Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 1
I can live with that...but you must then subtract the 8% interest you are still paying on the mortgage (If you are getting 10-15% in one hand, but paying 8% out of the the other hand)...brings your gain down to 2%-7% LESS than if you were to just pay off your mortgage.
It's all fun and games until taxes come into play.
Don't forget you get to pay 25-30% (federal and state) taxes on your 10-15% short-term gains.
So, if you have $1 invested and it brings you $1.15, you are paying $.15 * 25% ~= $.04 in taxes.
Your total gain is:
$1.15 - $1 (original investment) - $0.04 (income taxes) - $.08 (mortgage expenses) = $.03

So investing money instead of just paying off the mortgage gets you extra 3%, and that's assuming 15% return on investment. Let's say return on investment is historical 11%, taxes would be ~= $.03 and your total gain is:
$1.11 - $1 (original investment) - $0.03 (income taxes) - $.08 (mortgage) = 0!!!
So if investment returns are historical you are not getting anywhere financially investing money vs. paying off the mortgage!

[Disclaimer - these numbers can be tweaked further.
1) I assumed short term investment gains. If these were long term, the effective rate would be 15% for most people. that would bring taxes down to $0.02 in the first example(15% return) and to $.015 in the second one(11% return). So you would be getting somewhere
2) If you assume you can deduct all your mortgage expenses AND itemize deductions so that your mortgage interest deduction is not eaten by not having the standard deduction, your real after tax mortgage expenses would be in 5-6% region, not 8%
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.