My current mortgage is close 1.12 million. I have nearly 200k cash. I hesitate to invest the total 200k at once in index funds as there is chance I might time it bad. Would paying mortgage is a good idea and save 3.75% on that amount and also reduce my mortgage monthly payment. I plan to use decreased mortgage amount towards vanguard index funds. Is this idea good?
Check out bogleheads. They have several of these discussions, it really all depends on how big your savings are, whether or not youve maxed out your roth ira, rainy day fund, etc etc. if you do commit a large amount to etfs, buy it over a specific time span so you can average out your cost
Nope, never pay mortgage.
3.75% - .5% tax deduction. 3.25% interest. Paying down your mortgage is like investing in a 3 25% yielding bond. Long term vanguard will outperform. Personally I would invest in another asset class (like rental properties)
Good idea. 0.5% deduction didn't get it.. as the.max tax deduction is up to 750k as per new law. My loan.is 1.12million. Also I am in interested in rental. But not sure how to go about rental.properties. Do you have any guide or better REIT stocks ?
I estimated .5% deduction, its probably higher. Assuming you can deduct 3.75% interest on 750k it will reduce your overall interest by half a point or so. Regarding real estate. If you want to go passive join a syndication deal. You can find big names on biggerpockets. Syndications mean a group of experienced people buy a multimillion dollar under valued property and bring it up to market. Returns are higher than the stock market - around 12-25% annual return. You can also buy rentals yourself. I do that personally. I buy homes in the midwest where cash flow is high.
Why is it a bad time to invest?
I think investing 200k.at once is not a good idea. Rather invest 2k.per month as it is more.diversified and less risk. I might be wrong though
I see that makes sense. I was about to make a smaller 10k investment and I think I'll do a similar 2k per month one.
This is super cheap money. Think about borrowing for only 3.75%. Invest in anything that gets you 5% and you just won. Also tax benefits for interest paid on your mortgage, why reduce your benefit?
3.75 is a great rate— Stick with it. US treasuries are very attractive. With my clients, (after establishing goals) I’ve been utilizing some treasuries to go along with warren buffet/evidence based investing with remaining funds. In today’s environment, probably 50-50, utilizing treasuries for 1-3 yr goals, companies like amazon and Costco 3+ yr time frame.
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You can’t just reduce mortgage by paying. You have to refinance. That’ll cost some more.
We can re-cast it for 500$ - https://www.nytimes.com/2011/01/02/realestate/mortgages/02Mort.html
What do you mean you can’t reduce your mortgage? He could make principle payments at the end of the month after paying more than the minimum. It would reduce the total amount the interest is based on and the whole principle