firemediceric
Recycles dryer sheets
- Joined
- Aug 9, 2017
- Messages
- 207
I've read the multiple threads indicating it is generally wiser financially to carry a mortgage and invest money elsewhere which could otherwise be used for paying down the mortgage. I grasp the counter argument that the psychological benefit of having your home paid for brings a peace of mind for some which eclipses monetary returns.
Although I may lean towards being in the latter group, my desire to maximize my funds could have me very content to carry a mortgage if that's the course of prudence.
My story is I recently closed on home. I had earmarked $220K to use towards the purchase between down payment and closing costs. Any significant pressing repairs would also need to come from that pot of money. As fortune would have it, I landed on a home which had an assumable FHA loan at 3.125% interest. In assuming the loan, I had to take the terms as they were. That meant rather than going with a 15-year mortgage as I had planned, I had to take on the 28 years the previous owners had remaining on the note.
On the upside, I used only $120K of the $220k I had set aside. I am also fortunate that the house needs very little. Furthermore, now that the loan is closed, I am permitted to pay it down as I choose with small additional monthly installments or with a lump sum.
My confusion comes from the way I perceive interest being figured differently on an amortized mortgage versus the compounding interest on an investment.
Do I take the $100k, which I have over & above my emergency fund, sitting in a money market account earning 5.17% currently and pay that towards reducing the mortgage or is the financially smarter move to pay the minimum monthly mortgage payments at 3.125% on the 28-year mortgage and let the cash keep earning at the higher interest rate?
Perhaps an elementary question but I'm thrown looking at how much of the monthly mortgage payment at the beginning of the loan goes to just interest and not principal.
Although I may lean towards being in the latter group, my desire to maximize my funds could have me very content to carry a mortgage if that's the course of prudence.
My story is I recently closed on home. I had earmarked $220K to use towards the purchase between down payment and closing costs. Any significant pressing repairs would also need to come from that pot of money. As fortune would have it, I landed on a home which had an assumable FHA loan at 3.125% interest. In assuming the loan, I had to take the terms as they were. That meant rather than going with a 15-year mortgage as I had planned, I had to take on the 28 years the previous owners had remaining on the note.
On the upside, I used only $120K of the $220k I had set aside. I am also fortunate that the house needs very little. Furthermore, now that the loan is closed, I am permitted to pay it down as I choose with small additional monthly installments or with a lump sum.
My confusion comes from the way I perceive interest being figured differently on an amortized mortgage versus the compounding interest on an investment.
Do I take the $100k, which I have over & above my emergency fund, sitting in a money market account earning 5.17% currently and pay that towards reducing the mortgage or is the financially smarter move to pay the minimum monthly mortgage payments at 3.125% on the 28-year mortgage and let the cash keep earning at the higher interest rate?
Perhaps an elementary question but I'm thrown looking at how much of the monthly mortgage payment at the beginning of the loan goes to just interest and not principal.