3.8 rate on mortgage. Pay lump sum or invest?

[maggiehanley]

@maque05 11 yr twin girls. We all have health problems. I think your idea sounds wise. One of my biggest fears is I will get sick and be unable to work for a while. If I have a savings that can float us until I recover.

 

[maque05]

@maggiehanley Yeah- what is your fear of being sick? I think it’s better to be liquid these days. Not that you will do this, but my mom had a friend of hers that during the recession, she and her husband lost their jobs. Mortgage companies do everything to help people in situations- I think the requirement before foreclosure is a payment every 3 months. Obviously that is in super emergency scenarios- but good to know too. That was years ago in 2008- but customer service and being good bank partners goes along way.

Also adding here- I have a neighbor that moved from out of state and used all their cash to pay for their home to avoid a mortgage- we are talking $450-475k… and while they have tons of equity now, they feel pressure of not having the cash. If they had put in HYSA, or mutual fund accounts it would be making some money for them while their house still builds equity.

Long term, having no mortgage is ideal- but until your kids are grown, etc- I’d stay as liquid as possible!

 

[leleh]

@maggiehanley If you want to maximize the growth of your money, you'd invest rather than pay down the mortgage, since the mortgage interest is quite low compared to the average long term returns of the market (which are >8% year).

As far as investing goes, typically very high return investments require substantial risks. That's fine if you have a LOT of money and are risking little, but it's not desirable if you can't (or don't want to) take on that risk. The simplest thing to do is invest in some basic index funds, or lower-risk mutual funds that have good historical returns. These will all produce relatively robust long-term gains (that far exceed the interest on your mortgage debt).

 

[kidleman]

@maggiehanley At that amount and interest rate, a $28k lump sum won't move the needle much on your mortgage. On the other hand, Invest it in an index fund (Fidelity or Vanguard) or in a 529 colege savings plan, and the compound returns will do wonders over the years.

 

[breve]

@maggiehanley Personally, I’d lump sum the money into a stock market index instead. If not, then HYSA or money market fund that would give you 4.5%-5% would still be preferred over putting into your mortgage. If you would feel a lot better about putting into your mortgage thought it’s your choice.

 

[maggiehanley]

@breve How much can one make from stock market index?

 

[breve]

@maggiehanley It varies every year. The expected return over time is 8-11%. There are going to be down years where you lose 20%. There are going to be up years where you gain 25%. It’s up to your risk tolerance and your age. If you’re about to retire, then maybe stick with paying off your mortgage or going on the HYSA. If you’re in your 20s, 30s, or 40s, I would personally put it into a stock market index instead. I’m in my 20s so I am heavily investing into the stock market at the moment

 

[steve77777]

@maggiehanley I think you can invest better than that 3.8% - that is a great interest!. Check what you can tax deduct, even money in HYSA is a good decision.

On the other side, who has a 5-7 % interest, they have more interesting scenario to pay that debt faster.

 

[john146wtl]

@maggiehanley I suggest reading the wikis on r/personalfinance and learning more about it before commiting anything. It's not complex and will help greatly. It will also spark other questions you can ask that are related to your understanding and situation.

In general it does not make any financial sense to pay extra on a low mortgate like yours. You can use the money much more effectively while also keeping some liquidity if needed. I personally recommend not making any major decisions until you learn a bit more and settle into your new lifestyle. There is no rush.

Your question of highest return is nuanced as at that point it depends on your other finanical aspects like age, lifestyle, debt, risk aversion, life desires, retirement, kid expenses, college, health care, etc.

 

[mej]

@maggiehanley Listen to Dave Ramsey show. It will give you a different perspective.