Pay off a mortgage or invest?

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I have a 50k mortgage @ 5.68% on a coop bought for a total of 72k. After four years I think the coop’s now worth about 300k. If I pay off the mortgage isn’t that a significant return on my investment? I can use the coop as collateral if I need a loan before we retire and sell the place outright in about 8 to 12 yrs.

10 Comments
  1. Reply
    Yahoo Sucks
    May 1, 2011 at 9:14 am

    If you pay it off, set up an equity line of credit right away. That way, it’s already there if you ever need it. You should be able to get one with no upfront costs. Better to get it now while you qualify for it, than to try to get it when you lose your job and need money for a couple months and can’t get a loan.

  2. Reply
    charlotte q
    May 1, 2011 at 10:05 am

    Do not ask a question like this in the internet.
    Talk to a bank or CPA.
    Amateur opinions can get you in trouble!

  3. Reply
    boston857
    May 1, 2011 at 10:21 am

    I agree with the first respondent. But remember that you will be incurring debt ata higher rate if you pay off and set up a line. In essence, you are worse off.

    Better to invest the money in something else eg conservative mutual funds, stocks, that will yield you some supplemental income and continue paying down your mortgage by making 1.5x payment. That way, you get your self out of debt faster (and can full enjoy proceeds from sale in 8-12 years rather than taking the net after paying off the line)…….

  4. Reply
    my2cents
    May 1, 2011 at 10:53 am

    You need to see which makes you more money. After deducting the interest on this loan, this 50k is only costing you about 4%. All-in-all it’s cheap money. By paying off your loan instead of investing you’re minimizing your interest expense but aren’t actually making any money.

    If you took the same 50k and invested it into something safe, say a CD, you can get about 4.75%. After capital gains, you make a bit less than 4%. Probably an overall wash so nothing loss but nothing gained. If you put the money into something more risky, you would be ahead of the game relatively speaking but again, you may lose it all.

    Your ROI is quite good on your present property but keep in mind that ROI is defined as your return divided by your investment. For example, at this point in time, your ROI is ($ 300k-$ 50k)/($ 72k-$ 50k) or 1136%. After you pay off the loan, your ROI is $ 300k/$ 72k or 417%. You only have $ 22k out of pocket now so your present return is very high.

    The problem with your scenario is that you can’t utilize the worth of the property unless you borrow against it. This is inherently flawed because you need to pay interest on that loan.

    In any case, you have built-up some good equity. The question is how you will use it. If it were up to me, I’d keep the mortgage as-is and invest the $ 50k in other products.

  5. Reply
    Brian B
    May 1, 2011 at 11:51 am

    Leverage is the key to wealth. If you can get money at 6% and make 8% that is a way to build wealth. Is it always worth it. Depends on how much we are talking about. I wouldnt pay off this loan at less than 6% and turn around and get a loan where the rate is based off of prime (Home Equity Line) which is at 8.25%. That does not make sense. If you want to invest and know you can make more than 6% I would NOT pay off the loan. Why? Because that money is actually cheaper than 6% when you factor in the tax write off. I personally havent had much luck with stocks and dabble with real estate. By taking money from one house I have had a down payment to put on a secod home….. Consider your market before going that route. Right now it is a buyers market in many places but it may be a while before you see a return like you did on the place you mentioned….

    As far as amount of return on investment you have $ 22k in owe $ 50k but it is worth $ 300k That is a GREAT return on thet $ 22k paying it off now may or may not be the way to go just depends on your goals….

    Good Luck
    B

  6. Reply
    Skip
    May 1, 2011 at 11:58 am

    Invest the cash as oppose to be equity rich and cash poor. You mentioned retirement so I assume that you are near or close.

    If you insist on paying the mortgage off early ad a couple of extra monthly payments. That will start reducing the principal. The lender will not say anything about the additional principal. Make sure you inform them with an enclosed letter that this extra check is to be added to the principal balance.

    Now depending on your age you should try a method of 3rds 1/3 in something risky 1/3 in something not as risky and 1/3 in something that is steady and reliable.

    You should be ble to find a person that will assist you with investment instruments that you would feel comfortable with. You may start by asking your tax preparer if they are aware of an investment counselorr. If not there are several big boys in your telephone book, or look up investment on line.

    For your first adventure if this your first adventure with in vesting,I would want to eyeball the person that will be helping me invest my money.

    While there with the investment counselo you might run the idea of paying off your mortgage.

    You are still able to write off all the interest you are paying on your mortgage.

    I hope this has been of some use to you, good luck.

    “FIGHT ON”

  7. Reply
    zocko
    May 1, 2011 at 12:23 pm

    5.68% is a no brainer. keep the mortgage and the tax writeoffs.

  8. Reply
    neo
    May 1, 2011 at 12:30 pm

    you should invest….
    paying off your mortgage usually saves you a lot of money on interest…. but you wont see that money until you refinance…. in the other hand you can invest that money and see how is growing every month …..

    I think you should invest….

  9. Reply
    glen s
    May 1, 2011 at 1:10 pm

    You have experienced a fantastic return on your investment so why not do it over again?

    Buy another property and rent it out so that the rent covers the mortgage, taxes, insurance etc.. AND shows a passive positive cash flow.

    Borrow money from the equity of your house to do this.

    The payments from that extra money borrowed for the down payment of the second rental property should also be covered by the rent of your second property.

    If house prices in your area do not allow this formula to work, find an area close by that does…

    I find that everyone has made great gains in the Real Estate market and when it comes time to invest they look at GIC’s or other investment vehicles when they should be looking at what made them the gains in the first place! REAL ESTATE!

    A word of caution though…do not over-extend. Be frugal with what you buy and remember that someone must live there (it should be clean and in a decent area) but that someone is not YOU!

    This way those gains you have already experienced will now be twofold!

  10. Reply
    marshae
    May 1, 2011 at 1:20 pm

    You may be interested in this new program. It works well with a 30, 20, or 15 year mortgage. I am currently using a HELOC (home equity line of credit) with a new software program that helps build equity fast, and will payoff my home and other loans 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. Those who take an honest look at all the facts and figures from a reputable source will find that this system truly creates a significant advantage for homeowners. E-mail me if interested.

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