In this day and age one marked by falling home prices and high numbers of foreclosures in the market one ponders the question of whether or not a mortgage is still a good investment for the future. After all, prices have cratered and the marketplace is heavily tilted in favor of homebuyers rather than current homeowners, and all indications point to a continuation of this trend for the next few years.
Even with that being said, putting your hard-earned cash into something be it a bank account, a mortgage, or an investment portfolio is still very much a necessity if you want to save for retirement and better yourself financially. Of course, it depends greatly on the manner of your investment and what youre doing with your mortgage.
It is easy to see how owning a home is still one of the best investments you can undertake. Where else can you find someone willing to give you a massive, 30-year fixed-rate loan with the option to refinance later on plus the ability to build up equity as you go other than a bank wanting to give you a mortgage loan? The appreciation long-term is solid; home prices have fallen so low that the profit margin in play here is ridiculous.
Plus, the availability of foreclosure listings for sale makes finding a cheap, discounted home as easy as it gets in most markets.
Naturally, there arises a question of whether or not someone should carry a mortgage and use money that otherwise could pay down the mortgage to invest in stocks and bonds, or just pay down the mortgage, have equity established, and then develop a portfolio.
Generally speaking, it is in your best interest to pay down your existing debt instead of expanding your portfolio, because the more money you have tied into the stock or bond market, the more volatile your net worth becomes. If you have a significant portion of your wealth tied up in the market, the daily fluctuations of the market will impact your net worth more severely than if you deleveraged yourself by instead taking that investment capital and paying down your debt.
You are essentially taking money that would otherwise be used to pay off an existing debt to put into a risky situation with stocks and bonds. Bonds do not pay nearly enough in yield or return to make up for the 4%+ you are paying for your mortgage, and stocks are too volatile for most Americans.
Plus, when you consider the prospect of foreclosure investing, you can see the benefit of choosing to place your money your borrowed money for work for you gradually, over time, building up equity at a discount because the home you purchased was a home foreclosure purchased significantly below fair market value.
If you decide to own a home and pursue a mortgage, and also want to own an expansive portfolio, choose to pay down the mortgage before pumping up your investments.
For over 10 years, John Evan Miller has provided exceptional information on the foreclosure market.
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