One of the age-old questions facing investors is whether to use surplus disposable income to make extra house payments or invest the money. This seems to be one of those issues where reasonable minds can disagree, and respectable financiers can reach different conclusions. Of course, in a perfect world, we'd have an investment account large enough to cover our house payments. Have an $800 a month house payment? That means you would need investments to throw off $9,600 per year in income, which would have to come from roughly $240,000 in savings, assuming a 4% interest/dividend/income rate. Most Americans don't have the luxury of having a quarter million sitting an account, so the dilemma becomes an either/or. If you're a conservative investor/older in age, the security of owning your home probably trumps the allure of investing for superior returns. If you're younger and/or more aggressive, the ability to generate more money with your savings more trump that safety. This question largely comes down to the priority that one places on safety and security.
The author of the Five Cent Nickel recently paid off his house, and he has written an insightful blog post about the recurring costs that still exist. To be sure, it is much cheaper no longer having a mortgage, but as 'Five Cent Nickel' points out, the costs may not be as insignifcant as you might imagine. To read Five Cent Nickel's insights on the subject, click here: http://www.fivecentnickel.com/2011/06/22/the-cost-of-living-in-a-paid-off-house/ .
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