What would you suggest I do to make myself better off with my mortgage?
I have sold a small home that the area was going down just for $25,000. I then bought a $40,000 home with nothing down instead of paying rent. I am 57 and don't want to put the $25,000 into it. Put in CD's. I paid an extra $100 on the principal then decided I would just save that money and just pay the loan value. What would you suggest I do to make myself better off? I am single and have raised 3 children. I could retire from the state next year, but don't know if I will. I get kinda tired of the whole thing. Some single women have moved into apartments due to high insurance and taxes you pay on a place.
Fundamentally, this is a return on investment question... is the return you get from investing your $25,000 higher than the after-tax cost of the mortgage on the new home. "After-tax" is an important consideration, since your mortgage interest is tax deductible, and your income on your investment is likely taxed.
Currently, a 30-year fixed mortgage is right around 6.0%. Let's say that after the tax deduction, the 'net' rate is around 4.0%. You would have to earn more than 5.0% return on your investment at a 25% capital gains tax rate to break-even. So, if your return is higher, then keep it invested (unless your mortgage interest rate is higher than the rate for good borrowers). Keep in mind, when you retire, you lose that mortgage deductibility.
This all assumes that you do not need the capital for living expenses.
I hope that his helps you make the right decision for your particular situation, but be sure to shop around and find a loan that meets your needs.
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