money? If you have a very stable job that you are very very unlikely to lose and if you did you could get another one easily then invest the money. If you lose it you can still make your payments and live off of that.

Obviously nobody has that secure of a job nor are they necessarily able to handle the idea of losing all their money but I think the idea is still valid.

[scotchnrocks]

[ QUOTE ]
I don't mean to hijack the thread, but can we look at a hypothetical situation where investor has lots of cash (let's say 5 million) and wants to buy a $500,000 house. Money is not a concern for the investor. Assuming a 6% fixed rate on the mortgage and 9% annual returns in the market. Wouldn't they always be better off making as small a down payment as possible and putting the rest in the market? I've heard arguments that you should try to pay off your mortgage as soon as possible, but I don't really understand that idea. As long as your mortgage interest rate is lower than the return you expect to make in the market long term, it seems it would be wise to put it in the market, regardless of one's financial situation.

[/ QUOTE ]

Don't forget the immediate savings in some of the closing costs from paying all cash.

[Stake Monster]

I'm a big fan of paying down debt first and then look to invest. You can't lose by doing that imo. You can pay it all off now and invest asap after, without having the burden of carrying a mortgage.