Class
Last night I went to a class called "How to be mortgage free in 10 years". It was very enlightening. The basic premise is that mortgage interest rates are very low, and the average rate of return on investments over the length of time of a mortgage is generally much better.
Bottom line, instead of paying down your mortgage, you put that money into investments. In the time that it would take you to pay off a 30 year mortgage in 15 years, you would have saved the equal amount of money to pay it off in one lump sum at the end of 15 years. In the mean time, you'd have control of all that money and could use it in any way you wanted to -- including paying off your mortgage.
For instance, if you and your neighbor both buy the same house for same amount of money. He takes out a 15 year mortgage and you take a 30. You invest the difference in payments between your 30 year mortgage and his 15 year mortgage. In 14 years, you both have a house that has appreciated the same amount. If you are then both laid off, you have a massive amount of money in your investment account and can continue to make payments -- your neighbor is in a position to loose his house, and all the equity he paid into his house.
The same holds true for your down payment, even when you factor in PMI. It would be better to take out a mortgage with zero down and invest the money you had for a down payment. That's better than making a down payment and investing the difference because with the no down payment option and all that money invested from day one, you have more money working longer than someone who invests the same amount of money over time.
This throws a whole new wrinkle on my thinking about what to do housing wise. It also means I need to start researching what to do with the money I could be using to pay off my truck and motorcycle. That money is sitting in my savings account, but needs to be moved to an account that earns more than 1%.
Of course, all of this is speculation, and assumes that you can do market average on your investments, but that's probably not too hard of a stretch.
It was a really great class and I'm hoping that one on investing $25 a month I'll be taking tonight is just as good.
Bottom line, instead of paying down your mortgage, you put that money into investments. In the time that it would take you to pay off a 30 year mortgage in 15 years, you would have saved the equal amount of money to pay it off in one lump sum at the end of 15 years. In the mean time, you'd have control of all that money and could use it in any way you wanted to -- including paying off your mortgage.
For instance, if you and your neighbor both buy the same house for same amount of money. He takes out a 15 year mortgage and you take a 30. You invest the difference in payments between your 30 year mortgage and his 15 year mortgage. In 14 years, you both have a house that has appreciated the same amount. If you are then both laid off, you have a massive amount of money in your investment account and can continue to make payments -- your neighbor is in a position to loose his house, and all the equity he paid into his house.
The same holds true for your down payment, even when you factor in PMI. It would be better to take out a mortgage with zero down and invest the money you had for a down payment. That's better than making a down payment and investing the difference because with the no down payment option and all that money invested from day one, you have more money working longer than someone who invests the same amount of money over time.
This throws a whole new wrinkle on my thinking about what to do housing wise. It also means I need to start researching what to do with the money I could be using to pay off my truck and motorcycle. That money is sitting in my savings account, but needs to be moved to an account that earns more than 1%.
Of course, all of this is speculation, and assumes that you can do market average on your investments, but that's probably not too hard of a stretch.
It was a really great class and I'm hoping that one on investing $25 a month I'll be taking tonight is just as good.
posted by Mark at 7:09 AM
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