so i have a 20 year morgage at 3.5% that i owe 230k house is valued at 470k. i have 50k to do something with am i better off investing it somewhere or further reducing my morgage?
From a financial perspective, you're better off paying your mortgage if: 1. Your house will appreciate in value faster than what you would otherwise do with that money 2. You can use the accelerated payment structure to invest more over time than the actual 50k that you have by paying down the principal faster But if you're already in a good financial position such that your only real concern is optimizing, you should also consider what will feel better / what makes sense for you in your life at this point.
> is like buying fixed rate bonds (that you can't sell). There are tons of companies that are in the business of giving you money for the equity in your home.
I’m a huge proponent of paying down your mortgage principal. You will pay close to 85% of your principal if you have a 30 year fixed rate mortgage at 5% for the life of your mortgage. You can factor in inflation all you want but the sooner you can make extra payments on your mortgage the less money you are paying in interest. And that principal pay down compounds in the future. I changed my 30 year to a 20 year then a 15 year, and am about 8 years from paying it off with the current rate of extra print payments. From a home purchased 10 years ago
This is interesting question actually, not simple to answer. If you are in 30% bracket and itemize your effective interest rate is 2.5 (ish). Stock market 30-year average return is 7% after inflation. Assume 2% average inflation, that’s 9% return. Thats a 6.5%. That means you roughly double your money every 12 years (if you just invested at 6.5%). So seems a no-brained, right? 1. Cash flow: In your early life you have a lot of responsibility. Paying down principle does not affect your monthly payment but putting that same 50k to recasting will lower your monthly payment. 2. Risk tolerance Historic average is one thing, month-to-month risk is another. There are a lot of quantitative tools to figure out your particular risk tolerance 3. Discipline: Again, historic averages are great but if you were out of the market on 5 top days per year your average could actually be negative. What if you don’t set up dividend reinvestment? Return equation changes a lot.
Pay off any consumer debt you have then an emergency fund and finally pay off your mortgage. I did it this way and now am able to sleep knowing the roof over my head and the grass under my feet are all mine
No debt and already have emergency fund
NicE work! What I’m saying isn’t radical. Just a bunch of things I picked up from a plan called Financial Peace
Look for Dave Ramsey's principal. Paying off home is the new luxury n life. Always an advocate for paying off. Helps u to make investments faster and aggressive IMO
That’s actually another great question gpte27 how much emergency fund should one have?
Enough to live on until you find another job. 6 months is a good guesd
3-6 months of living expenses is what I set aside. 6 in my case because I have many mouths to feed.
I have 6 months.
After reviewing this further I don’t think this makes sense. If I pay 50k off my mortgage I reduce it by 5 years 5 months and save 40k in interest If I keep the 50k and pay $250 extra a month it reduces the terms 4 years and save 21k in interest. Then invest the 50k at least that way if I ever need it I can it if it goes to the mortgage it’s not something I can ever get back.
Read https://engineerseekingfire.com/8-critical-decisions-for-a-successful-investing-strategy/ and specifically the first section (investment order)
Thanks really interesting read
Paying more towards your mortgage is like an instant 3.5% return (actually a bit less due to tax deductions). Do you think you can beat that in the market? If so, invest
3.5% + whatever money value you would put on the peace of mind knowing YOU own the roof above your head that much sooner.
Minus whatever money value you’d put on the regret of having burned money by paying it off early