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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76111  
Subject: Re: add'l mort principle vs ira contribution Date: 1/5/1998 7:43 PM
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Greetings, Cbgaines, and welcome.

<<Pixy do you hear me???
TMF Venus told me to post here for your response. Of course I'll gladly read anyone's ideas. I'm 4 years in on a 30-year 7.5% mortgage. Last year I started paying additional principle payments each month based on the advice that in the long run I will end up paying less interest payments (and finish my payments before 30 years!) But now I've heard advice that it would be better to put that money into an IRA.. (I'm doing a self-directed stock IRA. Mostly blue chip and high-tech with some risky ones for fun.) Any magic formulas or benchmarks I should consider before changing my strategy?>>

I can't hear you, so please speak a little louder. :-)

As FoolMeOnce pointed out, by prepaying your mortgage you getting a risk free 7.5% return on your cash. You're also ridding yourself of a major debt, which is nothing to sneer at. BUT ... Again as FoolMeOnce mentioned, you can probably use the money devoted to the prepayment in an alternative investment that will return you far more.

There really isn't a magic formula or a "one size fits all" answer here. I could easily prove through mathematics that you're better off using the money in an investment instead of prepaying the mortgage, but that might not mean a thing to your overall well-being. You could be a person who is far happier without the mortgage. This is one of those areas where you have to decide what's more important to you, paying off the mortgge debt or earning a better return on investments. In general, the younger one is the more important the latter, and vice versa.

Regards....Pixy
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