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Should You Make Extra Mortgage Payments or Boost Your Investments ?
Every month , you pay your mortgage . And , depending on your circumstances , you may be able to afford to put in additional payments – perhaps sizable ones . But should you ? Or , if you really have the extra money , should you invest it ?
Initially , you might think it would be quite nice to rid yourself of that mortgage sooner , rather than later . But is it really the burden it seems ?
Actually , you get some real benefits from a mortgage . It certainly provides something of great value to you – your home . If you got your mortgage – or refinanced your home – within the past decade or so , you are borrowing money at a pretty favorable interest rate , by historical standards . And even assuming a mild rate of inflation , such as we ’ ve had for the past several years , you ’ ll essentially be paying off your mortgage with cheaper and cheaper dollars over time . Plus , your interest payments may well be tax deductible . ( The new tax laws limit deductions on new mortgages of $ 750,000 or more . For questions on your specific situation , consult your tax professional .)
So , given these advantages , an argument could be made that you should be in no hurry to pay off your mortgage . Still , you might be tempted to make the extra payments because you ’ ll be building home equity . After all , isn ’ t this equity valuable ? It is – to a degree . The larger your home equity , the more money you ’ ll get to keep when you eventually sell your home .
But in the meantime , that home equity may be less useful than you might imagine . For one thing , just building more equity won ’ t make your home more valuable – it will rise or fall in value along with whatever ’ s happening in the housing market . By contrast , you could take the extra money and buy more shares in an investment such as stocks – and the more shares you own , the more valuable your investment will be if the price per share rises .
Also , if you were to experience a temporary job loss or some other financial emergency , your home equity might not help you much ; if you ’ re not working , you could even have trouble getting a home equity loan . Conversely , your investment portfolio can offer you greater liquidity , depending on your specific investments . Most investment vehicles , such as stocks and bonds , generally can be sold quickly , without much difficulty . ( Keep in mind , though , that if you were forced to sell investments when their price was down , you could take a loss on the sale .)
Clearly , you could gain some advantages by using any extra money to invest , rather than paying down your mortgage . Nonetheless , you may simply get emotional and psychological satisfaction by speeding your progress toward the day when your house is paid off – and that type of satisfaction certainly has value . You ’ ll need to weigh these intangible factors carefully in deciding whether to increase your investments or make extra mortgage payments – because , ultimately , you need to feel that you ’ re doing the right thing , for the right reasons .
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor .
Matt Dudkowski , AAMS ® | Financial Advisor | 1007 Mt Royal Blvd . Pittsburgh , PA 15223 | 412.487.3300 matt . dudkowski @ edwardjones . com | www . edwardjones . com
Matt Dudkowski has been a financial advisor with Edward Jones since 2002 , serving individual investors in the Pittsburgh area from his Shaler Township office . In January of 2015 , Dudkowski accepted an invitation to become a limited partner with the firm .
Since joining Edward Jones , Dudkowski has obtained the professional designation of AAMS ®. Prior to Edward Jones , Dudkowski , as a CPA , worked at the H . J . Heinz Company , and at Ernst & Young LLP . He currently serves on the board of directors for Keystone Wellness Programs , a local nonprofit organization .
A native of Butler County and a graduate of the University of Notre Dame , Dudkowski resides in Gibsonia with his wife , two sons and daughter .
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