Stock Investing 101

Is paying extra towards the principal on your mortgage a good deal, or could the money you are putting towards your mortgage be better off growing in a different type of investment?

I am personally a fan of paying extra towards the principal of a mortgage before investing. This website is devoted to investing and particularly the stock market, so it takes a lot for me to say that .

The average interest rate on a fixed rate 30 year mortgage is going to be about 6%. Over time in the stock market you should get an average annualized rate of return of around 8%. If you go by strictly math, putting any extra money you have towards the stock market seems to be the best fit.

However paying off your mortgage quicker is the much safer option. Over the life of a 30 year fixed rate mortgage you will end up paying much more to the interest of your mortgage then you will end up paying towards the principal. In addition most individual investors end up getting worse than average returns in the stock market because they act irrationally and make bad decisions.

If you are saving money each month and you cannot decide whether you should invest it in the stock market or pay it towards the principal of your mortgage I commend you, it is a great problem to have. Most people have problems making their minimum monthly mortgage payments. You cannot go wrong with either option but mark me down as a believer in taking the safe route and getting rid of your mortgage payment much quicker then you would have otherwise!