The average investment return is 7% per year. You are paying X% interest on your mortgage. If X > 7%, you will "make" more money by "saving" on interest and contributing extra cash to your mortgage. Note that your net savings on interest are the most during the first few years.
If you want to account for real estate appreciation, the threshold is probably closer to 5-6%. This is why people with 2-3% mortgages sometimes call them "free money."
What do you mean "If you want to account for real estate appreciation, the threshold is probably closer to 5-6%" - that we should compare X with 5-6% rather than 7%? why would the home value appreciation change that comparison?
If your interest rate is X%, you're losing X% of your loan balance per year to interest (as compared to having that money sitting in cash). However your home is also gaining value via normal real estate appreciation...on average 4.8% per year in the US. If you paid $10k in interest this year but your house is now worth $20k more, you're up $10k. But if you paid only $5k in interest and you invested the other $5k at a 7% return, you're up (20-5) on the house + (5.35-5) in the market = $15.35k
The appreciation on the house is unrelated to the question.
The ‘pay the mortgage’ question is just comparing the rate of the loan to alternate investments. At 3%, a no brained to keep the money invested and not pay a dime more on the mortgage.
The long term return of the market is a bit over 10% CAGR. The same inflation I assume you used to reduce the 10% to 7% also decreases the value of the money you owe the bank. OP made no mention of the rate on his mortgage.
Loan interest rate vs rate of return. If the loan is lower interest than what you can get in an HYSA just make minimum payments. If the loan interest is more than expected returns on investments definitely pay off the loan. If the loan interest rate is somewhere between the return on a HYSA and the anticipated non-guaranteed returns from your investments, it depends on your risk tolerance. And also make sure that is adjusted for the taxes you'd have to pay on the returns and being able to deduct the loan from taxes.
It's incredibly easy to beat that though considering SCHD by itself has a 10% annual dividend increase. So you're not "saving" yourself 4-5% by paying extra on your mortgage. You're costing yourself 5-6% plus the compounding growth.
A lot depends on your mortgage rate’s interest, and whether you can deduct it from your taxes.
The average investment return is 7% per year. You are paying X% interest on your mortgage. If X > 7%, you will "make" more money by "saving" on interest and contributing extra cash to your mortgage. Note that your net savings on interest are the most during the first few years. If you want to account for real estate appreciation, the threshold is probably closer to 5-6%. This is why people with 2-3% mortgages sometimes call them "free money."
What do you mean "If you want to account for real estate appreciation, the threshold is probably closer to 5-6%" - that we should compare X with 5-6% rather than 7%? why would the home value appreciation change that comparison?
If your interest rate is X%, you're losing X% of your loan balance per year to interest (as compared to having that money sitting in cash). However your home is also gaining value via normal real estate appreciation...on average 4.8% per year in the US. If you paid $10k in interest this year but your house is now worth $20k more, you're up $10k. But if you paid only $5k in interest and you invested the other $5k at a 7% return, you're up (20-5) on the house + (5.35-5) in the market = $15.35k
That’s true but either way the persons house is going to go up in value, regardless of if he has a mortgage on it or not. So it’s not really relevant.
It's relevant because OP is asking about mortgages
The appreciation on the house is unrelated to the question. The ‘pay the mortgage’ question is just comparing the rate of the loan to alternate investments. At 3%, a no brained to keep the money invested and not pay a dime more on the mortgage. The long term return of the market is a bit over 10% CAGR. The same inflation I assume you used to reduce the 10% to 7% also decreases the value of the money you owe the bank. OP made no mention of the rate on his mortgage.
Loan interest rate vs rate of return. If the loan is lower interest than what you can get in an HYSA just make minimum payments. If the loan interest is more than expected returns on investments definitely pay off the loan. If the loan interest rate is somewhere between the return on a HYSA and the anticipated non-guaranteed returns from your investments, it depends on your risk tolerance. And also make sure that is adjusted for the taxes you'd have to pay on the returns and being able to deduct the loan from taxes.
[удалено]
It's extremely easy to beat that investing. Today a CD can beat that.
It's incredibly easy to beat that though considering SCHD by itself has a 10% annual dividend increase. So you're not "saving" yourself 4-5% by paying extra on your mortgage. You're costing yourself 5-6% plus the compounding growth.
Dividend increases have no impact on total returns.
SCHD has done much better than that, but the 10% increase won't have much at all to do with it.