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Path: utzoo!watmath!clyde!burl!ulysses!allegra!oliveb!hplabs!hp-pcd!john
From: john@hp-pcd.UUCP (john)
Newsgroups: net.invest
Subject: Re: A penny saved...
Message-ID: <33700010@hp-pcd.UUCP>
Date: Sat, 5-Oct-85 13:39:00 EDT
Article-I.D.: hp-pcd.33700010
Posted: Sat Oct  5 13:39:00 1985
Date-Received: Tue, 8-Oct-85 03:46:18 EDT
References: <161@aplvax.UUCP>
Organization: Hewlett-Packard - Corvallis, OR
Lines: 29
Nf-ID: #R:aplvax:-16100:hp-pcd:33700010:000:1494
Nf-From: hp-pcd!john    Oct  5 09:39:00 1985

<<<<
< I've been adding an extra $100 to my mortgage payment every month.  Ignoring
< taxes, this is the same as investing this money at 12.5% (my mortgage rate).
<
Normally ignoring taxes is about as smart as ignoring a warning letter from
the IRS, but in this case it doesn't make much difference. If you pay an
extra $100 to the bank then you save $12.5 a year in interest and lose 
$12.50 a year in deductions. That leaves you with the same amount as if
you invested at 12.5% and paid taxes on that. If you are in a high enough
tax bracket then you might do better with tax exempt bonds but there are
very few places where you can buy bonds( or any other high yield investment)
in $100 increments.

< A pretty fair return (and the money in effect is insured!), but of course 
< it gets locked up in equity, so if interest rates suddenly jump to 20% 
< I'll miss the boat.

If all your savings is locked up in a house then it may be hard to draw on it
in an emergency. I have never taken out a second mortgage but assume that it
will take time and cost money. On the other hand I can borrow up to 75% of
the equity in my brokerage acount simply by writing a check (current rate is
11.25%).Other investments are more liquid and allow you to move them
around to take advantage of changing conditions. If you invest in fixed
income bonds and the interest rates go to 20% then thats a boat you WANT to 
miss. It also would make your 12.5% loan really valuable


John Eaton
!hplabs!hp-pcd!john