Principal on my mortgage or my mutual fund?

Question

After bills, money saved toward retirement, and spending money - am I better off placing extra $$$ toward the principal on my mortgage or placing it in my mutual fund.

I hate having debt, and would love to have my 30-year mortgage paid in 20. And barring the unforseen, I will be able to do it, but I hear some say commit to investing that money (probably $300 a month) into my mutual fund.

I need some unbiased answers.

Answer 1

Try this calculator because it depends on your tax bracket, the way the money is invested and it's expected rate of return, and the interest rate on your mortgage. This calculator takes all that into account...
http://debt.bizcalcs.com/Calculator.asp?Calc=Eliminate-Debt-Or-Invest

Answer 2

The correct answer is yes and no.. Advantages of funds Theorectically, the managers have more resources available and can investigate many different stocks to make appropriate choices. Secondly by buying in larger volumes they can save on commissions as percentage of cost. This can mean difference between profit and loss By choosing the stocks that are shown in annual report you might be buying just as they are preparing to sell. A stock can move several percentage points in a day. You might have made the right choice but your order might not be filled. A large block of shares might be easier to move between institutions. Disadvantages of mutual funds If your fund has done a number of trades in a year, you could end up paying taxes on gains you never saw. The management fees might more than offset savings elsewhere Some mutual funds are so big that they cannot buy as much of a stock or industry as they might wish. Astute managers can move to other funds and leave a mediocre team behind Answer perhaps ETF (exchange traded funds ) with low MER's might work for you.

Answer 3

Assuming a 30 year fixed mortgage in the US, you probably have an interest rate that is about 6-7%. As interest on the mortgage is tax-deducable, making the effective interest rate about 4% depending on your marginal tax bracket. Since capital gains taxes are capped at (I believe) at 25%, if you could get about a 6% return on a mutual fund, you would be better off investing in the mutual funds. Diversified mutual funds hisorically average 8-10% returns and a 30 year period is long enough to whether some ups and downs. So on average, you would be better off putting money in a mutual fund, but it is riskier (on average 8-10% return in mutual funds versus guarenteed 6-7% return paying off the mortgage early). The tax situation favors mutual funds for now, but who knows what the capital gains tax will be in 30 years (when social security will have to pay out more than it takes in and have no reserves left).

My recommendation is mutual fund.

Answer 4

If you make one extra house payment a year you can have your loan paid off within 15 years. Also remember that every year your interest is a write off at tax time. If you pay your note off too soon you can no longer take the write off. Also remember that taxes and home owner's is taken out monthly from your mortgage note, if you pay your note off too soon you will have to come up with that money yearly yourself. Also keep in mind that a home isn't earning interest. It's value you go up, but it's basically like a savings account to yourself minus the interest.
I personally think the best investment for anyone is to invest in themselves through a mutual fund. It earns interest, it's tax free, your racking up interest when you invest more.

Answer 5

I feel the same way you do about debt. I LOATHE it.

Before making any additional principal payment to your lender, review your mortgage document or call the lender. Ask about any "pre-payment penalty".

You should be able to get an answer in a relatively short time period.

Then again, you may be put through that "voice mail maze" [I don't know what they call it - other than annoying and frustrating]: "Press 1 for . . . " THEN "Press the * key for . . ." etc. YES, I LOATHE this too.

After getting a clear, understandable answer, you should "crunch the numbers" or have the lender or an uninterested 3rd party "crunch the numbers" to see which is the best alternative for your hard-earned money.

I wish you well!

VTY,
Ron B.

Answer 6

You didn't say your age or if you had any money put away for retirement. I'd go with the mutual fund, perhaps in a ROTH IRA or through your employer's 401k or 403b, and start accumulating some retirement money. Too many people neglect this. Like a previous poster said, your return should be greater too.

Answer 7

Definately the principal on your mortgage. Get it paid off and then worry about adding to your mutual fund.