« Kiplinger’s Fred Frailey Takes a Look at the Magic Formula | Main | It’s Official: The Giants Won the Super Bowl so the Dow Will Be UP in 2008! »
Question From a Reader: What to do With My Mortgage?
By JLP | February 4, 2008
I received the following email from a reader over the weekend:
Hey JLP,
Got a question for you. I just got my most recent Consumer Reports, and they had a blurb in there about paying off your mortgage early vs. taking that money and throwing it in an index fund. Their claim is that over any fifteen year period the index fund was 100% better than paying off your mortgage early. Do you have any insight on doing this? I was thinking of doing that instead and just paying off the house when the balance becomes greater than the pay off amount on the mortgage. I guess the biggest thing I can’t figure out is whether or not the tax hit on a taxable investment negates the whole thing.
Thanks
-Jerry
My response:
Jerry,
Longtime readers of this blog have heard me rant about this topic lots of times. So, rather than rehash those thoughts again, I’ll point you to the posts on this topic:
Money Magazine Takes On Six Financial Dilemmas
Which is Better: a 15-Year or 30-Year Mortgage?
Ever Wonder What a Mortgage Amortization Looks Like?
How an Interest-Only Mortgage Works
Check Out the Latest Dave Ramsey Poll - The topic was mortgages.
A Follow-up to the Dave Ramsey Mortgage Post - This is Interesting
10 Great Reasons to Carry a Big, Long Mortgage
The Mortgage Deduction and Taxes
Should You Prepay Your Mortgage? - This was a popular question of the day.
How Much House Can You Afford?
Topics: Investing, Mortgages |
February 4th, 2008 at 4:40 pm
FYI, Trent at The Simple Dollar literally just posted an article addressing this very topic (and this very CR story).
http://www.thesimpledollar.com/2008/02/04/investing-versus-paying-ahead-on-your-mortgage-which-makes-more-sense/
February 4th, 2008 at 4:47 pm
Jerry,
Do what YOU feel is right. Most people like the security of a paid off mortgage. Others rather invest the difference. The answer is whatever you feel right in your heart.
February 4th, 2008 at 10:40 pm
In December of 1999, I bought my home with 20 percent down and a 6 percent mortgage. I decided I’d like to pay my home off early and figured stocks, mainly the S&P 500 index fund, was the way to go. After all, the long-term track record for the market is around 11 percent. I’ve checked my fund statements and I’ve made a whopping .75 percent annual rate of return since that time. My mortgage is still a managable 6 percent but in looking back, I’d have much rather had that 6 percent guaranteed rate of return than less than 1 percent. So, I’ll hold on and have faith those historical 11 percent returns come to pass. Someday. Soon. I hope.
February 5th, 2008 at 7:52 am
If you decide to invest the money for the long-term and you qualify for a ROTH IRA, put the money there. You are allowed to withdraw your principal without penalty or taxes so you have access to that money if you feel you need it.
February 9th, 2008 at 8:02 am
[...] All Financial Matters - Question From a Reader: What to do With My Mortgage? This is a great collection of articles dealing with whether or not to pay off your mortgage early. There are a lot of differing opinions. [...]