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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76421  
Subject: Re: Which scenario makes more sense Date: 10/2/2001 10:34 PM
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craigdoc asks,

Pleez help - I need advice on which scenario makes more sense

Total cost of a house is $280,000. I am 35. I intend to put down 70,000 and after keeping a fair amount of cash for emergencies I have 40,000 to invest.

Scenario one
Take a 30-year mortgage and invest the 40K in the stock market. After 30 years I will have paid off the house and will have had the 40K growing in the stock market

Scenario two
Take a 15-year mortgage which I cannot afford unless I use 5000 a year from the 40,000. After 15 years. I will have paid off the house but will then have none of the 40K left – however I will then have the next 15 years to save and invest as I will have no mortgage. The house and mortgage will also have cost me a lot less

Thanks in anticipation


I took Scenario 3. I continued to rent a cheap apartment, put all my money in the stock market, and retired in 1994 at age 38. <grin>

As far as scenario 1 or 2, it depends on if the stock market grows faster than the interest rate on your mortgage. If you look at the one hundred 30-year holding periods between 1871 and 2001, the best grew at an average of 13.40% per annum, the worst was 5.13% per annum, the median was 9.37% per annum.

intercst
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