Quote:
Originally Posted by jamesteterenko
If I read this right, you want to have access to the money in 4-5 years in order to put the money into your mortgage.
If you just put it into your mortgage immediately, you are guaranteed a tax-free return of 5.1%. I doubt that you will be able to find another guaranteed after tax return anywhere near that.
Yes, you may be able to get a higher return with other investments. But in a five year time frame, many investments will have a lower return and possibly even a loss. Is it really worth the risk if you are going to put it into your mortgage in five years anyway?
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Essentially, yes. I guess the risk I'm trying to avoid is having interest rates go up and having my mortgage payments increase substantially to the point where I'm in trouble. We extended ourselves pretty far (it was our first home), although I'm fortunate to have a good job that pays me well (hopefully I don't burn out!), so that helps mitigate against this risk.
Maybe this is too shortsighted or is a bad strategy altogether, but the way I see it, in 5 years when my mortgage is up for renewal, I'd like to make a significant lump sum payment (if I haven't done so already). Something in the $30-50K range above our monthly payments, if not more (we have a $280K mortgage). This results in:
1) Reduction in principle, which means smaller mortgage payments, which means greater cash flow from month to month.
2) Reduction in principle, which means more money from future payments will go towards principle versus interest.
I guess the thought of a 25 year mortgage doesn't appeal to me psychologically -- I'd love to be able to pay that down sooner and avoid all of that extra interest.