Ask the Readers: Should I Invest or Prepay My Mortgage?
Published on - July 2nd, 2010 (by J.D. Roth) Kelley wrote recently with the sort of dilemma I get asked about all of the time: Is it better to invest or to prepay a mortgage? We’ve covered this topic in the distant past, but it’s time to review the debate for current readers. First, let’s look at Kelley’s e-mail:
My husband and I are on the right track. At age 25, our only debt lies in our home mortgage. We have the six-month emergency fund in place, I currently meet the 3% 401(k) match offered by my employer, and I started a Roth IRA for myself and my husband last year. I started each Roth IRA with $4,000.
My financial advisor recommended for us to max out each of our Roth IRAs each year. My husband disagrees. He thinks paying off the house is a bigger priority. Starting this year, we’ve made an extra payment on our house each month. If we continue doing this, we can have our house paid off in nine years rather than 30 years. However, we can’t do both.
Currently we’ve decided to throw $1,000 into each Roth each year until the house is paid off. Is this the wise decision? Or is it better to put more toward the Roth IRA and less toward the house?
I understand either option is good because I’m saving money. I’m just curious of which route would be wiser.
Kelley’s right: Both of these options are good. This is like choosing between an apple and an orange. Both taste good, and they’re good for you &madsh but is one better for you in the long run?
What the experts say
Three years ago, when we last covered this topic (holy cats! — where has the time gone?), I collected the following roundup of advice from personal-finance books:
- Ric Edleman (Ordinary People, Extraordinary Wealth): Never own your home outright. Instead, get a big 30-year mortgage and never pay it off — regardless of your age and income. “Every time you send an extra $100 to your mortgage company, you deny yourself the opportunity to invest that $100 somewhere else.”
- Suze Orman (The Laws of Money): Invest in the known before the unknown. Paying off your mortgage offers a guaranteed return on investment. “You cannot live in a tax return. You cannot live in a stock certificate. You live in your home.”
- Elizabeth Warren (All Your Worth): Save 20% of your income. Use 10% for retirement savings, 5% to accelerate your mortgage, and 5% to save for future dreams. “Paying off your home also does something many financial planners neglect to mention: It gives you freedom. Once that mortgage is gone, just imagine all the freedom in your wallet.”
- Dave Ramsey (The Total Money Makeover): Prepay your mortgage if you can, but only after you’ve saved an emergency fund, and only if you’re putting at least 15% of your income toward retirement. Don’t use a program designed by a broker; use your own self-discipline.
- Dominguez and Robin (Your Money or Your Life): “Pay off your mortgage as quickly as possible.” This book, too, was written when interest rates were higher. Also, the authors emphasize frugality over investing.
Financial authors don’t agree on this subject. Maybe the personal finance gurus writing for the web can clear things up?
- Liz Pulliam Weston at MSN Money: Don’t rush to pay off the mortgage. “You’ve got better things to do with your money, like saving for retirement, building an emergency cushion or even living it up a little.”
- Walter Updegrave at CNN Money: If you’ve funded your retirement, and if it will make you happy, then pay down the mortgage. Otherwise, it makes more sense to invest.
- Laura Rowley at Yahoo! Finance: Using very conservative figures, investing instead of prepaying the mortgage yields an extra $400 per year. If you feel compelled to pay down your mortgage, do it. But realize you’re paying a price to do so. (She offers more details at her blog, as well as tips on how to estimate the investment return you need to earn to make it worthwhile.)
- Bankrate: Pay down your mortgage if your investments would be conservative. Invest if you’re planning to do so for the long term.
- USA Today: It depends on your income, your monthly expenses, your risk tolerance, and your desire to own your home free and clear.
- Kiplinger’s: Invest unless you’re near retirement
- The Dollar Stretcher: Mathematically, it makes more sense to invest, but it all depends on your risk tolerance.
- My fellow pfbloggers at Bargaineering and Million Dollar Journey recommend that a person do a little of both: pay down the mortgage some and invest some. Free Money Finance says: “If you have the discipline to save/invest the money you would be using to pay off the mortgage, it’s likely that saving/investing is the better option. But if you’re more the “average” person out there managing your money, I still believe it’s a better option to pre-pay your mortgage.”
The Rowley article offers some interesting background to this debate:
Why do so many people choose to put extra money into a mortgage when other options would likely increase their wealth? “This is really remnant of Depression mentality that has persisted from generation to generation,” says [one expert]. At the time, most mortgages had one- to five-year terms, with a lump sum payment due at the end.
“Any shock to income meant you couldn’t afford your payment — mortgages were much more susceptible to economic uncertainty,” [the expert says], and roughly one-quarter of Americans were unemployed during the Great Depression. “It’s fine to pay down your mortgage if it gives you peace of mind, but you should recognize what that peace of mind costs.”
If you’re facing a similar decision, you may find this calculator useful: prepaying your mortgage vs. investing.
The bottom line
My conclusion in 2007 (and the one I still hold today) is that unless your mortgage rate is very high, it makes more sense mathematically to invest your money. But most gurus agree that psychologically, you should do what works for you. If paying off your mortgage would take a weight off your shoulders, then pay off your mortgage. Sure, you might be losing a bit in the long-term, but you’re still making a smart choice. As I said earlier, it’s like choosing between an apple and an orange. One may be better for you, but they’re both good.
Ultimately, I kind of like the choice that Kelley and her husband have made. They’re prepaying their mortgage and putting some toward retirement. But enough of what I think. Kelley really wants to know what you think.
Which option is better? Should she and her husband be pumping as much as possible into their Roth IRAs? Or should they be paying down their mortgage as quickly as they can? Have you been faced with a similar dilemma in the past? What did you choose to do? And would you make the same choice again?
This article is about Ask the Readers, Choices, House and Home, Retirement
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It also depends on alot on how long you’ve had the mortgage for.
Paying $1000 in principal on Day 1 of the mortgage is better than paying $1000 on the last payment. The first will accelerate you down the amortization ladder.
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@Rhagu:
You’re correct. I was referring to compound annual growth rate. I’m curious though why you’d suggest using average return instead.
In my experience, the overwhelming majority of financial literature refers to CAGR.
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Oops. I apologize for misspelling your name in my prior comment, Raghu.
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We are lucky enough to have about $100k equity in our home, which we’ve only owned for 6 years (we bought it at a bargain price and have been paying extra on it). I’m tired of maintaining it and paying for it, and it’s starting to feel like a beautiful albatross around my neck. So, we’re cashing out the equity and buying another home outright.
I LOVE the thought of no mortgage! It would give us such freedom to make other decisions.
I say pay down the mortgage. I can’t wait until ours is gone!
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108) Courtney, that is my point exactly you have no idea what the stock market will return, I am not against investing however I think it is better to pay of the morgage first, the diverification will then be at lower risk. Diversification with borrowed money creates higher risk not lower risk.
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I think @145 Steve put it succinctly and best.
If they’re only putting 6% away for retirement, they can’t afford to prepay their mortgage. The Roth is a limited resource that cannot be used later. (And, as other posters noted, it is easier to tap into a Roth for emergencies than it is to get a HEL or HELOC these days.)
This article got me thinking about the emergency benefit of having a paid off home… I looked and I would only be freeing up 12K per year if we had our home completely paid off. I would still have to pay property tax, insurance, and HOA fees. We could still lose our home if we didn’t have other emergency savings even with a paid off house, even if we keep the lawn perfectly manicured so the HOA doesn’t foreclose. That 12K also doesn’t come close to maxing out our annual tax advantaged retirement savings so the argument that the money we would free up would make up for lost retirement doesn’t work in our case.
In fact, mentally I can see paying down the home resulting in LESS saving overall. When you’re trying to max out ROTHs and pay extra on your home, it’s easier to find motivation to find extra money than when your goal maxes out at just $10K after the home is paid off. Eventually (hopefully) the Roth will no longer be an option and it will just be maxing out the 401(K), which is limited at ~32K/year for a couple. You lose that additional advantaged savings stream you had from paying down the house. You have to be good and pay what you would have paid in mortgage in some non-tax advantaged investment vehicle, and emotionally that can be difficult to do when you’re not forced to do it. Making up lost retirement savings can be challenging not just because of the loss of tax advantaged vehicles.
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Funny, we were just discussing this over the weekend. Not increasing the retirement savings, but instead whether to pre-pay the mortgage or do a desirable overhaul of our bathroom.
We’ve decided to make it an annual decision (because that is about how long it takes for the home reno fund to get up to the amount needed to pay for the bathroom). This year we’ll do a big pre-pay.
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One thing that drives me absolutely nuts is that my mortgage is at a relatively high rate (6%) and is so small ($104k) that I cannot get one of the cool, fee-free refinance loans. Stupid, stupid responsible me.
According to this advice, I should be putting my extra money in to my mortgage because my interest rate is higher than any investment opportunity that I have. Here’s the thing though – why not just keep plugging that money into savings or a CD or something until I can pay off my mortgage in a windfall payment? I’d feel less like I’m locking up money in my house in the event of an emergency (or if I just wanted to live it up a bit).
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I can’t say what they should do, but I will say that having a completely paid off home is wonderful.
(We do). It freed up lots of money and gave us flexibility when we needed it.
#81. My two boys have both applied for financial aid, and having a paid off home is not a minus for them. In fact, if you made only 25K with a paid off home, then that’s 25K in mostly “flexible spending” so you are actually richer than a person who has to pay the mortgage with that 25K.
Sounds like a lot of people here are making “boo-koos” of money.
Our 2 guys have qualified for the full Pell grant each year they’ve applied. However, we can still go on conservative vacations in spite of the low income because of our paid off house.
Maybe we’ve just had bad luck with our investments, but I guess the two times we tried to invest, our investments just dived. Over 10-12 years (each time). We ended up with little less than if we had just put it in the bank in a savings account. This was using big name brand investment firms and trying to let them do it since we thought they were experts.
Needless to say, after 25 years of marriage, for us, a paid off house is definitely the best. If someone will point out anywhere you can get 5-7%, please post it.
I also think that we women tend to like the idea that our house is paid for–probably because it means that even if we can’t afford gifts, vacations, tv, internet, health insurance, life insurance, etc. we can have a place to put our heads at night that isn’t a homeless shelter. Maybe men usually have a higher risk tolerance than men.
I vote for the mortgage! I’m like so many others who, when when they pay bills each month DON’T say, “Wow, I wish I had a mortgage to pay for.”
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Oskar (#155), I don’t think you understand the concept of diversification (or arbitrage, but that’s another point). If you spend the next 10 years paying off your house, your investment portfolio is now 100% real estate. That is a RISK, the same as if you had only saved cash (risk of inflation) or only invested in stocks (risk of market volatility). I’ll say once again, you should always diversify your investments. Over those 10 years spent diligently paying off a 5% mortgage, it’s possible that you could miss the biggest bull market in the history of the stock market because “there’s plenty of time to invest” later. If you diversify your investments by prepaying SOME of your mortgage and investing SOME of the additional money, you are poised to decrease your overall risk and capture gains in multiple asset classes. AC from TX (#137) has a great comment about how to balance your portfolio through contributions (including mortgage prepayments) depending on the current market conditions.
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Yeah, been investing in conservative mutual finds for about 10 year, I have yet to earn more than an average of 7% let alone 12%… please, people, those of you saying you can EASILY earn 12% off investment, post those mutual funds and stocks here for all to see… otherwise, we don’t beleive you.
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I’m in a similar situation (homeowner, maxing out 401k, uncertain how to handle Roth) minus dual incomes and living in a high cost of living area, so paying off mortgage in 9 yrs is impossible for me.
I have two 30 yr fixed rate loans, and am paying the smaller loan (higher interest rate) at a faster pace each month. I somewhat arbitrarily chose to make it equal to 1 total mortgage payment (mortgage pymt 1 + mortgage pymt 2).
This leaves my savings in a somewhat precarious state. I have a 3 month emergency fund and am working my way up to 6 months.
So far, I have managed to max out my Roth, since I bought the home (2 yrs ago). I took the approach of funding it right before April 15th. My reasoning was that: 1) Haven’t needed the money so far 2) I already have some of my Roth invested, if I need the money, I can pull on contributions (not earnings), so I don’t get hit with taxes. 3) If I put it away now, then it’s there and compounding over the years – even if at a nominal rate. If I don’t put it away now, I’ll have no incentive to start later and would have missed out on years of compound interest. 4) I think my tax rate will be much higher by the time I retire, due to the “First-Time Homeowners Tax Credit”, so I want to balance my 401k & Roth savings..
Dunno how you feel about kids, but if you have kids in 9 yrs time, and you haven’t started contributing to your Roth now, I’m sure they’ll take priority when they come.. So see what works for you, but balance is probably a good idea.
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I have not read the comments but I’m going with, max out your tax advantaged retirement savings (your 401k, your IRA) before you pay down your mortgage. Most calculators will show you coming out ahead if you invest the money in tax advantaged retirment accounts (you lower your taxes and the money grows tax free) rather than prepaying the mortgage (which also has tax advantages).
If you can do both, max out your retirement savings and then pay down your mortgage with any remaining funds.
Also, funding your 401k and Roth doesn’t necessarily mean investing in stocks (which a lot of comments seem focused on).
As a compromise, set up a small auto payment for extra money going to the mortgage each month, as you work your budget, work to increase the extra money going to pay off the house. Agree that windfalls will go towards house prepayment (assuming no other debt, emergency fund is fully funded, and maxed out retirement accounts). As you earn more money, keep your budget flat and put more towards the house.
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Several have hit the proverbial nail on the head…..the difference between 30 yrs and 9 yrs is significant. On a 30 yr it takes 21 to take care of the interest portion. Paying additional to get rid of that principle makes a huge difference in monies avail for other investments down the road.
A $200,000 mortgage is over $400,000 in payback if carried full 30 yrs at 5%. Taking an extra $100 p/ mo and putting toward the mortgage would cut that way down. Would that same $100 invested give the same return in the same time? Running an amortization schedule in excel is easy and can give you a better picture. Since the avg person moves every 5-7 yrs we never get to the principal. We just start all over again.
I personally don’t buy into Dave Ramsey’s do it on your own. If it were that easy everyone would do it. I use a program that has been my financial savior. Paid for itself in less than 3 months and I was sitting on $275,000 in mortgage and other debt.
For me paying down/off the house means in a few short years I will have $1600 a mo free to do nothing, save, invest. Just imagine!
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I don’t have a lot of faith in investments. My Fidelity 401k through work has made nothing in a decade. Who is to say the next decade or two will be different? I am keeping my 401k money in there just to hedge bets, but all other money is going into debt repayment. If I didn’t have a mortgage I could live on very little income. That would be a great source of security.
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I am in a very similar situation and would jsut like to post what I am doing and why. I’m 24 and recently just bought my first place and had to borrow 75000. The rate is 5.25% and I still have some student loans from school. I currently put 5% into TSP to get my match from work and I plan on maxing out a roth starting at the beging of the next year (due to still having old apartment payments for 6 months – subleaser but diffrence was made up in tax credit money) After I put the 5000 a year in a roth I will use the rest of my left over money to pay off my student loans at 6.35% first then roll over everything I was paying on that into my mortgage at 5.25%. Based on my current plans I will have paid off all my student loans and my condo in 7 years while still contributing to 5000 to a roth and getting my match of 5% in my TSP.
Reading some of the above about the stock market people seem parinoid because of the downswings in the market and they are pulling their money out. Last time I checked buy high and sell low is not the way to make money, we’re young and now is a great time to start putting that roth money into blue chip stocks while the market is down. People have complained about the market and avoided it because of the swings while people like warren buffet hold onto their stocks and count their money. At our age it is the time to be invested in stocks just remember as you get older to lower your risk in the market and don’t have it 100% in stocks when your two years from needing to withdraw your money.
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Some helpful calculators relevant to this great discussion that we use for our clients:
http://www.iborrowsmart.com/index.aspx?mid=46&urlname=calcs
Pre-pay or Invest: http://www.borrowsmartanalysis.com/calculators/PrepayVSInvest.htm
Pre-pay Calculator #1: http://www.borrowsmartanalysis.com/calculators/Prepay.htm
Pre-pay Calculator #2: (lets you plug in WHEN you’d like it paid off, and shows you what you need to pay) http://www.borrowsmartanalysis.com/calculators/Duration.htm
Hopefully these links come through o.k. on this message board. Enjoy!
If not, just go to my coaching site at makenafinancial.com and click the Calculator tab.
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I have a similar question with my student loans — I could pay them faster, but at the expense of greater savings. In my case, it also makes financial sense to pay them as slowly as possible because the interest rate is so low.
What I have opted to do is to pay no-interest personal loans aggressively for emotional reasons, then pay towards retirement (in excess of my employer’s match), and only afterwards attack the student loans.
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Imagine walking in your backyard, firing up the grill on a nice summer day, it’s the last day of the month…….and you are not worried about your mortgage payment the next day. This is a no brainer to me.
Look , with all the uncertainty in the market , $13 trillion in federal debt (projected to reach $20+ trillion in the next 5 years!), why would you play this game right now?
….AND don’t give me the line , “Its a great time to buy”. Really? I believe the market is still overinflated……I will look to buy when the DOW is half of what it is right now.
Once again, imagine flipping the burgers in the backyard and being mortgage free…..
Now you can pick and choose what you want to really invest in and without freaking out about losing your house.
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Nick says:
02 July 2010 at 6:20 pm
Greetings,
I am hoping that this gets read as I have always wanted to ask this question. Currently, I owe around 37k on my house. However, I have double this sitting in a savings account not doing anything except gathering dust. I am a conservative investor and cannot tolerate just watching my principal disappear like my 401k did. Currently, my wife is on the layoff list on her current job and will not be employed much longer. I participate in a 403b at work and hope to retire with a state funded pension in about 18 years (if it is still there or I last that long). Is it better to pay off the mortgage from the savings and just ride out the storm or just keep paying extra drawing the cash when I need it?
—-Nick, I would pay off the house yesterday and then you would still have $37k in the bank …… then come up with a plan by taking your amount of the previous mortgage payment and start socking it away towards the savings.
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Sarah T says:
08 July 2010 at 10:31 am
I have a similar question with my student loans — I could pay them faster, but at the expense of greater savings. In my case, it also makes financial sense to pay them as slowly as possible because the interest rate is so low.
What I have opted to do is to pay no-interest personal loans aggressively for emotional reasons, then pay towards retirement (in excess of my employer’s match), and only afterwards attack the student loans.
Sarah- I would try to pay off smallest debts to the largest debts . 99% of the time getting debt free has very little to do with interest rates and everything to do with energy and momentum. Once you start paying off the small ones, you will increase your passion/energy and actually , shorten your time in getting out of debt……
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Nick, I’m going to help confuse you, but tell you NOT to pay off the house with any doubts about losing your job. 3 words…
Liquidity, liquidity, liquidity.
If you have more than enough to pay off your mortgage today set aside, then it’s essentially the same as having no mortgage. Take $37k out of your savings and pay off your mortgage…does your net-worth improve all all? No. It’s a net-worth neutral move. Once that $37k is in your house, and you both (possibly) have no jobs…you will wish you had that money somewhere liquid and accessible. On the other hand, that $37k OUTSIDE of your house will make a lot of house payments for you and allow you to sleep comfortably. People facing that unfortunate position learn really fast that financial “SAFETY” equals having a lot of money in the bank to pay for LIFE.
If your jobs are secure…sure, pay it off. Otherwise, take it from many clients I have had to help over the years that realize CASH is king. Especially these days. Life is about cash-flow.
All the best! Let me know if I can help or answer any other questions for you.
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I wouldn’t be comfortable borrowing money to invest for retirement, but I understand the prior commenter’s point about borrowing at 4% or so if you “knew” the market would return 12% or whatever. I also don’t want to “borrow” money from my future self to fund my retirement. To be fair, you have to look at the situation another way as well.
If I’m 20 and I need 4 million to retire, I can put $80,000 down now (i’m making up a number to show a point, I didn’t do the math) or I can put $500 a month in today’s dollars every month for life (or whatever # — again, just using made-up amounts here to illustrate a point) or I can pay off the mortgage and start contributing at $1000 / month ten years from now. The point is, that the later you wait (especially now when stocks are so cheap — buying now means you get even more for your money), the more you have to pay into the retirement account out of your own money. So $80k upfront, or $390k @ $500/month @ 20 years old, or $420k @ $1000/month @ 30 years old (10 years or so to pay off the mortgage). The longer you wait to contribute to retirement means the less money you earn in interest and the more money you have to pay out of your own pocket. So you are borrowing from your future self.
I would also want to know how close to the limit are you to not being able to contribute to the Roth in 9 years. Are you doctor interns, etc., who will not be eligible to contribute to Roths when the mortgage is paid? If so, then diversify tax-wise while you can.
Something else to consider if you max out your retirement now is you can always scale back your living quarters now if you need to. I’ve lived in other countries and the amount of space we “need” here in the US is crazy in comparison. Not that I don’t “need” my own extraordinary amount of space!
But if you max out your retirement now and something happens to you so that you are living on social security, etc., you will have extra money to count on for higher medical bills when you get older (from your retirement). You can always take the equity in your home now and buy a smaller place with smaller payments so that you can get by easier.
And another thing, saving an adequate amount for retirement is a “bill” not a luxury to give up in exchange for a want (paying off the mortgage early). Is your 3% to retirement or whatever you’re paying now enough to get you to where you want to be in retirement? There is no guarantee you’ll be able to “catch up” once the mortgage is paid. What if you are in a car accident and can’t type in the future? Or you get sick and can only work part-time for life? wouldn’t you rather have the security of a smaller place and a healthy retirement fund? If something happens to you and you can’t contribute to retirement or pay your mortgage, you would have your retirement account set and you can move down a notch in homes and still be okay — even if you don’t currently have a lot of equity, you would have a smaller payment by downgrading from a house to a condo for example.
Picture yourself disabled 10 years from now and your husband is gone (I know it’s horrible, but this happens to people and it’s best to prepare for the worst). How do you feel about being in your paid for house living on a small gov stipend? can you keep the house? is it worth it to have your money tied up in retirement where it may/not (no idea here) count against you in how much you get in social security? Is it worth it to have your money tied up in the house? Or have it tied up in cash? Disability insurance only lasts so long and it only pays 60% max. There’s risks no matter what you decide so you might as well pick the side that gives you the most sense of peace.
If it’s upsetting to you to not max out the roths, get a second job for a little while or work overtime, start a side business, etc. Find a way to make more money. Maybe you max out your Roth as much as you can and his extra money goes to the mortgage?
We paid off our mortgage and it feels great! but I’m almost 41 and we have to save such an incredibly high amount for retirement now, that we have no spending money to speak of and we’ll have to work till we are 70. You won’t because starting to save at 34 is better than starting to save at 41, but we’ve merely traded one stress for another (being in debt vs. being able to comfortably retire). And we are hoping to START a family next year. LOL! you guys are doing great.
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Mortgage! Man if you could pay off your mortgage and have absolutely no payments every month. You could invest every red cent you make. That’d be my dream.
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Great discussion.
Pardon the ignorance, but I wanted to know if this should be a factor: home value (normally) increases in price. By accumulating home equity, shouldn’t the investor’s return also include the appreciation of his equity stake in the house? Shouldn’t this make the prepayment option more interesting? (There is nothing more theoretical about estimating the growth rate of home value than of the hypothetical investment, or is there?!).
Thanks.
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Nardix, no, the change in value of the home doesn’t affect the return earned by prepaying a mortgage.
Or said differently, changes in the value of your home affect your total net worth regardless of whether or not you choose to prepay your mortgage.
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Mike Piper, thanks for the answer.
Bear with me, please: I am trying to understand.
I agree that the value of the house increases regardless of my investment choice. But my net worth is different if I own half of the house or all of it.
If I chose to prepay in (let’s assume) 15 years vs 30 years, after 15 years I own 100 %of the increased value of the house, vs 50%. Shouldn’t the additional added value that I own earlier be considered as increased return? Wouldn’t that be so if I sold the house on the day I own it?
Thanks again.
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Hmm…how about this by way of explanation:
If you own a home, and over a given period that home’s value increases by $25,000, your net worth increases by $25,000 as well — regardless of whether you owe $0, $50,000, or $1,000,000 on the home.
In other words, changes in the value of your home affect your net worth in the same way regardless of whether you prepay your mortgage or not.
All that changes when you prepay your mortgage is the amount of interest you end up paying over the course of the loan…And that’s why your rate of return when prepaying the loan is equal to the interest rate.
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Mike, thanks!
I was about to argue then I got the point, which I explained to myself thinking that if I sold the house, at any time, it would sell for the new (hopefully increased) value regardless of how much I owe on the house.
Thanks again!
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“If I sold the house, at any time, it would sell for the new (hopefully increased) value regardless of how much I owe on the house.”
Yes, bingo!
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Wow. I am a new to the blog.. love it already.
This question has been a common one in our life.
My husband and I are 25 as well, with a combined income of over 150,000.. We know that we are extremely fortunate and sometimes can’t believe it ourselves that we are making so much money.
Our priority is to get our house paid off before we have kids. Right now, we put about 45% of our income onto our mortgage and will have it paid off in 6 years – when we are 31.
My husband is a police officer, so will have a great pension. He also contributes regularly to a RRSP.
I have a 401k at work, where my employer matches up to 5% .. we have maxed this out, and I also put a few hundred into my own RRSP.
We have NO idea if what we are doing makes sense. All we know is that it makes sense for us. Like other readers, we are so giddy about watching our mortgage decline rapidly. We do realize we are missing out on six years of compounding.. but also recognize that the crazy amounts of money we put into our mortgage will go straight to our retirement portfolio the minute the mortgage is paid off.
I think either is a safe bet though.. the biggest thing is we are doing SOMETHING with our money other then spending it.
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