1. Your Questions About Invest In Stocks Or Pay Off
Mortgage
Carol asks…
Should I pay off my mortgage or keep money invested in stock
market?
I have a 30 year mortgage fixed @ 5.25%... I owe $211K on it. I currently have $530K invested
in stock market. As far as risk tolerance in market, I am at higher level..... I am 42 with no other
debt and make around $100K a year. What would you do?
have 25 years left on the loan.
Steve Winston answers:
Pay off the house. Once you pay off the house. The house is yours. If you dont pay off your
house and something was to happen and you couldnt make your payments. The Bank will take
your house.
Take what would have been your house payment every month and invest.
Its nice to have the tax break on the interest on the mortgage but, You'll save more if you pay it
off. All the tax break is is you dont pay tax's on the interest you pay the bank. If you paid
$1,000.00 a yr in interest and your in the 25% tax bracket. Then you dont pay the government
$250.00 in tax's. So, if you dont pay the bank 1,000 then you have to pay the government 250.
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2. I think id rather pay the government 250 and save myself 750.
Dont forget. You have to pay taxes on the money you make investing.
Charles asks…
Why paying off mortgage instead of investing in the stock market?
I'm confused. If a fixed mortgage is 7%, wouldn't it be better to invest in the stock market for
an average of 10% in the long run. In this case, I could have a tax deductable while gaining in
the stock market. So, should I pay off the mortgage asap or invest in the stock market?
Steve Winston answers:
You're absolutely correct. Also, keep in mind that the interest you pay is being reduced over
time, so it's less and less through the years.
If you throw inflation into the mix, with a fixed mortgage, you are effectively paying 3-4% less
every year.
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3. Your extra cash is much better off being invested--first a cash reserve (3-6 months expenses in
case you are temporarily disabled or lose your job), and then hit your accounts with tax benefits
like Roth IRA and your company's retirement plan.
Of course, none of the investments do anything for a sound financial plan if you aren't properly
insured.
Sharon asks…
Would you pay off your mortgage in this situation?
If you had a mortgage for $200k and were paying 5% interest on it, would you pay it off if you
had the money to pay it off? Or would it be better to keep that money invested in stocks and
use the payments on the mortgage interest as a write off when you do your taxes?
If I knew I could beat 5% of course I would keep the mortgage, but you know how the stock
market can be.
Steve Winston answers:
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4. Chances are your mortgage payment is tax-deductible so that 5% might only be costing you
3.75%-4% if you are in the 25% tax bracket. However, a tax deduction is not the only factor to
look at.
Personally I chose to be debt-free and paid my mortgage off early. But I understand why others
believe it's better to invest the money instead. Once you pay off your mortgage, that money is
locked up in your home. The only way to get at the value is to take out a home equity loan and
that costs money. If you invested the money instead, then you could choose to cash out some
investments if you wanted money for something.
I wanted to be debt-free so I paid if off. For me, the feeling of being completely out of debt was
worth it even though it might have been a better move to invest instead. Will you choose to save
the extra money if you pay if off early? Or will you spend it? If you think you will just increase
your spending, then don't pay it off.
If I had $500,000 available I would pay off the mortgage. If I had $220,000, I would not because
$20,000 is not enough of a cushion.
William asks…
Is it better to pay off house with funds or invest for retirement?
I am planning to retire in about 10-12 years and have a windfall from a stock spilt. What are the
advantages and disadvantages from paying down my house loan with the funds from the stock
spilt or would it be better to invest the money until retirement to take advantage of writing off
interest from my mortgage on my income tax? Would buying an investment property be a better
solution?
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5. Steve Winston answers:
Excellent Question! Most people are faced with this.
Let me explain how I think and you should then be able to decide for your self.
When you take a mortgage, the interest paid is tax deductible. Hence even if you have a 6%
Mortgage, your effective interest paid is just 3.7%. Where else will you get money at such
ridiculously low rates?
I have been with a financial planner and he is pitching me post tax 9.2% which is pre-tax 14%.
So if you don't repay your mortgage and invest it, you will stand to gain atleast 5%. This implies
atleast $5000 more each year for every 100K in Mortgage.
I am myself a realtor, so I understand a bit more in real estate. The way it works in Real estate
is very different. Say you invest in a financial instrument, you get a return of 9.2% after tax on
the 100K. But if you invest the same 100K in Real Estate, you would be buying a property worth
atleast 500K, or 1 Million. If this property appreciates at just 4%, much higher in places like
California / Florida etc. If you consider that you are buying a 500K property with 20% down, the
return on your investment will be 4% X 5 (Leveraging) = 20% per year. You can manage this
investment pretty well using 1031 exchange etc. To be able to defer payment of taxes till
retirement.
If you buy a property with a 10% down at 1 Million, your return will be over a 40%.
You need to seek a right reward to risk ratio. If you plan your investments well using a Estate
Planner, Financial Planner and a Realtor, you will be able to reap good returns and save money
from taxes.
Disclosure: I am a Realtor in San Jose, California working with Century 21.
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6. George asks…
Refinance mortgage or invest in stock market?
I have the option to refinance my home that I purchased within the last 5 years, saving around
2%. The cost to refinance will be approximently $4000-$8000. The current loan is for 30 year
fixed and I plan to have it paid off in 15 years by making extra payments. Should I refinance
and get a 15 year fixed to save the 2% or should I take the $4000-$8000 and invest it in mutual
funds? Thanks so much.
Steve Winston answers:
A mutual funding service has great turnover, and upgrades. The issue is always what do you
believe is realist in determining your safe retirement, memberships, and services. The new
world has some better upgrades on the best listings so the awareness is dependent ideals of
low paperwork. Though being alert to alien communists is now in a new agenda. As an elder
jewish, christian, or ecumenical family your wealth and properties are insured with faith officials.
This unique being a model citizen can be a danger in town and political active banks.Our secret
recieving option. When using funds as an activity you should avoid rookies, or plan pals. The
trust part of funds is involved in your class. Money does not move out of the bank until it is
wisely spent. Bad spending, risks, gambles are not on the books. Stock teams are allowed to
help people, and money is in this direction. The more money being spent the stronger the
nation. With this single point you must behave yourself in appropriate manners. Talk to your
benefactors. Larger amounts are more responsiblities and Forex is experienced, though not
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7. immune to daylite. The fun of funds is with defense, definitions, directions.
Betty asks…
Pay off mortgage ASAP?
Hi, is it better to pay off my mortgage ASAP or invest the $ somewhere? Below is my
situation:
- 25% tax bracket
- $113K in remaining principal balance (30 yr fixed, 5.375%)
I should mention that I'm an experienced stock investor, with an avg. annual gain of 10% for the
last five years or so.
Thanks!
Steve Winston answers:
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8. Based solely on those numbers you should keep it & invest it... You have a low interest rate on
your small mortgage & its deductible (as long as you can itemize) and if you THINK that you can
maintain a decent return on investment. However, with the market, economy & real estate
markets the way they are right now, who knows what you may experience in the next year in
investments. SO there are more things to consider.
Jenny asks…
Pay off mortgage ASAP? (Part 2)?
Hi,
Thanks all very much for your great answers to my question yesterday.
My monthly mortgage payment is $510 and the annual tax is about $3,300, so the annual tax
deductible amount is $9,420
($510 x 12 + $3,300), which is less than the standard tax deduction amount of $10,300 for a
couple filing jointly.
Considering this, what would you say my best move would be?
Thanks again!
---
Hi, is it better to pay off my mortgage ASAP or invest the $ somewhere? Below is my
situation:
- 25% tax bracket
- $113K in remaining principal balance (30 yr fixed, 5.375%)
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9. I should mention that I'm an experienced stock investor, with an avg. annual gain of 10% for the
last five years or so.
Thanks!
Steve Winston answers:
As with any other financial issue, we have no idea what your overall financial condition is, so it
would be foolish of us to give you advice, much less of you for taking any of strangers on the
web who would do so without knowing all the facts.
For an alleged "experienced stock investor", you should know better. BTW, if you are as you
say, and you have only a 10% annual gain over the last 5 years, then you are not doing so well;
any "experienced" investor would have taken the appropriate steps to make nearly 30% in the
current market! Of course, it goes without saying that neither experience nor alleged gains are
an indication of financial condition or savvy.
Regardless, you need to seek the counsel of a financial advisor, who will ask about your entire
financial history before giving you any advice.
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