PAYING CASH

The decision to take a 6% mortgage or invest in the stock market depends on various factors, such as your financial goals, risk tolerance, and current financial situation. Here are some potential benefits of each option:

Benefits of taking a 6% mortgage:

Guaranteed return: When you pay off your mortgage, you save money on interest payments, which is essentially a guaranteed return on your investment.

Lower risk: Paying off your mortgage is a low-risk investment since you are guaranteed to save on interest payments It is a secure investment that provides a solid return

Debt reduction: Paying off your mortgage early can help you reduce debt and increase your net worth over time

Higher potential returns: Historically, the stock market has provided higher returns compared to paying off a mortgage. However, it comes with higher risk.

Diversification: Investing in the stock market provides diversification of your investment portfolio, which can help minimize risk.

Liquidity: Stocks can be bought and sold easily, providing quick access to your funds when needed.

Ultimately, the decision to take a 6% mortgage or invest in the stock market depends on your financial goals and risk tolerance. It's recommended to consult with a financial advisor to determine the best course of action for your individual situation

Historically, the stock market has provided higher returns compared to paying off a mortgage. According to historical data, the average annual return of the S&P 500 index, which is a commonly used benchmark for the stock market, has been around 10%, while mortgage interest rates have typically ranged between 3-6%. However, it's important to note that the stock market also comes with higher risk and volatility, and past performance is not a guarantee of future returns. Additionally, paying off a mortgage offers the benefit of reducing debt and increasing your net worth over time, which can also be an important financial goal for many individuals.

Many of our clients take advantage of staying in control with the recast option. While widely available, most loan officers do not manage mortgages thereby not equipping the borrower with the the highest and most profitable plan A mortgage is a tool to help our borrowers and their financial planners create wealth.

Recast

A mortgage recast is when you make a lump-sum payment toward the principal balance of your loan Your lender will then reamortize your mortgage with the new (lower) balance The idea is that you can lower your monthly payments since your principal went down, but your interest rate and term remain the same The cost to recast typically ranges between $200 and $400 one time fee.

Purchase Money / Cashout Refinance

While some would argue that you could simply apply for a cashout refinance at a later date, the pitfall in todays market are the add on fees for cashout. Purchase money versus cashout refinance will cost over a half point more on the interest rate and 1-2% of the loan amount in ‘additional’ closing cost than the average purchase money transaction

While every case has its differences, most clients choose to stay in control, apply more principle when they desire without paying additional fees and re-qualification to access your equity

Below is a sample of your return if you took a mortgage in 1995 for $400,000 or invested the cash into the market and your net worth comparison.

Assuming you had invested $400,000 in the S&P 500 index on January 1st, 1995, and reinvested any dividends paid out by the companies in the index, your investment would have grown significantly by now.

As of the market close on April 3rd, 2023, the S&P 500 index is at 4,370.75 points. Back on January 1st, 1995, the S&P 500 index closed at 459.27 points. Therefore, the S&P 500 has had a total return of approximately 853% over the period.

Using a compound interest calculator and assuming an annual average return of 8.8% (the historical average annual return of the S&P 500), your initial investment of $400,000 would have grown to approximately $3,675,937.48 as of April 3rd, 2023.

However, please keep in mind that this is a hypothetical scenario, and past performance does not guarantee future results. Additionally, taxes, fees, and other costs could have an impact on your actual returns.

The historical average interest rate for a mortgage in the United States has varied over time, and it depends on the specific time period and type of mortgage. Here are some examples of average mortgage interest rates over the years:

In the 1970s and early 1980s, mortgage interest rates were very high, with some rates reaching over 18%.

In the 1990s, mortgage interest rates generally ranged from around 7% to 10%. In the 2000s, mortgage interest rates were generally lower, ranging from around 5% to 7%.

In the 2010s, mortgage interest rates hit historic lows, with some rates dropping below 3.5% for a 30-year fixed-rate mortgage.

Overall, the long-term historical average interest rate for a mortgage in the United States is around 8%. However, it's important to note that interest rates can vary significantly over time and can be affected by a wide range of economic and market factors.

The total interest paid on a mortgage taken out in 1995 for $400,000 would depend on several factors, including the interest rate on the mortgage, the term of the loan, and any prepayments made over the years.

Assuming a 30-year fixed-rate mortgage with an interest rate of 8%, the total interest paid over the life of the loan would be approximately $792,000. This assumes that no prepayments were made and that the mortgage was paid off over the full 30-year term.

However, if the interest rate was different, or if prepayments were made, the total interest paid would be different. Additionally, this calculation does not take into account any fees or closing costs associated with the mortgage.

It's important to note that this is a hypothetical scenario and that actual mortgage interest rates and terms may vary.