"The decision rests on one variable the slogan refuses to name, the spread between your mortgage rate and your realistic after-tax, after-inflation investment return."
"At a 10% historic S&P average, prepayment still wins, with high $800,000s saved on the mortgage versus mid $400,000s in investment gains."
"The S&P 500 has returned 245% over the past ten years and 28% in the trailing year, which makes the 15% case feel like the base case."
"Paying down a 5.5% mortgage is a guaranteed 5.5% return on investment, contrasting with the uncertain future of stock market returns."
Homeowners face a critical decision between prepaying a mortgage or investing in the S&P 500. The outcome hinges on the assumed return rates. A 10% average return favors prepayment, while a 15% return from the past decade favors investing. The key variable is the spread between the mortgage rate and realistic investment returns. Historical performance shows significant gains, but future returns are uncertain. The risk-adjusted spread concept emphasizes the guaranteed return from paying down a mortgage versus potential investment gains.
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]