Is it better to leave an investment alone in the stock market or pay down(not off) a house payment at 6.75%?

This is a complicated subject. In general you will find that the interest rate on the mortgage is usually higher than what you can invest the money for, so at first glance, it may be best to pay off the mortgage. You can deduct mortgage interest on your taxes, but you have to pay taxes on your investment interest, so the tax aspect is usually a wash. However, you do not have to pay tax on interest in a retirement account, which sometimes may make investing the money a higher interest rate than the mortgage rate minus the tax deduction. I doubt however, even with the tax savings you will do better investing in any interest-bearing account, compared to paying off a 6.75% mortgage.

You can also invest in stocks or stock mutual funds that average 10% a year (not 8.6% as the other person said. This can be highly risky however, as some years you will lose money instead of making money. I personally would pay down the mortgage, but if you are a risk taker, you might want to put some in stocks.


Read these links for more discussion:

http://www.smartmoney.com/home/living/in...
http://money.cnn.com/galleries/2007/real...
http://money.cnn.com/galleries/2007/real...
http://articles.moneycentral.msn.com/Ban...

I choose stock market because I believe I can do well with picking stocks,, remember that too compare the two, dont forget that you can write off mortgage interest, so at 25% tax rate, you would have to earn more than 9% in the market, I use www.thewallstreethunter.com for my daily market news and updates...

Good luck

Historically, the stock market offers a return of about 8.6% per year before inflation. However, this 8.6% is not guaranteed, and unless you have your money in an index fund, extremely difficult to consistently achieve. I'd advise you to pay off as much of the house as you can at 6.75%. You can get a guaranteed return of 6.75%, essentially, if you do so. If not, putting your money in an index fund like spyders can minimize your exposure to market risk and adequately diversify your portfolio. Its your call, risk/reward. Personally, the risk free 6.75 rate looks pretty good to me, as T-bill rates are hovering around 4%. Basically, you could get 4% risk free if you were an external investor, but because of your unique situation, you could get 6.75% with your mortgage. Free money!

Peace.
=)

If the money in question is coming from, or could be contributed to, a tax-free account such as an IRA, the market is overwhelmingly preferable. Mortgage interest is tax-deductible, while even taxable market returns will generally only be subject to the 15% long-term gains/dividend rate. The long-term average return to the market as a whole is 10%, and given that in even the worst case tax considerations favor non-prepayment of mortage debt, extra payments to that loan do not seem optimal.

In this environment, pay down the house and get out of debt as quick as you can. The economy is a coin toss right now. Anyone can lose their job. People are living up to their eyeballs in credit. When one domino falls, they all fall down.