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I'm not sure exactly how it affects the calculations, but if the house is paid off, you can use the money that would have gone towards mortgage payments towards
by claudiulodro 5y ago
I'm not sure exactly how it affects the calculations, but if the house is paid off, you can use the money that would have gone towards mortgage payments towards investments though. So instead of $1000/mo towards mortgage and $1000/mo towards investments, you could do $2000/mo towards investments. It's probably a smaller total return than your method, but it's way less leveraged.
- liketochill 5y agoIt’s always better to lever up if returns are greater than interest or inflation is higher than interest. And residential mortgages are the cheapest source of leverage available.
- reedjosh 5y agoCheapest and most easily attainable.
- foobarian 5y agoDo the exercise on a spreadsheet. One row per year to make things simple. Make 3 columns, "mortgage paid," "investment", "no-mortgage". Pretend the house is $100k. With the mortgage you get to keep that money and invest it, so first row in "investment:" should be $100k. Put $0 in the "no-mortgage" column, put $-421 * 12 in the "mortgage paid" column. I got that number from a mortgage calculator, assuming $100k loan and 3% interest over 30 years. Then in row 2, "mortgage paid" cell should be previous cell - $421 * 12. You will keep paying this for 30 years. "investment cell" should be previous cell * 1.05. We assume the investment return is 5% over long term. The no-mortgage column stays 0. You spent the $100k to pay for the house, so it's gone right off the bat. Repeat this for 30 rows (years). Then at the end look at the difference between investment vs. mortgage paid columns. And then get back to me and tell me if you still think that is a "smaller total return" :-)