This is a question as old as time, and asked before multiple times. Back then interest rates were 3-4%, now it’s looking like 5%. At this rate, should I pay down mortgage for a guaranteed 5% return on investment or invest in the stock market for a likely 10% return on investment? At what interest rate does it make sense to pay down loan, given S&P return is not guaranteed. TC: 180k
S& P goes up and down your mortgage monthly payment won’t. You will more likely freak out if your sp500 goes down than your house value goes down. Pay off the debt first is what most cfp will tell you anyway.
It's not a binary choice, you can pay off a chunk of your mortgage and invest in a low cost index fund too
I would invest in the S&P. For a mortgage you get tax breaks if you itemize your deductions. In addition if things go to hell real estate wise making minimum payments makes it easier to walk away from the house and let the bank foreclose on it. If your making extra payments monthly and you lose your job and cant payments it hurts you much more if you made a ton of payments towards the home vs you paid the bare minimum.
You technically could claim the loss on your tax return if you sell to realize losses. Cap at 3k though
Pay it off first. Market will crash soon.
Given the option, would you take out a loan at 5% and put that money in the stock market? If yes, then keep loan. If no, pay off.
Debt is the key to build wealth, you take debt to buy appreciated asset. Your primary house and rentals are one of those where you have one unique super power - “leverage”. So instead of paying it down earlier, spend those money to buy asset. Mortgage rate may looks high but you are not considering “inflation”. The longer time you have debt, the less you ended up paying when you consider inflation. Only pay off debt if it’s for CC.
^^this. Sounds like OPs mortgage rate is lower than inflation, not to mention mortgage interest is tax deductible.
Cash out more and get ready to buy another home.
You should watch this https://youtu.be/FfGs7aQP62g On avg market returns 9% if you invest on the long-term; if you mortgage interest isn't above like 4-5%, makes sense to put the cash on the market imo Edit: Long-term, if u see the video is 20yr cycle
For S&P, you don't know if the next decade is like 2001 to 2011 (1+% average returns) or 2011 to 2021 (12+%). There's also capital gains tax. On the flip side, if you can deduct loan interest, that can help a bit, and there have been many periods where's S&P returned significantly more than paying down debt.
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given volatility on stock market outlet and rising interest rates…I’d say pay off loan