Come into A lot of Money? Invest or Pay off Mortgage?
Come into A lot of Money? Invest or Pay off Mortgage?
We were recently asked about the idea of what to do when someone comes into a lot of money, should they invest it or pay off their mortgage? Sometimes we are fortunate to come into a lot of money from an inheritance, lottery, bonus from work, etc. It is great to know that either way you go with this decision, at least you are being responsible instead of just blowing the money. However, answering this question is harder than a quick response.
The answer to this question depends on a number of factors, such as the aspects of your current investments, if any, and what is up with your mortgage. The main thing to consider is which of the two will do more with the money that you put towards it?
Your mortgage has two main parts to it- the principal and the interest. The repayment of the loan goes to the price that the home was bought for and the interest that is charged for the lending of the money.
Let's say, for example, that your newly found money totals $50,000, and your mortgage is still at 10 years. If you paid the mortgage now, it would cost you a principal total of $50K. If you decided to simply make the monthly payments instead, you would pay $15K extra in interest. So, using that lump sum to pay your mortgage would save you a whole $15K, quite a good deal.
Now, for the investment answer. The first thing to consider is what sort of return you would get for the investment, the ROI. When the attractiveness for the ROI is what can really make you decide to invest instead, like the fact you can get so much more back and then put it towards the mortgage, eh? Let's say your ROI is expected to be 10 percent for 10 years, the $50K would become around $130K. If that were the case, then you would want to put the newly found money towards an investment. Remember, that 10 percent return is not likely, at least not today.
What you really need to consider is if you are a person who is willing to put up with risk. If you are willing to put up with a lot of risk, then you can gain a higher ROI than a low-risk person.
As a mortgage broker, we believe that you always need to keep your mortgage as a top priority, however, that does not mean every dollar has to go towards it instead of other (responsible) things, like an investment. If you are considering a mortgage refinance, then contact TrueFi.
We were recently asked about the idea of what to do when someone comes into a lot of money, should they invest it or pay off their mortgage? Sometimes we are fortunate to come into a lot of money from an inheritance, lottery, bonus from work, etc. It is great to know that either way you go with this decision, at least you are being responsible instead of just blowing the money. However, answering this question is harder than a quick response.
The answer to this question depends on a number of factors, such as the aspects of your current investments, if any, and what is up with your mortgage. The main thing to consider is which of the two will do more with the money that you put towards it?
Your mortgage has two main parts to it- the principal and the interest. The repayment of the loan goes to the price that the home was bought for and the interest that is charged for the lending of the money.
Let's say, for example, that your newly found money totals $50,000, and your mortgage is still at 10 years. If you paid the mortgage now, it would cost you a principal total of $50K. If you decided to simply make the monthly payments instead, you would pay $15K extra in interest. So, using that lump sum to pay your mortgage would save you a whole $15K, quite a good deal.
Now, for the investment answer. The first thing to consider is what sort of return you would get for the investment, the ROI. When the attractiveness for the ROI is what can really make you decide to invest instead, like the fact you can get so much more back and then put it towards the mortgage, eh? Let's say your ROI is expected to be 10 percent for 10 years, the $50K would become around $130K. If that were the case, then you would want to put the newly found money towards an investment. Remember, that 10 percent return is not likely, at least not today.
What you really need to consider is if you are a person who is willing to put up with risk. If you are willing to put up with a lot of risk, then you can gain a higher ROI than a low-risk person.
As a mortgage broker, we believe that you always need to keep your mortgage as a top priority, however, that does not mean every dollar has to go towards it instead of other (responsible) things, like an investment. If you are considering a mortgage refinance, then contact TrueFi.