| Should I pay off my house or invest the money? |
| Pay off the house |
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| Invest the money |
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| Total Votes : 3 |
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| lalilangel01 |
 Posted: Tue Dec 02, 2008 6:42 pm Post subject: Pay off House or Invest? |
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| I have a question. I'm getting a $90,000 insurance settlement any day now and I am trying to figure out if I should pay off my house (owe $84,000) or invest the money. I owe 12 years left at a 6.35% interest rate with a monthly note of $907.00. If I pay off my house, I'll still have $25,000 in the bank for a "rainy day". I do not itemize taxes since the standard deduction ($10,500) is more than I would have if I did itemize so I do not get a tax break for my interest paid on my house. Does anyone know a formula to figure which would make more money, investing or paying off the house? I'm 25 so I have quite a few more working years left. Thanks! |
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| Helter Skelter |
| Posted: Fri Dec 12, 2008 2:07 pm Post subject: |
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Investing Sr. Associate
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Well, If it were me, I'd pay off the house.
Thats an extra $900 a month that you will have to invest. And since you don't itemize, thats just more reason to pay off the house.
It does depend on your specific situation, though. How is the interest structured for your loan? What is the term of the loan?
I am assuming that it is a 15 year mortgage (based on your age, and how many years you have left).
I dont have a formula for you, but I think at an average rate of return, Investing will make (or save) you more money. But, I would personally prefer to not have that debt holding me down.
Either way, you'll be doing better than most 25 year olds.  |
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| lalilangel01 |
| Posted: Fri Dec 12, 2008 6:27 pm Post subject: Thanks! |
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Thanks for the advice. My loan is set up so I can pay it off at any time without any penalty. So I only pay interest on the loan for as long as I have it. If I want to pay off the loan early, I don't have to pay the full 15 years worth of interest. I just pay the interest until the day I pay the loan off. I pay about $6,000 per year in interest (and again, it is not a tax write off since I don't itemize) right now.
I've paid in $18,000 in interest so far in 3 years time. By my calculations, I would have a total of $58,400 in interest if I continued to pay the interest for the life of the loan. So by my figures, I'd save $40,400 in interest by paying the loan off now.
I can figure out how much money I'd save, I'm having trouble figuring out an approximate dollar amount I'd make if I invested the full $90,000 and continue paying my house note.
If I did pay off the house, I'd invest the $900.00 I currently pay on the note because I do believe in investing. So I'd have $900.00 per month with compounding interest each month for investing purposes, but would that amount of interest saved be as much or more than what I would get in an investment?
Does anyone know what the average rate of return (percent) is with a diversified portfolio with more investments in the medium and high risk categories?
Thanks! |
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| DKnightSr |
| Posted: Fri Dec 12, 2008 6:43 pm Post subject: |
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Member of the Month
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Based on the numbers we see here....the return can be ANYTHING based on your knowledge and abilities.
More importantly though, in economic hard times (which are, I believe, just getting started) your exposure to debt is a major chink in your survival armor.
4 generations of my family have used frugality through good times and bad times to assure that we are never caught short. If you have a roof over your head, food in your belly, and a shirt on your back, everything else is negotiable. But notice the "roof over your head". Sometimes bad things happen to good people. I recommend you pay off your home. Then it's yours! What you do with the savings is open for discussion...but for pure peace of mind, there is NOTHING like a clear deed to your castle.
Hope this helps. |
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| Helter Skelter |
| Posted: Sat Dec 13, 2008 12:22 pm Post subject: |
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Investing Sr. Associate
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Well, an AVERAGE rate of return may be somewhere in the 8-12 percent range.
With a quick estimate, id say your 90,000 investment could nearly duadruple during the term of your loan.
But, Look at what has happened with the market in the past 2 years.
Also, if your investments are based on "value", it may take a few years for those investments to start making you money. During that time, you could lose your job, have an emergency, or what not. This is why I say pay the house off.
Like DKnightSr, said, the return can be anything. |
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| Jomari White |
| Posted: Thu Jun 03, 2010 6:09 am Post subject: |
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