Wednesday, April 25, 2007
Managing Your Money
I thought everyone knew this.
Apparently not...
Apparently not...
Kelli B. Grant writes on Yahoo for SmartMoney.com:
"To pay off their $150,000 15-year mortgage faster, the couple has been prepaying it with any extra money that comes in. After just three years, the balance is down to $79,000.
Smart move? Not necessarily, says Jason Rich, author of 'Smart Debt.'
'When you actually sit down and do the math, it can actually work out in your favor to have these [good] debts,' he says. Mortgage and student-loan debt are generally fairly cheap, and leave you with an appreciated asset. Plus, the interest you pay on these loans is deductible. Having this kind of debt can actually get you ahead if you invest extra cash rather than put it toward your loan principal.
Consider this: You'd pay $876 per month on a $150,000, 30-year fixed-rate mortgage with a rate of 5.76 percent. If you were to prepay your mortgage by an additional $100 per month, you'd pay it off six years sooner and save $42,703 in interest.
Had you taken that $100 and invested it, earning a conservative 8 percent, you'd have $55,745 -- enough to compensate for the interest paid, plus $13,042 in profit."
