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
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.
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%