Invest or reduce principle on home mortgage

Aug 8, 2018 26 Comments

n00b question.

I have a 600K house mortgage which I closed 2 months back. Paying around 4% interest.

I also have 100K sitting in Wealthfront which has yielded only 2.2%. Given market is already tumultous, and I dont have enough expertise to grow my money(other than using robo investors like wealthfront), I am considering following options

1. Use the 100K and reduce the principle on my mortgage as I am paying more interest than the yield.

2. Hire a professional to manage all my investments.

Thoughts?

comments

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TOP 26 Comments
  • For the folks who keep saying *not* to pay off mortgage early... Why? The math doesn't add up...

    Let's assume I park 100k in a low risk low yield index fund. The returns for a year would be 4 to 5k.

    Now let's say that the same money was used for principal reduction. The amount of money you save in interest will be at least 150k (assuming a 4.5% interest on a conventional 30 yr fixed jumbo loan of 500k+). You can get an amortization schedule and verify this fact if you'd like.

    So what is your justification to *not* attach the principal with fury?

    PS: Plz don't cite recession, layoffs and other BS. All you need is a 6 month emergency fund. Everything else should go to principal reduction.
    Aug 8, 2018 9
    • Apple
      Vhff45

      Go to company page Apple

      Vhff45
      Have a friend that bought a house in 2008 paid it off 700k.. thought he was winning.. house in bay area is now worth 1.5 mil at the low end. Friend calculated if the amount was put in an index fund minus rent. Would have made at least 4 times.
      Aug 9, 2018
    • Thanks for all the great advice. Looks like it's time for me to revaluate the mortgage pay down strategy and invest more elsewhere.
      Aug 9, 2018
  • Square / Eng
    nom๐Ÿ”

    Go to company page Square Eng

    nom๐Ÿ”
    Don't pay off the mortgage for two reasons :
    1. You need a buffer for bad times - recessions, tech crashes, unemployment, etc.
    2. On average, long term, the market grows much more than 4% a year. You might have a bad year here and there, but you need to think in 10y+ time frame, not 1yr.

    Roboadvisors should be ok, also just buying the market (eg via VOO) should also be fine.

    Even 1yr low risk bonds can yield over 2%
    Aug 8, 2018 0
  • Silly to pay off mortgage. Market returns at least 7%, mortgage costs 4% before the tax write off. Invest.
    Aug 8, 2018 0
  • Microsoft
    Wlb๐Ÿคช

    Go to company page Microsoft

    Wlb๐Ÿคช
    Assuming you have an emergency fund, yes pay down the mortgage
    Aug 8, 2018 0
  • Youโ€™d be doing yourself a favor by becoming familiar with the concept of expected stock returns. See https://www.etf.com/sections/swedroe-valuations-too-high?nopaging=1 for a good article and ask a friend to explain it if you donโ€™t get it.
    Aug 8, 2018 5