Comments on: Should I Pay Off My Mortgage Early? http://www.youneedabudget.com/blog/2005/should-i-pay-off-my-mortgage-early/ You haven't budgeted like this. Sat, 12 May 2012 14:35:16 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Alfie http://www.youneedabudget.com/blog/2005/should-i-pay-off-my-mortgage-early/#comment-300 Alfie Thu, 08 Sep 2011 23:58:43 +0000 http://www.youneedabudget.com/blog/?p=99#comment-300 We just bought a $287.500 1BD CoOp and put down 20% ($57.500.00) fir which I used $28,750.00 in cash savings and took a $29.000.00 401K loan. We got a 4.25% fixed mortgage rate on the $230.000.00. Are we better off making addtl mortgage payments or, investing surplus in mutual funds? I am 51 and suppose I'll be working for 20 yrs. more to pay mortgage. Also, I have 15 years to pay for the 401K loan which scares me more if I ever lose my job. There are no penalties for paying either mortgage or 401k loan sooner. Thanks Alfie We just bought a $287.500 1BD CoOp and put down 20% ($57.500.00) fir which I used $28,750.00 in cash savings and took a $29.000.00 401K loan. We got a 4.25% fixed mortgage rate on the $230.000.00. Are we better off making addtl mortgage payments or, investing surplus in mutual funds? I am 51 and suppose I’ll be working for 20 yrs. more to pay mortgage. Also, I have 15 years to pay for the 401K loan which scares me more if I ever lose my job. There are no penalties for paying either mortgage or 401k loan sooner.

Thanks Alfie

]]> By: Mike http://www.youneedabudget.com/blog/2005/should-i-pay-off-my-mortgage-early/#comment-299 Mike Tue, 06 Jan 2009 15:16:03 +0000 http://www.youneedabudget.com/blog/?p=99#comment-299 Well said LarryBud, while the orignal post was written in 2005 when the stock market crashing seemed remote and inprobable. We know now that RISK was always there and will be there. I say, take the sure bet of the 6% advantage of paying off the home loan early. It's almost always the right course of action. Well said LarryBud, while the orignal post was written in 2005 when the stock market crashing seemed remote and inprobable. We know now that RISK was always there and will be there. I say, take the sure bet of the 6% advantage of paying off the home loan early. It’s almost always the right course of action.

]]> By: LarryBud http://www.youneedabudget.com/blog/2005/should-i-pay-off-my-mortgage-early/#comment-298 LarryBud Tue, 11 Nov 2008 20:19:18 +0000 http://www.youneedabudget.com/blog/?p=99#comment-298 "The general rule is this: if you have to decide between the early mortgage pay off or investing that surplus cash into something else, you would financially choose the one with the highest return (your after-tax interest rate is your rate of return because every dollar you spend paying it down is a dollar you don’t have to pay interest on). So if you can invest that $300 at 10% in a tax-conservative (low turnover) S&P 500, or save 6% after-tax, you would always choose to invest the money." You're missing two VERY important factors. First, you're taxed cap gains or income tax on the 10% that you've earned, dropping that 10% down very close to the 6%. Second, you're not factoring in risk AT ALL into the equation. Ask yourself this question: Would you take out a mortgage on a full paid for house, so that you could invest that money? Of course not. Why? Risk. “The general rule is this: if you have to decide between the early mortgage pay off or investing that surplus cash into something else, you would financially choose the one with the highest return (your after-tax interest rate is your rate of return because every dollar you spend paying it down is a dollar you don’t have to pay interest on). So if you can invest that $300 at 10% in a tax-conservative (low turnover) S&P 500, or save 6% after-tax, you would always choose to invest the money.”

You’re missing two VERY important factors. First, you’re taxed cap gains or income tax on the 10% that you’ve earned, dropping that 10% down very close to the 6%.

Second, you’re not factoring in risk AT ALL into the equation.

Ask yourself this question: Would you take out a mortgage on a full paid for house, so that you could invest that money? Of course not. Why? Risk.

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