Mortgage question? How much money would I have if I invested $500/month for 30 years?

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$ 200,000 mortgage@30 years=$ 568,000 spent

p&i=$ 1,500/month

interest only=$ 1000/month+$ 500 invested/month(balloon payent due at 30 years $ 200,000)

With the traditional amortized schedule I would own my house outright.

With the interest only loan I would have to pay $ 200,000 at the end of 30 years but my side investment would have grown @12% to $ 1,768,000 which I could pay off $ 200,000 and have a million and a half.

Why do people pay off their houses with a 15 year mortgage or bi-weekly payments? Wouldn’t I be in better shape with scenario 2 in case I get sick, disabled, or lose my job with liquid cash? Is the traditional way really better in case something unexpected happens?

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P.S. I would own my house outright with scenario 2 also!
$ 200,000mortgage @6%
$ 500 a month @12% Roth IRA tax free distribution
I am basing the mortgage at 6% which is current.
12% may be pretty high but that is the average return on mutual funds. A roth ira means tax deferred growth with a non taxable distribution because my invetsments come from after tax dollars. Even if I get only 8% average I would end up with over $ 700,000 TAX FREE! At 6% it would be $ 500.000 TAX FREE. What would I do with a house free and clear if I’m sick and can’t work. What if a natural disaster comes like the New Orleans flood. Worse yet what if I become financially disabled and can’t make mortgage payments for half a year even if I have over $ 150,000 in equity. Would somebody loan me the money if I’m not working. If the real estate market is down could I sell my house quickly without dropping the price by tens of thousands. How is your equity plan safer than mine. I’m open to good ideas if they make sense. Enlighten me please.

4 Comments
  1. Reply
    FCabanski
    May 2, 2011 at 3:37 am

    Most interest only mortgages have interest only payments for a few years.

    It’s not easy to get 12% interest on any investment.

  2. Reply
    scodrinon
    May 2, 2011 at 3:46 am

    417,863 invested at 5% APR
    209,988 invested at 1% APR
    246,773 invested at 2% APR

  3. Reply
    bostonianinmo
    May 2, 2011 at 4:33 am

    That assumes a sustained 12% annual rate of return on your investment vehicle. That is HIGHLY speculative!

    It sounds nice on paper, with candy-coated rates of return but in the real world, things just don’t work out that way.

    Worse yet, your numbers are highly flawed. A $ 200k 30 yr fixed mortgage with P&I payments of $ 1,500 per month would be at an APR of about 8.25%. An interest only mortgage at that rate would require payments of $ 1,375 per month, NOT $ 1,000 per month. That would leave you with $ 125 per month for your investment vehicle. At a more realistic 8% annual rate of return, and assuming a 25% tax bracket (and no state taxes), you’ll only have about $ 146k saved towards the $ 200k loan payoff. You’ll be about 5 years from paying the loan off if you kick $ 1,500 a month towards the loan. To put it simply, that would SUCK.

  4. Reply
    marshae
    May 2, 2011 at 5:21 am

    You may be interested in this new program. It works well with a 30 year mortgage. I am currently using a HELOC with a new software program from United First Financial, called the Money Merge Account. This software helps build equity fast, and will help me payoff my home in less than half the time without refinancing, and without extra payments. It is saving me thousands in interest, and pays off home in less than half the years. E-mail me if interested.

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