[Vanessa]

Can someone who is good with numbers please help me with some calculations. I want to compare putting my savings into paying off my mortgage versus into shares. I have a goal of saving 50,000 per year for the next five years in the hope of retiring early.

My mortgage is 400k (100k at 8.25%, 25k at 6.99%, 135k at 6.49%, 140k at 4.15%). The value of my property is approx 1million, is currently rented out and receives 62k p/a in rent.

I currently only have 30k in shares.

I am 47 years old, on a single income with three children and am keen to stop working full-time sooner rather than later. But want to have enough saved to do so, but am not sure which option would give me the best returns.

I’m not based in the US, so don’t have the same products you have etc, just after a calculation so that I can figure out which option will be best for me.

Thank you in advance!!

[Jason]

Do you mind sharing which country you are in? Certain elements like mortgages and investment options vary considerably in each country/region. It sounds like you have four mortgages, if I’m reading that correctly. What’s the term of your mortgages and do the rates fluctuate or remain fixed for the entire term?

The rental income covers your mortgage payment. Does it also cover your insurance, property tax, and maintenance costs? Any significant maintenance costs expected, like replacing a roof or heating/air conditioning?

For what it’s worth, I am completely comfortable with carrying debt especially if it’s productive debt. You might feel differently. Just want to share that as it affects my suggestions.

[Darryll]

You are making this a bit overly complicated.

In general, you compare the rates. So, if your mortgage is at 8%, and you think the market will return 7% (those are two example numbers), then paying down the mortgage yields you a better return.

The next step is adjusting for risk, which is a little complicated, but if the two are very close (expected market return vs. interest rate) most people go with the mortgage. Different people have different definitions of ‘close’.

Anyway, not knowing the expected returns in your home country or knowing anything else about your situation, I would lean towards paying the mortgage.

Don’t miss: Wonder about taking on a mortgage in my 60’s

[Eswar]

You pay taxes on market returns (at some point).

So, deduct something from a bigger market return before comparing. Mortgage interest is also fixed (in those buckets you mentioned) whereas a high market return is not guaranteed.

So, unless you have locked in a lower fixed interest, you should pay off some portions of the mortgage. But keep some liquid cash always.

It provides you leverage.

[Author]

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