You can’t get 3% on a second mortgage right now. Investing money at a higher rate of return than you borrowed it for is the foundation of the entire banking system. I’m pretty sure most banks turn a profit. Profit is good.
A lot of people do indeed pay off their mortgages early. They like the feeling of no debt. It is still not a good long term investment strategy.
People don't take out second mortgages to invest because there's closing costs that are thousands of dollars.
The reason Dave Ramsey's advice is good for most people is because they won't invest or save the money if they don't pay it on their mortgage. They'll just spend more.
Until I get the property tax bill I guess.
Look how many people tried to pretend they were banks back in 2005-06. Borrowed money out of their 401k's, took seconds out on their homes, all to purchase another house or two. Gotta put that money to work. The one thing people forget is you don't get the same protections and bailouts from the government that banks do. Their risk is very little compared to yours.
What about the thousands of dollars a year people pay in interest on the primary mortgage, year after year, just for the privilege of having a mortgage.
Lifetime of taxes, all you really own is the pleasure of giving the government money every year till you die and perhaps if the market is right, you’ll make some money if you sell it.
Cool story. This discussion is about what to do with cash. Paying down a 3% loan when you can get 4% in a basic savings account or 5.5% in a CD is not anywhere close to buying real estate in terms of risk.
Well, Discover is paying 4.15% on FDIC insured savings accounts, with no fees.
And be worse off than just investing the $120k to begin with. This is so simple, the fact that you are arguing for clearing a very low interest loan is strange. I took you for smarter than that.
We're talking about mortgages with low rates vs investments. If you have a higher rate it would be best to pay it off sooner.
So you think you're making big money on the spread of the 3%, your paying in a mortgage and the 4% to 5% you're making in a CD? That's small ball chump change. Technically you are making money, but the juice just isn't worth the squeeze. Especially when you are retired. You want a mortgage hanging over your head once you retired? And then you're going to tie up the money that could have paid off your mortgage for 12 months in a CD for a 1% net return? Where do I sign up for that cool story
Math can be hard. Don’t feel bad, if you put your mind to it it’ll make sense eventually.So you think you're making big money on the spread of the 3%, your paying in a mortgage and the 4% to 5% you're making in a CD? That's small ball chump change. Technically you are making money, but the juice just isn't worth the squeeze. Especially when you are retired. You want a mortgage hanging over your head once you retired? And then you're going to tie up the money that could have paid off your mortgage for 12 months in a CD for a 1% net return? Where do I sign up for that cool story
It's simple math. A 10 year mortgage for 120K will cost $1160.00 per month for P&I. That mortgage will cost you 19K in interest over the course of the 10 year term. During that same term your 120K in savings at a 5% yearly return nets you 98K in interest. That's a 78K net return on investment over 10 years or 8K per year or $666.00 per month on average. If you pay off the 120K and invest the payment of $1160.00 per month over the course of 10 years at 5% interest, your total interest earned will be 43K. By holding onto his current mortgage and letting his investment mature he will see a net increase in savings of 35K or $291.00 per month.
The problem is everyone situation is different. You assumed this person had a 10 year mortgage. Most people have a 30 year mortgage and the beginning balance is going to be much higher than $120k. Therefore the P&I is going to be higher.
