Pay the minimum on my mortgage and invest any extra funds. Good or bad idea?
The argument here is that you can earn a higher return in the investment than the interest rate you’re paying on your home loan. While that’s theoretically possible, it usually doesn’t work out in real life. In the first place, the “investment return” you get by paying down your mortgage is guaranteed. It’s also after-tax. Not so easy to find a guaranteed, after-tax return equal to your mortgage interest rate. Some people argue that you can get an 8%, or 10%, or 12% return in the stock market, averaged over a period of time. Maybe, but it sure depends on what historical period you look at, and those are pre-tax returns, not after-tax, so you need to reduce them to about 6% or 8% to make proper comparisons. And even if it is true that you can earn a higher return than you’re paying on your loan, what if you need the money when the markets are in the tank? If you put that money into your loan to build up your equity, it won’t vary from month to month like your mutual fund will. + Good De
