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## My comments on prepaying vs. investingwrong. The real question
isn't whether to invest extra money or pay down your money with extra money,
the real question is how much should you spend into each one. I must
especially address this since personally, well, I advocate both!
You just have to determine the proportion that is best for you.
Many financial planners talk about Think of prepaying your mortgage as a guaranteed fixed income investment, because it is (for the lender!). Your interest rate is the investment return your lender is receiving. So it does make a big difference if you are talking about a 6% mortgage or a 10% mortgage. You might say the mortgage interest is actually less because it is tax deductible, but on the same note the yield on a taxable bond fund (for example) is equally lower because its dividends and any capital gains are all taxable too. So a 7.5% mortgage may have a 5% after-tax rate, but a 7.5% dividend paying bond fund would actually only earn you 5% after tax as well. So the question becomes how much of each. That is all due to personal taste. More aggressive investors who believe their after tax investments can easily outpace their mortgage interest should put more into stocks, for example 80% into stocks and 20% into fixed income investments, which here is their mortgage paydown. More middle of the road investors, might do a 50/50% split with most of their stock investments being based in mutual funds. And more conservative investors, well, they would probably find the 7-8% rate on a mortgage hard to beat (compared to CD's etc) so they should spend almost all their extra cash flow to pay down their mortgages until they are gone. Plus the feeling of being debt free is something many people would prefer to having thousands of dollars locked in a stock market that might crumble at any day. Others find that boring, just sitting on a big pile of home equity that could be doing something more exciting in this booming market economy. To each their own. There is no right or wrong answer. That is something you must decide for yourself.
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