Which would be better: Double payments on mortgage or invest?

[Mortikhi]

The wife and I have gotten our bills and expenses down to the point where we have $2k/month saved (all bills paid, food, etc etc).

What would better financially: paying down the mortgage faster to where it is gone in 10 years (saving us hundreds of thousands of dollars) or investing that money and have it work for us for a change?

 

[acptulsa]

We don't know your interest rate and no one knows how dividends will do.

If your investments are sound enough, the dividends should more than pay the interest charge on the loan over that period, especially given the rate of inflation we can expect. Of course, if is a scary, scary word...

 

[Mortikhi]

We don't know your interest rate and no one knows how dividends will do.

If your investments are sound enough, the dividends should more than pay the interest charge on the loan over that period, especially given the rate of inflation we can expect. Of course, if is a scary, scary word...

I guess I could add some details.

The mortgage is 6.1%

 

[LittleLightShining]

I guess I could add some details.

The mortgage is 6.1%

Wow, 6.1%? Maybe you should refinance?

 

[acptulsa]

I guess I could add some details.

The mortgage is 6.1%

If that is fixed, it would make keeping that mortgage very attractive. You could outperform that on the market, and there is some chance that inflation could get that bad. But remember--the market is weak right now, the economy isn't promising for healthy dividends from any company, there's a lot of ifs and maybes, and I'm no pro.

Paying your house off early is the safe bet. Outperforming that with stocks is hardly impossible, but not the safe bet.

 

[Sarge]

We have been there and done that several times.

My input is to get a copy of your amoritzation schedule and see where you are on the schedule.

Add up how many months principle you want to pay each month and make extra payments on principle. You up your equity each month. You are paying with devalued dollars right now.

You would not have to use the whole amount each month and could invest some to pay off the balance later. You are saving both ways. Just my thoughts.

 

[Mortikhi]

The rate is fixed. it looks like the current rate is 5.81%, so there's really no point in refinancing.

 

[Acala]

Depends

It depends on what you think inflation is going to do. If you think, like I do, that what the Fed is doing now is, in a year or so, going to cause price inflation to come roaring across the land like a demon out of hell, devouring the value of every dollar we have, then you should wait and pay off your mortgage with the devalued dollars that you will have down the line and use your relatively more valuable current dollars to invest in inflation-proof hard assets.

On the other hand, if you think there is going to be deflation, as some folks do, then you are better off paying down your debt now.

 

[Cleaner44]

If that is fixed, it would make keeping that mortgage very attractive. You could outperform that on the market, and there is some chance that inflation could get that bad. But remember--the market is weak right now, the economy isn't promising for healthy dividends from any company, there's a lot of ifs and maybes, and I'm no pro.

Paying your house off early is the safe bet. Outperforming that with stocks is hardly impossible, but not the safe bet.

Forget trying to outperform by using the stock market for quite a while.

There really is no need to pay down that 6.1% debt faster if you can earn much better with investments. The question then becomes what investments would earn better than the 6.1% and the peace of mind gained by paying your mortgage early.

My opinion, keep some good amount liquid for emergencies and then invest in a bull market such as commodities - see Jim Rogers. Stocks are not the place to be for a while. Gold, silver, wheat, sugar, cotton, coffee, these are solid places to earn nice returns.

Remember that inflation is eroding your money faster than 6% right now so you need to find a bull market.

Short answer: invest.

 

[Libertytree]

I agree with Cleaner 100%.

Those extra funds could be put to better use in hard commodities, especially gold and silver, if you have food, water and the basics covered for an extended amount of time.

If this were normal times I'd say pay the house down/off but these are anything but normal times. Cover your ass first, then worry about getting them their extra money.

Even allocate these extra funds into solar, as some of us are doing, it adds value to the house and gives you peace of mind in the process.

Just my 2¢.

 

[scooter]

It's definitely a better idea to invest if your rate is fixed and is that low. You'll beat the interest rate with inflation alone as long as you invest in areas that rise with inflation. The safest bets are large, goog quality American companies with at least 50% of their sales overseas such as Proctor & Gamble or Coca Cola. As they bring those sales back into dollars, they get a double boost. Also, getting dividends in the 3-6% range will go a LONG way in offsetting the interest payments on your mortgage.

One thing to do in this time period is not panic and chase bull markets. Oftentimes it is better to invest in the stuff that's not doing so well now so you can get it much cheaper than after it comes back. Companies like those mentioned above have been around for many many years and they aren't going away any time soon.

 

[Zippyjuan]

It comes down to can you get a better return on the investment somewhere else- including transaction costs and gains taxes on the alternative investment. For myself, I do not see that much better return in the market. I have a low balance on my loan and could pay it off in five years. Each extra payment I make saves me 5.85% (fixed loan) now. After that five years is up, the amount I am no longer paying on the mortgage will effectively increase my take home income by 25%. That is a great return which cannot be found today.

My balance is about $60k so investing that $60k will, at the end of the five years, save me $6000 a year every year into the future or a solid 10% return. At that time, I could invest the extra money and get an even greater return. Either way, I think for me that paying the mortgage is a no- brainer.

 

[grizzums]

Pay more off your mortgage or invest? You are investing if you are paying off your mortgage. Do both. It does not need to be an éither or here.

One extra payment (principal) a year should cut your mortage in 1/3 to 1/2 (totally rough estimate) time wise. There are benefits to having your mortgage too as in tax deductions....so its good to shorten your time frame on your mortgage while at the same time eliminating a big chunk of interest for your lender....but probably no real need to pay it off completely (of course there are so many factors that we do not know...how old are you, how long to retirement... Etc etc)


I like the idea of investing in big names that have stable divis that are not threatned. Ice had PG for several years and am happy with them especially with current economic backdrop.


Good luck.

 

[torchbearer]

double payments on mortgages will grant you the most "garunteed" financial gains, especially if its at the beginning of the loan. The amount of money you can save by knocking down your principal balance early on would be huge on a house mortgage.

 

[New York For Paul]

It can be a good idea to have control over your cash. If you pay off your house now and get into financial trouble you may not be able to get a home loan.

Having extra cash on hand gives you flexibility.

 

[angelatc]

The wife and I have gotten our bills and expenses down to the point where we have $2k/month saved (all bills paid, food, etc etc).

What would better financially: paying down the mortgage faster to where it is gone in 10 years (saving us hundreds of thousands of dollars) or investing that money and have it work for us for a change?

Do a little of both. Pay down the mortgage by an extra $1,000 per month, and invest the other. Like Grandma said, "Don't put all your eggs in one basket."

PS: Can I borrow some money?

 

[Kalifornia]

I would use that money, form an LLC, and start investing in lower end rental real estate. ONLY buy stuff that gives you a real cash return on your investment (cash down payment) that is equal or greater to 20%. depending on the property, that return can be largely tax free due to the depreciation on the building.

I dont know what your overhead is, but with 2k a month, if you are an active and involved investor who makes smart decisions, you could be in a 'walk away from the job' situation very quickly.

 

[Zippyjuan]

What is offering a real return of 20% these days?

In many places the prices being asked for purchasing real estate including everything results in payments higher than what you can rent the property out for- even if you allow for depreciation. Remember to include maintainance costs and the probability of a certain amount of time for the property being vacant between tenants meaning no revenue coming in on it.

 

[Cleaner44]

Do your self a huge favor and make sure that you have 6 months of living expenses set aside before you even begin to think about paying off early or investing.

Investing well will get you ahead financially.

Paying off early will get you more peace of mind.

 

[Dustancostine]

Yes I would suggest saving six months worth, then start to pay off that mortgage, the future is always uncertain, but a house free and clear is pretty certain other than property taxes.

--Dustan