Investing Money

dap · 05-13-2008, 10:17 AM

My wife and I have some money from selling a business. We are trying to make a decision on whether to refinance and lower our mortgage or to invest the money and pay additional money into the mortgage each month. Does anyone know of a calculator or formula we can use to determine which is best for us. Thanks

MMarquit · 05-13-2008, 10:42 AM

There is a site called dinkytown.net that has all sorts of calculators. There are refinancing calculators and various investment calculators. You plug in the numbers and then compare.

gtwise · 05-14-2008, 10:14 AM

It's pretty easy. What is the interest rate you're paying on your mortgage? If you can invest and get a better rate of return then by golly you better invest! However if you don't think you can make more than what you're paying on the mortgage you might as well pay the mortgage off.

I have similar "problem" with my wife. We have some money in excerciseable stock options that my wife wants to excercise to pay off our mortgage. But it's hard to take out money from investment that makes me over 30% anually to pay off something that costs me under 6%.

However paying off the mortgage would make my wife sleep better and feel better and you can't put a price on that.

So my advice is basically: from a financial standpoint it's probably wiser to invest the money and earn higher return than the interest on the mortgage but if it makes you sleep better you should pay off your house instead.

Philip Brewer · 05-15-2008, 02:52 AM

As gtwise says, you can just compare the rate on the mortgage to the expected rate of return on the investment--the higher rate gets the money.

There's an adjustment to make, though: You need to remember that you may not actually get the "expected" rate of return on your investment. There are plenty of investments that end up paying much less than expected; some even lose money. Your mortgage, on the other hand, will very likely have to be paid back in full.

Everybody already does this unconsciously all the time--trims a little bit off the expected return of their moderately risky investments and trim a bit more off the expected return of their high-risk investments. In fact, if you make the calculations explicitly, you may well find that the adjusted interest rates on all your debts and investments come out just about equal. That's what you'd expect--if the adjusted rate on one were higher, you'd have (unconsciously) put more money there.

Lisa23 · 05-15-2008, 01:56 PM

What a nice place for you to be in, having some extra money in this economy! I would see a financial planner- one not affiliated with any money product they'll try to unload on you-
Lisa

05-13-2008, 10:17 AM	#1
dap Junior Member Join Date: May 2008 Posts: 1 Reputation: (10)	Investing Money My wife and I have some money from selling a business. We are trying to make a decision on whether to refinance and lower our mortgage or to invest the money and pay additional money into the mortgage each month. Does anyone know of a calculator or formula we can use to determine which is best for us. Thanks

05-13-2008, 10:42 AM	#2
MMarquit Junior Member Join Date: Apr 2008 Location: Utah Posts: 4 Reputation: (10)	There is a site called dinkytown.net that has all sorts of calculators. There are refinancing calculators and various investment calculators. You plug in the numbers and then compare. __________________ Visit me at the All Business Personal Finance Center or learn to get rid of debt at DestroyDebt.com.

05-15-2008, 01:56 PM	#5
Lisa23 Senior Member Join Date: Feb 2008 Location: Massachusetts, USA Posts: 100 Reputation: (13)	What a nice place for you to be in, having some extra money in this economy! I would see a financial planner- one not affiliated with any money product they'll try to unload on you- Lisa __________________ Lisa Greener Pastures

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05-14-2008, 10:14 AM	#3
gtwise Member Join Date: Jan 2008 Posts: 45 Reputation: (14)	It's pretty easy. What is the interest rate you're paying on your mortgage? If you can invest and get a better rate of return then by golly you better invest! However if you don't think you can make more than what you're paying on the mortgage you might as well pay the mortgage off. I have similar "problem" with my wife. We have some money in excerciseable stock options that my wife wants to excercise to pay off our mortgage. But it's hard to take out money from investment that makes me over 30% anually to pay off something that costs me under 6%. However paying off the mortgage would make my wife sleep better and feel better and you can't put a price on that. So my advice is basically: from a financial standpoint it's probably wiser to invest the money and earn higher return than the interest on the mortgage but if it makes you sleep better you should pay off your house instead.

05-15-2008, 02:52 AM	#4
Philip Brewer Wise Bread Blogger Join Date: Jul 2007 Location: Champaign, IL Posts: 21 Reputation: (10)	As gtwise says, you can just compare the rate on the mortgage to the expected rate of return on the investment--the higher rate gets the money. There's an adjustment to make, though: You need to remember that you may not actually get the "expected" rate of return on your investment. There are plenty of investments that end up paying much less than expected; some even lose money. Your mortgage, on the other hand, will very likely have to be paid back in full. Everybody already does this unconsciously all the time--trims a little bit off the expected return of their moderately risky investments and trim a bit more off the expected return of their high-risk investments. In fact, if you make the calculations explicitly, you may well find that the adjusted interest rates on all your debts and investments come out just about equal. That's what you'd expect--if the adjusted rate on one were higher, you'd have (unconsciously) put more money there.