D and I are at an interesting crossroad with our mortgage prepayments. Once in a while I will run some amortization tables to see if we are on track or ahead of the game.
Today's tables point out something interestingly tempting.
If we stop doing prepayments on our 2 mortgages, when our 5 yr term ends in Sept/2012 and May 2013, our main house will have owing $35535 and the ski condo will owe $2748.
The remaining ski condo balance will be paid off easily at the time without need for renewal. The main house's amount isn't necessarily large enough to renew. It is about the size of a line of credit in my mind which would be an option.
D's preliminary thoughts are to stop prepayments and save the $23100 yearly I put into the main house yearly instead. He feels now that the numbers have shrunk enough, it is a higher opportunity cost to not save our money.
I haven't made up my mind. However, I have made up next year's spreadsheet and am going to think about it for a while. There are still a few weeks left in 2010.
I would tend to agree with the opportunity cost of investing. You've done a fabulous job reducing debt, which really reduces the risk in your personal finances. Markets still haven't recovered to 2008 levels, and if you're thinking of stock-based investments, it feels like now is a good time. (Disclaimer: I've been wrong before.) Definitely something to think long and hard about.
ReplyDeleteP.S. I loved having a line of credit instead of a mortgage.
Hi Robert;
ReplyDeleteYes, D has been harping at me the last 3 years about opportunity cost.
The trade off is 1 1/2 more years of prepayments before we are "home free".
Whenever this topic comes up (invest or pay down the mortgage) I have the same reaction: make sure you are doing a fair comparison between asset types.
ReplyDeleteMortgage is a debt, so if you have decided to allocate your resources to debt reduction, then you should be comparing that to the opportunity cost for investing in similar instruments (corporate or government debt for example).
Other investment opportunities (such as stocks, etc) have different risk characteristics. By choosing to invest in stocks instead of paying off the mortgage, you're changing your allocation to risk. I'm not necessarily saying that's a bad thing, but I do think it's important to understand the trade-off, especially considering the time-frame you mentioned (2-3 years).
@ The Executioner;
ReplyDeleteDebt vs Debt vs market risk...good point.
I guess it isn't always obvious that the comparison isn't the same.
But I do believe people don't naturally frame it that way in their minds... like saving a dollar vs buying a lottery ticket for a dollar.