I've done some calculations to find out whether I'm better off using excess money to invest in stock index funds or paying off my mortgage faster. I've concluded index funds are the better choice right now and just wanted to check with r/personalfinance I'm not making some glaring mistake.
Assumptions:
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Stock market increases at 4% per year with 3% dividends for total of 7% return on average over the long term (I know the market is way more volatile short-term, but a mortgage is 30 years so that's the time horizon I'm looking at)
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Stocks are buy and hold forever
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Current mortgage interest rate is 4% and variable
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Marginal tax rate 39% (I'm in Australia so tax rates are different, no state taxes, etc)
Calculations:
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If I put $100 extra into my mortgage, I'm saving $4 interest per year
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If I put $100 into the stock market, I'm gaining $5.83 per year ($3x0.61 = $1.83 dividend and $4 in stock price growth)
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So based on the above scenario, I should put extra money into the stock market until interest rates go above 5.83%, at which point I should switch to paying off my mortgage faster
Anything I'm missing?
Submitted November 26, 2018 at 03:58AM by ParsleyMan https://ift.tt/2P5r6n7
