|
mick wrote:
> I'm looking to purchase a first home and have a lot of money saved up.
> Can anyone provide any advice on pros/cons if it makes more sense to
> pay off a large portion of the house upfront or not?
Just compare the mortgage interest rate with the interest rate you get
on your investment.
But what about the mortgage interest deduction you say? Let say you
have a 7% mortgage, you are in the 25% tax bracket and you can earn 5%
on CDs. After the benefit of the tax deduction you are paying 5.25% on
the mortgage. But you pay taxes on the CD, so your 5% return after tax
is only 3.75%. You would have to make, you guessed it, more than 7%
on the CD to do better than the mortgage.
Most people cannot earn as much in a near zero risk investment as they
pay on their mortgage.
Having said that you should be at least matching employer contributions
on 401K's. Funding Roth IRA's is also excellent if your income level
allows. You have "earned income tax rate" investments in Roth's (tax
free gain!) and "long term capital gains" investments in taxable
accounts (lower tax rate than earned income rate in many cases). Don't
forget to include those pesky state taxes in your tax rate.
Congratulations on having a lot of money saved up!
|
|
Re: Putting lots of $ down or not?
