Paying down mortgage principle or IRA Investment

[95benzman]

Hi All
Finance question. What is the better investment?
Paying $500.00 per month towards your mortgage principle or investing the $500.00 in an IRA account each month?
I am sure each situation is different based on your age and tax consequences etc. Your thoughts,thanks.

[mzsmbs]

yeah, you're gonna have to do some math my friend.. right now i'd probably pay the principle.. stock market ain't real hot right now..

[Brian Carlton]

It's strictly based upon the interest rate that you currently pay on the mortgage versus the return that you can get on the IRA investment.

Your mortgage interest is tax deductible, however, so a 6% interest rate might equate to an actual rate of something less than 5% depending on your tax bracket.

If you can get more than 5%, consistently, in the IRA investment, then, it's a better choice. But, there is some risk in the IRA, I presume. So, the rate of return must be somewhat higher than 5% to compensate for this risk. You need to evaluate the level of risk dependent on the investment.

[JenTay]

Originally Posted by mzsmbs

yeah, you're gonna have to do some math my friend.. right now i'd probably pay the principle.. stock market ain't real hot right now..

on the contrary, unless you are about to retire next week, that is exactly why you need to be investing in the market right now. a weak market is a market on sale. get more shares per dollar while you can.

the weak market prices you see now are NOT your prices. these are the prices of someone SELLING today. You are a buyer! take advantage of this sale.

I believe there is a housing bubble. at some point everyone who wants to buy a house (or Miata or couch or iPods, etc) will have one and it is at that point that the market will deflate. Don't pay down your mortgage. chances are you will or will not move within a few years but you will definitely retire in a few years.

[sfloriII]

Originally Posted by JenTay

...a weak market is a market on sale. get more shares per dollar while you can.

the weak market prices you see now are NOT your prices. these are the prices of someone SELLING today. You are a buyer! take advantage of this sale.

BINGO! Use dollar-cost-averaging to your advantage. If you can buy more shares now because they're cheaper, do it. By the time you retire, the thinking is that they will be worth more, thus you get a greater return for your money.

[raymr]

Why not put $250 a month in each.

[mzsmbs]

jentay, sfloriII,

you guys are somewhat right.. i just dont believe that there is gonna be much up in the market for quite some time and actually see things going the other way especially if oil keeps going up and up like it is doing... mortgages are really never a good investment in my opinion.. do the math.. you're actually paying about 3x the price in the long run (it depends though..) sure you get some tax savings (but are they really savings when you're actually spending a bunch of money to get them?) and such but your credit is a bit bogged down too... i said "do the math" because it really depends on how much he owes, what kind of rate/loan he has.. what kind of investments he is thinking about.. many questions and the best way to proceed depends on some of those answers (+others.) for the record, i am not a big fan of mutual funds either but different strokes for different folks..

and if we attack another country then you might as well start stuffing that mattress or just start a fire because that's all the US dollar will be good for..

[raymr]

Theres something to be said about owning your house free and clear. I am aiming to pay my mortgage off early because no matter what happens after that, you can't lose your home. Well as long as you keep up with the taxes. With todays levels of job security, thats a big plus.

[JenTay]

Originally Posted by raymr

Theres something to be said about owning your house free and clear. I am aiming to pay my mortgage off early because no matter what happens after that, you can't lose your home. Well as long as you keep up with the taxes. With todays levels of job security, thats a big plus.

no no no. don't get bogged down in that kind of ultra conservative thinking. true, that if you have a paid up house, you will have 'shelter' no matter what. i think that kind of thinking is a little myopic.

when you 'retire', you want to own 'income-producing' assets. unless you intend to rent out rooms in your paid up house, it it non-income producing. i respectfully disagree with you on this point.

[Azimyth]

Originally Posted by JenTay

no no no. don't get bogged down in that kind of ultra conservative thinking. true, that if you have a paid up house, you will have 'shelter' no matter what. i think that kind of thinking is a little myopic.

when you 'retire', you want to own 'income-producing' assets. unless you intend to rent out rooms in your paid up house, it it non-income producing. i respectfully disagree with you on this point.

Mrs Azimyth and I are working a plan where we invest in income producing devices that never go away and that pay our mortagage for us. This creates the advantage of security and income in our retirement years.

[Botnst]

Originally Posted by mzsmbs

jentay, sfloriII,

you guys are somewhat right.. i just dont believe that there is gonna be much up in the market for quite some time and actually see things going the other way especially if oil keeps going up and up like it is doing... mortgages are really never a good investment in my opinion.. do the math.. you're actually paying about 3x the price in the long run (it depends though..) sure you get some tax savings (but are they really savings when you're actually spending a bunch of money to get them?) and such but your credit is a bit bogged down too... i said "do the math" because it really depends on how much he owes, what kind of rate/loan he has.. what kind of investments he is thinking about.. many questions and the best way to proceed depends on some of those answers (+others.) for the record, i am not a big fan of mutual funds either but different strokes for different folks..

and if we attack another country then you might as well start stuffing that mattress or just start a fire because that's all the US dollar will be good for..

If you believe that, you can still make money. Target some of your portfolio to oil stock or energy mutual funds.

[raymr]

Originally Posted by JenTay

no no no. don't get bogged down in that kind of ultra conservative thinking. true, that if you have a paid up house, you will have 'shelter' no matter what. i think that kind of thinking is a little myopic.

when you 'retire', you want to own 'income-producing' assets. unless you intend to rent out rooms in your paid up house, it it non-income producing. i respectfully disagree with you on this point.

I guess Shakespeare was an ultra-conservative too ("Neither borrower nor lender be.") All our cars are paid with cash, credit cards are paid in full every month. The mortgage is my only outstanding debt, and I can't wait to be out from under it. It will be paid off long before I retire, having saved tons in interest, and then having a big home equity credit line available if I ever need it.

Some of you guys talk about great investments with good returns, but my experiences in the stock market and mutual funds have left me somewhat gun shy. My 'high risk' investing is in energy and health care industry mutual funds for mid- to long term. And only an idiot would not set up a 401K or IRA ASAP to make up the social security shortfall. Other than that, investing in the market is a form of legalized gambling.

Its also a matter of perspective. I was out of a job last year, facing the very real prospect of losing our home to a bank foreclosure. To me, nothing spells 'failure' better than 5 people having to move in with relatives.

[Kuan]

If you're thinking about paying down your mortgage, see if you can cheaply refinance to a 15 year with a lower rate which is basically doing the same thing but doing it at your current 30 year rate. Well, I'm assuming you have a 30 year.

I've heard that making 14 payments a year at your 30 year rate will get your house paid off in 20. I'm sure you can afford a 15 year with change to spare.

[Jason Beal]

Originally Posted by JenTay

no no no. don't get bogged down in that kind of ultra conservative thinking. true, that if you have a paid up house, you will have 'shelter' no matter what. i think that kind of thinking is a little myopic.

when you 'retire', you want to own 'income-producing' assets. unless you intend to rent out rooms in your paid up house, it it non-income producing. i respectfully disagree with you on this point.

What if I paid off my home 3 yrs from now? Average home, nothing special, but nice. I then turn around and buy 3 more rentals that I pay off in 15 yrs, also pumping money into the stock market at the same time. I would have a home that is paid for, 3 homes that produce passive income, and hopefully my 401k and Roth did something. I could also do a reverse mortgage on my primary residence that would pay me per month (over 62 yrs to participate I think) too. So really that would be 4 homes producing passive income, plus stocks. What's wrong with that? I'd rather have an average home paid for, and go from there.

[Kuan]

BTW the IRA limit in '05 is $4000 if you're under 50, $4500 if you're over 50. That still leaves you with $1500 you can put into your mortgage.