Tuesday, January 29, 2008
Frugal living brings rewards – but should you pay off your mortgage first?
Todd and Julie have done well - only 44 and 40 and they have substantial wealth and have retired. But they still have a mortgage! $173k costing $18k a year - over 10% (this does include property taxes and it may include repayments). They have $230k in stocks so they could redeem the mortgage if they wanted. Would you borrow money on your house to invest in the stock market at the present time? Admittedly in the US there is no CGT and mortgage interest is tax deductible, so it may, arguably be a wise course of action. The financial planners consulted at the end of the article certainly think so, but surprisingly they use an 8% expected return on investments in their analysis. (or do they? according to my calculator, $380 at 8% for 12 years is $956k not $1.3M!)