August 21, 2006

Financial Tip #1

Don't pay off your mortgage early. Let's say your mortgage rate is at 6%. Since mortgage interest is tax-deductible, your "real" mortgage rate is only 4%. So, if you save an extra $1,000 and want to put it to good use, don't put it toward your mortgage. Put it in a conservative fixed-rate investment for 5-6%, make more money off the investment, and have your assets be liquid instead of sunk in your house. The idea is to do what banks do. Borrow money at a low interest rate, and safely invest at a higher interest rate.

Smart investment sense is not always common sense.


Arcane Rest said...

What if you were one of those people that fell for the ARM and then now your mortgage rate is ridiculously high? Then would it be okay do to so?

Eric Olsen said...

Absolutely not. Because if your "real interest rate" is at 10%, you can't conservatively hope to beat that out. What you would do is refinance at the current interest rate. It would definitely be worth it.

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