Better to pay off mortgage or invest?

Question

Assuming you purchased a house for $425,000 with a down payment of $100,000, and have a mortgage rate of 5.5% on the remaining $325,000. I get paid a base salary plus periodic bonuses. Would it be better to invest the bonuses in mutual funds, or pay lumps into the mortgage. I'm 35.

Answer 1

This question comes up frequently in this forum.  Both paying off your mortgage early and investing in mutual funds can make good sense.  It all comes down to how much risk you're willing to take in order to chase higher returns.  Paying down the mortgage is much safer but in exchange you are limiting your profit to the 5.5% that comes from no longer having to pay mortgage interest.  Investing in stock mutual funds is likely to result in a larger profit, but you'll have to take on the added risk of losing money in a long bear market.

Answer 2

if it is a fixed 5.5%, inflation running at 3%, it is like 2.5% above inflation and added tax benefits.  it would not be rational to pay it off.  

dollar cost average into mutual funds would be a simple strategy

Answer 3

Keep the mortgage.

You're not really paying 5.5% because it's deductable, which gives you an absolutely fantastic rate that you should be able to beat with gains on mutual funds.

Answer 4

If you do not plan to keep the house forever, you should put your bonuses into international mutual funds (preferrably a BRIC fund - Brazil, Russia, India, & China).  These countries are up-and-comers in the world economy and will prove to be sound investments in the coming decade.

Answer 5

I would invest and keep paying off your mortgage. You are still young so you have a long way to go. Long-term investments do pay off...history shows that. I had the same dilemma and ended up doing the opposite...now I regret it. Wish you best of luck!