Posted on: 20th Aug, 2008 06:29 am
If I suddenly have $2000, should I use it to pay off my mortgage, or invest somewhere else?
I am early in my mortgage, so I'm paying significant amounts of interest with each payment. Because of that, to me it makes more sense to make the down payment on my mortgage.
For example, suppose I have a $200,000 mortgage, making monthly payments of $1000. With every payment, about $800 is being wasted on interest. If I make a down payment of $2000, my principal becomes $198,000. If I invested that $2000 elsewhere, it would take me about 10 months to get my principal to $198,000, and I would have spent almost $8000 in interest.
Is my logic flawed? I have a colleague that still insists investing elsewhere is better, depending on the rate of return.
Thanks!
I am early in my mortgage, so I'm paying significant amounts of interest with each payment. Because of that, to me it makes more sense to make the down payment on my mortgage.
For example, suppose I have a $200,000 mortgage, making monthly payments of $1000. With every payment, about $800 is being wasted on interest. If I make a down payment of $2000, my principal becomes $198,000. If I invested that $2000 elsewhere, it would take me about 10 months to get my principal to $198,000, and I would have spent almost $8000 in interest.
Is my logic flawed? I have a colleague that still insists investing elsewhere is better, depending on the rate of return.
Thanks!
Hi Bbarbowski,
Well, you friend is right. When you are looking at where the better place would be, you have to consider the rate that you have on your mtg, vs the rate you would receive if you invested you money.
Right now, depending on where you are planning to put your money...the mtg may make better sense. For example, CD's and a lot of Money Markets are only returning around 2-3%. In which case, paying down your mortgage would make better sense.
If you have no savings, or rainy day fund at all, then that should be your first "investment". You should have no less than 3-6 months of monthly expense set aside "in case".
In today's economy, it is wise to secure the investments that you have worked hard for, and if 1 month without income would put you on the street, THAT should be your first priority.
Kim
Well, you friend is right. When you are looking at where the better place would be, you have to consider the rate that you have on your mtg, vs the rate you would receive if you invested you money.
Right now, depending on where you are planning to put your money...the mtg may make better sense. For example, CD's and a lot of Money Markets are only returning around 2-3%. In which case, paying down your mortgage would make better sense.
If you have no savings, or rainy day fund at all, then that should be your first "investment". You should have no less than 3-6 months of monthly expense set aside "in case".
In today's economy, it is wise to secure the investments that you have worked hard for, and if 1 month without income would put you on the street, THAT should be your first priority.
Kim
Don't forget you will have tax savings with the mortgage interest that you pay, so you have to factor that into the equation also! Being able to deduct your interest on your taxes is a major reason many financial planners recommend keeping a mortgage, even for those who could afford to pay it off.
I also agree with Kim, Rainy Day fund is very important if you dont have one
I also agree with Kim, Rainy Day fund is very important if you dont have one
