Wednesday, January 31, 2007

House or Portfolio?

I am writing today to give my perspective on the question that is constantly asked of financial consultants.

Q: Should I pay off my house or save the money and invest it?

A: Build up your portfolio

There are many circumstances that will alter my advise here, however it is up to you to decide what will be best for you. I have ran the numbers several times and unless you have a mortage in the 12% and up range (get a new loan) you will be more financialy free building up your protfolio. You can pay a little bit more towards your mortgage, like an extra payment a year. However putting the money into your investments will grow to a much larger amount as you approach retirement. I always ask people to do some homework and look at the increasing costs they will incure post retirement and the rate at which they are increasing. Example, I work with a gentlemen who is 61 years old and was just quoted $1,700 a month for health care coverage for him and his wife. That is for the same health care that his company provided for $95.00 a month. A free and clear home will not help if you get laid off, downsized or have to pay your own health care.

So my question to you is, do you have the kind of home that will pay that monthly premium? The answer is, no-one does. Why pay off your home when you don' t have substantial liquid assets yet (unless you do, then this article is not for you). Many people don't like having mortgage debt so they think they should pay it off right away. If you don't like the debt, don't take it on in the first place. Rent until you have enough to pay cash. Once you have enough, your principle's interest will pay the mortgage anyway. That is the beauty of this strategy. Then once the mortgage is paid off you still have income coming in. All you will have is a paid off house and hopefully some retirement income if you follow the prevailing wisdom and pay off your home so that you feel more secure.

Take the time to do some research and see the costs for folks currently retiring and what you should expect when you retire. The last thing you want to do is have to sell your home to move into your childs basement or guest room. Believe me it happens!

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