This paper explores the importance of investing, rather than paying off a mortgage early. Through the analysis of five published articles, this paper explains why first time home owners in their mid-twenties to thirties, who are starting a family, should focus on maximizing their investments instead of allocating their extra disposable income to paying of house debt. The advantages and disadvantages, as well as when it is practical to favor investments over early mortgage payments, is outlined in the paper.
Keywords: mortgage
The Importance of Investing
Instead of Paying Off a Mortgage Early
Millennials, who are starting a family and investing in a home for the first time, are faced with major financial decisions that can influence the
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However, most first time home owners do not realize that paying off a mortgage only offers a return on the interest rate. It is important for new families to understand that mortgages are tax free. According to Sam Henderson of Money Magazine, chances are home buyers can get a higher rate of return then their mortgage rate, even considering the tax break, however it does involve risk. Instead of young families falling prey to the easy route, if first time home owners are willing to take the strategic recommendation of taking a risk, the rewards of investment far outweigh being debt free. Since young families and first time home buyers are new to mortgage payments, it is easy to air towards the side of caution and simplicity, rather than taking the time to understand the tax deductions on mortgage payments and the possible gains to be …show more content…
Early mortgage payoff versus investments is the first time- value of money decision a new family makes. Per Michelangeli’s article in Economic Letters, time and patients are a contributing factor to successful investments. This is a concept millennials struggle to understand because this generation values instant gratification. According to Tomlinson of Journal of Financial Planning, if the family can spare the extra disposable income and avoid the lure of immediate gains, they will see a larger gain as a reward for their risk and patients. Making strategic investments can potentially earn a higher rate of return if the young couple can ride out the ups and downs of the stock market or other higher risk investments than a mortgage. Instead of having a dismal rate of return, investments can double and even triple the families rate of return, which has the power to make or break their financial
With that in mind, it is important to understand a couple of concepts before analyzing and determining the effectiveness of that document. Although people do not always realize it, the purchase of a home is one of the b...
...(which they do not control)” (Taleb). People should become more involved with the financial process. A person should save their money for the future instead of relying on investments to pay off. When investing they should choose things that are low risk and not take a large gamble.
Keli Goff declares in her article, The American Dream is Dead and Good Riddance, that the original American Dream is no longer on the minds of most Americans. She insists that most Americans no longer pursue the ideology of a nice house, educated children, and decent car that once fueled the ambitions of generations that have come and gone. A large number of people live alone in the U.S today with no children. With that being said, it’s statistically spoken that the dream is dying even though most of those loners want to direct their dream in the direction of a partner and children. Goff proceeds to ridicule the home ownership portion of the dream by pointing to a mortgage “meltdown” that came from the pursuit of home ownership by those who
Because of the high prices of homes in the United States, people often focus on only the buying price when considering the costs of owning a house, and neglect many other aspects of home ownership. A house is not your regular item that you buy and store or use for a limited amount of time. Houses come in a package with upkeep costs and taxes, and it’s wise to take these into account when analyzing your finances.
If the people use their personal accounts, the retirees will then see higher returns on their investments. As a result, will put more money in the retiree’s pockets. Martin Feldstein, stated, “A private account earning a modest 5.5% real rate of return, "someone with $50,000 of real annual earnings during his working years could accumulate enough to fund an annual payout of about $22,000 after age 67, essentially doubling the current Social Security
As time goes on, it is becoming increasingly obvious that a key characteristic of the millennial generation is their hesitation to purchase a house. While this likely will not affect the economy, there are specific pros and cons to millennials owning a home, and factors that will increase or decrease their drive to purchase a home that validate their wariness to purchase a home immediately once they are out of college.
...r investments that can support the other weight and balance their portfolio and therefore alleviate some of the risk they face.
Nothing can make you feel safer than owning a house, provided that buying a home will not result in financial problems of its own. Every year, a new wave of first time home buyers hits the trail in search of their humble abode. There are pros and cons to home buying. Certainly, there is the matter of timing and related financing programs.
Various researches can determine possible reasons as to why consumers have quite a lot of trouble making financial decisions that can be the most beneficial later in life. In the context of savings for retirement, conclusions from a test reveal that self-regulatory state, possible future orientation and more and better financial knowledge can and most likely will influence a consumers intentions for retirement investments, for example, setting up a 401K in the USA. Other studies suggest consumers who show higher amounts of future orientation are usually more likely to start up a retirement plan. Studies also show that financial knowledge and financial orientation toward ones future can help to influence the chances of one participating in a 401K plan.
Buying and owning your home is part of the American dream. Although the dream itself has since changed, the home still remains the main focal point. Today owning a home doesn’t necessarily mean a house. People now buy duplexes, cooperative apartments, and condominiums. For some families it could take up to a couple of generations before it’s able to have the capabilities of buying a home. To many people it means a certain achievement that only comes after years of hard work. It is a life altering decision and one of the most important someone can make in their lifetime. The reasons behind the actual purchase could vary. Before anything is done, people must understand that it’s an extraneous process and it is a long term project.
When Young pays the mortgage, she added the degree of ownership of real estate on every purchases she made. Furthermore, she was able to make loans for the purchase of ownership in large amount and refinance at a favorable rate. Property owners will also be eligible to take a tax deduction. Out of the corner of the financial benefits, owning a condominium will offer Young creative control towards the condominium. It offers the ability to make physical changes when she feels there is an adjustment needed. Young should compare the benefits of owning a condominium with financial risk that will be taken against the current plans for
An option for individuals look are looking to buy property have the option to purchase a house. The advantages are: “pride in ownership, privacy, own land, tax benefits, fixed rate, security, and can renovate to their desire. The disadvantages are: less flexibility, mortgage has interest, more stress about money, requires down payments, closing costs, and moving costs, need to have a fixed income/stable income, and bank may take over house if payments are not made” (Zillow, May 12th 2012 ). Pride of ownership is advantage because it gives those individuals accomplishment feeling and shows their hard work paid off and do not have to deal with landlords anymore” (Free Advise Staff, unknown date). Privacy is another advantage because it gives the homeowners the freedom to do whatever they wish and not worrying that they will break the rules. Owning land is an advantage because “every time you pay off your mortgage individuals are gaining equity and increasing your assets” (Chapman’s lecture, unknown date). Another advantage is individuals will get a “tax benefit which will help pay off the interest of the mortgage and increases income” (Kirlew, Unknown date). Security is an advantage because in the “long run if some individuals want to have kids those individuals do not have to worry about moving each year, but instead helps their children grow up in a ...
Following the sudden increase of the dot-com bubble and the possibility of decline threatening the US management started dropping the interest rates to improve the economy. The interest-rate turned as low as 1.5% in June 2003 which was at its least possible point since 1958 (Gerding, 2009). This low interest-rate found its users in the shape of homebuyers and borrowers with the housing market at last expressing some development after period of declining movement. Indeed the rate of a thirty year unchanging mortgage in the year 2003 was the lowest in 40 years and thus the dream of owning a residence in US was becoming an incredibly simple reality for Americans (Ely, 2009). With increasing housing charges borrowers assumed th...
Using the Modern Portfolio Theory, overtime risk assets will provide a higher expected rate of return, as compensation to the investors for accepting a high risk. The high risk will eventually lower collecting asset classes to the portfolio, thus reducing the volatile risk, and increasing the expected rates of return. Furthermore the purpose of this theory is to develop the most optimal investments portfolio which would yield the highest rate of return while ascertaining the risk for the individual or corporate investor.