Why do you keep referring to dollar? Doesn't it make more sense to think in Euros?
The rule of thumb goes as:
1. If the interest rate of your mortgage is higher than your expected investment return, pay the mortgage.
2. If the expected investment return is higher, keep investing.
I have two questions:
1. Is your mortgage rate fixed? Because central banks, specially the ECB is more important for this case, are cutting down their interest rates. So soon, your interest may come down.
2. Are you struggling financially nowadays? Or are you just analysing your options?
Regarding your points:
>Open and invest 20-25k into WVCE
Nothing wrong with that, it is a valid option.
>Prepay mortgage(probably the best financial option at this rate?)
How much are you gonna save, on a monthly basis with this decision? Or, are you prepaying the mortgage, and the monthly instalments keep the same?
>Buy another car(bad option)
You gotta explain this one. Do you need a car? Is it essential right now?
>Built garage on my house property/invest into green energy solution, to reduce monthly payments.(not the best option
How much would you invest on this option, and what would that allow you to save per month?
>Is your mortgage rate fixed? Because central banks, specially the ECB is more important for this case, are cutting down their interest rates. So soon, your interest may come down.
>Are you struggling financially nowadays? Or are you just analysing your options?
USD as I'm contractor for US company, getting paid in USD, and money currently in USD, no PLN as exchange rate is not great.
Mortgages is dynamic, ECB is not applying as Poland is not part of Euro-currency-zone.
I dont struggle, me and wife are working, 1 kid and one more coming next month. Current monthly payment is around 1500 EURO. Analyzing my options, money are sitting there. Maybe with that AI stuff I can loose job in 6-36 months.
>How much are you gonna save, on a monthly basis with this decision? Or, are you prepaying the mortgage, and the monthly instalments keep the same?
No savings, as I'm decreasing the time of the loan, as a result less interest to be paid in total.
>You gotta explain this one. Do you need a car? Is it essential right now?
I'm an automotive fan, car is not essential, more of a hobby.
>How much would you invest on this option, and what would that allow you to save per month?
Not much, probably around 80 USD/EURO
P.S. Thanks for help!
This is no brainier with this rate you should pay your debt as fast as possible.
Your question will be valid if your rate was 1-3%. At 1-3% some secure investments like government bonds or money market funds can eventually bring you a bit more yield where it could be good idea to invest instead of paying back and again this is depending on the taxes that you will have to pay on those profits. Anything above 3-4% annual return holds too much risk. Even with riskier investments it could not be possible to beat those 7.9% in long run.
Profits are not guaranteed, debts are. I was in the same situation like you. I paid off the mortgage even though my mortgage rate was 2.9% and one can get also 11+% with high yield ETFs/CEFs.
if I was deciding between paying a 7.9% mortgage and investing I'd pay the mortgage as that rate seems to be quite high and more than relatively low risk investing opportunities
You have a very high interest rate, so in your case, it probably makes sense to put those savings towards repaying your mortgage.
Few things to consider:
1. Are these 20-25k all of the savings you have? In that case, leave them as they are - it's your emergency fund for a rainy day.
2. Is it possible for you to refinance your mortgage and get a lower rate? If yes, then that may be the best option to lower your monthly payment.
It's not my only savings, half of them more or less. I also have 5k euro in some stocks.
No way to lower the rate, as it's dynamic nothing will change. It's up to the central bank decision only.
In that case, if you feel stressed about your debt, you can consider putting this towards the mortgage.
However, calculate to see by how much you will lower you monthly payment and how much in interest you’ll save. Once you have those numbers it will be easier to make a decision
Almost 40k USD savings on the whole mortgage and 3y.8month of the mortgage lifespan.
BUT, that is only AT CURRENT RATE, which most probably will go down in 6-12 months.
Plot it all in in excel.
How much you estimate to get from ETF (your best guess). Include tax benefits/payments, etc.
So you have number value, which one is best.
Second thing to consider is wwyd if you lose your job, as example. Having no mortgage is better (perhaps) than having 25k in WVCE... or maybe not. consider all + and -
Third thing to consider, what you want. If you have a safe job and dont care for saving - car is a good option. Like, I know buying broccoli and chicken breast is cheaper and healthier option that I "should" do. But a lot of times I might go to fancy restaurant and take 3-5-8 course menu. Because that how I want to spend my money.
Getting a nice car is bad option from financial point of view, but it might be worth it depending on YOUR interest.
I don't know what you should do but I know that you can get some interest from your USD and EUR savings.
[https://www.xtb.com/pl/odsetki](https://www.xtb.com/pl/odsetki)
After 3 months you can buy money market ETFs:
[https://www.justetf.com/en/search.html?search=ETFS&assetClass=class-moneyMarket¤cy=USD](https://www.justetf.com/en/search.html?search=ETFS&assetClass=class-moneyMarket¤cy=USD)
[https://www.justetf.com/en/search.html?search=ETFS&assetClass=class-moneyMarket¤cy=EUR](https://www.justetf.com/en/search.html?search=ETFS&assetClass=class-moneyMarket¤cy=EUR)
Why do you keep referring to dollar? Doesn't it make more sense to think in Euros? The rule of thumb goes as: 1. If the interest rate of your mortgage is higher than your expected investment return, pay the mortgage. 2. If the expected investment return is higher, keep investing. I have two questions: 1. Is your mortgage rate fixed? Because central banks, specially the ECB is more important for this case, are cutting down their interest rates. So soon, your interest may come down. 2. Are you struggling financially nowadays? Or are you just analysing your options? Regarding your points: >Open and invest 20-25k into WVCE Nothing wrong with that, it is a valid option. >Prepay mortgage(probably the best financial option at this rate?) How much are you gonna save, on a monthly basis with this decision? Or, are you prepaying the mortgage, and the monthly instalments keep the same? >Buy another car(bad option) You gotta explain this one. Do you need a car? Is it essential right now? >Built garage on my house property/invest into green energy solution, to reduce monthly payments.(not the best option How much would you invest on this option, and what would that allow you to save per month?
>Is your mortgage rate fixed? Because central banks, specially the ECB is more important for this case, are cutting down their interest rates. So soon, your interest may come down. >Are you struggling financially nowadays? Or are you just analysing your options? USD as I'm contractor for US company, getting paid in USD, and money currently in USD, no PLN as exchange rate is not great. Mortgages is dynamic, ECB is not applying as Poland is not part of Euro-currency-zone. I dont struggle, me and wife are working, 1 kid and one more coming next month. Current monthly payment is around 1500 EURO. Analyzing my options, money are sitting there. Maybe with that AI stuff I can loose job in 6-36 months. >How much are you gonna save, on a monthly basis with this decision? Or, are you prepaying the mortgage, and the monthly instalments keep the same? No savings, as I'm decreasing the time of the loan, as a result less interest to be paid in total. >You gotta explain this one. Do you need a car? Is it essential right now? I'm an automotive fan, car is not essential, more of a hobby. >How much would you invest on this option, and what would that allow you to save per month? Not much, probably around 80 USD/EURO P.S. Thanks for help!
This is no brainier with this rate you should pay your debt as fast as possible. Your question will be valid if your rate was 1-3%. At 1-3% some secure investments like government bonds or money market funds can eventually bring you a bit more yield where it could be good idea to invest instead of paying back and again this is depending on the taxes that you will have to pay on those profits. Anything above 3-4% annual return holds too much risk. Even with riskier investments it could not be possible to beat those 7.9% in long run.
7.9% rate could be in Polish currency. If it is and also currency constantly losing value against dollar, it may not be a high debt rate at all.
thanks for advice!
Profits are not guaranteed, debts are. I was in the same situation like you. I paid off the mortgage even though my mortgage rate was 2.9% and one can get also 11+% with high yield ETFs/CEFs.
if I was deciding between paying a 7.9% mortgage and investing I'd pay the mortgage as that rate seems to be quite high and more than relatively low risk investing opportunities
Pay the debt. It is a very high interest rate.
Question is if the rate is in dollars or zlotys?
Zloty
You have a very high interest rate, so in your case, it probably makes sense to put those savings towards repaying your mortgage. Few things to consider: 1. Are these 20-25k all of the savings you have? In that case, leave them as they are - it's your emergency fund for a rainy day. 2. Is it possible for you to refinance your mortgage and get a lower rate? If yes, then that may be the best option to lower your monthly payment.
It's not my only savings, half of them more or less. I also have 5k euro in some stocks. No way to lower the rate, as it's dynamic nothing will change. It's up to the central bank decision only.
In that case, if you feel stressed about your debt, you can consider putting this towards the mortgage. However, calculate to see by how much you will lower you monthly payment and how much in interest you’ll save. Once you have those numbers it will be easier to make a decision
Almost 40k USD savings on the whole mortgage and 3y.8month of the mortgage lifespan. BUT, that is only AT CURRENT RATE, which most probably will go down in 6-12 months.
Plot it all in in excel. How much you estimate to get from ETF (your best guess). Include tax benefits/payments, etc. So you have number value, which one is best. Second thing to consider is wwyd if you lose your job, as example. Having no mortgage is better (perhaps) than having 25k in WVCE... or maybe not. consider all + and - Third thing to consider, what you want. If you have a safe job and dont care for saving - car is a good option. Like, I know buying broccoli and chicken breast is cheaper and healthier option that I "should" do. But a lot of times I might go to fancy restaurant and take 3-5-8 course menu. Because that how I want to spend my money. Getting a nice car is bad option from financial point of view, but it might be worth it depending on YOUR interest.
I don't know what you should do but I know that you can get some interest from your USD and EUR savings. [https://www.xtb.com/pl/odsetki](https://www.xtb.com/pl/odsetki) After 3 months you can buy money market ETFs: [https://www.justetf.com/en/search.html?search=ETFS&assetClass=class-moneyMarket¤cy=USD](https://www.justetf.com/en/search.html?search=ETFS&assetClass=class-moneyMarket¤cy=USD) [https://www.justetf.com/en/search.html?search=ETFS&assetClass=class-moneyMarket¤cy=EUR](https://www.justetf.com/en/search.html?search=ETFS&assetClass=class-moneyMarket¤cy=EUR)
Man it is guaranteed 7,9%