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Originally Posted by Sagi_AFF
Actually paying it off sooner is the opposite of $$ in your pocket. Aren't you using money from your pocket to pay it off? I agree with woj that your effective rate is about 3.8%. Wouldn't you rather have a long loan at 3.8% if you can make 6-8% elsewhere with the money that would go to pay it off early? Especially if it's in stocks or bonds which is much more liquid than payments to your bank. If you need the money down the road you'll appreciate it being liquid.
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I wouldn't recommend putting the money into stocks. It's a gamble, you can win or lose. Especially if he doesn't have a lot of experience with stocks. We are not talking about disposable income here, he can't afford to lose this money. You have to remember this is also a guy who "invested" all of his savings into some ponzi scam, unknowingly of course. How much is the current bond rate even going for??
If he pays down his mortgage he is saving about 4% net interest, which is the same as making 4% return on investment without having to pay capital gains or income on the money as he would if he invested it.
The "invest the money" vs paying more towards your mortgage is wise to do but not for most people. It's also called making money off of the banks money. It works better for people who are doing investment/commercial property and are experienced with this type of stuff, not Joe blow the home owner. For a lot of people it is easier and just safer for them to pay down a mortgage and save the money from paying interest, building more equity in their home and then if they have an emergency they can do a HELOC and get some money out.
He is also worried about being upside down and having to come out of pocket (one big lump sum) when he sells the house in a couple years. He is looking for an conservative approach. If he puts that extra money into stocks he could lose it and have nothing. You have to understand people's situations and risk tolerances and what they are looking to accomplish, what works for you doesn't always work for other people or their situation.
The other thing is, it is hard to just pop in and say what is best for someone like this to do without knowing his whole financial situation. Like for example, if he has a couple thousand dollars of credit card debt and is paying 20% interest, he should be paying the extra money each month towards that FIRST and get it paid off before he even thinks about doing anything else.