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Should I Pay Down My Mortgage or Invest in the Market (Part 1 of 2)
Posted on August 21, 2008 at 3:29 pm
Filed Under Financial Planning, Investment Planning, Mortgage Planning
One question I deal with on a regular basis is “Should I pay down my mortgage with excess cash flow or invest that money into the market?” There are definitely different schools of thoughts on this topic, so I thought I’d share my personal perspective.
With the cost of borrowing being so low today (call it 5.45% for a 5 year fixed mortgage), I’m confident that it is quite possible to earn a larger rate of return in the market then to pay off my mortgage sooner. Lately that doesn’t seem to be the case, however I’m still confident that I will earn a better return by investing in the market over a five year window, which is a typical term for most mortgage owners. A general rule of thumb for me is to ask myself if I can earn more then it costs me to borrow. If so, then I’ll take as much debt as I can.
Your Take-Away: This is clearly not a strategy that works for everyone, especially if you invest in GIC’s or Money Market accounts, because you won’t be returning a greater percentage then what you are paying for your mortgage. The other factor to consider is that if you are tremendously opposed to debt, there is no point holding extra debt if it’s going to bother you and always be in the back of your mind.
Until next time, have a Terrific Tuesday!
Chris
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