|
��
| Got
a personal finance question? |
|
|
|
�����
|
|
| �� |
|
|
House
Alert: Should
You Get a Bigger House?�� 1�
2� �
� |
|
|
|
Scenario
2:� Investing
the Excess in a Mutual Fund
What
would happen if instead you simply invested only the
interest portion of the higher payments for 3 years in a
mutual fund?� This
would probably give you an 11% annual return (this is
the overall average stock market return historically).�
However,
here are some other things to consider:
- Higher
Risk � The mutual fund might make more than 11%...but it
might make less, at least for our example�s time
frame.� No
one can predict the market.
- More
Hassle & Time � Having to monitor the performance of your
funds will involve extra time and stress
- Higher
Tax � You will most likely have to pay yearly income taxes
on the mutual fund profits.�
|
|
��
|
|
Scenario
3:� Buying a
Smaller House and then accelerating the mortgage
payments
The
final scenario involves accelerating payment on your
current house using the difference between the 2 minimum
payments on the $225 house and the $125 house.
If
you compare all 3 together:
|
�
|
Moving
into the $225 K House, making the Minimum Payment
|
Investing
the Difference in Minimum Payments in�an 11%
mutual fund
|
Paying
Off the Balance of $125K House using the same
payment as the $225K house
|
|
Commission Paid on Selling the $125,000 house
|
($7,500)
|
N/A
|
N/A
|
|
Principal Paid for 3 years
|
$14,531
|
$7,624
|
$39,676
|
|
Extra Tax Savings (due to more deductible interest)
|
$6,737
|
$
0
|
$
0
|
|
Year 3 Investment Balance� (net of 20%
annual tax on earnings)
|
$0
|
$32,871
|
$0
|
|
Appreciation in House Value (15%)
|
$33,750
|
$18,750
|
$18,750
|
|
Increased Utilities, Upkeep, Taxes, etc.
|
($8,100)
|
N/A
|
N/A
|
|
�
|
�
|
�
|
�
|
|
TOTAL Net Worth Increase
|
$39,418
|
$59,245
|
$58,426
|
|
|
�� |
|
Amazingly, paying down your house brings about the same
return on your money as if you invest it in a mutual
fund...and with a LOT less risk!�� And,
you have the security of knowing that your
mortgage is that much closer to being totally paid off,
which will free you up to start working on other
investment goals.� Finally, the �buying a bigger
house for investment reasons� argument is a total
money loser!
Houses are For Needs, not Investments
The smart way to buy a house is to buy only for
what space you need...and pay off your loan fast!�
For example, if your family is currently just you and
your spouse, why do you need a 5 bedroom 2-story house?�
And, if you do have some later additions to the family,
consider adding on rooms (instead of moving) to avoid
real estate commissions, moving costs, etc.� The
bottom line?� Buy
a house based on need�not for investment! |
|
|
|
|
|
|
|
|