I have a mortgage, quite small and affordable, I'm about to have enough money to pay it off in full, would this be the best way to spend the money? Or would I be best investing it elsewhere?
2007-03-20 02:49:24 · 14 answers · asked by mia 5 in Business & Finance ➔ Investing
the interest on my mortgage is just under 6%
2007-03-20 02:54:30 · update #1
I'd find an investment for the money. Maybe a couple of index funds? But where to put it should be decided by you and an investment advisor, if you have one.
The reason to invest the money is that it will probably earn more than what you save by paying off the mortgage. If you have a 6% mortgage, then it costs you 6% per year to have the use of that money. But you can deduct that interest on your income tax, meaning you don't pay taxes on the mortgage interest you pay. So that reduces the cost of the interest. How much depends on your tax bracket. If you're in the 30% bracket, your actual cost of the interest comes down to around 4%. It's not hard to find an investment that pays more than 4%, averaged over several years. Yes, you have to factor in taxes there, too.
That's why going to a financial advisor is such a good idea. Find a "For Fee" advisor - one that will analyze your situation, and for a fee, tell you what to invest in. These are more independent and objective than the free kind. The "free" ones make their money in commissions, so they tend to steer people to companies that pay them the best commissions, rather than the ones that pay the investors the best return.
2007-03-20 03:02:05 · answer #1 · answered by Ralfcoder 7 · 0⤊ 0⤋
You have to look at your total financial picture to determine what is best for you. Figure any tax break you get from the mortgage, what can you safely receive if you invest the money elsewhere and what, if any, interest are you currently paying on your mortgage. One important point, if you are late into your mortgage you are probably paying very little interest at this point. Figure your actual rate of interest at this point in your mortgage rather than the rate stated in the note. You should have received a statement from your mortgage company showing the total interest paid in 2006. Divide that by the total of principal and interest payments (be sure to deduct your taxes and insurance which probably are included in your payment). That will give you the effective interest rate. If you can get a higher return elsewhere, you may be better off investing the money. The intangible factor here is the satisfaction of having no mortgage. Some people simply feel better not having a monthly mortgage.
2007-03-20 02:55:28 · answer #2 · answered by Anonymous · 1⤊ 0⤋
Well if you can find and investment that will bring you in more than 6% then maybe but you might do better to pay of the mortgage and then set up a regular savings account with the money that would have gone on mortgage repayments.
2007-03-20 06:22:47 · answer #3 · answered by gerrifriend 6 · 0⤊ 0⤋
Can you get better than 6% on an investment? If you can then maybe it would be worth while.
I just finished paying off my mortgage and did it by making several lump sum payments over the last couple of years. I don't think that I could have found an investment that would have gotten me the same percentage return.
Plus it is actually great to be 100% debt free.
2007-03-20 02:59:50 · answer #4 · answered by Ernie 4 · 0⤊ 0⤋
I would pay off any other debt that i had before paying off your home. Then I would consider putting away the legal limit into a retirement fund of some sort. Then I would pay off the house before I started investing elsewhere. Investing without paying off debt is like borrowing money to invest. Also, before I did any of the above, GET AN EMERGENCY FUND!!!, 3 to 6 months of expenses, most important tool to get outta debt!
2007-03-20 03:00:55 · answer #5 · answered by Ben H 5 · 0⤊ 0⤋
I would pay it off ! The interest you are paying is probably more than the interest you will be receiving. A medium . high risk investment such as stocks and shares could get you more but it is risky! The money you pay for you mortgage could always be used to pay into a regular tax free investment anyway.
ie, ISA, premium bonds etc
Nice problem to have !
2007-03-20 03:07:13 · answer #6 · answered by caroline b 2 · 0⤊ 0⤋
I'd keep a small mortgage, its the only form of debt that you get interest relief on, its also a very cheap form of debt.
I'd keep it, invest the extra income elsewhere, and use the mortgage to obtain a loan in the future ie, instead of going to bank for new loan in about 5 years, just add it on to your mortgage, if required.
2007-03-20 02:58:35 · answer #7 · answered by Christine 6 · 0⤊ 0⤋
I depends on how low the interest rate is. If it's very low, keep the mortgage and invest in a good mix of mutual funds. If you're paying 6% and can get 10-12% back from investments, you're better off.
2007-03-20 02:53:36 · answer #8 · answered by Glennroid 5 · 3⤊ 1⤋
The main thing you need to look at is simply this. Can you earn more interest by investing this money than you are paying for your mortgage. If not, then get rid of the debt and relax...................
2007-03-20 02:57:37 · answer #9 · answered by tonyevans50 2 · 1⤊ 0⤋
pay it off tat is what I did it was the best thing
I have gone on to buy another property rented my old house out and used the rent towards paying of my mortgage
2007-03-20 07:04:59 · answer #10 · answered by Anonymous · 0⤊ 0⤋