What a month. We have started buying new furniture for the house and some small renovations (crown molding, lights, paint, etc.). It has been pricier then I thought, but we are not going into credit card debt or taking out a home equity loan. We are basically just cash flowing it. All the spare money in the budget that went to car payments, credit cards, and medical bills is going towards the house.
Hopefully in January of next year, I'll be back up to a full work week. This will allow me to have some extra money to pay down the mortgage or invest. So I think I'll just write out my thought process.
From a mathematical side, my payments are set in stone for the next 15 years and I am being charged 4.5% interest. There is no risk of my payments going up. If I were to invest in a risk free invest like cds or money markets, I might get 2% now.
Why am I only looking at cds and money markets? I am basically looking at riskless investments that are highly liquid. Why? My reasoning is that the mortgage is riskless liability. There is no risk of FNMA or the bank calling the loan and the payments are set in the contract, so I am attempting to compare apples to apples.
So, right now I believe I would be better off taking the extra money come January and paying off the mortgage. Now, if I look at the mass amount of debt the Fed is incurring and the monetizing of the debt, I do believe that the future inflation will be higher and the fed will need to raise rates.
If cds rise above 4.5%, I would be better off putting money in cds. Yes, I am not looking at taxes. I believe at the end of the day that taxes would negate themselves. I would save taxes on the mortgage interest but pay of the CD interest.
So, if interest rates on cds climbed to over 4.5%, I would probably switch to investing in cds.
With that said, there is another element of this. Not having a house payment will free up a large amount of cash flow on a monthly basis. And just getting rid of that nut is rather appealing.
So I would probably add a premium to my above statement. In other words, I would probably invest in cds if the interest rate was 5% or higher. Logically, it may not make sense, but I believe that I would have to earn a higher return to justify the higher financial stress I would feel with the mortgage.
Those are my thoughts at this time.
Mid July Update
July 17th, 2009 at 02:32 pm
July 17th, 2009 at 02:44 pm 1247841871
July 17th, 2009 at 02:49 pm 1247842163
July 17th, 2009 at 05:47 pm 1247852860
July 18th, 2009 at 04:09 am 1247890141
Buying furniture when the economy is in such terrible shape??? GASP! So what if there are good deals to be found right now? Don't you know we're in a recession?!?
Just kidding! I'm right there with you, furnishing my new home. Welcome to the world of those who zig (pay cash when you find the right deal) while everyone else zags (frantically tries to keep up on their credit card payments).