2020 – What a sad year we are living through. We hope this week’s note finds you and your family both safe and well. May God bless you during this time of tragedy, sorrow and sickness.
Is it advantageous to pay extra on the mortgage payment? There have been entire books devoted to trying to answer that big question addressing all the finer details like the tax savings you get from the deductible mortgage interest. While definitely a personal choice, the correct answer is also situational. For some, eliminating that debt and the feeling of owing something to someone is the highest priority, while others let the numbers drive the decision. One thing is for sure, the lower the interest rate the more compelling the argument is for not paying ahead on your home loan. As you can read in this week’s Weekly Market Review, the rate on a 30-year mortgage fell to its lowest level ever last week.
My financial advice is that if you are able to lock in an interest rate that begins with a 3, you should understand the math of investing any extra money vs. putting that extra cash against the loan. Regardless of what you decide, it will be an informed decision. Over a long time frame like 15, 20, or 30 years you could accumulate a substantial investment account with that extra cash and while you may have to make that mortgage payment for longer, eventually the house will be free and clear. The argument of paying the house off first and then investing that “mortgage payment” is a good option, but won’t allow you to accumulate the same amount of investments. Remember, the key to successful long-term investing is time and the magic of compounding interest. By waiting until the house is free and clear you have lost valuable time to compound your investments. Again, to each their own on this important decision, but some financial analysis of the long term outcomes may surprise you. Please view “The Benefit of saving early slide” provided which really underscores the power of investing earlier in life.
For decades there has been a migration from rural areas to cities. Notable Number 4 points out that 39% of the US population now live in cities. Given the last three months, it will be interesting to see if this shift continues. The expectation is that more people will work from home thanks to advances in technologies creating efficiencies in schedules. This could allow people to move from the cities to more rural areas that may offer a better life balance. Last week, tech giant Facebook, who employs nearly 45,000 people, made headlines with the announcement that as many as half of its workforce will eventually work from home as this article details. Interestingly, some people working from home for Facebook who relocate to a rural area may also get a pay cut due to reduced living expenses as you can read here.
JP Morgan again has provided some thought provoking investment analysis with its Weekly Market Recap. The “Thought of the week” and corresponding “Chart of the week” dig in on US vs. China from an investor’s perspective. You can view that slide by clicking the link below.
As always, we hope you find the Weekly Market Review both informative and interesting. Stay well and stay safe.
Trevor N. Coe, CFP®