On Apr 24, 12:10 pm, "op...@[EMAIL PROTECTED]
" <op...@[EMAIL PROTECTED]
> wrote:
> Here is the point I think the fellow was trying to make that I tend to
> agree with....Up to a point (and no doubt this point in time can be
> calculated), it is better to invest monthly mortgage pay down amounts
> and pay down the principal as a large lumpsum later. Ideally, one
> should also refinance at that time if prevailing interest rates favor
> it.
>
> If for example you are making extra payments of $300 a month to pay
> down the principal, wouldn't you be better off investing that $300
> each month and paying down the principal with $3600 at the end of the
> year instead? Or, does doing it on a monthly basis shorten the loan
> more than doing it on a yearly basis?
It totally depends on the underlying assumptions. If you can attain a
net reutrn on your investment that is greater than or equal to the net
interest rate on your mortgage, then you may be better off investing.
Otherwise, the mortgage prepayment is essentially an investment with a
guaranteed return that matches the net mortgage interest rate.
"Risk" throws a wrench in the works and tends to create a primary
source of disagreement. Most investments that net a return greater
than net mortgage interest rates are not "riskless". Therefore, it's
not really an "apples-to-apples" comparison. It's akin to comparing
treasuries to small-cap value and only considering returns while
ignoring risk.
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