Quote:
Originally Posted by AMG_G
There's no gaurantee that your investment will make money but paying down your mortgage and saving that amount in interest is. It's easy to say you can make more in investments to offset the interest but how many can do it consistently?
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Well it feels more secure to pay the mortgage, but there are a couple of factors. First the interest you're saving today is say 3.5%? Its not a huge number. Depending on how this is structured and a few other factors the after tax return on the investment you need is say 2.135% per year at this point. You can buy a five year GIC and earn more than that.
Let's keep things simple though and just say the choice is pay 3.5% in interest. (not pay down the mortgage) or invest and earn more than that. If you look at almost any medium risk investment over the last decade you will see returns above that. You could also look at a lot of lower risk investments (various bond mandates) and see returns north of 4% to pass that rate. This includes the financial crisis, but assumes that you stuck with that same mandate. I am not basing this on anything in particular (mutual funds, ETFs, stocks,etc). It wouldn't have worked with a bank account, but it can be done.
A couple of caveats though. First this is based on what has taken place and of course no one knows what tomorrow holds. The other is that these types of things aren't for everyone. Some people just plainly can't sleep at night owing people money! Obviously this kind of thing would be torture for them.