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Dumb Question......possibly?
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BoBoDobie
Posts: 288 Forumite
Hi all
Can anyone answer my possibly silly question as I'm having an argument with my mum about this.
Say you have a mortgage of 120K which you are paying off over 30 years at a rate of 5% interest.
Say you have investments of 15k which are getting a return of 12%.
If you just ignore the fact that everyone should have savings, would you cash in the investment to pay towards the mortgage or let it keep earning it's 12%?
One of us says that its best to leave it there as its earning better interest than what I'm paying off the mortgage and the other says its best to use it to pay off the mortgage as 5% over 30 years is a lot of money and wouldn't equate to more than what its saving.
Sorry if this is confusing........but who is right??
Can anyone answer my possibly silly question as I'm having an argument with my mum about this.
Say you have a mortgage of 120K which you are paying off over 30 years at a rate of 5% interest.
Say you have investments of 15k which are getting a return of 12%.
If you just ignore the fact that everyone should have savings, would you cash in the investment to pay towards the mortgage or let it keep earning it's 12%?
One of us says that its best to leave it there as its earning better interest than what I'm paying off the mortgage and the other says its best to use it to pay off the mortgage as 5% over 30 years is a lot of money and wouldn't equate to more than what its saving.
Sorry if this is confusing........but who is right??
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Comments
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If you can guarantee that the 15k investments are producing a return of 12% then (a) keep them going as 12% a year is better than 5% (b) where are these investments made?I'm a Forum Ambassador on the housing, mortgages & student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.0
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No answer is really wrong it depends on risk profile. in one way it is better to keep the investment but to be earning 12% is likely to have a fair amount of risk. What happens if it goes pear shaped? This is precisely what happened to endowments and look what has happened now.I like to give people as many choices as possible to do what I want them to. (Milton H Erickson I think)0
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If you cash the investment in you will have a smaller mortgage but cash poor. Its good to have a cash reserve for emergencys and if it's making 12% I would leave it there for the reason I have given.0
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